Growth, Transformation and Digital Capital: The Importance of Technological and Organizational Architecture

58 Pages Posted: 6 Jul 2021 Last revised: 15 Dec 2021

See all articles by Ruiqing Cao

Ruiqing Cao

Harvard Business School

Marco Iansiti

Harvard University - Business School (HBS)

Date Written: September 25, 2021

Abstract

The benefits to data analytics and machine learning have been distributed unevenly across firms around the world. Research on IT productivity points to intangible capital as a key driver of value creation from innovation in computing. We argue that a crucial component of intangible capital is organization-wide technological architecture, which is idiosyncratic and difficult to measure. We use a novel survey instrument to quantify large corporations’ data architecture capabilities by their closeness to “best practices” of frontier digital companies. Using the prevalence of third-party maintenance as a proxy for legacy servers before 2016 and an instrument for data architecture coherence, we find that improving data architecture coherence leads to more intensive machine learning capabilities and substantially higher productivity growth in the subsequent three-year period. Legacy servers reduce data architecture coherence particularly at corporations with complex software systems, consistent with the hypothesis that costs of digital transformation are greater when workers need to develop more complicated co-invention processes to interact with technical systems.

Suggested Citation

Cao, Ruiqing and Iansiti, Marco, Growth, Transformation and Digital Capital: The Importance of Technological and Organizational Architecture (September 25, 2021). Harvard Business School Research Paper Series No. 21-122, Available at SSRN: https://ssrn.com/abstract=3874116 or http://dx.doi.org/10.2139/ssrn.3874116

Ruiqing Cao (Contact Author)

Harvard Business School ( email )

Cambridge, MA 02138
United States

Marco Iansiti

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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