Consider your options: changes to strategic value during implementation of advanced manufacturing technology
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.
Volume (Year): 31 (2003)
Issue (Month): 1 (February)
|Contact details of provider:|| Web page: http://www.elsevier.com/wps/find/journaldescription.cws_home/375/description#description|
|Order Information:|| Postal: http://www.elsevier.com/wps/find/supportfaq.cws_home/regional|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Merton, Robert C., 1977. "On the pricing of contingent claims and the Modigliani-Miller theorem," Journal of Financial Economics, Elsevier, vol. 5(2), pages 241-249, November.
- Sydney D. Howell & Axel J. Jägle, 1997. "Laboratory Evidence on How Managers Intuitively Value Real Growth Options," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(7&8), pages 915-935.
- Richard Pike, 1997. ""Discussion of" Laboratory Evidence on How Managers Intuitively Value Real Options," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(7&8), pages 937-941.
- Alvarez, Luis H. R. & Keppo, Jussi, 2002. "The impact of delivery lags on irreversible investment under uncertainty," European Journal of Operational Research, Elsevier, vol. 136(1), pages 173-180, January.
- Majd, Saman & Pindyck, Robert S., 1987.
"Time to build, option value, and investment decisions,"
Journal of Financial Economics,
Elsevier, vol. 18(1), pages 7-27, March.
- Saman Majd & Robert S. Pindyck, 1985. "Time to Build, Option Value, and Investment Decisions," NBER Working Papers 1654, National Bureau of Economic Research, Inc.
- Trigeorgis, Lenos, 1993. "The Nature of Option Interactions and the Valuation of Investments with Multiple Real Options," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(01), pages 1-20, March.
- Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 707-727.
- Childs, Paul D. & Ott, Steven H. & Triantis, Alexander J., 1998. "Capital Budgeting for Interrelated Projects: A Real Options Approach," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(03), pages 305-334, September.
- Bar-Ilan, Avner & Strange, William C, 1996. "Investment Lags," American Economic Review, American Economic Association, vol. 86(3), pages 610-622, June.
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
- Voss, C. A., 1988. "Implementation: A key issue in manufacturing technology: The need for a field of study," Research Policy, Elsevier, vol. 17(2), pages 55-63, April.
- Leonard-Barton, Dorothy, 1988. "Implementation as mutual adaptation of technology and organization," Research Policy, Elsevier, vol. 17(5), pages 251-267, October.
- Lenos Trigeorgis, 1993. "Real Options and Interactions With Financial Flexibility," Financial Management, Financial Management Association, vol. 22(3), Fall.
- Triantis, Alexander J & Hodder, James E, 1990. " Valuing Flexibility as a Complex Option," Journal of Finance, American Finance Association, vol. 45(2), pages 549-565, June.
- Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
- Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eee:jomega:v:31:y:2003:i:1:p:1-15. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.