Journal ArticleDOI
Software growth options
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Methods for evaluating sequential exchange options in order to obtain estimates for the value of software growth options--that is, IS functions that are embedded in an IT platform and that can be employed once the particular base system is installed and their use is economically justified are examined.Abstract:
Today's business environment is characterized by global competition and buyers' markets. Under such conditions, flexible response to changes in the environment is a key success factor for any firm. Consequently, there is increasing pressure for information systems to be readily adaptable to changing business processes. This paper investigates ways of introducing this aspect of IS extendability into quantitative IT investment decision models via the application of real options models. In particular, it examines methods for evaluating sequential exchange options in order to obtain estimates for the value of software growth options--that is, IS functions that are embedded in an IT platform and that can be employed once the particular base system is installed and their use is economically justified. On the basis of these models, we look at the determinants of the value of software growth options and draw general conclusions with regard to decision making in the field of IT investment.read more
Citations
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Real Options and IT Platform Adoption: Implications for Theory and Practice
TL;DR: A model of the determinants of option value associated with investments in innovative IT platforms is developed, addressing a central question in the innovation field: When should a firm take a lead role in innovation with emerging technologies.
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Managing Information Technology Investment Risk: A Real Options Perspective
TL;DR: An approach for managing IT investment risk that helps to rationally choose which options to deliberately embed in an investment so as to optimally control the balance between risk and reward is presented.
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Options analysis of software platform decisions: a case study
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ERP selection process in midsize and large organizations
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References
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Book
Investment Under Uncertainty
Avinash Dixit,Robert S. Pindyck +1 more
TL;DR: In this article, Dixit and Pindyck provide the first detailed exposition of a new theoretical approach to the capital investment decisions of firms, stressing the irreversibility of most investment decisions, and the ongoing uncertainty of the economic environment in which these decisions are made.
Book
Real Options: Managerial Flexibility and Strategy in Resource Allocation
TL;DR: Real Options as mentioned in this paper reviews current techniques of capital budgeting and details an approach (based on the pricing of options) that provides a means of quantifying the elusive elements of managerial flexibility in the face of unexpected changes in the market.
Journal ArticleDOI
The value of an option to exchange one asset for another
TL;DR: In this article, the authors developed an equation for the value of the option to exchange one risky asset for another: the investment adviser's performance incentive fee, the general margin account, the exchange offer, and the standby commitment.
Journal ArticleDOI
The valuation of compound options
TL;DR: In this article, the authors present a theory for pricing options on options, or compound options, which can be generalized to value many corporate liabilities, and derive a new model for puts and calls corrects some important biases of the Black-Scholes model.
Journal ArticleDOI
Business value of information technology: a study of electronic data interchange
TL;DR: This study estimates the dollar benefits of improved information exchanges between Chrysler and its suppliers that result from using EDI and concludes that system wide, this translates to annual savings of $220 million for the company.