Technological and organizational capital: Where complementarities exist

• DOI: http://doi.org/10.1111/jems.12269
• Date: 01 June 2019
• Published date: 01 June 2019
• Author: Daniel Wochner,Tobias Stucki

J Econ Manage Strat. 2019;28:458–487.wileyonlinelibrary.com/journal/jems458

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© 2019 Wiley Periodicals, Inc.

DOI: 10.1111/jems.12269

ORIGINAL ARTICLE

Technological and organizational capital: Where

complementarities exist

Tobias Stucki

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Daniel Wochner

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1

Kauppakorkeakoulu (School of Business

and Economics), University of Jyväskylä,

Jyväskyla, Finland

2

Department of Management, Technology

and Economics, ETH Zurich, KOF Swiss

Economic Institute, Zurich, Switzerland

Correspondence

Tobias Stucki, University of Jyväskylä,

Mattilanniemi 2, Building Agora,

Jyvaskyla 40014, Finland.

Email: tobias.m.stucki@jyu.fi

Abstract

This study analyzes the complementarities between technological and

organizational capital within enterprises. Different components of technological

and organizational capital exert distinct—and often opposed—forces on each

other. Our empirical results show that greater employee voice promotes firm

productivity when combined with information technology, but harms firm

productivity when combined with communication technology. On the other

hand, flexible work design is positively associated with communication

technology and negatively associated with information technology.

KEYWORDS

complementarity, firm productivity, information and communication technologies, organization,

organizational performance

JEL CLASSIFICATION

D23; O31; O32; O33

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INTRODUCTION

“The digitization of just about everything—documents, news, music, photos, video, maps, personal updates, social

networks, request for information and responses to those requests, data from all kind of sensors, and so on—is one of

the most important phenomena of recent years”(Brynjolfsson & McAfee, 2014, p. 66). Just as important as digitization

is, so imperative is a better comprehension of the impact of digital technologies on productivity and growth (Crespi,

Criscuolo, & Haskel, 2007). A better understanding matters to business executives because it allows them to deploy

their investments more productively and it matters to policy‐makers to foster policy landscapes that embrace the power

of these technologies and seize the digital opportunity (see Brynjolfsson & Saunders, 2010; Crespi et al., 2007; Dedrick,

Gurbaxani, & Kraemer, 2003 for a review).

It comes therefore with only little surprise that a comprehensive amount of studies aimed at examining the

productivityeffects of investments in informationand communication technologies (ICT).

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Early investigations during the

1980s estimated the direct effects of ICT investments upon productivity mainly via growth accounting models, but failed

to measure any noticeable productivity improvements from ICT investments—a puzzling observation known as

“ProductivityParadox,”which is often attributed to Solow (1987)(see Arvanitis & Loukis, 2009; Biagi, 2013; Dedricket al.,

2003). Subsequent research emphasized that the sole focus on ICT’s direct effects is likely to be too narrow because

productivity‐enhancing introductions of new technologies typically require substantial adjustments of organizational

The authors gratefully acknowledge valuable discussions, comments and suggestions of Daniel Spulber, Nicholas Bloom, Michael Pfaffermayr, John Roberts,

anonymous referees as well as staff members at the KOF Swiss Economic Institute in general and Jan‐Egbert Sturm, Boriss Siliverstovs and Stefan Pichler in particular.

[Correction added on 10 Jul 2019, after first online publication: The text in this article was revised for clarity and readability.]

practices, rules and skills as well—and thereby highlighted that ICT affects productivity not only directly but also

indirectly through complementary changes within firms (Biagi, 2013; Bresnahan, Brynjolfsson, & Hitt, 2002; Dedrick

et al., 2003; Van Reenen, Bloom, Draca, Kretschmer, & Sadun, 2010). Complementarity theory provided these research

efforts with a rich theoretical framework to better understand how the interactions among a firm’s different inputs (e.g.,

technological equipment) and activities (e.g., organizational practices) translate into output (Biagi, 2013; Brynjolfsson &

