The effects of different forms of hard and soft ICT capital on firms' innovation activity
Authors: Διαμαντοπούλου Βασιλική 
Published: August 2021

IntroductionIt is widely recognized that innovation is of critical importance for the competitiveness and growth of firms, sectors and countries, not only in advanced economies, but also in the emerging ones as well. Innovation can be a very good strategy to enhance competitiveness, diversify activities and move towards higher value added activities (OECD 2007, 2010a and 2010b, Buesa et al, 2010). Innovation boosts firms’ competiveness, enabling them to diversify their activities and move towards higher added value activities. For these reasons the identification of factors affecting the innovation performance of firms, often referred to as ‘determinants of innovation’, has been a critical research question for long time. Extensive research has been conducted in the last thirty years, which has revealed several innovation determinants (Cohen and Levin (1989), Cohen (1995), Kleinknecht (1996), Raymond et al. (2004), Wan et al. (2005), Van Beers et al (2008) and Buesa et al. (2010)). From these studies it has been concluded that demand expectations, type and intensity of competition, market structure, factors affecting the production of knowledge (such as technological opportunities and appropriability) and firm size are the main determinants of firm’s innovation activity. On the other hand, beyond these ‘classical’ innovation determinants, there has been extensive theoretical literature concerning the potential of Information and Communication Technologies (ICT) to drive not only efficiency improvements but also significant innovations in firms’ processes, products and services (Brynjolfsson and Hitt, 2000; Bresnahan et al, 2002; Champy, 2002; Avgerou, 2003; Brynjolfsson and Saunders, 2010; Brynjolfsson, 2011). On the other hand, there is considerable theoretical literature (e.g. Amit and Zott, 2001; Zwass, 2003; Wu and Hisa, 2008; Wirtz et al., 2010), which argues that it is not only the ‘classical’ ICT (aiming mainly at the development of internal IS of firms), but also the Internet technologies as well (and to a much larger extent) that have a big potential for driving innovation.Τhe limited previous empirical research on the impact of ICT on innovation views the former as a single and homogeneous entity, does not discriminate between the existing different types of Hard and Soft ICT Capital. Therefore it does not provide a basis to firms for a ‘selective’ approach to their ICT investment: for deciding on which Hard or Soft aspects of ICT they should invest in order to maximize the innovation drive and facilitation it provides. Providing such a basis will be quite beneficial for the economy and the society in general, as it will allow firms to increase the exploitation of the innovation potential of ICT. In this direction this Ph.D. Dissertation presents an empirical study investigating the effects of different forms of Hard and Soft ICT Capital on firms’ innovation activity. In particular, as far as the Hard ICT Capital is concerned, different widely used types of enterprise ICT, from a functionality as well as interoperability perspective are examined. Concerning the Soft ICT Capital, the impact of different forms on product and process innovation is empirically investigated. Moreover, it proceeds to a comparison among the above as to their effect on innovation, and also with ‘classical’ innovation determinants (demand expectation, price and non-price competition, market concentration and R&D activity). Finally, a comparison is made between two countries with different levels of economic development and ICT use (Greece – Switzerland).Literature review and research gapsThere have been extensive theoretical research in the last twenty years which examines and analyses the innovation potential of ICT, its sources, forms and possible impacts (Hammer, 1990; Hammer and Champy, 1993; Davenport, 1993; Bresnahan and Trajtenberg, 1995; Brynjolfsson and Hill, 2000; Bresnahan et al., 2002; Champy, 2002; Lyytinen and Rose, 2003; Avgerou, 2003; Lyytinen and Newman, 2008; Brynjolfsson and Saunders, 2010; Brynjolfsson, 2011). The study of the literature regarding the impact of various forms of ICT on firms’ innovation activity, led to the conclusion that the relevant theoretical literature can be divided in two distinct streams. The first has to do with the direct effect of ICT on firm’s innovation activity, basically on products/services and processes innovation. The second theoretical research stream deals with the indirect effects deriving from the adoption of different forms of ICT on firms’ innovation activity. Moreover, there is also quite significant theoretical literature examining and analyzing the innovation potential offered by the Internet, referring that it can enable dramatic innovations in the way firms do business, and new value propositions and business models (Timmers, 1998; Afuah and Tucci 2001; Zwass, 2003; Wu and Hisa, 2004; Tavlaki and Loukis, 2005; Wu and Hisa, 2008; Chaffey, 2009; Wirtz et al., 2010).However, there has been much less empirical investigation of the potential of ICT to drive innovation, in order to find out to what extend the high expectations of this theoretical literature are realized. As concluded from the review of the limited empirical literature (in Chapter 2, section 2.3), these studies view ICT as a single and homogeneous entity and do not examine and compare different types of ICT as to their capacity to drive innovation, though they differ in pervasiveness in the firm and the degree of influence on its processes, products and services. These few empirical firm – level studies of the relation between ICT and innovation do not discriminate among different types of IS, since they use overall measures of firm’s ICT focusing on the ‘Hard’ dimensions of ICT. Also, they neglect the ‘Soft’ dimensions of ICT at firm level, despite the wide recognition of their importance to firms’ competitiveness and performance. Moreover, it should be noted that most of these few empirical