The Effect of Organizational Innovation and Information Technology on Firm Performance

This paper examines the issue of whether investment in information and communication technologies (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 ractices 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 as well as high rates of innovation. These findings 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 services sector. The firms that combine high levels of ICT and high levels of worker skills have better firm performance