Milgrom, 2013; Milgrom & Roberts, 1990, 1995). Specifically, two inputs are said to be complementary in a production

context if the presence of one enhances the returns of the other, that is, they unleash mutually reinforcing synergy effects

such that their joint adoption yields higher returns than the sum of returns resulting from their individual adoption (see,

e.g., Brynjolfsson & Milgrom, 2013;Ennen & Richter, 2010; Hempell, 2006;Milgrom & Roberts, 1990). A growing number

of empirical studies reports not only high but also very heterogeneous returns to technology adoption among companies

(e.g., Bloom & Van Reenen, 2011; Dedrick et al., 2003): In line with the complementarity hypothesis, high returns are

typically observed when investments in new technologies are coupled and combined with appropriate investments in

organizational capital whereassmaller (or even negative) returns are found when organizational re‐engineering efforts are

mediocre or missing (see, e.g., Arvanitis & Loukis, 2009; Biagi, 2013; Brynjolfsson & Milgrom, 2013; Brynjolsson &

Saunders, 2010; Dedrick et al., 2003; Ennen & Richter, 2010; Hempell, 2006; Milgrom & Roberts, 1995; Van Reenen et al.,

2010; Zand, Van Beers, & Van Leeuwen, 2011 for comprehensive recent reviews).

In light of these contributions, the identification of complementarities offers firms crucial benefits: Establishing a

coherent system of complementary elements results not only in higher productivity, but the system’s inherent

complexity and context‐specific configuration typically also protects the resulting performance improvements from

competitors who seek to imitate successful system designs (e.g., Brynjolfsson & Milgrom, 2013; Brynjolfsson &

Saunders, 2010; Ennen & Richter, 2010). Likewise, the Information Systems literature

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has recently acknowledged that

neither technological nor organizational resources per se need to be strategic but the emergent capabilities arising from

their interactions hold the key strategic relevance that can provide firms with sustainable competitive advantages (cf.,

Nevo & Wade, 2010). However, identifying complementarities remains a complex endeavor. Brynjolfsson and Saunders

(2010) stress the importance of choosing the right combination of components to make the system work and explain in

analogy to system design in craftsmanship: “As in a fine watch, the whole system may fail if even one small and

seemingly unimportant piece is missing or flawed”(Brynjolfsson & Saunders, 2010, p. xiii). But what is the right

combination? Even more so, certain types of wheels and springs may work better together than others. Indeed, notable

recent work shows, for instance, that certain technologies work well with centralized but not with decentralized

decision‐making regimes—and vice versa for the other types of technologies considered (see, e.g., Bloom, Garicano,

Sadun, & Van Reenen, 2014; Tiwana, 2015). The relevant question to be answered is therefore which combinations of

organizational and technological capital lead to synergies.

Previous studies on the complementary relationship between technological and organizational capital mostly use

composite measures of both technological capital and organizational capital (e.g., Bresnahan et al. 2002; Brynjolfsson,

Hitt, & Yang, 2002). Hence, they tend not to distinguish between different types of technological and organizational

capital. Another strand of the literature focuses on very specific types of technological or organizational capital (e.g.,

Chwelos, Ramirez, Kraemer, & Melville, 2010; Tiwana, 2015), which also makes it difficult to obtain an overall picture of

where synergies exist and where not.

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The goal of this study is to adopt a more nuanced analysis by distinguishing among

two different technology types (information technology [IT] and communication technology [CT] à la Bloom et al. 2014)

FIGURE 1 Contrasting the

aggregated and disaggregated perspective

of complementarities between ICT and

organizational capital

STUCKI AND WOCHNER

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and three different forms of organizationalcapital (employee voice [EV], work design [WD], and workforce training [WT]

in the spirit of Black & Lynch, 2005) and examining complementarities among different components of technological and

organizational capital (see Figure 1). Specifically, we aim to test whether IT and CT stimulate or hamper the effect of EV,

WD, and WT, respectively. This study is probably most related to the recent work by Bloom et al. (2014) who find that IT

is related to a higher degree of decision autonomy and a greater span of control, whereas CT decreases autonomy.

