The value of managerial flexibility in strategic IT investment: identify the real options of resource allocation

Authors:
Xiaotong Li;John D. Johnson
Affiliations:
University of Alabama in Huntsville;University of Mississippi
Venue:
Advanced topics in information resources management
Year:
2003

Citing 17
Cited 0

Evaluation of strategic investments in information technology

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Abstract

In this chapter, we discuss the real options theory and its applications in IT investment evaluation. We provide a framework within which the appropriateness of using real options theory in strategic IT investment evaluation is systematically justified. In our framework, IT investment opportunities are classified into four categories based on two criteria: the technology switching costs and the nature of competition. We point out that different real options models should be adopted for each category. The electronic brokerage's investment decision in wireless technology is discussed as a real-world case within the framework. Our study also provides some insights about the relationship between technology standardization and IT investment decisions.