investigations have been conducted in a small number of highly developed countries (mainly in Germany and USA), which are characterized by high penetration of ICT and long experience and maturity in using them effectively, and also higher levels of innovation.Finally, these empirical studies do not proceed to comparisons of ICT with the ‘classical’ innovation determinants as to their impact on firm’s innovation activity. Contribution of the present researchThe present Ph.D. Dissertation contributes to the existing literature by fulfilling the gaps that have been identified and mentioned in the previous section. In particular:It examines different widely used types of enterprise ICT, from a functionality as well as interoperability perspective, as to their impact on firm’s innovation activity. In particular:-It investigates empirically and compares the effects of different IS forms of Hard ICT Capital, on both product and process innovation: internal IS (ERP, SCM, CRM, Internal Collaboration IS) as well as the external environment oriented IS (e-Sales IS and e-Procurement IS).-It presents an empirical investigation and comparison of the effects of IS Interoperability (examining compliance with different types of standards) on product and process innovation. More specifically, this study focuses on the effects of the adoption of three different fundamental types of IS Interoperability standards (Industrial, XML – Horizontal and Proprietary) for exchanging data with cooperating firms (suppliers, business partners, customers) on firm’s innovation performance.It examines empirically and compares the impact of different forms of Soft ICT Capital on product and process innovation. In particular, it investigates the effect of five important Soft dimensions of ICT on firm level (ICT organizational structure, personnel, skills, strategy, processes) on firm’s innovation performance, concerning both products/services and processes innovation.Proceeds to a comparison among the above as to their effect on innovation, and also with ‘classical’ innovation determinants (demand expectation, price and non-price competition, market concentration, R&D).And finally, a comparison is made between two countries with different levels of economic development and ICT use (Greece – Switzerland). Taking into account that, as concluded from previous research, the national context can influence the adoption and the use of ICT (e.g. Hofstede and Hofstede, 2005; Leidner and Kayworth, 2006; Ali and Brooks, 2008), and also innovation activity (e.g. Shane, 1993; Williams and McGuire, 2005; Kaasa and Vadi, 2010), it is necessary to investigate the relations between different ICT and innovation in various national contexts (with various levels of economic development, ICT penetration and innovation). For all the above empirical investigations, data were collected through four different sources. The first data source for the present study was collected in the 'e-Business Survey 2006’, which was conducted by the European e-Business Market W@tch (www.ebusiness-watch.org), an observatory organization supported by the European Commission. This study includes 14.065 European firms from 29 countries from 10 sectors. The second dataset was collected in the 'e-Business Survey 2009’ again by the European e-Business Market W@tch. This study includes 676 European firms from 10 countries from 3 sectors. The third dataset was collected through a survey of 271 Greek firms from 27 different industry sectors (covering manufacturing, construction and services), in cooperation with ICAP S.A., one of the largest business information and consulting companies in Greece. The fourth and final dataset was collected using the same questionnaire as the previous dataset, in the same period in Switzerland. This study includes 1.591 firms from industry and services. Our research hypotheses have been tested through LOGIT estimation (logistic regression), which is the most appropriate estimation method, as recommended by the relevant econometric literature, if the dependent variable is binary (Gujarati, 2008).Findings and conclusionsThis Ph.D. Dissertation contributes to filling the abovementioned important research gaps. In particular:It examines different widely used types of enterprise ICT, from a functionality as well as interoperability perspective, as to their impact on firm’s innovation activity. In particular:-It investigates empirically and compares the effects of different forms of Hard ICT Capital on both Product and Process Innovation: Internal IS (ERP, SCM, CRM, Internal Collaboration IS) as well as the external environment oriented IS (e-Sales IS and e-Procurement IS).-It presents an empirical investigation and comparison of the effects of IS Interoperability (examining compliance with different types of standards) on Product and Process Innovation. More specifically, this study focuses on the effects of the adoption of three different fundamental types of IS Interoperability standards (industrial, horizontal and proprietary ones) for exchanging data with cooperating firms (suppliers, business partners, customers) on firm’s innovation performance.It examines empirically and compares the impact of different forms of Soft ICT Capital on Product and Process Innovation. In particular, it investigates the effect of five important soft dimensions of ICT on firm level (ICT organizational structure, personnel, skills, strategy, processes) on firm’s innovation performance, concerning both products/services and processes innovation.Proceeds to a comparison among the above as to their effect on innovation, and also with ‘classical’ innovation determinants (demand expectation, price and non-price competition, market concentration, R&D).And finally, a comparison is made between two countries with different levels of economic development and ICT use (Greece – Switzerland). Taking into account that, as concluded from previous research, the national context can influence the adoption and the use of ICT (e.g. Hofstede and Hofstede, 2005; Leidner and Kayworth, 2006; Ali and Brooks, 2008), and also innovation activity (e.g. Shane, 1993; Williams and McGuire, 2005; Kaasa and Vadi, 2010), it is necessary to investigate the relations between different ICT and innovation in various national contexts (with various levels of economic development, ICT penetration and innovation). The main findings and conclusions are:Regarding the study of the effects on firms’ innovation activity of different forms of Hard ICT, as to their functionality:-As far as the European datasets are concerned, the examined six types of Hard ICT Capital (ERP, CRM, SCM, Internal Collaboration IS, e-Sales, e-Procurement) all have statistically significant positive effects on product and process innovation, but of different magnitudes; so future empirical studies on the effects of ICT on innovation should discriminate between different types of IS.