AbstractsBusiness Management & Administration

Assessing the impact of XML/EDI with real option valuation

by Shermin Voshmgir

Institution: Vienna University of Economics and Business
Year: 2001
Keywords: XML / electronic data interchange / capital spending decision / option pricing model
Record ID: 1031778
Full text PDF: http://epub.wu.ac.at/1946/1/document.pdf


Hitherto the diffusion of Electronic Data Interchange (EDI) has been limited due to high implementation and operational costs. On the other hand, the Extensible Markup Language (XML) has quickly become a generally accepted standard for integrating processing of formatted data - the literature is virtually unanimous that an integration of EDI into XML would make EDI more accessible and implementation faster and cheaper. The process of standardization of various EDI standard formats over XML is still underway and the question arises whether an early adoption of the technology would pay off. This thesis investigates the issue using real-options methodology. Starting from the well-known Black-Scholes model the parameters of the model are operationalized to decide about the best adoption timing: (i) project costs of implementation, (ii) value of savings of the project (substitutional, complementary, and strategic benefits), and (iii) project risk, expressed as the variance used in Black-Scholes. The latter considers both the external autonomy of the player in implementing new technology and internal properties in technology adoption. Discussing the technological properties of XML/EDI above parameters are operationalized step by step and integrated into a decision model to help each individual firm put the XML/EDI investment decision into real numbers. In order to better visualize the parameters of this decision framework, four company profiles, based on the theory of technology diffusion, will be introduced and mapped against the parameters of the Black-Scholes formula. (author's abstract)