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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.

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.

Suggested Citation

  • MacDougall, Shelley L. & Pike, Richard H., 2003. "Consider your options: changes to strategic value during implementation of advanced manufacturing technology," Omega, Elsevier, vol. 31(1), pages 1-15, February.
    • Handle: RePEc:eee:jomega:v:31:y:2003:i:1:p:1-15
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    References listed on IDEAS

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    1. Armerin, Fredrik & Song, Han-Suck, 2020. "A framework for modelling cash flow lags," Working Paper Series 20/17, Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance.
    2. 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, Accounting and Management, vol. 57(3), pages 115-145, julio-sep.
    3. 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.
    4. Bello Taofik Abidemi & Fairol Bin Halim & Ahmad Alshauibi, 2018. "Moderating Role of Environmental Dynamism on the Relationship between Service Marketing Mix, Marketing Orientation and Microfinance Performance: A Conceptual Model," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 4(3), pages 40-46, September.
    5. 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.
    6. Abdullahi Hassan Gorondutse, 2013. "An Examination of Business Social Responsibility (BSR) On the Local Environment: A Proposed Framework on the Relationship between BSR and Small and Medium Enterprises (SMEs) Performance," Information Management and Business Review, AMH International, vol. 5(2), pages 66-72.
    7. Ahmed Abubakar & Haim Hilman & Narentheren Kaliappen, 2018. "New Tools for Measuring Global Academic Performance," SAGE Open, , vol. 8(3), pages 21582440187, July.
    8. Aleš Berk & Robert Kaše, 2010. "Establishing the Value of Flexibility Created by Training: Applying Real Options Methodology to a Single HR Practice," Organization Science, INFORMS, vol. 21(3), pages 765-780, June.
    9. 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.
    10. Alkaraan, Fadi & Northcott, Deryl, 2006. "Strategic capital investment decision-making: A role for emergent analysis tools?," The British Accounting Review, Elsevier, vol. 38(2), pages 149-173.
    11. Fredrik Armerin & Han-Suck Song, 2021. "A framework for modelling cash flow lags," SN Business & Economics, Springer, vol. 1(10), pages 1-13, October.
    12. Dulluri, Sandeep & Raghavan, N.R. Srinivasa, 2008. "Collaboration in tool development and capacity investments in high technology manufacturing networks," European Journal of Operational Research, Elsevier, vol. 187(3), pages 962-977, June.
    13. Ali, Irfan, 2016. "The impact of ERP implementation on the financial performance of the firm : An empirical study," Other publications TiSEM 876506f5-1aed-4421-aa2c-0, Tilburg University, School of Economics and Management.
    14. Kim, Ki Hong & Hwang, Seong Tae & Oh, Hyung Sik & Lee, Deok Joo, 2008. "The impact of investment lags on investment decision," European Journal of Operational Research, Elsevier, vol. 190(3), pages 696-707, November.
    15. Stornelli, Aldo & Ozcan, Sercan & Simms, Christopher, 2021. "Advanced manufacturing technology adoption and innovation: A systematic literature review on barriers, enablers, and innovation types," Research Policy, Elsevier, vol. 50(6).

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