One possible explanation for the productivity slowdown in advanced economies coinciding
with widespread digital adoption is that firms need time to change organisational structures
or processes to use the new technologies effectively. Using a unique UK firm-level data
set, we explore the links between a large set of digital inputs and investments and
productivity. We found that large firms are more digital-intensive than small ones and that
digital adopters do have higher productivity than non-adopters, but the nature of the digital
variables matters. Those reflecting in-house capabilities are positively related to firm-level
total factor productivity (TFP) while those indicating bought-in ones are negatively related.
This finding that firms’ capabilities matter for the impact of digital adoption on productivity
takes advantage of the wide range of digital variables we were able to use, and points to
the need for future research on the role of digital technology in driving productivity to take
account of organisational capabilities.
