Is Your IT Investment Benefiting Your Rivals?

by CXOtoday News Desk    Mar 12, 2014

investment IT

When IT companies hire people from other rival firms, they also get the ‘spillover’ benefits of the IT investments made by these firms. A study by Prasanna Tambe of New York University and Lorin M. Hitt of The Wharton School finds that the productivity-growth effect of this flow of workers is 20% to 30% as large as that of the companies’ own IT investments.

“Superior access to the specialized know-how required for implementing new information technologies should lead to higher IT returns and higher productivity levels,” states the study.

The findings suggest that a substantial amount of variation in IT returns can be explained by productivity spillovers generated by IT labor flows. Therefore, firms located in high-tech regions, where IT investment is likely to be much higher, may receive substantial economic benefits (although it is likely that they also face higher costs).

Both managers and policy makers can draw significant inferences from this research. From a managerial perspective, the research findings show that because firms appear to benefit from the IT investments of other firms through labor mobility, managers should pay close attention to “opening” their firms to “spill-ins” of knowledge.

Looking at the potential gains of hiring workers from competing tech firms, these organizations have been implementing various strategies to retain their employees. From motivational HR engagements to pay hikes or other ‘perks,’ companies have started making efforts to slow the defection of staff to competitors. The attention paid to this type of employee mobility by managers and policy makers suggests its economic importance, states the study.