Article

IT Outsourcing - A Source of Innovation?

Authors:
To read the full-text of this research, you can request a copy directly from the authors.

Abstract

Does IT outsourcing really influence firms’ process innovativeness? We investigate this question with a distinguished view on manufacturing and service sectors. Previous studies suggest firms sourcing out IT services to external service providers are generally more processinnovative. Based on a firm-level data set comprising 1452 firms from the German manufacturing and services sectors, the econometric analysis confirms a positive and significant relationship between IT outsourcing and process innovation activity on an aggregate level. As proposed by our framework of differences between manufacturing and service firms, a more detailed analysis reveals that this positive relationship only holds forservices firms.

No full-text available

Request Full-text Paper PDF

To read the full-text of this research,
you can request a copy directly from the authors.

... We assume that BPO companies' innovative activities predominantly focus on process innovation due to the nature of their business to remain competitive in the global BPO market. This assumption is supported by an econometric analysis of firm-level data from Bertschek et al. (2017) who analyzed a data set comprising 1452 firms from the German manufacturing and services sectors, however from the outsourcing firms' perspective. The authors provided evidence for a significant positive relationship between IT outsourcing and process innovation with differences depending on the sector (Bertschek et al., 2017). ...
... This assumption is supported by an econometric analysis of firm-level data from Bertschek et al. (2017) who analyzed a data set comprising 1452 firms from the German manufacturing and services sectors, however from the outsourcing firms' perspective. The authors provided evidence for a significant positive relationship between IT outsourcing and process innovation with differences depending on the sector (Bertschek et al., 2017). Process innovations, incremental or radical, are not necessarily labeled as innovations or in some cases cannot be appropriated. ...
Article
Full-text available
Measuring innovation accurately and efficiently is crucial for policymakers to encourage innovation activity. However, the established indicator landscape lacks timeliness and accuracy. In this study, we focus on the country of Mauritius that is transforming its economy towards the information and communication technology (ICT) sector. We seek to extend the knowledge base on innovation activity and the status quo of innovation in Mauritius by applying an unsupervised machine learning approach. Building on previous work on new experimental innovation indicators, we combine recent advances in web mining and topic modeling and address the following research questions: What are potential areas of innovation activity in the ICT sector of Mauritius? Furthermore, do web mining and topic modeling provide sufficient indicators to understand innovation activities in emerging countries? To answer these questions, we apply the natural language processing (NLP) technique of Latent Dirichlet Allocation (LDA) to ICT companies’ website text data. We then generate topic models from the scraped text data. As a result, we derive seven categories that describe the innovation activities of ICT firms in Mauritius. Albeit the model approach fulfills the requirements for innovation indicators as suggested in the Oslo Manual, it needs to be combined with additional metrics for innovation, for example, with traditional indicators such as patents, to unfold its potential. Furthermore, our approach carries methodological implications and is intended to be reproduced in similar contexts of scarce or unavailable data or where traditional metrics have demonstrated insufficient explanatory power.
... Besides manufacturing, services, like IT services, can be outsourced (e.g. Bertschek, Erdsiek, & Trenz, 2017). In this context, 'make' describes as a situation in which the firm owns and controls the facilities and assets needed to produce a respective product (Balakrishnan, 1994;Tadelis, 2002). ...
Thesis
Corporate Venture Capital (CVC) is an established vehicle for collaboration among a corporation and start-ups. Through equity investments paired with access to resources, capabilities and expert networks, corporations aim at supporting start-up development. Although the efficacy of CVCs is broadly discussed in literature, CVCs are often treated as uniform vehicles. Little is known about the impact of a CVC’s strategic direction and organizational design on the performance of start-ups. Moreover, Corporate Accelerator (CA) is a rather new form of corporate start-up engagement. Due to its newness limited research is available and literature urges – among others – to compare CA with more established form of corporate start-up support, especially CVC. Following these identified research gaps the dissertation consists of two empirical sections. In the first section, the effect of a CVCs organization and strategic direction on start-up performance is evaluated. Using a hand-collected unique data-set of 210 start-ups under the management of 21 German CVCs, the study finds that organization of a CVC impacts the financial and strategic performance in multiple ways. Distinct hypotheses on portfolio size, concentration and fit, previous experience and CVC leadership are developed and tested empirically. The results show that CVC strategy and organization matter for start-up performance, however, disparate effects are observable for financial and strategic performance. Large portfolios enhance the performance of start-ups under CVC management, whereas both portfolio concentration and industry fit have a negative relationship with start-up performance. Moreover, more established CVCs support financial, yet impede strategic start-up performance. Lastly, it is detected that Previous industry experience of CVC personnel leads to financial start-up performance, whereas previous founder experience of CVC personnel strengthens strategic start-up performance. The second section aims at empirically reflecting the differences between CVC and CA, the start-ups under management and performance implications. The work is based on a novel multi-level and hand-collected dataset on financial and strategic performance covering 21 German CVCs with 210 start-ups and 15 German CAs with 132 start-ups. The results show that CVC and CA differ. CVCs tend to support older and further developed start-ups that operate more frequently in strategic proximity to the corporate parent, whereas CAs collaborate with younger and less mature start-ups across varying industries. In addition, CVCs stimulate start-up performance more than CAs do, even when matching CVC- and CA-managed start-ups based on their size and stage of development All in all, the work adds to literature in multiple ways as understanding of CVCs is deepened through a grounding in economic theories, uncovering of white spots determination of performance implications of a CVC’s strategic direction and organizational design and differentiation from a similar corporate venturing form, Corporate Accelerator. The work empirically supports that a differentiation of financial and strategic performance is required in corporate venturing research and sheds light on how CVCs should be organized to foster start-up performance. Moreover, it offers an enhanced understanding of CVC through an empirical comparison with the new phenomenon of CAs. Lastly, empirical evidence on CVC and CA is given based on a German dataset, in contrast to the majority of studies, being based on US data.
Article
Innovation is important for large enterprises to maintain and enhance their competitive advantages. Large enterprises can build strategic embedded relationships with a plenty of innovation technology enterprises via resources empowering and foster a new type of innovation ecosystem, namely, embedded innovation ecosystem. We decompose this decision‐making into two stages and first establish an optimization model to describe how focal firms select the innovation directions, that is, which market segment to invest in. We then construct a two‐layer planning model to describe how focal firms select member firms with an appropriate innovation level in a given innovation direction.