-Some of these effects are so strong that exceed the ones of traditional innovation factors. -The relative importance of different forms of Hard ICT Capital for innovation differs between product/service and process innovation, and is also strongly influenced by sectoral and national context.oAs far as the Swiss results are concerned, e-Sales IS seem to play an important role for both process and product innovation, while Internal IS and e-Procurement have a positive impact only on process innovation.-In the Greek innovation averse environment, ‘classical’ innovation determinants have limited impact on firms’ innovation, but ICT seems to be a strong innovation drive. Swiss and European firms are characterized by a more balanced set of internal and external innovation drivers.Regarding the study of the effects on firms’ innovation activity of different forms of Hard ICT from interoperability perspective (= compliance with various IS Interoperability standards):-The IS interoperability in general, and the adoption of Industry – Specific, XML – Horizontal or Proprietary standards in particular, in firms’ ICT infrastructures for establishing IS interoperability with cooperating firms (e.g. customers, suppliers, business partners), all have positive effects on both product/service and process innovation. The adoption of IS interoperability standards, since it facilitates the communication and data/knowledge exchange with their customers, suppliers and business partners, can promote product and process innovation.-The degree of development of the interoperability of firm’s IS has a very strong positive impact on product innovation, which is a little lower than the impact of the degree of development of internal IS, but is higher than the impacts of the degree of development of e-Sales IS, and also than important traditional innovation factors (R&D, Competition, Human Capital). This is very important if we take into account that internal and e-Sales IS are widely recognized as the main determinants of the extent of ICT business benefits and value at firm level.-A comparison among the three examined IS Interoperability standards showed that the adoption of XML – Horizontal and Industrial standards have the strongest positive impact on firms’ product innovation, while proprietary standards have weaker effect.-The degree of development of interoperability of firm’s IS has a very strong positive impact on process innovation as well, which is lower than the impact of the internal IS, but higher than the impacts of the e-Sales IS, and also more important than traditional innovation factors (R&D, Competition).-A comparison among the three examined IS Interoperability standards showed that the XML – Horizontal and the Industrial standards have the strongest effects on process innovation, while the Proprietary standards have weaker effect.Regarding the study of the effects of different forms of Soft ICT on firms’ innovation activity:-The results of this part of our research reveal the importance of Soft ICT Capital as driver of innovation; they indicate that future research on the impact of ICT on innovation should not any more neglect the Soft ICT Capital, but should consider various types of both Hard and Soft ICT Capital. It has been concluded that the investment on Soft ICT Capital is equally important as the one on Hard ICT Capital from an innovation drive perspective. -As far as the Greek results are concerned it has been concluded that in the innovation averse Greek national context the examined traditional innovation determinants have very low impact on firms’ innovation performance, however on the contrary both Hard ICT Capital, and five out of the six examined types of Soft ICT Capital (ICT personnel, ICT training of ICT personnel and users, ICT strategic planning based on the overall strategic planning of the firm, existence of Service Level Management) have positive impact on both process and product/services innovation. The effects of the five out of the six examined Soft ICT variables on innovation are equally – or even more – important than the main Hard ICT variables (development of Internal IS).-As far as the European results are concerned (first dataset) it is concluded that both the provision of ICT training to firm’s personnel and the employment of ICT practitioners have positive effects on process and product/service innovation. However, (in contrast to Greek results) the main Hard ICT variables (development of Internal IS) are more important than the Soft ICT variables for innovation. This indicates that in national contexts of lower level of economic and technological development the role of ICT practitioners and ICT training for innovation is more important than in the more advanced ones, since in the former there is a lower level of ICT awareness and skills, and also innovation tradition and propensity.-Finally, based on the second European dataset, it has been concluded that from the three examined forms of firm’s human ICT capital it is ICT personnel having attended certified training programs (such as those organized by ICT products and service providers) that has the strongest positive effects on innovation, followed by ICT personnel with a University or College degree, and then by ICT personnel with concluded vocational training.