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Three empirical investigations of information technology and innovation

University of British Columbia

Among the many ways in which information technology has transformed business, the application of IT to the pursuit of innovation offers perhaps the greatest potential. Improved innovation processes allow firms to reduce production costs and offer new products more rapidly and with less risk, leading to competitive advantage. While researchers have studied the link between innovation and productivity, the role of IT in this context has not been established. We seek to understand this relationship by conducting empirical research in three complementary investigations. First, relative to R&D, how much does IT contribute to the creation of innovative knowledge? Second, does IT-enabled innovation contribute to production? Third, do IT and R&D work together to improve the efficiency of capital and labour? In the first study, we analyze a panel of large U.S. manufacturing firms and find IT is positively associated with innovation output. The relationship between IT, R&D, and innovation is robust across multiple econometric methodologies and is particularly strong in the mid to late 1990s, a period of rapid technological innovation. The second study incorporates IT-enabled knowledge creation in a model of overall production to compare the effect of IT in the two contexts. Our findings highlight the indirect contribution of IT, through the innovation process, as being more evident than its direct role in production. The third study extends these findings with a more nuanced model of IT- and innovation-driven production efficiency. We hypothesize that process-oriented R&D further enhances the ability of IT capital to increase productivity by leveraging traditional forms of capital and labour. We estimate these relationships using two panels of US industries for the periods 1987-1998 and 1999-2005. The results indicate qualified support for a synergistic effect of R&D and IT investment in both samples. Taken together, these findings establish the innovation-enabling capabilities of IT—an important aspect of IT's contribution to business value. Our results disentangle the direct and indirect effects of IT in the production and innovation contexts. Managerial implications of this research suggest that general IT investments may be leveraged to assist innovation, and IT performance benchmarks could include innovation outcomes.

Text

2011-09-28

Attribution-NonCommercial-NoDerivatives 4.0 International

http://hdl.handle.net/2429/37666

Business Administration

University of British Columbia

UBCV

http://creativecommons.org/licenses/by-nc-nd/4.0/