Justifying Contingent Information Technology Investments: Balancing the Need for Speed of Action with Certainty Before Action

Eric K. Clemons, Bin Gu

Research output: Contribution to journalArticle

28 Citations (Scopus)

Abstract

Executives need to master different mechanisms for analyzing their firms' investment opportunities in uncertain, difficult times. Rapidly changing business conditions require firms to move quickly, with total commitment and the rapid deployment of capital, resources, and management attention, often in several directions at the same time. However, high levels of strategic uncertainty and environmental risk, combined with limits on available funding, require firms to limit their commitment. In brief, we require high levels of strategic commitment to numerous projects, while simultaneously preserving our flexibility and withholding commitment. Whereas achieving both is clearly impossible, techniques exist that enable executives (1) to identify and to delimit their range of investment alternatives that must be considered, and to do so rapidly and reliably, (2) to divide investments into discrete stages that can be implemented sequentially, (3) to determine which chunks can safely and profitably be developed as strategic options, with value that can be captured when subsequent stage investments are made later; and (4) to quantify and to estimate the value of these strategic options with a significant degree of accuracy, so that selections can be made from a portfolio of investment alternatives. This paper also avoids restrictions of common option valuation models by providing a technique that is general enough to be used when the data required by common models are not available or the assumptions are not satisfied.

Original languageEnglish (US)
Pages (from-to)11-48
Number of pages38
JournalJournal of Management Information Systems
Volume20
Issue number2
StatePublished - Sep 2003
Externally publishedYes

Fingerprint

Information technology
information technology
commitment
firm
Values
flexibility
funding
Information technology investment
uncertainty
management
Strategic options
Alternative investments
Industry
Environmental risk
Option valuation
Funding
Firm investment
Strategic commitment
Resources
Strategic uncertainty

Keywords

  • Information technology investments
  • Option valuation
  • Strategic investments
  • Strategic options

ASJC Scopus subject areas

  • Information Systems
  • Management Information Systems
  • Library and Information Sciences
  • Management of Technology and Innovation
  • Strategy and Management

Cite this

@article{12d76d61ff6a4057ac8f571c1ec33eba,
title = "Justifying Contingent Information Technology Investments: Balancing the Need for Speed of Action with Certainty Before Action",
abstract = "Executives need to master different mechanisms for analyzing their firms' investment opportunities in uncertain, difficult times. Rapidly changing business conditions require firms to move quickly, with total commitment and the rapid deployment of capital, resources, and management attention, often in several directions at the same time. However, high levels of strategic uncertainty and environmental risk, combined with limits on available funding, require firms to limit their commitment. In brief, we require high levels of strategic commitment to numerous projects, while simultaneously preserving our flexibility and withholding commitment. Whereas achieving both is clearly impossible, techniques exist that enable executives (1) to identify and to delimit their range of investment alternatives that must be considered, and to do so rapidly and reliably, (2) to divide investments into discrete stages that can be implemented sequentially, (3) to determine which chunks can safely and profitably be developed as strategic options, with value that can be captured when subsequent stage investments are made later; and (4) to quantify and to estimate the value of these strategic options with a significant degree of accuracy, so that selections can be made from a portfolio of investment alternatives. This paper also avoids restrictions of common option valuation models by providing a technique that is general enough to be used when the data required by common models are not available or the assumptions are not satisfied.",
keywords = "Information technology investments, Option valuation, Strategic investments, Strategic options",
author = "Clemons, {Eric K.} and Bin Gu",
year = "2003",
month = "9",
language = "English (US)",
volume = "20",
pages = "11--48",
journal = "Journal of Management Information Systems",
issn = "0742-1222",
publisher = "M.E. Sharpe Inc.",
number = "2",

}

TY - JOUR

T1 - Justifying Contingent Information Technology Investments

T2 - Balancing the Need for Speed of Action with Certainty Before Action

AU - Clemons, Eric K.

AU - Gu, Bin

PY - 2003/9

Y1 - 2003/9

N2 - Executives need to master different mechanisms for analyzing their firms' investment opportunities in uncertain, difficult times. Rapidly changing business conditions require firms to move quickly, with total commitment and the rapid deployment of capital, resources, and management attention, often in several directions at the same time. However, high levels of strategic uncertainty and environmental risk, combined with limits on available funding, require firms to limit their commitment. In brief, we require high levels of strategic commitment to numerous projects, while simultaneously preserving our flexibility and withholding commitment. Whereas achieving both is clearly impossible, techniques exist that enable executives (1) to identify and to delimit their range of investment alternatives that must be considered, and to do so rapidly and reliably, (2) to divide investments into discrete stages that can be implemented sequentially, (3) to determine which chunks can safely and profitably be developed as strategic options, with value that can be captured when subsequent stage investments are made later; and (4) to quantify and to estimate the value of these strategic options with a significant degree of accuracy, so that selections can be made from a portfolio of investment alternatives. This paper also avoids restrictions of common option valuation models by providing a technique that is general enough to be used when the data required by common models are not available or the assumptions are not satisfied.

AB - Executives need to master different mechanisms for analyzing their firms' investment opportunities in uncertain, difficult times. Rapidly changing business conditions require firms to move quickly, with total commitment and the rapid deployment of capital, resources, and management attention, often in several directions at the same time. However, high levels of strategic uncertainty and environmental risk, combined with limits on available funding, require firms to limit their commitment. In brief, we require high levels of strategic commitment to numerous projects, while simultaneously preserving our flexibility and withholding commitment. Whereas achieving both is clearly impossible, techniques exist that enable executives (1) to identify and to delimit their range of investment alternatives that must be considered, and to do so rapidly and reliably, (2) to divide investments into discrete stages that can be implemented sequentially, (3) to determine which chunks can safely and profitably be developed as strategic options, with value that can be captured when subsequent stage investments are made later; and (4) to quantify and to estimate the value of these strategic options with a significant degree of accuracy, so that selections can be made from a portfolio of investment alternatives. This paper also avoids restrictions of common option valuation models by providing a technique that is general enough to be used when the data required by common models are not available or the assumptions are not satisfied.

KW - Information technology investments

KW - Option valuation

KW - Strategic investments

KW - Strategic options

UR - http://www.scopus.com/inward/record.url?scp=0242405940&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=0242405940&partnerID=8YFLogxK

M3 - Article

AN - SCOPUS:0242405940

VL - 20

SP - 11

EP - 48

JO - Journal of Management Information Systems

JF - Journal of Management Information Systems

SN - 0742-1222

IS - 2

ER -