The Effect of Organizational Innovation and Information and Communications Technology on Firm Performance

Abstract

This paper examines the issue of whether investment in information and communication technology (ICT), combined with organizational changes and worker skills contribute to better performance in Canadian firms. We find that Canadian firms have actively engaged in organizational changes in the areas of production and efficiency practices, human resource management (HRM) practices, and product/service quality-related practices. These practices along with ICT use are found to be related to better firm performance. We find that while ICT is productive on its own, it is more productive in firms that combine high levels of ICT with high levels of organizational change. The firms that combine ICT with organizational changes have a high incidence of productivity improvement and have high rates of innovation. These findings seem to suggest that to be successful, firms typically need to adopt ICT as part of a “system” or “cluster” of mutually-reinforcing organizational approaches. We also find that ICT and human capital are complements in the service sectors. The firms that combine high levels of ICT and high levels of worker skills have better firm performance

Keywords

• ict
• innovation
• productivity