The Extroverted Firm: How External Information Practices Affect Productivity

We combine detailed survey data on firms’ organizational practices with information technology (IT) investment measures to test the hypothesis that in addition to decentralization, external focus is another important determinant of returns to IT investment. We argue that IT-intensive firms characterized by decentralization are able to more effectively process and respond to information from their competitive environments, which drives productivity through superior innovation and product development. Our estimates from a regression model including organizational practices indicate that IT investments only increase productivity for those firms that are decentralized and externally focused. IT investments in firms that have only one or neither of these organizational assets in place do not appear to significantly increase productivity.