The effects of IT investments and skilled labor on firms' value added.

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Date: Aug. 2022
From: Technovation(Vol. 116)
Publisher: Elsevier Science Publishers
Document Type: Report; Brief article
Length: 346 words

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Abstract :

Keywords IT investments; Skilled labor; Production frontier; Technical efficiency; Stochastic frontier model Highlights * Investments in hardware, software and skilled labor all improve firms' value added, however, the channels for how they improve firms' value added varies. * A stochastic frontier model is applied to study whether the effect is channeled through the production frontier (substitute and upgrade of input factors) or the efficiency (better use of existing input factors e.g. though organizational changes or new business models). * Investments in hardware work best in combination with other input factors, like skilled labor, and eventually improve efficiency. * The effect of investments in software and skilled labor is mainly channeled through the raising of the production frontier. * The difference in channels or mechanism is explained by hardware investments being more standardized and not firm-specific, while investments in skilled labor and software is more firm-specific and of lesser value in another context. Abstract Investments in information technologies (IT) and skilled labor are often highlighted as central for firms wishing to improve their performance. However, what mechanisms enable these investments to improve firm performance? The literature suggests two such channels: the production frontier of upgrading the input factors and the technical efficiency of exploiting the input factors in a more efficient way. We study these channels for increasing firms' value added in a stochastic frontier model. Notably, we find that investments in IT and skilled labor improve firms' value added, but they do so through different channels. Multi-purpose hardware investments mainly improve efficiency in concert with other input factors, while investments in application-oriented software and skilled labor generally work by raising the production frontier itself. Author Affiliation: (a) Department of Management and Technology, Bocconi University, Via Sarfatti, 25, Milan, Italy (b) Cardiff Business School, Cardiff University, Aberconway Building, Colum Drive, Cardiff, United Kingdom (c) Department of Strategy and Innovation, Copenhagen Business School, Kilevej 14 A, Frederiksberg, Denmark * Corresponding author. Article History: Received 25 February 2021; Revised 22 January 2022; Accepted 1 February 2022 Byline: Torben Pedersen [torben.pedersen@unibocconi.it] (a,*), Anna Scedrova [scedrovaa1@cardiff.ac.uk] (b), Alina Grecu [agr.si@cbs.dk] (c)

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Gale Document Number: GALE|A710955466