How Companies Can Capitalize on Free Outside Knowledge

New enterprise software investments can lead to big benefits for firms by enabling business process innovations, but implementation is notoriously difficult. Having IT professionals with the right combination of both technical and business process knowledge is critical to a quick and successful adoption. When the company does not have the required expertise in-house, it may have to turn to consultants for help or hire workers who have acquired the skill elsewhere. Now companies are also getting help from informal channels—such as online knowledge communities—for free. That’s called knowledge spillover, and research from the University of Maryland’s Robert H. Smith School of Business shows that while obtaining knowledge spillovers may be free, capitalizing on them is usually not.

Peng Huang, associate professor of information systems, and three co-authors looked at the productivity implications for firms when their IT employees sought help with new technology in online discussion forums, which are widely used in the enterprise software and IT communities for solving problems and sharing information.

Huang and his co-authors use a framework involving absorptive capacity—defined by previous researchers as a firm’s ability to assimilate external knowledge, transform it, and apply it to commercial ends—to a new IT context for the research, published in Information Systems Research.

They employed a novel measurement strategy to look at activities in an online discussion forum used by firms to get helpful information to deploy IT systems, and use them as the source of knowledge spillovers.

The researchers show that IT spillovers—here, acquired through employees’ participation in the online forum—only have benefits for firms that previously made significant investments in related information technologies. In other words, firms with greater absorptive capacity. How well firms can assimilate and benefit from their new IT investments also depend on how new the software is and whether there is enough external knowledge to be shared about it.

“Our results show that IT spillovers are not ‘free;’ the ability to derive the value of IT spillover through information channels—such as online communities—critically depends on both prior related IT investments by the recipient firm and the novelty of external knowledge,” the researchers write.

They also find that when the knowledge comes from relatively new or emerging domains, such as newly launched forums, the role of prior related knowledge in absorbing spillovers becomes even more important.

“However, it is precisely in these environments that prior investments in enterprise software have their most significant impact on facilitating the absorption of knowledge and, thus, increasing a firm’s productivity,” say the researchers.

Only firms that have previously made significant investment in enterprise software can have sufficient human capital accumulation and therefore benefit from IT knowledge spillovers when implementing new enterprise software. That’s why it’s so important for firms to continue to invest in IT, say the researchers.

Read the research, “IT Knowledge Spillovers, Absorptive Capacity, and Productivity: Evidence from Enterprise Software,” in Information Systems Research.