Indexed on: 05 Nov '14Published on: 05 Nov '14Published in: Electronic Markets
The growing need to innovate with IT requires well-founded analysis of IT innovation investments. However, the time lag between such investments and the realization of an uncertain long-term value contribution challenges companies because of a conflict between short-term corporate management and the desire to maximize the company’s long-term company value. Complexity, inexperience, and high outcome uncertainty also make IT innovation investments risky, particularly as the investments relate to existing hardware, software, and human resources, and can affect the processes, products, and services of nearly every business unit in a company. This paper proposes an integrated long- and short-term valuation approach that incorporates an IT innovation investment’s effect on the value of a company’s IT portfolio. The approach simultaneously accounts for risks and interdependencies, and uses sensitivity analysis in the context of an application example to provide research and practice recommendations.