How Do Data Skills Affect Firm Productivity: Evidence from Process-driven vs. Innovation-driven Practices

As digitization of various economic and human behaviors become more prevalent, we examine whether data analysis capabilities can help with processand innovation-oriented firm practices. Using detailed, firm level data on employee data analysis capabilities combined with a survey of organizational practices for 330 large firms, we find that while neither data skills nor process-related practices affect productivity directly, they have a substantial positive interaction. Specifically, firms with process-related practices receive a greater marginal benefit for the presence of or acquisition of data-related skills in their workforce. However, we do not find the same complementarities between data-related skills and innovation-oriented practices and at times the interaction can even be negative. These results are also unique to data-related skills and not IT skills generally. Overall these results highlight the potential tradeoffs of using data analytics at firm, similar to the tradeoffs between exploitation and exploration. We show that value of analytics (at least over our 1987-2007 sample period) is in enabling the use of internal and external data to drive process improvement, but data analytics capability does not immediately translate to greater innovation.