Hierarchical business value of information technology: Toward a digital innovation value chain

Information technology (IT) increasingly changes the ways through which firms develop and commercialize innovation. Prior studies have mainly focused on the direct effect of IT use on innovation performance, while little is known about how IT use for different purposes in the innovation processes leads to innovation performance at the organizational level. Drawing on the routine-based absorptive capacity (AC) framework, we conceptualize IT use for knowledge search and relational search as IT-enabled internal and external AC routines and unveil the hierarchical benefits resulting from IT use for innovation. We propose a model in which firms need to purposefully use IT to search for knowledge in the new product development process or search for relationships in the collaborative innovation process, leading to first-order benefits (i.e., internal innovation benefits and open innovation benefits) and, in turn, second-order benefits (i.e., innovation performance). By using a unique data set from 1028 German firms between 2003 and 2007, we find that IT use for knowledge search enhances internal innovation benefits, whereas IT use for relational search increases open innovation benefits. More importantly, internal and open innovation benefits mediate the relationships between IT use for knowledge and relational search and various innovation performance measures. Taken together, our findings shed light on a deeper understanding of the digital innovation value chain.