Real Options and IT Platform Adoption: Implications for Theory and Practice

Robert G. Fichman ()
Additional contact information
Robert G. Fichman: Wallace E. Carroll School of Management, Boston College, 452B Fulton Hall, 140 Commonwealth Avenue, Chestnut Hill, Massachusetts 02467-3808

Information Systems Research, 2004, vol. 15, issue 2, 132-154

Abstract: The decision processes surrounding investments in innovative information technology (IT) platforms are complicated by uncertainty about expected payoffs and irreversibilities in the costs of implementation. When uncertainty and irreversibility are high, concepts from real options should be used to properly structure the evaluation and management of investment opportunities, and thereby capture the value of managerial flexibility. However, while innovation researchers have posited that option value can influence the motivations of early adopters, and options researchers have identified emerging IT as a promising area for application of options valuation techniques, there has yet to be a systematic theoretical integration of work on IT innovation and real options.This paper seeks to fill this gap by developing a model of the determinants of option value associated with investments in innovative IT platforms. In so doing, the model addresses a central question in the innovation field: When should a firm take a lead role in innovation with emerging technologies? The analysis begins with an explanation of real options analysis and how it differs from conventional approaches for evaluating new technologies. Then a set of 12 factors—drawn from 4 complementary perspectives on organizational innovation (technology strategy, organizational learning, innovation bandwagons, and technology adaptation)—is synthesized into a model of the option value of IT platform investments. Rationales are provided to explain the direct effects of these factors on option value, and selected interactions among the factors are also considered. Finally, the implications of the model are presented in three areas: predicting IT platform initiation and adoption, valuing IT platform options, and managing IT platform implementation.

Keywords: real options; IT investments; IT platforms; IT adoption; IT innovation (search for similar items in EconPapers)
Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (53)

Downloads: (external link)
http://dx.doi.org/10.1287/isre.1040.0021 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:orisre:v:15:y:2004:i:2:p:132-154

Access Statistics for this article

More articles in Information Systems Research from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().