Article
Under economic globalization, networked innovation outsourcing has become a crucial direction of enterprise innovation, and the continuous development of artificial intelligence (AI) technology is bound to quickly replace the standardized, process-oriented, and highly repetitive basic posts. To promote the continuous innovation of enterprises and prevent innovative talents from being replaced by AI, this paper studies the core competencies (CC) of networked innovation outsourcing-oriented talents. First, the user information is input to construct the talent skill structure, and, consequently, the automatically networked innovation outsourcing-oriented talent CC evaluation model is implemented. The simulation experiment selects 100 graduate students of business school and divides them into two groups to complete the input and modeling process of talent skill structure information in different ways. Afterward, the accuracy and integrity of the automatic talent skill structure model are verified through the combination of experiment and expert review. The matching similarity calculation method is used to obtain the matching type between the task demand CC and the talent CC. Regarding talent matching, the proposed talent CC evaluation model can well match relevant tasks, and the highest matching value between the selected talents and tasks is 0.88. The relevant experience of talents is highly related to the task CC. To sum up, the proposed networked innovation outsourcing-oriented talent CC evaluation model can effectively promote the online automatic matching between networked innovation outsourcing-oriented tasks and talents.
Article
Full-text available
With the maturity of the service outsourcing market and the development of business relations, the core of outsourcing is shifting from transactional services to risk sharing and value creation. The client and service provider have an increasing interest in service innovation. Although cooperative innovation between them has many benefits, the two parties do not necessarily establish a cooperative innovation relationship. Regarding this issue, an evolutionary game focusing on client-service provider cooperative innovation behavior is constructed and solved. Based on the results and a corresponding numerical simulation, the decision-making mechanism of the cooperative innovation behavior is studied, and suggestions are provided regarding how to promote cooperative innovation. The results show that the benefits of both the client and service provider when they innovate cooperatively being greater than that when they innovate independently cannot guarantee that the system will certainly evolve to a stable state in which both parties adopt a cooperation strategy. However, as long as a condition in which either party gains more than zero when it innovates independently is established in addition to the preceding condition, the system will certainly evolve to a stable state in which both parties adopt a cooperative strategy. The following measures can be taken to promote client-service provider cooperation: improving the initial probabilities of the two parties choosing the cooperative strategy; increasing the innovation benefit when one party innovates independently; reducing the innovation cost and spillover coefficient when one party innovates independently; increasing the penalty when one party cooperates and the other party does not; decreasing the innovation cost when the two parties both choose the cooperation strategy; increasing the excess benefit when the two parties both cooperate; setting reasonable benefit distribution and cost sharing proportions.
Article
This study investigates how the interpersonal relationship quality between a salesperson and customer as well as the supplier’s service quality and value affect purchase intentions in information technology/information systems outsourcing service settings and examines the moderating effects of relationship quality. The results indicate that relationship quality and value affect purchase intentions. Perceived value mediates the impact of service quality on purchase intentions. Relationship quality negatively moderates the relationship between service quality and purchase intentions.
Article
Full-text available
The role and influence of information technology in firms’ business and value creation remains controversial. The question of how technology can drive service innovations is especially crucial in highly competitive and rapidly developing areas such as digital platforms but not well understood. This study investigates the role of information technology in service innovation in sharing economy organizations. These organizations are digital platforms that combine physical and digital service elements. Adopting a service-dominant logic perspective, we conduct an interpretive multiple-case study to gain a deeper understanding of the types of service innovation in this area and the different roles that IT can play in these initiatives. Our findings reveal different manifestations of service innovation and thereby help to identify previously unexplored interdependencies between the service ecosystem and value co-creation. We furthermore find that organizations’ choices regarding the role of IT are dependent on the level of heterogeneity and standardization of the mediated transactions. We derive four archetypes for the role of IT in service innovation that explain how and why sharing economy organizations exploit IT. We then translate our findings into practical guidelines for managers of digital platforms.
Research
Full-text available
The purpose of this study is to determine organizational cultures and innovation performance mediating effect of empowerment by examining a set of manufacturing firms. The findings show that there is a significant relationship between different organizational cultures features empowerment and innovation performance. It is also found that only adhocracy culture directly supports innovation performance and it is determined as the most important predictor of innovation performance
Technical Report
Full-text available
The report summarises the main results from the ICT impacts project where different sources have been linked at the level of the firm for the purpose of extending the scope of analysis. The report also summarises prior research and set out recommendations for action by Eurostat and NSIs. By using a set of harmonised core ICT metrics it is shown that manufacturing firms in the group of European countries studied benefit from ICT usage, while the picture is more varied for the service firms. Typically, the intensity of usage reveals a north to south dimension, where firms in the north of Europe represent the frontier.
Article
Full-text available
In the last fifteen years, academic research on information systems (IS) outsourcing has evolved rapidly. Indeed the field of outsourcing research has grown so fast that there has been scant opportunity for the research community to take a collective breath, and complete a global assessment of research activities to date. This paper seeks to address this need by exploring and synthesizing the academic literature on IS outsourcing. It offers a roadmap of the IS outsourcing literature, highlighting what has been done so far, how the work fits together under a common umbrella, and what the future directions might be. In order to adequately address the immense diversity of research on IS outsourcing and outsourcing in general, we develop a conceptual framework that helps us to categorize the literature. In particular, we look at the research objectives, methods used and theoretical foundations of the papers. In identifying the major research objectives, we view outsourcing as an organizational decision process and adapt Simon's stage model of decision making. This allows us to identify five major sourcing issues, from which at least one is covered by each academic article. These are the questions of why to outsource, what to outsource, which decision process to take, how to implement the sourcing decision, and what is the outcome of the sourcing decision. In analyzing the literature, we identify and structure the main explanatory factors and theoretical relationships within each of these sourcing stages. Based on our discussion of the research objectives, theoretical foundations and research approaches taken in the literature, we show how the various research streams hang together and we come up with a number of implications for research. Moreover, we identify a number of emerging sourcing issues. We believe that research on these "new" phenomena such as offshore outsourcing, application service providing and business process outsourcing would benefit from 'standing on the shoulders' of what has already been accomplished in the field of IS outsourcing.
Article
Full-text available
Cloud computing (CC) is an emerging form of IT outsourcing (ITO) that requires organizations to adjust their sourcing processes. Although ITO researchers have established an extensive knowledge base on the determinant factors that drive sourcing decisions from various theoretical perspectives, the majority of research on cloud-sourcing decisions focuses on technological aspects. We reviewed the CC and ITO literature and systematically coded the determinant factors that influence sourcing decisions. We show that most determinant factors of sourcing decisions in the ITO context remain valid for the CC context. However, the findings for some factors (i.e., asset specificity, client firm IT capabilities, client firm size, institutional influences, and uncertainty) are inconclusive for the CC and ITO contexts. We discuss how the peculiarities of CC can explain these inconclusive findings. Our results indicate that CC researchers should draw from research on ITO decision making but re-examine ITO concepts in the light of the peculiarities of CC, such as the differences between software and infrastructure services, the self-service procurement of cloud services, or the evolving role of IT departments. By summarizing determinant factors of cloud-sourcing decisions for consideration in future research, we contribute to the development of endogenous theories in the IS domain.
