The use of information and communication technologies (ICT) has brought about substantial changes within enterprises and work environment. For example, results from a ZEW survey on the diffusion of ICT reveal that by the end of 2002 about half of all employees in firms in manufacturing and selected service industries were performing their work tasks predominantly with the help of computers.

The increasing computerisation of the work environment has had repercussions on the organisation of workplaces. In particular, technological advances and falling prices of ICT goods and services have led to falling costs of storing and exchanging information. This may explain the increased use of flexible work place practices, such as flattening of hierarchies or team work in firms (functional flexibility). These organisational measures frequently aim at raising flexibility, innovation and productivity. Moreover, ICT applications enable firms to better coordinate processes and product development with the activities of suppliers and clients. As a consequence, outsourcing of business processes is gaining in importance (numerical flexibility). The aim of this project was to investigate these relations between ICT usage, reorganisations and innovative capabilities of products and services based on micro-level data for firms in Germany.

Empirical results from a large and representative data set of firms in Germany show that ICT use is associated with an increase in both functional and numerical flexibility but the implications for innovation activities differ. Functional felxibility is strongly positively associated with product innovations. In contrast, numerical flexibility allows firms to "buy" innovations in the short run, but reduces innovative capacity in the longer run.