Week 3 Reading Summary (HK)

Tambe, P., Hitt, L.M., and Brynjolfsson, E. (2012) “The Extroverted Firm: How External Information Practices Affect Innovation and Productivity,” Management Science (58:5) pp. 843-859.

Tambe, Hitt, and Brynjolfsson (2012) combined various data sources including survey-based measures and COMPUSTAT information to identify and demonstrate the value of organizations embracing external focuses. An external focus is the ability of a firm to identify and respond to changes in the external operating environment. Extreme examples of firms successfully embracing external focuses are internet based companies, such as Google and Amazon, who record users’ keystrokes and analyze these data to optimize their products, processes, and marketing strategies. Using survey based measures, Tambe et al. (2012) first identified the correlation between external focus and IT investment and organizational decentralization. Next, the authors found that these three practices are all associated with improved production innovation capabilities. Finally, a three-way complementarities model indicated that the combination of the three practices of external focus, IT investment, and organizational decentralization are associated with significantly higher productivity.

Prior to Tambe et al.’s efforts (2012) research had demonstrated the value of organizational decentralization on IT investments. Tambe et al. (2012) confirmed this finding and highlighted that IT has the strongest impact on productivity in firms assuming that they are embracing the appropriate organizational structure. Furthermore, the authors added to past research findings by introducing the third factor of external focus into the IT productivity framework. Results indicated that product development was one of the principle mechanisms through which external focus impacts productivity. Overall, the key managerial implication of Tambe et al.’s findings is that firms with an external focus are more productive and reap disproportionate benefits from advances in IT and workplace organization. It is worth noting that to derive the maximum amount of benefits from complements organizations must embrace them all. Thus, firms with decentralized structures should look to embrace a more external focus to fully realize the returns of their IT investments.