Complementarity Between Investment in Information Technology (IT) and IT Human Resources: Implications for Different Types of Firm Innovation

Abstract

Innovation is an important means by which firms generate new revenue streams for topline growth. Given the information intensity of innovation, a key question that managers face is: How do we organize our IT-related resource investments to promote innovation performance? This is a consequential question because different types of innovation incur varying levels of upside potential, failure risk and investment costs. In this research, we aim to answer this question by distinguishing four types of innovations—incremental, radical, non-IT related and IT related—that firms aim to produce and examining the extent to which each of these types benefits from complementary investments in IT human resources and IT compared with either type of investment alone. Using patent data from the U.S. Patent and Trademark Office, our analysis of 36,812 firm-year observations reveals that complementary investments in IT human resources and IT are associated with a 117% increase in incremental innovation, a 155% increase in radical innovation, a 173% increase in non–IT-related innovation and a 161% increase in IT-related innovation. The results of this study can be helpful in enabling managers to make informed decisions about how to organize and get the most out of their resource investments based on their innovation objectives.