Article
Full-text available
This paper assesses the validity and accuracy of firms' backward patent citations as a measure of knowledge flows from public research by employing a newly constructed data set that matches patents to survey data at the level of the research and development lab. Using survey-based measures of the dimensions of knowledge flows, we identify sources of systematic measurement error associated with backward citations to both patent and nonpatent references. We find that patent citations reflect the codified knowledge flows from public research, but they appear to miss knowledge flows that are more private and contract based in nature, as well as those used in firm basic research. We also find that firms' patenting and citing strategies affect patent citations, making citations less indicative of knowledge flows. In addition, an illustrative analysis examining the magnitude and direction of measurement error bias suggests that measuring knowledge flows with patent citations can lead to substantial underestimation of the effect of public research on firms' innovative performance. Throughout our analyses we find that nonpatent references (e.g., journals, conferences, etc.), not the more commonly used patent references, are a better measure of knowledge originating from public research. This paper was accepted by Lee Fleming, entrepreneurship and innovation.
Article
Full-text available
We examine the question of which services are tradable within a concrete setting: the outsourcing of IT services across a broad cross-section of establishments in the US. If markets for IT services are local, then we should expect increases in local supply should increase the likelihood of outsourcing by lowering the cost of outsourcing. If markets are not local then local supply will not affect outsourcing demand. We analyze the outsourcing decisions of a large sample of 99,775 establishments in 2002 and 2004, for two types of IT services: programming and design and hosting. Programming and design projects require communication of detailed user requirements whereas hosting requires less coordination between client and service provider than programming and design. Our empirical results bear out this intuition: The probability of outsourcing programming and design is increasing in the local supply of outsourcing, and this sensitivity to local supply conditions has been increasing over time. This suggests there is some non- tradable or "local" component to programming and design services that cannot be easily removed. In contrast, the decision to outsource hosting is sensitive to local supply only for firms for which network uptime and security concerns are particularly acute.
Article
Full-text available
Increasingly, organizations are jumping onto the information technology (IT) outsourcing bandwagon in an effort to create value. However, evidence indicating the positive economic consequences of such initiatives has been limited. This study attempts to fill this void by synthesizing the process-oriented research in IT business value literature and the resource-based theory to develop an integrative research framework for assessing the value proposition of IT outsourcing. With a process-oriented lens, the framework suggests that the effects of IT outsourcing are best documented at the process level and hence, it is imperative that one takes into consideration the impact of IT outsourcing on performance at both the process level as well as the firm level. Grounded in the resource-based view, the framework also accounts for the complementary role of firms' core IT capability as a critical condition for the value creation of IT outsourcing. Consistent with the process-oriented prediction, the findings suggest that the positive effects of IT outsourcing appear mostly at the process level, but not at the firm level. Moreover, it is found that the level of business value created by IT outsourcing is contingent on firms' core IT capability. Firms with superior core IT capability are found to enjoy an advantage in leveraging their outsourcing initiatives to enhance firm value.
Article
Full-text available
The propensity score is the conditional probability of assignment to a particular treatment given a vector of observed covariates. Both large and small sample theory show that adjustment for the scalar propensity score is sufficient to remove bias due to all observed covariates. Applications include: (i) matched sampling on the univariate propensity score, which is a generalization of discriminant matching, (ii) multivariate adjustment by subclassification on the propensity score where the same subclasses are used to estimate treatment effects for all outcome variables and in all subpopulations, and (iii) visual representation of multivariate covariance adjustment by a two- dimensional plot.
Article
Full-text available
Purpose Many organizations are outsourcing their information technology (IT) related services to a third party vendor for quite some time. However, the IT services industry including outsourcing is going through rapid changes with the increasing adoption of Cloud computing. The purpose of this paper is to compare global IT outsourcing with Cloud computing along with the evolution of traditional IT services. Design/methodology/approach Cloud computing is a model for provisioning and consuming IT capabilities on a need and pay by use basis. This helps in shifting the cost structure from capital expenditure to operating expenditure and also helps the IT systems to be more agile. This innovative model of acquiring IT related services has made organizations revisit their infrastructure and platform services strategy and optimize their IT spending while improving overall agility. This paper compares global IT outsourcing with Cloud computing along with the evolution of traditional IT services. Findings The impact of Cloud computing on IT outsourcing is no doubt significant. Cloud computing represents a fundamental shift in how organizations pay for and access IT services. It has created new opportunities for IT services providers and the outsourcing vendors will have to modify their strategy to take advantage of this new computing paradigm. Practical implications This research is relevant for practitioners as well as researchers in the field of IT outsourcing and Cloud computing. Originality/value This research compares global outsourcing with Cloud computing along with the evolution of IT services. Very little research has been done in this nascent and important area.
Article
Full-text available
The rapidly increasing use of outsourcing for IT services, both in the public and private sectors, has attracted much interest from researchers and practitioners alike. While early studies of IT outsourcing were largely qualitative in nature, more recent studies have attempted to analyse the outcomes achieved in quantitative terms. This paper is consistent with the latter, but goes further by modelling the price, performance and contract characteristics that are relevant to IT outsourcing. A two-equation recursive regression model was used to analyse 48 contracts for IT support and maintenance. The results did not reveal any quantitatively significant price–performance trade-off, but did suggest that first-term contracts (i.e. the first ever contract awarded by a client for the provision of a particular IT service) were more expensive than repeat contracts. Although competitive tendering did not result in lower prices than directly negotiated contracts, it was associated with comparatively better performance. Well-defined expectations of an organization’s IT requirements were also likely to lead to improved performance when the service was outsourced.Journal of Information Technology 2000 15, 107–118. doi:10.1080/026839600344302
Article
Full-text available
Flexibility in response to competitive pressure from globalized markets and increasingly individualized costumer desires has become vital for firms. A common strategy to address this challenge is to employ a dynamic concept of organization and reach beyond the boundaries of the firm. Accordingly, technology transfer from providers of knowledge-intensive business services attracts more and more attention. In this context, we focus on external supply of information technology and client-side innovation. The aim of this chapter is to contribute to resolving an empirical puzzle arising from the prior literature. Some authors find beneficial effects of IT outsourcing, others underline that firms often fail to achieve expected strategic goals. Our stylized theoretical model combines a knowledge production function framework and transaction cost economics. We hypothesize that the right balance between internal and external knowledge is critical for innovation. The empirical application is German firm-level data covering a wide range of industries, 2003–2006. Our results largely support the theoretical arguments and suggest a positive linear relationship between the level of outsourcing and process innovation. For product innovation, we find a hump shape.