However, it remains unclear whether IT also stimulates other components of organizational capital, and whether CT

generally hampers the effect of organizational capital. In this article, we predict that this is not the case.

Our empirical analyses are based on performance differences (Brynjolfsson & Milgrom, 2013) and examine the

interactions of different types of technological and organizational capital on productivity outcomes in performance

regressions. We use firm‐level survey data provided by the KOF Swiss Economic Institute, which covers a

representative sample of over 2,100 Swiss firms in the postmillennial years 2002, 2005, 2008, and 2011 (cf., e.g.

Siegenthaler & Stucki, 2015). Specifically, the survey collects a comprehensive set of firm‐specific traits ranging from

productivity outcomes and market assessments to internal technology use and innovation activities over to workplace

organization and human resource management practices. The granularity, size, and length of the data set offer

important advantages and allow us to examine complementarities between technological and organizational assets in

greater detail than previous studies were able to. Moreover, as the data spans almost 10 years, we have enough within‐

firm variation to control not only for a large number of productivity drivers but also for firm fixed effects as well

as industry‐time fixed effects, which allows us to substantially reduce concerns about a potential omitted variable bias

(cf., e.g. Arvanitis et al., 2016; Hempell, 2006; Siegenthaler & Stucki, 2015; see Section 4). The analysis is complemented

with a series of robustness tests that support the results.

In line with our theory‐led predictions, we find that IT and CT exert distinct—and often opposed—forces on the optimal

degree of EV, WD, and WT. Moreover, as the moderating effects of IT and CT with organizational capital countervail each

other, we observe rather weak complementarities between organizational capital and ICT in general. In sum, the results thus

clearly confirm our prediction that a disaggregated analysis is required to properly identify complementarities between

technological and organizational capital, which is relevant for business executives, policy‐makers, and researchers alike.

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CONCEPTUAL FRAMEWORK AND HYPOTHESES

“Technological capital”and “organizational capital”are two new notions that have emerged in the economist’s

vocabulary to enable a more precise description of production: Technological capital refers to the investments and

accumulation of ICT equipment to distinguish these assets from more conventional ones in physical capital (e.g.,

Arvanitis 2005a, 2005b; Arvanitis & Loukis, 2009; Biagi, 2013; Dedrick et al., 2003; Van Reenen et al., 2010 for a

thorough discussion). Organizational capital, instead, refers to investments into new organizational designs that

modern organizations increasingly employ, which provide workers with increased decision autonomy, cross‐functional

job designs, and continuous learning opportunities (e.g., Black & Lynch, 2005; Brynjolfsson & Saunders, 2010; Lindbeck

& Snower, 2000; Arvanitis & Loukis, 2009). The case study literature highlights examples from various industries, such

as Lincoln Electric, Wal‐Mart, Dell, or Google (e.g., Brynjolfsson & Milgrom, 2013; Brynjolfsson & Saunders, 2010). The

conceptual framework put forth in the following takes a careful look at the component parts of these new types of

capital and examines their synergetic interactions.

2.1

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Components of technological and organizational capital

2.1.1

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Technological capital

As explained above, an overwhelming body of researchers treated ICT as a single, composite technological capital stock

when examining their economic impacts (cf., e.g., Bloom et al., 2014). However, such a nondifferentiated, aggregated

ICT‐perspective can be disputed: Garicano (2000) and Bloom et al. (2014) have theoretically and empirically shown that

IT and CT affect a firm’s organization very differently. We propose to maintain this crucial distinction between IT and

CT when examining complementary organizational interactions. We distinguish the two along their functional

dimension rather than their formal one because it matters more to workers what they can do with these technologies

(i.e., their functional capabilities and use cases), but less so how the technologies are formally set up (technical

specifications and architectures; Schienstock, Bechmann, & Frederichs, 2002).

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