Week 11_Bloom et al. (2014)_ Aaron

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

Bloom et al. (2014) studied the impact of information and communication technology (ICT) on worker and plant manager autonomy and span of control. By questioning “how can the same technology (ICT) that emasculates one job empower another”, the authors argued that these technologies have two distinct components, information technology (IT) and communication technology (CT), which affect firm organization differently.

Specifically, drawing on the theories of “management by exception”, they postulate that IT and CT affect differently the hierarchical level at which different decisions are taken. Improvements in IT push decisions “down”, leading to decentralized decision making, whereas improvements in CT push decisions “up”, leading to centralized decision making.

Using a data set of U.S. and E.U manufacturing firms, they found that IT (ERP for plant managers and computer-assisted design/manufacturing for production workers) is associated with more autonomy and a wider span of control, whereas CI decrease autonomy for workers and plant managers. Moreover, they discussed the economic significance of their statistically significant results. Also, endogeneity bias was mitigated by using instrumental variables (distance from ERP’s place of origin and heterogeneous telecommunication costs arising from regulation). Last, alternative theoretical channels (coordination, agency and incentives, and automation explanation) were discussed.