Book
Full-text available
Starting in 1995, productivity growth took off in the U.S. economy. In Wired for Innovation, Erik Brynjolfsson and Adam Saunders describe how information technology directly or indirectly created the lion's share of this productivity surge, reversing decades of slow growth. They argue that the turnaround in productivity reflects the delayed effects of the massive investments in business processes accompanying the large technology investments since the late 1990s. Companies with the highest level of returns to their technology investment did more than just buy technology: they invested in organizational capital to become digital organizations. Brynjolfsson and Saunders examine the real sources of value in the emerging information economy, including intangible inputs and outputs that have defied traditional metrics. For instance, intangible organizational capital is not directly observable on a balance sheet but amounts to trillions of dollars of value. Similarly, such nonmarket transactions of information goods as Google searches or Wikipedia edits are an increasingly large share of the economy yet virtually invisible in the GDP statistics. The authors, drawing on work done at MIT and elsewhere, show how to better measure the value of technology in the economy. They describe new methods that don't treat technology as just another type of ordinary capital investment but also measure complementary investments—including training and consulting—and the value of product quality, timeliness, variety, convenience, and new products. Innovation continues through booms and busts; this book provides a crucial guide for policy makers and economists who need to understand how information technology is transforming the economy and where it will create value in the coming decade.
Article
Full-text available
Outsourcing is a widely accepted option in strategic management, which, like every business venture, bears opportunities and risks. Supplementing the popular area of research on the merits of outsourcing, this paper examines how stockholders rate corporate sourcing decisions with regard to the risk they associate with this transaction. Using event study methodology and multivariate cross-sectional OLS-regression, we analyze a sample of 182 outsourcing transactions in the global financial services industry between 1998 and 2004 in order to investigate the risk-specific drivers of excess returns to shareholders. The analysis studies the impact of risk-specific independent variables, including transaction size, length, outsourced business functionality, and experience with outsourcing. Our findings indicate that risk-mitigating strategies have significant explanatory power, indicating that the capital market’s reaction to an outsourcing announcement might at least partly be forecast. Results show a positive correlation between market reaction and business process outsourcing by financial services companies. We also find strong evidence indicating that capital markets react positively to relatively large transactions compared to the market capitalization of the outsourcing firm. For service providers our results show that traditional IT-related sourcing projects or the insourcing of administrative processes have a significant positive correlation with market reaction.
Chapter
Full-text available
This paper analyzes the relationship between IT-outsourcing and labor productivity of 1142 firms from German manufacturing and service industries surveyed in 2000. An endogenous switching regression model takes into account that firms might follow different productivity regimes depending on whether or not they source out IT-tasks. Two semiparametric approaches are presented and applied to the data. They allow the outsourcing decision to nonlinearly depend on firm size. The empirical results show that firms with IT-outsourcing do not differ significantly from non-outsourcing firms with respect to the partial production elasticities of the input factors labor, IT-investment and non-IT-investment. However, firms without IT-outsourcing turn out to produce more than those sourcing out.
Article
Full-text available
In the last fifteen years, academic research on information systems (IS) outsourcing has evolved rapidly. Indeed the field of outsourcing research has grown so fast that there has been scant opportunity for the research community to take a collective breath, and complete a global assessment of research activities to date. This paper seeks to address this need by exploring and synthesizing the academic literature on IS outsourcing. It offers a roadmap of the IS outsourcing literature, highlighting what has been done so far, how the work fits together under a common umbrella, and what the future directions might be. In order to adequately address the immense diversity of research on IS outsourcing and outsourcing in general, we develop a conceptual framework that helps us to categorize the literature. In particular, we look at the research objectives, methods used and theoretical foundations of the papers. In identifying the major research objectives, we view outsourcing as an organizational decision process and adapt Simon's stage model of decision making. This allows us to identify five major sourcing issues, from which at least one is covered by each academic article. These are the questions of why to outsource, what to outsource, which decision process to take, how to implement the sourcing decision, and what is the outcome of the sourcing decision. In analyzing the literature, we identify and structure the main explanatory factors and theoretical relationships within each of these sourcing stages. Based on our discussion of the research objectives, theoretical foundations and research approaches taken in the literature, we show how the various research streams hang together and we come up with a number of implications for research. Moreover, we identify a number of emerging sourcing issues. We believe that research on these "new" phenomena such as offshore outsourcing, application service providing and business process outsourcing would benefit from 'standing on the shoulders' of what has already been accomplished in the field of IS outsourcing.
Article
Full-text available
We examine the question of which services are tradable within a concrete setting: the outsourcing of information technology (IT) services across a broad cross-section of establishments in the United States. If markets for IT services are local, then we should expect increases in local supply would increase the likelihood of outsourcing by lowering the cost of outsourcing. If markets are not local, then local supply will not affect outsourcing demand. We analyze the outsourcing decisions of a large sample of 99,775 establishments in 2002 and 2004, for two types of IT services-programming and design and hosting. Programming and design projects require communication of detailed user requirements whereas hosting requires less coordination between client and service provider than programming and design. Our empirical results bear out this intuition: the probability of outsourcing programming and design is increasing in the local supply of outsourcing, and this sensitivity to local supply conditions has been increasing over time. This suggests there is some nontradable or "local" component to programming and design services that cannot be easily removed. In contrast, the decision to outsource hosting is sensitive to local supply only for firms for which network uptime and security concerns are particularly acute.
Article
Full-text available
This paper introduces a set of information technology variables which can be used in designing organizations. Wefirst look at traditional design variables and then presenta series of options enabled by modern informationtechnology. We use these IT design variables to describefour prototypical organizations which are beginning toappear in the workplace: virtual, negotiated, traditionaland vertically integrated. It is argued that anorganization designer must also consider how structure andtechnology influence job tasks and people in order to besuccessful. The paper discusses potential implementationdifficulties, particularly in motivating traditionalorganizations to take advantage of IT design variables. Thepaper concludes that the design of information technologyand the design of organizations is largely becoming the sametask.
