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Real options can be a powerful tool for quantifying the value of strategic and operational flexibility associated with uncertain IT investments. However, they also constitute a new way of thinking about how projects can be organized and managed to maximize upside potential while minimizing downside risk. Explains how practitioners can incorporate o...
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Compound Real Options with the Pay-off Method: a Three-Stage R&D Case Illustration Compound real options are combinations of real options, where an exercise of a real option opens another real option. Compound real options are commonly found in a number of industrial projects, but are especially relevant in, e.g., research and development (R&D) whe...
In today's volatile global economy, where many organizations face severe pressure to downsize, the “shared services” model, in which a firm merges common functions performed by multiple units into a single service delivery organization, provides an innovative approach to make business more efficient and effective. To successfully implement shared s...
Citations
... Primarily as a method for assessing the financial efficiency of an investment or operating activity, including the value of flexibility (particularly future development opportunities, but not exclusively), using the theory of pricing financial options [3]. Real options, on the other hand, permit a mode of thought and management that enables the analysis, formulation, and active modification of operating activity in light of the uncertainty and flexibility associated with the activity [4]. ...
... We thus have to develop dynamic capabilities for building, integrating, and reconfiguring internal and external innovation resources to sense, seize, and transform opportunities as they materialise (Teece et al., 2016). The agility this requires can be shaped using digital options (Fichman et al., 2005;Sambamurthy et al., 2003). ...
... Now, I'm aware of the range of those variables. (Hub Director) To facilitate discussions on how to deal with uncertainty and delay decision-making the researcher introduced options theory (Fichman et al., 2005;Sambamurthy et al., 2003). Although options theory was initially received as a complex framework, this intervention allowed Hub members to visualise connected car innovation as an open-ended process of renewal for exploring future innovation capabilities and evaluating them in relation to existing capabilities. ...
Options thinking is a powerful approach for managing uncertainty and change in digital environments. It is recognised as a structured process for identifying, developing, and realising options into novel products and services. At Volvo Cars, we have learned it can also become a powerful instrument for innovation renewal, although it can be difficult to apply because it challenges existing firm practices. We elaborate this tension by presenting digital options strategizing as a process of applying options thinking to negotiate capability gaps and configure innovation resources. Our clinical study reveals that this facilitates innovation renewal through emergent processes, practice-oriented design, and opportunity-driven management.
... Rather than having to decide between signals and potentially missing something of value, a middle ground may be to create a portfolio of digital options that organisations can exercise as time and resources permit. Organisations could use IT, for example, to launch pilot projects that scale as needed (option to scale), that can be deferred to a later date (option to defer) or that can be abandoned (option to abandon) if weak signals move in a direction that the organisation considers unfavourable (Fichman et al., 2006). The rise of readily deployable forms of artificial intelligence (AI) and machine learning also means that weak signals might not be seen by a human -unless in unusual circumstancesand so these real options may be exercised by algorithms. ...
As we approach the twentieth anniversary of the publication of the now-classic paper on strategic agility by Sambamurthy et al. (2003), we are reminded that information technology (IT) executives continue to view strategic agility as one of their most enduring challenges (Kappelman et al., 2021). Defined as the extent to which organisations can respond to sudden, disruptive, and unanticipated market events with ease, speed, and dexterity (Sambamurthy et al., 2003; Tallon et al., 2019), strategic agility has come of age in an era where organisations face a host of threats and opportunities from forces both seen and unseen. If done correctly, digital-enabled strategic agility can enable rapid, scalable, and cost effective changes in products, services, and processes but, if done poorly, the price of rigidity and delays can be inordinately high as once-lauded industry giants such as Sears, General Electric, Xerox, and Kodak have discovered (Collins, 2009).
