Investing in hardware vs. software of digital systems for innovation outcomes: A contingency view

Abstract

In digital systems, hardware and software are two key components. Typically, hardware is tied to a specific device and location with a technical dominant nature within a business unit, whereas software is a non-physical asset that has a functional dominant nature and is deployed mostly across multiple business units. Thus, compared with hardware investment, software investment results in changes to a firm on a relatively larger scale. This study compares the effects of hardware and software investments on innovation outcomes by coupling with investment strategies (i.e., investment in a current digital system for exploitation and in a new digital system for exploration). This study utilizes the Korean Innovation Survey in 2020, which disaggregates digital system investment into hardware and software domains, to demonstrate that innovation outcomes are more significantly impacted by current hardware investment than by current software investment. Conversely, new software investment impacts innovation outcomes more than new hardware investment does. The study highlights that firms must align their investments in hardware and software with their investment strategies to increase innovation outcomes, given the nature of hardware and software. © 2024 Elsevier Inc.