Article
Full-text available
Gaining economic benefits from substantially lower labor costs has been reported as a major reason for offshoring labor-intensive information systems services to low-wage countries. However, if wage differences are so high, why is there such a high level of variation in the economic success between offshored IS projects? This study argues that offshore outsourcing involves a number of extra costs for the client organization that account for the economic failure of offshore projects. The objective is to disaggregate these extra costs into their constituent parts and to explain why they differ between offshored software projects. The focus is on software development and maintenance projects that are offshored to Indian vendors. A theoretical framework is developed a priori based on transaction cost economics (TCE) and the knowledge-based view of the firm, complemented by factors that acknowledge the specific offshore context. The framework is empirically explored using a multiple case study design including six offshored software projects in a large German financial service institution. The results of our analysis indicate that the client incurs post-contractual extra costs for four types of activities: (1) requirements specification and design, (2) knowledge transfer, (3) control, and (4) coordination. In projects that require a high level of client-specific knowledge about idiosyncratic business processes and software systems, these extra costs were found to be substantially higher than in projects where more general knowledge was needed. Notably, these costs most often arose independently from the threat of opportunistic behavior, challenging the predominant TCE logic of market failure. Rather, the client extra costs were particularly high in client-specific projects because the effort for managing the consequences of the knowledge asymmetries between client and vendor was particularly high in these projects. Prior experiences of the vendor with related client projects were found to reduce the level of extra costs but could not fully offset the increase in extra costs in highly client-specific projects. Moreover, cultural and geographic distance between client and vendor as well as personnel turnover were found to increase client extra costs. Slight evidence was found, however, that the cost-increasing impact of these factors was also leveraged in projects with a high level of required client-specific knowledge (moderator effect).
Article
Full-text available
With V. Sambamurthy, A. Bharadwaj, “ Strategic Agility through Digital Options: Reconceptualization the Role of IT in Contemporary Firms,” MIS Quarterly, Vol.27, No.2, 2003, pp.237-265. Agility is vital to the innovation and competitive performance of firms in contemporary business environments. Firms are increasingly relying on information technologies, including process, knowledge, and communication technologies, to enhance their agility. The purpose of this paper is to broaden understanding about the strategic role of IT by examining the nomological network of influences through which IT impacts firm performance. By drawing upon recent thinking in the strategy, entrepreneurship, and IT management literatures, this paper uses a multitheoretic lens to argue that information technology investments and capabilities influence firm performance through three significant organizational capabilities (agility, digital options, and entrepreneurial alertness) and strategic processes (capability-building, entrepreneurial action, and coevolutionary adaptation). We also propose that these dynamic capabilities and strategic processes impact the ability of firms to launch many and varied competitive actions and that, in turn, these competitive actions are a significant antecedent of firm performance. Through our theorizing, we draw attention to a significant and reframed role of IT as a digital options generator in contemporary firms.
Article
Full-text available
This paper compares the role innovation plays in productivity across four European countries, France, Germany, Spain, and the UK, using firm-level data from the internationally harmonized Community Innovation Surveys (CIS3). Despite a considerable number of national firm-level studies analysing this relationship, cross-country comparisons using micro data are still rare. We apply a structural model that describes the link between R&D expenditure, innovation output, and productivity (CDM model). Our econometric results suggest that overall the systems driving innovation and productivity are remarkably similar across these four countries, although we also find interesting differences, particularly in the variation in productivity that is associated with more or less innovative activities.
Article
Full-text available
In a study comparing the effects of two treatments, the propensity score is the probability of assignment to one treatment conditional on a subject's measured baseline covariates. Propensity-score matching is increasingly being used to estimate the effects of exposures using observational data. In the most common implementation of propensity-score matching, pairs of treated and untreated subjects are formed whose propensity scores differ by at most a pre-specified amount (the caliper width). There has been a little research into the optimal caliper width. We conducted an extensive series of Monte Carlo simulations to determine the optimal caliper width for estimating differences in means (for continuous outcomes) and risk differences (for binary outcomes). When estimating differences in means or risk differences, we recommend that researchers match on the logit of the propensity score using calipers of width equal to 0.2 of the standard deviation of the logit of the propensity score. When at least some of the covariates were continuous, then either this value, or one close to it, minimized the mean square error of the resultant estimated treatment effect. It also eliminated at least 98% of the bias in the crude estimator, and it resulted in confidence intervals with approximately the correct coverage rates. Furthermore, the empirical type I error rate was approximately correct. When all of the covariates were binary, then the choice of caliper width had a much smaller impact on the performance of estimation of risk differences and differences in means.
Article
Full-text available
peer-reviewed This paper presents a psychological contract perspective on the use of the open source development model as a global sourcing strategy--opensourcing, as we term it here--whereby commercial companies and open source communities collaborate on development of software of commercial interest to the company. Building on previous research on information systems outsourcing, a theoretical framework for exploring the opensourcing phenomenon is derived. The first phase of the research concerned qualitative case studies involving three commercial organizations (IONA Technologies, Philips Medical Systems, and Telefonica) that had "liberated" what had hitherto been proprietary software and sought to grow a global open source community around their product. We followed this with a large-scale survey involving additional exemplars of the phenomenon. The study identifies a number of symmetrical and complementary customer and community obligations that are associated with opensourcing success. We also identify a number of tension points on which customer and community perceptions tend to vary. Overall the key watchwords for opensourcing are openness, trust, tact, professionalism, transparency, and complementariness: The customer and community need to establish a trusted partnership of shared responsibility in building an overall opensourcing ecosystem. The study reveals an ongoing shift from OSS as a community of individual developers to OSS as a community of commercial organizations, primarily small to medium-sized enterprises. It also reveals that opensourcing provides ample opportunity for companies to headhunt top developers, hence moving from outsourcing to a largely unknown OSS workforce toward recruitment of developers from a global open source community whose talents have become known as a result of the opensourcing experience.
Article
Full-text available
This paper analyses the Schumpeterian link between innovative activity and firm size by means of the nonparametric Nadaraya-Watson estimator and of the partially linear approach by Speckman. Four data sets referring to the manufacturing industries of three European countries are available for the analysis. We demonstrate how nonparametric methods can produce more reliable conclusions than conventional methods. For this purpose, the roles of bandwidth choice, wild bootstrap, density estimation and trimming are studied. For the German data set of 1984 and for the French data set, we find that small firms and large firms are more innovative than firms of intermediate size while the relation is rather hump-shaped for Germany 1989 and decreasing for Belgium. Including an additional parametric component into the estimations based on the French data, contributes considerably to the explanation of innovative activity without affecting the U-shaped link between innovation and firm size.
Article
Flexibility in response to competitive pressure from globalized markets and increasingly individualized customer desires has become vital for firms. A common strategy to address this challenge is to employ a dynamic concept of organization and reach beyond the boundaries of the firm. Accordingly, technology transfer from providers of knowledge intensive business services attracts more and more attention. In this context we focus on external supply of information technology and client-side innovation. The aim of this paper is to contribute to resolving an empirical puzzle arising from the prior literature. Some authors find beneficial effects of IT outsourcing, others underline that firms often fail to achieve expected strategic goals. Our stylized theoretical model combines a knowledge production function framework and transaction cost economics. We hypothesize that the right balance between internal and external knowledge is critical for innovation. The empirical application is German firm-level data covering a wide range of industries from 2003 to 2006. Our results largely support the theoretical arguments and suggest a positive linear relationship between the level of outsourcing and process innovation. For product innovation we find a hump-shape.
