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Workforce agility for stochastically diffused conditions--A real options perspective

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  • Qin, Ruwen
  • Nembhard, David A.

Abstract

Workforce agility is commonly described as a strategy that facilitates profitability in rapidly changing, and uncertain production environments. Agility should be distinguished from the shorter term concept of flexibility, which relates to daily operational issues. A lack of workforce agility has been reported as one of the main reasons that some enterprises have difficulty keeping pace with markets and technological changes. Much of the workforce agility research is at the conceptual level, and where there is a dearth of quantitative modeling and analysis. The essence of promoting workforce agility under stochastically diffused conditions is to maintain workforce intensity (workforce capacity per unit of production) at a relative stable level. We therefore model the decision problem for workforce planning as a series of sequential investments in workforce capacity during the product lifecycle. A real options valuation technique is used to optimize the design of workforce agility for maximum expected return in a stochastically diffused environment. The analysis demonstrates that a real options approach can be an important contributor towards agility, and the importance is magnified at higher levels of demand volatility. By measuring improved agility relative to other strategies, we demonstrate the advantages of the RO-based agility, such as the asymmetric attitudes towards risk exposure and profitability, and the robustness to high uncertainty. We illustrate that the RO-based workforce agility inherits the risk management capability of options, and thus it reduces substantially the sensitivity of production quality to market risks, allowing manufacturers to rapidly and economically adapt to the unexpected changes in the market.

Suggested Citation

  • Qin, Ruwen & Nembhard, David A., 2010. "Workforce agility for stochastically diffused conditions--A real options perspective," International Journal of Production Economics, Elsevier, vol. 125(2), pages 324-334, June.
  • Handle: RePEc:eee:proeco:v:125:y:2010:i:2:p:324-334
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    Cited by:

    1. Patricia Heuser & Peter Letmathe & Matthias Schinner, 2022. "Workforce planning in production with flexible or budgeted employee training and volatile demand," Journal of Business Economics, Springer, vol. 92(7), pages 1093-1124, September.
    2. Asgarnezhad Nouri, Bagher & Mir Mousavi, Masume, 2020. "Effect of cooperative management on organizational agility with the mediating role of employee empowerment in public transportation sector," Cuadernos de Gestión, Universidad del País Vasco - Instituto de Economía Aplicada a la Empresa (IEAE).
    3. Qin, Ruwen & Nembhard, David A., 2012. "Demand modeling of stochastic product diffusion over the life cycle," International Journal of Production Economics, Elsevier, vol. 137(2), pages 201-210.
    4. Najmeh Madadi & Azanizawati Ma’aram & Kuan Yew Wong, 2017. "A simulation-based product diffusion forecasting method using geometric Brownian motion and spline interpolation," Cogent Business & Management, Taylor & Francis Journals, vol. 4(1), pages 1300992-130, January.
    5. Fernandes, Rui & Gouveia, Borges & Pinho, Carlos, 2013. "A real options approach to labour shifts planning under different service level targets," European Journal of Operational Research, Elsevier, vol. 231(1), pages 182-189.
    6. Anna-Theresa Walter, 2021. "Organizational agility: ill-defined and somewhat confusing? A systematic literature review and conceptualization," Management Review Quarterly, Springer, vol. 71(2), pages 343-391, April.
    7. Abderahman Rejeb & John G. Keogh & Samuel Fosso Wamba & Horst Treiblmaier, 2021. "The potentials of augmented reality in supply chain management: a state-of-the-art review," Management Review Quarterly, Springer, vol. 71(4), pages 819-856, October.
    8. Wang, Juite & Yang, Chung-Yu, 2012. "Flexibility planning for managing R&D projects under risk," International Journal of Production Economics, Elsevier, vol. 135(2), pages 823-831.
    9. Trigeorgis, Lenos & Tsekrekos, Andrianos E., 2018. "Real Options in Operations Research: A Review," European Journal of Operational Research, Elsevier, vol. 270(1), pages 1-24.
    10. Marie Doumic & Mathieu Mezache & Benoît Perthame & Edouard Ribes & Delphine Salort, 2017. "Strategic Workforce Planning and sales force : a demographic approach to productivity," Working Papers hal-01449812, HAL.

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