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Management article
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Reference no. SMR49209
Authors: - Various
Published by: MIT Sloan School of Management
Published in: "MIT Sloan Management Review", 2007
Length: 3 pages
Data source: Field research

Abstract

Take productivity-boosting intranets, for example, the private Internet capabilities that enable companies to improve information sharing and collaboration within a company. Developing such projects often requires a substantial investment of resources, largely devoted to programming talent. One source of programmers, of course, is a company''s information technology staff, whether from the particular office or transferred from other field offices. Further reasoning that large companies, those with multiple offices, had more resources to implement cutting-edge technologies, the authors expected to find higher rates of investment for field offices of larger companies than for single-office companies. But rural companies may not have the option to buy. ''Single establishments in rural areas are at a disadvantage, particularly for this technology'', says Greenstein. As expected, the rural penalty was less noticeable for rural offices belonging to large companies. ''Clearly, being part of a large organization helps and it partially overcomes isolation'', Greenstein says. What this tells companies is that cities and their creative classes are attractive locations because of their ability to feed innovation, higher cost of living notwithstanding. The larger populations of urban areas make it easier to invest in discrete process improvements. In fact, the authors found that cities with a greater population of information technology (IT) workers were associated with an increased likelihood of intranet investment, cementing the relationship between urban work forces and innovation. Although larger companies may care less, because they have the resources to initiate process improvements on their own, smaller enterprises might consider the innovative potential of the neighborhoods in which they open offices. But urban benefits extend only ''to the extent that [innovation] involves thick labor markets that sit proportionately in urban areas'', Greenstein says. It might not be relevant for, say, cutting-edge tractor technology or numerically controlled machine tools, he says, because labor markets for skilled technicians are spotty and not necessarily diffuse throughout different populations, unlike programmers. In addition, product innovation may require internal resources and local talent. In research-and-development-intensive industries, like pharmaceuticals, for example, Greenstein explains that ''it really does help to be sitting next to another pharmaceutical company. You end up sharing a labor market and sharing technical talent. What that effectively means is that for R&D-intensive output, your internal resources are a complement, not a substitute, to your location. You might think there''s some substitution, but it would be less binding than with process [innovation]''.

About

Abstract

Take productivity-boosting intranets, for example, the private Internet capabilities that enable companies to improve information sharing and collaboration within a company. Developing such projects often requires a substantial investment of resources, largely devoted to programming talent. One source of programmers, of course, is a company''s information technology staff, whether from the particular office or transferred from other field offices. Further reasoning that large companies, those with multiple offices, had more resources to implement cutting-edge technologies, the authors expected to find higher rates of investment for field offices of larger companies than for single-office companies. But rural companies may not have the option to buy. ''Single establishments in rural areas are at a disadvantage, particularly for this technology'', says Greenstein. As expected, the rural penalty was less noticeable for rural offices belonging to large companies. ''Clearly, being part of a large organization helps and it partially overcomes isolation'', Greenstein says. What this tells companies is that cities and their creative classes are attractive locations because of their ability to feed innovation, higher cost of living notwithstanding. The larger populations of urban areas make it easier to invest in discrete process improvements. In fact, the authors found that cities with a greater population of information technology (IT) workers were associated with an increased likelihood of intranet investment, cementing the relationship between urban work forces and innovation. Although larger companies may care less, because they have the resources to initiate process improvements on their own, smaller enterprises might consider the innovative potential of the neighborhoods in which they open offices. But urban benefits extend only ''to the extent that [innovation] involves thick labor markets that sit proportionately in urban areas'', Greenstein says. It might not be relevant for, say, cutting-edge tractor technology or numerically controlled machine tools, he says, because labor markets for skilled technicians are spotty and not necessarily diffuse throughout different populations, unlike programmers. In addition, product innovation may require internal resources and local talent. In research-and-development-intensive industries, like pharmaceuticals, for example, Greenstein explains that ''it really does help to be sitting next to another pharmaceutical company. You end up sharing a labor market and sharing technical talent. What that effectively means is that for R&D-intensive output, your internal resources are a complement, not a substitute, to your location. You might think there''s some substitution, but it would be less binding than with process [innovation]''.

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