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

Abstract

Guided by theories of management by exception, we study the impact of Information and Communication Technology on worker and plant manager autonomy and span of control. The theory suggests that information technology is a decentralizing force, whereas communication technology is a centralizing force. Using a new dataset of American and European manufacturing firms, we find indeed 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, while technologies that improve communication (like data intranets) decrease autonomy for workers and plant managers. Using instrumental variables (distance from ERP's birthplace and heterogeneous telecommunication costs arising from regulation) strengthens our results.

Keywords: communication technology, delegation, information technology, organization, theory of the firm

JEL Classification: F23, O31, O32, O33