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Consider your options: changes to strategic value during implementation of advanced manufacturing technology

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  • MacDougall, Shelley L.
  • Pike, Richard H.
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    Abstract

    Strategic investments such as flexible manufacturing technology yield benefits to a company beyond the immediate cash flows. These strategic benefits can be captured, to some degree, using real option valuation techniques. However, real option models presume these can be identified and evaluated at an early stage in the investment process. In this paper, the authors argue real option value is often only vaguely defined at the adoption stage and frequently manifest during implementation. By examining four advanced manufacturing technology investments during implementation within different organizations, this study qualitatively explores the changes to original real options as unanticipated problems surface and solutions are found and implemented. The study found that as the companies adapted to implementation setbacks, the form, scale, value and clarity of the real options changed. For three of the companies, the changes to options were negative while the fourth case indicated positive effects. Most prevalent were delays in the earliest possible exercise date. The results highlight the need to consider changes to strategic value as companies adapt to setbacks that arise during project implementation. Implications for the evaluation of such projects are discussed.

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    Bibliographic Info

    Article provided by Elsevier in its journal Omega.

    Volume (Year): 31 (2003)
    Issue (Month): 1 (February)
    Pages: 1-15

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    Handle: RePEc:eee:jomega:v:31:y:2003:i:1:p:1-15

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    Related research

    Keywords: Implementation Advanced manufacturing technology (AMT) Strategic investments Case study Capital budgeting Real options Investment lag;

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    Cited by:
    1. Zhou, Honggeng & Keong Leong, G. & Jonsson, Patrik & Sum, Chee-Chuong, 2009. "A comparative study of advanced manufacturing technology and manufacturing infrastructure investments in Singapore and Sweden," International Journal of Production Economics, Elsevier, vol. 120(1), pages 42-53, July.
    2. Driouchi, Tarik & Leseure, Michel & Bennett, David, 2009. "A robustness framework for monitoring real options under uncertainty," Omega, Elsevier, vol. 37(3), pages 698-710, June.
    3. Álvarez Echeverría Francisco & López Sarabia Pablo & Venegas Martínez Francisco, 2012. "Valuación financiera de proyectos de inversión en nuevas tecnologías con opciones reales," Contaduría y Administración:Revista Internacional, Accounting and Management: International Journal, vol. 57(3), pages 115-145, julio-sep.
    4. Francisco Álvarez Echeverría & Pablo López Sarabia & Francisco Venegas-Martínez, 2012. "Valuación económica de proyectos energéticos mediante opciones reales: el caso de energía nuclear en México," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 75-98, May.

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