Final answer:
Firms allocate investment in data capabilities to align with both present and future business requirements, contributing to economic growth and allowing them to be competitive in an evolving technological landscape. Investments during economic expansions enable firms to capitalize on higher profits and potentially lead to increased market share in winner-take-all markets.
Step-by-step explanation:
The allocation of firm investment in data capabilities is a strategic decision that should be aligned with both current and future business needs. During economic expansion, when consumer demand is high and profits are increasing, firms typically invest in new equipment and infrastructure to add capacity. This investment is essential to fuel sustained economic growth, as evidenced by U.S. firms investing $1.4 trillion even in a sluggish economy like that of 2009. The assumption is that such investments position the firm to reap higher profits in the future.
Moreover, with the advent of new information and communications technologies, firms are faced with the decision to either leverage technology for expansion and potentially become larger entities or remain small and agile, capitalizing on the ability to reach customers globally. This technology incentivizes investment in improved data capabilities that can support a firm's goal of growth or efficiency in an increasingly competitive and technologically advanced market landscape.
Investments in new technology, including data capabilities, can thus be considered a cornerstone for a firm's growth strategy, particularly in industries characterized by 'winner-take-all' markets.