... However, applying these methods to digital options in general and new technologies in particular can be difficult because important model assumptions (e.g., a complete market or certain cashflows) are often not applicable in these contexts and require sometimes artificial work-arounds such as simulation-based approaches (Müller et al., 2016;Ullrich, 2013). At the same time, digital options thinking provides value beyond quantitative valuation (Fichman et al., 2005). It can help managers develop opportunities for IT capability investments without the obligation to pursue them, choose from available options, and electively carry out these investments (Sandberg et al., 2014). ...
... Although it might contribute to it, it mainly enlarges the pool of digital options that may be realized in future. Digital options thinking, thus, also provides value to AI research and practices beyond valuation aspects (Fichman et al., 2005). Digital options theory provides a broad perspective by abstracting from specific use cases and focusing on capability investments that allow for a broad range of applications. ...
Technology-driven challenges, both existing and emerging, require banks to invest in IT capabilities, especially in artificial intelligence (AI). Digital options theory presents a valuable guide rail for these investments. However, the nature of AI as a moving frontier of computing requires certain extensions to established digital option thinking. Based on interviews with 23 experts in the retail banking industry, we highlight the importance of thinking broadly when laying the foundation for AI options and being mindful of the dynamic effects of contextual factors. Drawing from digital options theory and the Technology-Organization-Environment framework as dual lens, our study adds a structured approach to consciously balance resources and AI-related capability investments with a broader consideration of the banking industry’s complex environment. In this way, our study complements recent research on the interplay between incumbents’ resources and digital opportunities.
... Cost, for example, is considered so determinant that some studies suggest delaying the start of the project until a new, less-costly technology is available (Benaroch and Kauffman, 2000) even if such decision can reduce the project benefits, particularly when the project involves the launching of an innovative technology that can bring competitive advantage only to first movers (Sanchez et al. 2017). Organizations must also evaluate the risk of potential losses that technology uncertainty can cause (Fichman et al. 2005), as analyzed also in (Tatikonda and Rosenthal 2000), who studied the relationships between typical characteristics of product development project, including technology, novelty and project outcomes. Innovation objectives would ideally imply to bridge the gap between academic and industrial interests and to advance both academic and practical/industrial knowledge., ...
The choice of proper technologies and frameworks – generally facing tradeoff involving costs, resources, performances and innovation – is a crucial point in Information Systems Development (ISD), necessary to make the system effective, maintainable and easy to develop. In this direction, in this paper we analyze the results achieved with the adoption of a novel Distributed Hybrid System approach blending Multi-Agent Systems programming with Object and Event Programming techniques, used to manage asynchronous events, communication between different modules, and data flows within the refactoring and the expansion of an e-learning application. In particular, we analyze architectural and technology choices with respect to benchmark aspects typically faced in ISD, including integration of research and practice, ease of installation in pre-existing environments, security, data modeling, error correction, cost, multi-tenancy requirements, and computational and memory load. The achieved results demonstrate the success of the hybridization choices for ISD and of the fruitful bridging of research and practice.
... Capital expenditure once made should, from the management accounting perspective, be qualified as sunk cost (Pindyck, 1990). In case of IT investments irreversibility is amplified by the fact that majority of IT assets are firm-specific which means they have very low residual value (though few interesting exceptions have been identified and described in the academic literature) (Fichman, Keil, Tiwana, 2005). Moreover IT investments are in general characterized by uncertain costs and benefits. ...
Abstract: The article "Sharing of teaching staff information via QR-code usage" presented at the conference, which has the common name "Information Systems Management and Evaluation ». One of the most famous information systems in user practice is an information system - "Human Resources Information System" (HRIS), which is essentially a database of the HR organization, which in itself does not provide any management decisions and need a special person who to this database is constantly filled and made changes. In this article, based on the analysis of empirical data is offered a specific solution for database management of HRIS remotely by members of the company. The process of personnel management becomes more effective and operational with the help of one of the technologies IoT- QR code. University Information about the instructors are constantly changing and the human resources department is necessary each time to make changes to the database. There are cases when you need urgent information on the teacher, and it is impossible to obtain an instant on a number of subjective reasons. QR code technology offers amazing features such as: 1. Easy access 2. Deeper relationship with customers 3. Bridge online and offline media 4. Real-time information 5. Invoke user's curiosity These technologies can provide information about the teachers for students, undergraduates, doctoral students, researchers and administration. Files using this technology consist of not only text but also videos in 3D animation. This article describes a practical example of the use of IoT technologies - QR code to improve the efficiency of the automated human resource management system (for example, Almaty Management University).The purpose of this work: to show the ways to improve the information system "Human Resources Information System” (HRIS) through the use of user-friendly, intuitive and fast QR code technology.
