The use of options theory to value research in the service sector

The use of options theory to value research in the service sector This paper examines the practicalities of applying real options theory to valuing research in the service sector, where the relationship between research and subsequent business benefit is less easily discerned than in most previous applications of options theory in, e.g. the pharmaceutical industry. The paper uses a compound options model, the Geske model, based on a three‐phase lifecycle consisting of research, development and deployment. This model was applied in a case study within the e‐commerce area to extract key messages for R&D managers relating to different value drivers. However, the case study emphasized the need to understand the relationship between the research activity and the subsequent revenue stream, and to be able to demonstrate the extent to which the former is necessary for the latter. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png R & D Management Wiley

The use of options theory to value research in the service sector

R & D Management, Volume 31 (2) – Apr 1, 2001

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Publisher
Wiley
Copyright
Blackwell Publishers Ltd 2001
ISSN
0033-6807
eISSN
1467-9310
DOI
10.1111/1467-9310.00207
Publisher site
See Article on Publisher Site

Abstract

This paper examines the practicalities of applying real options theory to valuing research in the service sector, where the relationship between research and subsequent business benefit is less easily discerned than in most previous applications of options theory in, e.g. the pharmaceutical industry. The paper uses a compound options model, the Geske model, based on a three‐phase lifecycle consisting of research, development and deployment. This model was applied in a case study within the e‐commerce area to extract key messages for R&D managers relating to different value drivers. However, the case study emphasized the need to understand the relationship between the research activity and the subsequent revenue stream, and to be able to demonstrate the extent to which the former is necessary for the latter.

Journal

R & D ManagementWiley

Published: Apr 1, 2001

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