Digitalization of Production, Human Capital, and Organizational Capital

Abstract

Many observers agree that digitalization has triggered a transformation leading to the second machine age. However, it has taken the second machine age surprisingly long to materialize, and investments in information technology (IT) alone do not achieve productivity increases in the workplace. To explain such puzzles, this chapter evokes the twin concepts of human capital and organizational capital. These are intangible assets which may provide a firm with competitive advantages. In the second machine age, the important human and organizational capital mainly consists of a “holistic work organization,” with teamwork, decentralized decision-making, and broadly defined jobs. Paradoxically, such intangible assets will only provide a firm with sustained competitive advantage if they are ill-understood and complex: only then are competitors unable to imitate the assets. Furthermore, building the human and organizational capital necessary to reap the benefits of digitalization is time-consuming and depends on the firm’s history and institutional environment. The paper closes by discussing the competitiveness of German firms in the digitalization process.