The object of study: the work of the personnel department, IC ‘Human Resources Information System’ (HRIS) 6. Research model: observation, cross sectional model 7. Variables: behavioral variables 8. Methodology: analysis of the usage and importance of QR code for users. 9. The results of studies: the formation of stable opinion of the importance of the QR code. 10. Criteria for evaluation of thinking: creativity, innovation and technological advancement 11. Findings: not fully disclosed the potential of QR code technology has a significant impact on society. Practical implications: all the legal information about the instructors optically encoded from paper, which definitely contributes to the idea of open systems. It provides simplicity and high reading speed and user interaction with the information.
Keywords: QR code, human resource information system, new content, IoT and IoE, physical web, file formats 1
... Potential investments that score low on one or both dimensions are unlikely to be funded, whereas those rated high on one or both dimensions stand a greater chance of being funded. Potential investments that fall between these two extremes can be postponed to a later period in the hopes that IT efficiency and business value might improve, abandoned entirely or could be funded in whole or in part based on the availability of IT resources and the firm's risk propensity (Fichman et al. 2006;Tallon et al. 2002). ...
... If these same IT investments were examined through the lenses of digital options, however, it is entirely possible that an IT investment with a negative net present value could still have a positive options value and be funded on that basis. Moving IT to the cloud provides firms with a variety of options which are often overlooked when using a capital budgeting framework: the option to easily and quickly scale an investment, the option to delay a time-sensitive investment, the option to fund a small-scale pilot project, the option to cancel an investment without penalty or sunk cost, and the option to build out an IT investment in stages (Fichman et al. 2006). As such, an options valuation framework may be a better way to think about creating and managing cloud-based IT investments. ...
Firms have consistently struggled to measure the business value of information technology (IT). In an era where IT is transitioning to a services model, firms are replacing capital expenditure with operating expenditure. The implications for IT business value measurement are significant. In this chapter, we examine the state of knowledge about IT business value with particular emphasis on established metrics for IT business value. We then consider how these metrics might be applied to cloud-based services. The move to a services model further provides an opportunity to consider IT business value in a new light by considering how cloud technologies enhance IT agility, how firms can monetise their data, and how firms now have greater flexibility around IT use than ever before.
... In this study, we examine code debt in OSSD projects by adopting a digital options perspective. Stemming from the concept of real options in the finance literature (Black and Scholes 1973), digital options represent the right (but not the obligation) to pursue a larger long-term benefit with a relatively small short-term investment (e.g., Fichman et al. 2005;Tiwana et al. 2007). In the OSSD context, we conceptualize digital options as the right, but not the obligation, for the core development team to invest in new contributions that will enhance project performance. ...
... There are six types of digital options in the extant literature (Fichman et al. 2005). To fit the notion of digital options in the OSSD context, we examine the three most used types: defer, abandon, and growth. ...
... Using the defer option, the core development team can postpone the decision on a contribution request without imperiling the codebase. It buys the core team more time when they are uncertain about the value of the code contribution and want to wait for more signals to support their decision making (Fichman et al. 2005). During this process, the core development team needs to reconsider the architecture of their current software, revisit the codebase to assess the compatibility of the new contribution, and evaluate the ability of the team in maintaining the new code in the long run (Scacchi 2007). ...
