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

Nicholas Bloom (), Luis Garicano (), Raffaella Sadun () and John van Reenen ()

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: Empirical studies on information communication technologies (ICT) typically aggregate the"information" and "communication" components together. We show theoretically and empirically thatthese have very different effects on the empowerment of employees, and by extension on wageinequality. 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'sknowledge for directions from their managers, and lead to centralization. Using an original dataset offirms in the US and seven European countries we study the impact of ICT on worker autonomy, plantmanager autonomy and spans of control. Consistently with the theory we find that better informationtechnologies (Enterprise Resource Planning for plant managers and CAD/CAM for productionworkers) are associated with more autonomy and a wider span of control. By contrast, communicationtechnologies (like data networks) decrease autonomy for both workers and plant managers. Ourfindings are robust to using exogenous variation in cross-country telecommunication costs arisingfrom differential regulatory regimes.

Keywords: organization; delegation; information technology; communication technology; the theoryof the firm (search for similar items in EconPapers)
JEL-codes: O31 O32 O33 F23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-knm
Date: 2009-05
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Working Paper: The distinct effects of Information Technology and Communication Technology on firm organization (2009)
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