Article
Firms are increasingly sourcing internal information systems functions from external service providers. However, there is limited empirical evidence of the economic impact of this delivery option and, more specifically, of the productivity gains accruing to firms that have outsourced. Moreover, there is little evidence of the role and contributions of the individual mechanisms by which service providers create value for client firms. We are particularly interested in whether client firms benefit from the accumulated knowledge held by information technology (IT) service firms. In this paper, we examine the impact of IT outsourcing on the productivity of firms that choose this mode of services delivery focusing, on the role of IT-related knowledge. Since firms selfselect into their optimal sourcing mode, we use a variety of econometric techniques including propensity scorebased matching and switching regression to control for potential bias arising from endogenously determined sourcing modes. We demonstrate that IT outsourcing does lead to productivity gains for firms that select this mode of service delivery. Our results also suggest that IT-related knowledge held by IT services vendors enables these productivity gains, the magnitude of which is moderated by a firm's IT intensity. Moreover, the value of outsourcing to a client firm increases with its propensity for outsourcing, which in turn depends on firm-specific attributes including efficiency level, financial leverage, and variability in business conditions. Our analyses also show that firms that outsource have been able to achieve additional productivity gains from contracting out compared with their counterfactuals.
Article
A central decision faced by firms is whether to make intermediate components internally or to buy them from specialized producers. We argue that firms producing products for which rapid technological change is characteristic will benefit from outsourcing to avoid the risk of not recouping their sunk cost investments when new production technologies appear. This risk is exacerbated when firms produce for low volume internal use, and is mitigated for those firms which sell to larger markets. Hence, products characterized by higher rates of technological change will be more likely to be produced by mass specialized firms to which other firms outsource production. Using a 1990-2002 panel data set on Spanish firms and an exogenous proxy for technological change, we provide causal evidence that technological change increases the likelihood of outsourcing.
Article
We provide a comprehensive empirical analysis of the links between international services outsourcing, domestic outsourcing, profits, and innovation using plant-level data. We find a positive effect of international outsourcing of services on innovative activity at the plant level. Such a positive effect can also be observed for domestic outsourcing, but the magnitude is smaller. We also find that international services outsourcing has a positive effect on profitability, as predicted by theory, whereas this is not true for domestic sourcing. The results are robust to various specifications and an instrumental variables analysis. (JEL F19, O31)
Article
This study is based on the belief that economic organization is shaped by transaction cost economizing decisions. It sets out the basic principles of transaction cost economics, applies the basic arguments to economic institutions, and develops public policy implications. Any issue that arises, or can be recast as a matter of contracting, is usefully examined in terms of transaction costs. Transaction cost economics maintains that governance of contractual relations is mainly achieved through institutions of private ordering instead of legal centralism. This approach is based on behavioral assumptions of bounded rationalism and opportunism, which reflect actual human nature. These assumptions underlie the problem of economic organization: to create contract and governance structures that economize on bounded rationality while safeguarding transactions against the hazards of opportunism. The book first summarizes the transaction cost economics approach to the study of economic organization. It develops the underlying behavioral assumptions and the types of transactions; alternative approaches to the world of contracts are presented. Assuming that firms are best regarded as a governance structure, a comparative institutional approach to the governance of contractual relations is set out. The evidence, theory, and policy of vertical integration are discussed, on the basis that the decision to integrate is paradigmatic to transaction cost analysis. The incentives and bureaucratic limits of internal organization are presented, including the dilemma of why a large firm can't do everything a collection of small firms can do. The economics of organization in presented in terms of transaction costs, showing that hierarchy also serves efficiency and permits a variety of predictions about the organization of work. Efficient labor organization is explored; on the assumption that an authority relation prevails between workers and managers, what governance structure supports will be made in response to various types of job attributes are discussed, and implications for union organization are developed. Considering antitrust ramifications of transaction cost economics, the book summarizes transaction cost issues that arise in the context of contracting, merger, and strategic behavior, and challenges earlier antitrust preoccupation with monopoly. (TNM)
Article
Employing data from a sample of 1,161 small firms, the paper draws broad comparisons between patterns of innovation expenditure and output, innovation networking, knowledge intensity and competition within Knowledge‐Intensive Business Services (KIBS; N = 563) and manufacturing firms (N = 598). In so doing, KIBS are further disaggregated along lines proposed by Miles et al. (199536. Miles , I. , Kastrinos , N. , Flanagan , K. , Bilderbeek , R. , den Hertog , P. , Huitink , W. and Bouman , M. 1995. Knowledge Intensive Business Services: Their Role as Users, Carriers and Sources of Innovation EIMS Publication No. 15, Innovation Programme, DGXIII, Luxembourg View all references). That is, as technology‐based KIBS (t‐KIBS; N = 264) and professional KIBS (p‐KIBS; N = 299). However, detailing such broad patterns is preliminary. The principal interest of the paper is in identifying the factors associated with higher levels of innovativeness, within each sector, and the extent to which such “success” factors vary across sectors. The results of the analysis appear to offer support for some widely held beliefs about the relative roles of “softer” and “harder” sources of knowledge and technology within services and manufacturing (Tether, 200446. Tether , B. 2004. Do Services Innovate (Differently)?, Manchester: University of Manchester. CRIC Discussion Paper 66 View all references). However, some important qualifications are also apparent.
Article
The propensity score is the conditional probability of assignment to a particular treatment given a vector of observed covariates. Both large and small sample theory show that adjustment for the scalar propensity score is sufficient to remove bias due to all observed covariates. Applications include: (i) matched sampling on the univariate propensity score, which is a generalization of discriminant matching, (ii) multivariate adjustment by subclassification on the propensity score where the same subclasses are used to estimate treatment effects for all outcome variables and in all subpopulations, and (iii) visual representation of multivariate covariance adjustment by a two-dimensional plot.
Article
This paper reviews research studies of information technology outsourcing (ITO) practice and provides substantial evidence that researchers have meaningfully and significantly addressed the call for academics to produce knowledge relevant to practitioners. Based on a review of 191 IT outsourcing articles, we extract the insights for practice on six key ITO topics relevant to practitioners. The first three topics relate to the early 1990s focus on determinants of IT outsourcing, IT outsourcing strategy, and mitigating IT outsourcing risks. A focus on best practices and client and supplier capabilities developed from the mid-1990s and is traced through to the late 2000s, while relationship management is shown to be a perennial and challenging issue throughout the nearly 20 years under study. More recently studies have developed around offshore outsourcing, business process outsourcing and the rise, decline and resurrection of application service provision. The paper concludes by pointing to future challenges and developments.
