Determining Optimal Strategies for Investments in an Emerging IT Innovation

To generate competitive advantages through investments in emerging IT innovations, an economically well-founded investment strategy is of decisive importance, since timing and extent of investment amounts considerably determine the associated risk and return profile. Due to the uncertainty about emerging IT innovations, an early market entry time is associated with high risk, but offer high returns. A later market entry may carry lower risk but only offers lower returns. To take advantage of both investment strategies while reducing their disadvantages, a mix of both investment strategies can be advantageous. Companies often choose strict early or later investment strategies since an adequate assessment of possible combiniation opportunities and risks is not carried out in advance and comp any- and innovation-specific factors are neglected. Thus, we develop a quantitative optimization model enabling the determination of an optimal investment strategy and budget allocation to the two different investment strategies in the sense of maximizing the investment´s overall NPV supplementing previous studies by considering company- and IT innovation-specific factors. We show that strict investment strategies are often disadvantageous, that the amount of the investment budget influences the innovation´s expected NPV and that the company's innovativeness has a strong influence on the innovation budget allocation.