Digital Resilience: How Work-From-Home Readiness Affects Firm Performance

Abstract

We find that digital technologies and work-from-home (WFH) practices can increase firms' resilience to unanticipated shocks by reducing operational risks. Using over 200 million U.S. job postings, we construct a pre-pandemic firm-level WFH readiness index to measure how able public firms were to quickly switch their workforce to remote work when the unexpected Covid-19 pandemic hit. Leaning on the resource-based view of the firm, we argue that WFH readiness is an IT-enabled capability that affords firm competitive advantages by being valuable, rare, hard to imitate, and hard to substitute. Using a difference-in-differences (DiD) framework, we demonstrate that firms that happened to have higher pre-pandemic WFH readiness retained significantly better operational performance compared to their industry peers. Despite no differences before the pandemic, WFH-ready firms lost, on average, $34.65 million in net incomes and $98.81 million in sales less than their less prepared competitors during the pandemic. In addition, less WFH-ready firms subsequently made proportionately greater software investments and hired more IT workers, in an attempt to catch up to their more resilient competitors. Our results are robust to a stringent set of empirical specifications and tests suggesting that our results are likely causal. Finally, we show that the benefits of WFH-readiness for firm performance extend to other major natural disasters that limit workforce mobility. Our findings imply that firms need to strategically manage the WFH readiness of their workforce as well as their complementary digitization efforts to hedge against the operational risks of increasingly more common disasters.

Keywords: Digital Resilience, IT Capability, Work From Home, Business value of IT, Human resources, Strategic management of IT, Disaster Management

JEL Classification: D24, L23, L84, M11, M54, O31