Article
Drawing on an empirical study of IT outsourcing in the UK and Germany, this paper explores the lessons for modularity that can be drawn from the outsourcing of knowledge-intensive business services (KIBS). Because of the inseparability of information and production technologies, IT outsourcing is frequently accompanied by wider transformations in clients’ production technologies. This results in the need for knowledge and organisational coordination in the form of the transfer of staff from the client and the retained IT organisation. Modularity is often presented as a design strategy that stimulates innovation. Our research findings challenge the generalisability of this claim when examining KIBS outsourcing. We show that intangibility of services exacerbates the conflicts between clients and suppliers, which may present obstacles to innovation.
Article
Against the background of the patent upsurge, we first analyse the role of patenting and alternative instruments to protect intellectual property, based on a sample of German companies active in patenting. In a second step, we investigate the motives to patent, considering sector and company size effects. We find that company size matters, both for the importance of instruments and the motives to patent. Especially important are the new strategic motives to patent, like using patents to improve a company's own position in negotiations with partners, licensees and the financial sector, or to use patents as incentives for R&D personnel or performance indicators—these correlate positively with company size. We derive some possible challenges for future patent policies from these insights.
Article
We investigate the effects of increased outsourcing of production to a low wage country. Such international outsourcing lowers the marginal cost of production and thus increases profits, creating greater incentives for innovation. A reduction in the resource requirement in adapting technology relative to improving products or an expansion in the portion of production that can be outsourced generates a greater extent of international outsourcing, a lower relative wage and a faster rate of innovation. An increase in production taxes in the North, production subsidies in the South, or a subsidy to adapting technologies has similar effects.
Article
A 1993 survey on the innovative activities of Europe's largest industrial firms obtained useable results on patenting activities for 604 respondents. The data are used to calculate the sales-weighted propensity rates for 19 industries. The propensity rates equal the percentage of innovations for which a patent application is made. The propensity rates for product innovations average 35.9%, varying between 8.1% in textiles and 79.2% in pharmaceuticals. The average for process innovations is 24.8%, varying from 8.1% in textiles to 46.8% for precision instruments. Only four sectors have patent propensity rates, for both product and process innovations combined, that exceed 50%: pharmaceuticals, chemicals, machinery, and precision instruments. Regression results that control for the effect of industry sector show that patent propensity rates increase with firm size and are higher among firms that find patents to be an important method for preventing competitors from copying both product and process innovations. The effect of secrecy is not so straightforward. Firms that find secrecy to be an important protection method for product innovations are less likely to patent, as expected, but secrecy has little effect on the propensity to patent process innovations. The R&D intensity of the firm has no effect on patent propensity rates for both product and process innovations. The sector of activity has a strong influence on product patent propensities but very little effect on process patent propensities, after controlling for the effect of other factors.
Article
An enormous amount of information has been produced about the IT outsourcing phenomenon over the last 20 years, but one has to look to the academic literature for consistent, objective, and reliable research approaches and analyses. Our review finds that, in practice, the academic literature on IT outsourcing has very much honored both rigor and relevance in the ways in which research has been conducted. Our central purpose in the review was to answer two research questions: What has the empirical academic literature found about information technology outsourcing (ITO) decisions and outcomes? What are the gaps in knowledge to consider in future ITO research? To answer these questions, we examined 164 empirical ITO articles published between 1992 and 2010 in 50 journals. Adapting a method used by Jeyaraj et al. (2006), we encapsulated this vast empirical literature on ITO in a way that was concise, meaningful, and helpful to researchers. We coded 36 dependent variables, 138 independent variables, and 741 relationships between independent and dependent variables. By extracting the best evidence, we developed two models of outsourcing: one model addressed ITO decisions and one model addressed ITO outcomes. The model of ITO decisions includes independent variables associated with motives to outsource, transaction attributes, client firm characteristics, and influence sources. The model of ITO outcomes includes independent variables associated with client and supplier capabilities, relationship characteristics, contractual governance, decision characteristics, and transaction attributes. We also examined the interactions among broad categories of variables and the learning curve effects resulting from feedback loops. Overall, ITO researchers have a broad and deep understanding of ITO. However, the field continues to evolve as clients and suppliers on every inhabited continent participate actively in the global sourcing community. There is still much research yet to be done. We reviewed recent studies that have identified gaps in current knowledge and proposed future paths of research pertaining to strategic motivations, environmental influences, dynamic interactions, configurational and portfolio approaches, global destinations, emerging models, reference theory extension, and grounded theory development.
Article
This paper explores the comparative and cumulative influence of a number of factors on the perceived level of cooperation in a dyadic relationship. Drawing upon the transaction costs economics, organization theory and information systems literatures, we hypothese three sets of key influences: (1) factors exogenous to the relationship, i.e., the characteristics of the environment within which the relationship operates, and factors endogeneous to the relationship including (2) economic and behavioral characteristics of the relationship, and (3) interorganizational information technology applications. These factors have been independently examined in separate research streams. A key contribution of this study is therefore to conceptually and empirically capture their collective influence on cooperation. We empirically test the five hypotheses we develop within the context of buyer-supplier relationships in the U.S. and Japanese automobile industries. Multiple regressions conducted on a data set of 447 distinct relationships indicate that the relational characteristics (i.e., the behavioral climate of the relationship) are the most robust predictor of cooperation in both countries when compared with other structural (e.g., asset specificity) or technological factors (use of EDI—electronic data interchange). Environmental uncertainty (i.e., technological unpredictability) is positively associated with cooperation in Japanese supplier relations, which suggests that cooperation can act as an uncertainty absorption mechanism. Governance structure is a strong and significant predictor of cooperation in both samples, but with the opposite sign. Similarly, information technology (IT) does not play the same predictive role in the two country samples. Significant only in Japan it reflects an ‘electronic partnership’ approach to the use of IT in supplier relations.
Article
Recent Internet technologies and web-based applications, such as social software, are being increasingly applied in rms. Social software can be employed for knowledge management and for external communication enabling access to internal and external knowledge. Knowledge in turn constitutes one of the main inputs to service innovation. Hence, social software has the potential to support service innovation. Using data from 505 German Information- and Communication Technology (ICT) and knowledge-intensive service rms, this is the rst paper which empirically analyses the question whether the use of social software applications triggers innovation. Thereby, it refers to a knowledge production function in which social software use constitutes the knowledge sourcing activity. The results reveal that there is a positive relationship between social software and service innovation. Since this result is robust when controlling for former innovative activities and the previous propensity to adopt new technologies and to change processes, the analysis suggests that the causality runs from social software to innovation. Parallel session 6. Human resources and innovation in firms Presented at GLOBELICS 2009, 7th International Conference, 6-8 October, Dakar, Senegal.
