Get with the Program: Software-Driven Innovation in Traditional Manufacturing

Abstract

This paper documents the increasing importance of software for successful innovation in manufacturing sectors well beyond the traditional definition of electronics and information technology. Using panel data for 229 publicly listed firms from 18 countries across four manufacturing industries over the period 1981–2005, we find significant variation across firms in the software intensity of their innovative activity. Firms that exhibit a higher level of software intensity generate more patents per R&D dollar, and their investment in R&D is more highly valued by equity markets. Data and the online appendix are available at https://doi.org/10.1287/mnsc.2017.2960. This paper was accepted by Anandhi Bharadwaj, information systems.