In this study, we examine the impact of three commonly used digital options on the accumulation of code debt in open source software development (OSSD) projects. Further, we examine the impact of code debt on three measures of OSSD project performance. Specifically, we hypothesize that increased use of defer options and abandon options is negatively related to the accumulation of code debt, while increased use of growth options is positively related to the accumulation of code debt. Further, we hypothesize that while the accumulation of code debt is negatively related to a project’s market success and the engagement of peripheral developers, it is positively related to the engagement of core developers. To test our hypotheses, we plan to collect and analyze project data from a leading OSSD platform. We expect our findings to provide new theoretical perspectives for researchers and actionable insights for software practitioners.
... Since the mid-1990s, IS researchers have focused attention on the problem of IT project escalation (Keil, 1995;Newman & Sabherwal, 1996) due to frequent media reports of runaway IT projects that seem to take on a life of their own (Asbrand, 1993). Over the years, this topic has become one of enduring interest to both IS researchers (Lee, Keil, & Kasi, 2012;Lee, Lee, & Keil, 2018;Mähring, Keil, Mathiassen, & Pries-Heje, 2008;Pan, Pan, & Flynn, 2004;Pan, Pan, Newman, & Flynn, 2006) and practitioners (Fichman, Keil, & Tiwana, 2005;Keil & Mähring, 2010) because mismanagement of IT projects can lead to multimillion dollar cost overruns (GAO, 2017). While some advances have been made in understanding IT project escalation, industry reports indicate that IT projects continue to experience significant cost and schedule overruns suggesting that the problem has not yet been solved. ...
This research focuses on information technology (IT) project managers' growth mindset concerning IT project management (PM) ability and investigates how such a mindset can promote escalation of commitment to a troubled IT project. Specifically, we suggest that the growth mindset of IT PM ability promotes prospective achievement motivation and can lead IT project managers to escalate their commitment to an IT project despite negative feedback suggesting that the project may not be completed successfully. Through a series of three experiments with 351 IT project managers, we obtained consistent support for our hypotheses suggesting that the growth mindset of IT PM ability promotes IT project escalation and this effect is partially mediated by anticipated regret about project failure and anticipated likelihood of project success. In addition, in the three experiments we found that when the project involves an unfamiliar technology the indirect effect of the growth mindset of IT PM ability through anticipated likelihood of project success is stronger than when the project involves a familiar technology.
... El interés en las opciones reales había ayudado a los académicos a percibir la atención dada por los gerentes corporativos al valor de la flexibilidad gerencial para responder prontamente a los escenarios de incertidumbre (Cobb & Charnes, 2007;Triantis, 2005). Los gerentes pueden seleccionar algunos proyectos no rentables que tienen potencial para generar otras inversiones exitosas (Chan, Cheng, Gunasekaran & Wong, 2012;Iazzolino & Migliano, 2015), expandir o reducir el tamaño de la inversión, abandonar el proyecto o postergar la decisión de inversión (Culp, 2011;Fichman Keil, & Tiwana, 2005), detener las operaciones hasta que las condiciones del entorno mejoren o cambiar la tecnología para adaptarse a las circunstancias macroeconómicas (Crundwell, 2008;Smit & Trigeorgis, 2004). ...
Una investigación descriptiva fue conducida para determinar las prácticas de presupuesto de capital de las empresas de hospedaje asociadas a la Cámara Departamental de Hotelería de Santa Cruz, en Bolivia. Los resultados mostraron que el 42,42% de las empresas nunca había utilizado alguna técnica de presupuesto de capital, y que el 63,64% nunca había determinado un costo de capital para los flujos de efectivo. Las empresas con frecuencia soslayaban a la etapa estratégica de control en el presupuesto de capital. También, las consideraciones a la flexibilidad gerencial fueron notadas en las empresas, a pesar de la poca utilización del enfoque de las opciones reales. Teniendo en cuenta los avances recientes en la teoría sobre el presupuesto de capital, se evidenció una importante brecha entre la teoría y la práctica en el sector hotelero boliviano.