Article
Causal effects are comparisons among values that would have been observed under all possible assignments of treatments to experimental units. In an experiment, one assignment of treatments is chosen and only the values under that assignment can be observed. Bayesian inference for causal effects follows from finding the predictive distribution of the values under the other assignments of treatments. This perspective makes clear the role of mechanisms that sample experimental units, assign treatments and record data. Unless these mechanisms are ignorable (known probabilistic functions of recorded values), the Bayesian must model them in the data analysis and, consequently, confront inferences for causal effects that are sensitive to the specification of the prior distribution of the data. Moreover, not all ignorable mechanisms can yield data from which inferences for causal effects are insensitive to prior specifications. Classical randomized designs stand out as especially appealing assignment mechanisms designed to make inference for causal effects straightforward by limiting the sensitivity of a valid Bayesian analysis.
Article
ABSTRACT : This paper reviews the characteristics and magnitude of information technology (IT) outsourcing as well as studies its labor productivity effects with a representative sample of Finnish businesses. Depending on the IT task in question, on average from one-third to two-thirds of IT has been outsourced; of the ten categories considered, the development of non-Internet business-to-business applications (e.g., EDI) is the leading activity in this respect. The various dimensions of IT outsourcing are all highly positively correlated. After controlling for industry and regional effects as well as characteristics of firms and their employees, it is found that an externally-supported computer user is about 20% more productive than an otherwise similar worker without a computer, which corresponds to about 5% output elasticity of outsourced IT; the effect of internally-supported computer use is not statistically significantly different for zero, and it is also several times smaller in magnitude. While the issues of causality, timing, self-selection, and unobserved firm heterogeneity are not fully addressed, the findings nevertheless suggest that IT outsourcing may have significant economic consequences.
Article
We study how competitive pressure influences the make-or-buy decision that oligopolistic firms face between producing an intermediate component in-house or purchasing it from a domestic supplier. We model outsourcing as a bilateral relationship in which the supplier undertakes relationship specific investments. A home and foreign firm compete in the home market. Firms’ mode of operation decision depends on cost and strategic considerations. Competitive pressure increases firms’ incentive to outsource. Consumer gains from trade liberalisation are enhanced when it leads to less outsourcing.
Article
Analysis of patent citations is a core methodology in the study of knowledge diffusion. However, citations made by patent examiners have not been separately reported, adding unknown noise to the data. We leverage a recent change in the reporting of patent data showing citations added by examiners. The magnitude is high: two-thirds of citations on the average patent are inserted by examiners. Furthermore, 40% of all patents have all citations added by examiners. We analyze the distribution of examiner and inventor citations with respect to self-citation, distance, technology overlap, and vintage. Results indicate that inferences about inventor knowledge using pooled citations may suffer from bias or overinflated significance levels. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Article
Patent citation data are used in a growing body of economics and business research on technological diffusion. Until now, there exists little evidence on whether patent citations are a good measure of knowledge flows. Our paper assesses the legitimacy of using European patent citations as a measure of technology flows. It uses information from the Community Innovation Survey collected by the French Service des Statistiques Industrielles (SESSI), which contain firms' responses to questions about their innovative activity. We show that patent citations are indeed related to firms' statements about their acquisition and dispersion of new technology, but that the strength and statistical significance of this relationship varies across geographical regions and across channels of knowledge diffusion.
Article
This paper presents a dynamic random effects probit model for the realization of private firms' product and process innovations. We estimate the model with panel data collected by the Ifo Institute in Munich. The data covers the period between 1979 and 1986 and includes 301 firms of the West German manufacturing sector. It turns out that firms' probabilities of innovation depend on market structure, demand and cost expectations, unobserved heterogeneity, and realized innovations in the previous year. The positive significant influence of past innovations indicates that there is strong state dependence in the innovation process. This result supports the "success breeds success" hypothesis suggesting a positive impact of innovative success to further innovations in the following years.
Article
This article outlines the production function approach to the estimation of the returns to R&D and then proceeds to discuss in turn two very difficult problems: the measurement of output in R&D intensive industries and the definition and measurement of the stock R&D "capital." The latter concept leads to a discussion of modeling of the spillover effects of R&D and to suggestions for possible measurement of such effects via the concept of technological distance between firms and industries. Somewhat more familiar econometric problems (multicollinearity and simultaneity) are taken up in the next section and another section is devoted to estimation and inference problems arising more specifically in the R&D context. Several recent studies of returns to R&D are then surveyed, and the paper concludes with a plea for a lowering of expectations as to what the available data can tell us and with suggestions for ways of expanding the current data base in this field.
Article
This paper investigates whether firms innovate persistently or discontinuously over time using an innovation panel data set on German manufacturing and service firms for the period 1994-2002. We find that innovation behaviour is permanent at the firm-level to a very large extent. Using a dynamic random effects discrete choice model and a new estimator recently proposed by Wooldrigde (2005), we further shed some light on the driving forces for this phenomenon. The econometric results confirm the hypothesis of true state dependence for manufacturing as well as for service sector firms. In addition to past innovation experience, the results further highlight the important role of knowledge provided by skilled employees and unobserved individual heterogeneity in explaining the persistence of innovation.
Article
Using German firm-level data, an endogenous switching regression model within a production function framework is estimated in order to explore differences in labor productivity between IT outsourcing and non-IT outsourcing firms. This approach takes possible complementarities between IT outsourcing and production input factors into account and further allows IT outsourcing to affect any factor of the production function. Estimation results show that IT outsourcing firms produce more efficiently than non-IT outsourcing firms. Furthermore, they have a significantly larger output elasticity with respect to computer workers. Therefore computer workers and IT outsourcing can be interpreted as complementary factors positively affecting firms? labor productivity. An additional analysis indicates that IT outsourcing, in the medium-term, has a positive effect on firms? employment growth rate. --
Article
This paper develops the method of matching as an econometric evaluation estimator. A rigorous distribution theory for kernel-based matching is presented. The method of matching is extended to more general conditions than the ones assumed in the statistical literature on the topic. We focus on the method of propensity score matching and show that it is not necessarily better, in the sense of reducing the variance of the resulting estimator, to use the propensity score method even if propensity score is known. We extend the statistical literature on the propensity score by considering the case when it is estimated both parametrically and nonparametrically. We examine the benefits of separability and exclusion restrictions in improving the efficiency of the estimator. Our methods also apply to the econometric selection bias estimator.