Fact of the Week: Firms Adopting Digital Technologies Are Nearly 20 Percent More Likely to Implement a Change in Corporate Strategy
Source: van Zeebroeck, et al., “Digital is Strategy: The Role of Digital Technology Adoption in Strategy Renewal,” ULB Institutional Repository, June 2021.
Commentary: Newly emerging technologies tend to increase firm productivity by allowing capital to be used more efficiently, chains of production to be better coordinated, and outdated technologies to be phased out sooner. All else equal, new technologies complement existing corporate strategies and business models. Innovations in technology can also lead to greater competition between firms by providing new tools to evolve an industry’s best practices. However, new corporate strategies motivated by the adoption of digital technologies put additional risk on experimenting firms. The net effect of incentives to develop new strategies using digital technology and disincentives to adopt new strategies that could bring greater risks is ambiguous.
To address this economic uncertainty, a team of researchers with the Université libre de Bruxelles conducted a quantitative analysis of survey data collected from more than 2,400 firms in North America, Europe, and Asia. Survey data required detailed responses about technology use within the firms and business strategy at the corporate level. Econometric analysis of survey data found that firms’ adoption of digital technologies was positively correlated and highly statistically significant to the probability of new strategy being implemented at the corporate level. Firms implementing at least one new digital technology were 19 percent more likely to change business strategies than firms maintaining their current stock of technology. Research also identified an increasing marginal likelihood of strategy innovations brought by a firm’s adoption of multiple technologies. Innovations in digital technology lead to innovations in business practices at large. Policymakers should support industries adopting digital technologies and help overcome costs of complementarity, as doing so creates more productive and competitive firms better suited for a digitalized economy.
