ICT, Consulting and Innovative Capabilities

Over the last decade, industrialized economies have experienced a dramatic increase in their expenditures on information and communication technologies (ICT) and there is broad evidence indicating that the adoption of ICT has contributed significantly to their productivity growth. The main argument behind the positive impact of ICT on productivity states that the use of ICT allows firms to redesign their production processes and to introduce new products and services. At the same time, due to the increasing complexity of ICT solutions, the capabilities at the firm level to successfully implement state-of-the-art ICT applications might be insufficient. As a consequence, it is not surprising that the demand for ICT consulting services has also evidenced a steady growth in the last years. This paper analyzes the impact of ICT consulting on firms' performance. The analysis is divided in two main parts. First, the paper develops a theoretical model that explains the effect of the decision to contract ICT consulting on firms' performance and, more specifically, on firms' innovation incentives considering a pool of heterogeneous firms. Second, using a firm-level representative sample of the German manufacturing and service sectors, the paper empirically analyzes some implications of the theoretical model. The analysis provides three main results. First, the results of the theoretical model show that ICT consulting increases aggregate incentives to innovate. This result is not corroborated by the empirical application. In particular, ICT consulting does not exhibit any impact on the probability of introducing product or process innovations nor on the number of such innovations. Interestingly, the results show that ICT consulting actually affects negatively the value of the introduced product and processes innovation. Second, the theoretical model suggests that low productivity firms might evidence either lower, unaffected or higher incentives to innovate. The empirical application shows that low productivity firms exhibit higher incentives to innovate. Third, although the theoretical analysis shows that the lower the productivity level the more the incentives to contract ICT consulting, the empirical evidence is inconclusive on this matter. These results suggest that firms optimize their innovations portfolio through ICT consulting.

Cerquera, Daniel (2008), ICT, Consulting and Innovative Capabilities, ZEW Discussion Paper No. 08-127, Mannheim.