Strategic Implications of Computer-Assisted Routines

David James Brunner

Harvard Business School

dbrunner@hbs.edu

Researchers have found that electronic information technology (IT) increases productivity, reduces the costs of coordination and decentralized decision-making, facilitates monitoring and analysis, and complements human and organizational capital. Yet despite the profound influence of IT on business organizations, studies of the relationship between IT investment and firm-level performance have produced conflicting and inconclusive results. As a result, the strategic value of IT remains contested.

One possible cause of confusion is that IT investment includes both tradable assets (hardware and software) and computer-assisted routines-organizational processes that involve coordinated action by humans and computer systems. In contrast to tradable assets, organizational routines are difficult to purchase or imitate, and thus have potential strategic value. Examples of computer-assisted routines include inventory systems that combine automatic re-ordering of components with human oversight, and financial planning routines where a human planner interacts with a software application to simulate, analyze, and select between alternative investment allocations.

Compared to traditional routines, computer-assisted routines make more efficient use of human attention. In a computer-assisted routine, repetitive subtasks are delegated to computerized subroutines that can be largely ignored: they require little or no monitoring, have no need for incentives, and are devoid of the “personal issues” often associated with human employees. This frees human employees to focus on higher level problems. According to established theory, human attention limits the growth rate of the firm. If computer-assisted routines free up human attention, they should enable faster business growth. This relationship should be moderated by growth aspirations, which determine whether the firm seeks to grow or not. Also, the relationship should be stronger for firms with more complex-and therefore attention-intensive-business models.

I test these hypotheses using cross-sectional data from a sample of several hundred small wealth management firms. These firms help upper middle-class individuals manage their savings and plan for retirement. Preliminary results show a strong correlation between adoption of computer-assisted routines and business growth rate. As predicted by theory, the relationship appears to be positively moderated by both growth aspirations and business complexity.

My dissertation, which includes the above study as well as several other quantitative and qualitative analyses, seeks to bring together insights from strategy (routines as strategic resources), organization theory (information processing and bounded rationality), and information technology.