Die Discussion Papers dienen einer möglichst schnellen Verbreitung von neueren Forschungsarbeiten des ZEW. Die Beiträge liegen in alleiniger Verantwortung der Autoren und stellen nicht notwendigerweise die Meinung des ZEW dar.Discussion Papers are intended to make results of ZEW research promptly available to other economists in order to encourage discussion and suggestions for revisions. The authors are solely responsible for the contents which do not necessarily represent the opinion of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp0557.pdf The focus of this paper is to investigate to what extent ICT applications foster product and process innovations by enhancing organisational flexibility. We argue that ICT primarily facilitates communication and access to information and thus favours the use of easily programmable machines, co-operation between non-managerial workers within firms as well as the co-ordination of business processes between work groups. These functions increase organisational flexibility, i.e.
Non-technical summarythe ability of firms to react flexibly to changes in consumer preferences and allow the participation of employees on strategic decisions. Moreover, improvements in ICT facilitate the codification of knowledge and supply chain management and thus make outsourcing and co-operation with other firms less costly.In our analysis on the impact of ICT on flexibility, we distinguish between functional flexibility (the ability of workers to co-operate and take decentralised decisions) and numerical flexibility (the reduction of fixed costs, mainly due to outsourcing business processes). Functional flexibility is measured by the share of employees working in teams, in job rotation, in quality circles or in autonomous groups. Numerical flexibility is proxied by two indicators: first, outsourcing activities over the past three years as reported by the firms, and, second, the share of intermediate goods and services in sales as a measure of accumulated outsourcing decisions during the past. With regard to technology use, we distinguish between various types of ICT applications and investments. For our empirical analysis, we use representative, large-scale and topical panel data from Germany including small and medium-sized firms.The estimations reveal that ICT use and investment are associated with an increase in both functional and numerical flexibility. The implications for innovation activities differ, however.Our measure of functional flexibility is strongly positively associated with product and process innovations. In contrast, outsourcing allows firms to 'buy' innovations in the short run, but reduces innovative capacity in the longer run. The latter result may be a consequence of conflicting strategic innovation interests. We distinguish between functional flexibility (the ability of workers to co-operate and take decentralised decisions) and numerical flexibility (the reduction of fixed costs, mainly due to outsourcing business processe...