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The Distinct Effects of Information Technology and Communication Technology on Firm Organization

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  • Nicholas Bloom

    () (Centre for Economic Performance, London WC2A 2AE, United Kingdom; National Bureau of Economic Research, Cambridge, Massachusetts 02138; Centre for Economic Policy Research, London EC1V 3PZ, United Kingdom; and Department of Economics, Stanford University, Stanford, California 94305)

  • Luis Garicano

    () (Centre for Economic Performance, London WC2A 2AE, United Kingdom; Centre for Economic Policy Research, London EC1V 3PZ, United Kingdom; and London School of Economics, London WC2A 2AE, United Kingdom)

  • Raffaella Sadun

    () (Centre for Economic Performance, London WC2A 2AE, United Kingdom; National Bureau of Economic Research, Cambridge, Massachusetts 02138; Centre for Economic Policy Research, London EC1V 3PZ, United Kingdom; and Harvard Business School, Harvard University, Boston, Massachusetts 02163)

  • John Van Reenen

    () (Centre for Economic Performance, London WC2A 2AE, United Kingdom; National Bureau of Economic Research, Cambridge, Massachusetts 02138; Centre for Economic Policy Research, London EC1V 3PZ; and London School of Economics, London WC2A 2AE, United Kingdom)

Abstract

Guided by theories of “management by exception,” we study the impact of information and communication technology on worker and plant manager autonomy and span of control. The theory suggests that information technology is a decentralizing force, whereas communication technology is a centralizing force. Using a new data set of American and European manufacturing firms, we find indeed that better information technologies (enterprise resource planning (ERP) for plant managers and computer-assisted design/computer-assisted manufacturing for production workers) are associated with more autonomy and a wider span of control, whereas technologies that improve communication (like data intranets) decrease autonomy for workers and plant managers. Using instrumental variables (distance from ERP’s place of origin and heterogeneous telecommunication costs arising from regulation) strengthens our results.Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.2013 . This paper was accepted by John List, behavioral economics .

Suggested Citation

  • Nicholas Bloom & Luis Garicano & Raffaella Sadun & John Van Reenen, 2014. "The Distinct Effects of Information Technology and Communication Technology on Firm Organization," Management Science, INFORMS, vol. 60(12), pages 2859-2885, December.
  • Handle: RePEc:inm:ormnsc:v:60:y:2014:i:12:p:2859-2885
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    More about this item

    Keywords

    organization; delegation; information technology; communication technology; the theory of the firm;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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