The Extroverted Firm: How External Information Practices Affect Innovation and Productivity

Innovation and Economic Growth

Article Snapshot

Author(s)

Erik Brynjolfsson, Lorin Hitt and Prasanna Tambe

Source

Management Science, Vol. 58, No. 5, pp. 843-859, 2012

Summary

This paper explores some features of firms that help to determine innovation in product development.

Policy Relevance

The availability of information technology may lead to greater economic growth in regions where firms are better connected to other participants in their industry.

Main Points

  • Firms are able to collect enormous amounts of information about the environment in which they operate, but firms vary in the degree to which they actually take in these data.
     
  • Such an awareness of the business environment, called external focus, is more often present in firms that invest a great deal in information technology (IT), and in firms that have a decentralized structure.
     
  • Heavy IT investment, decentralization, and an external focus are in turn associated with a greater ability on the part of firms to develop new innovations for their products.
    • These three factors complement each other; firms that have all three seem to demonstrate a greater capacity for innovation than might expected by adding the effects of each factor individually.
       
    • In particular, decentralized and externally-focused firms saw a noticeably greater benefit from investing in IT.
       
  • Firms that operate in areas like high-tech clusters and major cities are typically more externally-focused, and so may stand to gain much more from IT investment.
     

 

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