Establishing the Value of Flexibility Created by Training: Applying Real Options Methodology to a Single HR Practice

Authors:
Aleš Berk;Robert Kaše
Affiliations:
Faculty of Economics, University of Ljubljana, 1000 Ljubljana, Slovenia;Faculty of Economics, University of Ljubljana, 1000 Ljubljana, Slovenia
Venue:
Organization Science
Year:
2010

Citing 3
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Abstract

This paper refers to the conceptualizations of strategic flexibility, real options, and human resource (HR) options to build a model for valuing future-oriented and organizational flexibility-enhancing aspects of training. By adopting an indirect approach to measuring HR options by valuing particular investment projects in which human capital is involved, we satisfy the conditions for applying the Black-Scholes option valuation model and avoid the problematic measurement of the stand-alone value of human capital. The proposed valuation model is elucidated by a case study from the mobile telecommunications industry. The results indicate that in rapidly growing markets based on emerging technology, the generation of HR options based on training should be encouraged. Broader applicability and limitations of the valuation model are discussed and directions for further development of the valuation model are given.