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The authors gather detailed data on organizational practices from 253 firms to examine the hypothesis that external focus - the ability of a firm to detect and therefore respond to changes in its external operating environment - increases returns to information technology, especially when combined with decentralized decision-making. First, using survey-based measures, they find that external focus is highly correlated with organizational decentralization and IT investment. Second, they find that a cluster of practices including external focus, decentralization and IT is associated with improved product innovation capabilities. Third, they develop and test a 3-way complementarities model that indicates that the combination of external focus, decentralization and IT is associated with significantly higher productivity.
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