The Distinct Effects of Information Technology and Communication Technology on Firm Organization

58 Pages Posted: 26 May 2009 Last revised: 5 Sep 2012

See all articles by Nicholas Bloom

Nicholas Bloom

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Luis Garicano

IE Business School; Centre for Economic Policy Research (CEPR)

Raffaella Sadun

Harvard University - Strategy Unit; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

John Van Reenen

London School of Economics - Centre for Economic Performance (CEP); Stanford Graduate School of Business; Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2009

Abstract

Empirical studies on information communication technologies (ICT) typically aggregate the "information" and "communication" components together. We show theoretically and empirically that these have very different effects on the empowerment of employees, and by extension on wage inequality. If managerial hierarchies are devices to acquire and transmit knowledge and information, technologies that reduce information costs enable agents to acquire more knowledge and 'empower' lower level agents. Conversely, technologies reducing communication costs substitute agent's knowledge for directions from their managers, and lead to centralization. Using an original dataset of firms in the US and seven European countries we study the impact of ICT on worker autonomy, plant manager autonomy and spans of control. Consistently with the theory we find that better information technologies (Enterprise Resource Planning for plant managers and CAD/CAM for production workers) are associated with more autonomy and a wider span of control. By contrast, communication technologies (like data networks) decrease autonomy for both workers and plant managers. Our findings are robust to using exogenous variation in cross-country telecommunication costs arising from differential regulatory regimes.

Suggested Citation

Bloom, Nicholas and Garicano, Luis and Sadun, Raffaella and Van Reenen, John Michael, The Distinct Effects of Information Technology and Communication Technology on Firm Organization (May 2009). NBER Working Paper No. w14975. Available at SSRN: https://ssrn.com/abstract=1408895

Nicholas Bloom (Contact Author)

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Luis Garicano

IE Business School ( email )

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Raffaella Sadun

Harvard University - Strategy Unit ( email )

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John Michael Van Reenen

London School of Economics - Centre for Economic Performance (CEP) ( email )

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