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Exposing and selling the use of web services—an option to be considered in make-or-buy decision-making
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2016 | Decision Support Systems | Citations: 0
Authors: Zimmermann, Steffen; Müller, Marcel; Heinrich, Bernd

Abstract: The emergence of the web service market has enabled firms to choose between deve ... Expand

Abstract: The emergence of the web service market has enabled firms to choose between developing web services internally and purchasing them externally from web service providers. In general, these so-called make-or-buy decisions have been the object of intense debate in the IT outsourcing literature. However, characteristics of web services such as loose coupling and the current trend of digitalizing application interfaces enable new opportunities especially to non-software firms: when a firm decides to develop a web service internally (make-decision), it has the option of exposing and selling the use of this web service after its internal development (sell option). In this paper, we propose a normative approach for the valuation of such a sell option based on real option theory, taking into account the characteristics of web services. This approach enhances traditional make-or-buy approaches by additionally considering this sell option in decision-making. Our results are twofold: (I) the sell option has considerable impact on traditional make-or-buy decisions and makes the internal development of web services more attractive; (II) it is preferable to execute the sell option as soon as possible after completion of the internal development of the web service. Collapse

Semantic filters: longitudinal research options theory

Topics: web service decision making real option IT investment business model

Methods: qualitative interview sensitivity analysis stochastic model simulation time series analysis

Theories: options theory
Corporate Structure, Indirect Bankruptcy Costs, and the Advantage of De Novo Firms: The Case of Gene Therapy Research
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2014 | Organization Science | Citations: 0
Authors: Sosa, M. Lourdes

Abstract: Current literature demonstrates that, at least initially, incumbents invest less ... Expand

Abstract: Current literature demonstrates that, at least initially, incumbents invest less in the in-house development of a new technology than do entrants, whether diversifying or de novo; this is because, for incumbents, new technology challenges managers’ mental models through changes in capabilities, revenue models, or product features. What has not been explored, despite its significance for strategic action, is whether (and if so, why) incumbent, diversifying, and de novo firms might invest differently across variants of a new technology through a discontinuity. This paper uses unique quantitative, archival, and interview data on the investment choices of incumbent, diversifying, and de novo firms around three variants of biotechnology—small-molecule, large-molecule and gene therapy drugs—to show there are differences in investment choices across groups of firms and to suggest that these can be explained through differences in volatility of outcomes across variants. When volatility in product performance generates volatility in firm-level outcomes, de novo firms can cap negative consequences through bankruptcy, an alternative that is extremely costly for established firms (whether incumbent or diversifying), given their complex corporate structure. By keeping indirect bankruptcy costs low, de novo firms’ simple corporate structure allows them to extract option value from volatility, making established versus de novo firms the key groups for analysis of investment choices, not incumbent versus entrant firms. This article thus identifies the interaction between a technological investment’s volatility and de novo firms’ simple corporate structure as the explanatory variable for the observed investment differences. I discuss implications for technology strategy and the competitive analysis of discontinuities. Collapse

Semantic filters: longitudinal research options theory

Topics: research and development database system organization structure risk management information systems strategy

Methods: qualitative interview archival research case study experiment statistical hypothesis test

Theories: options theory

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Found 2 articles

Exposing and selling the use of web services—an option to be considered in make-or-buy decision-making

Corporate Structure, Indirect Bankruptcy Costs, and the Advantage of De Novo Firms: The Case of Gene Therapy Research