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Real options approach to explore the effect of organizational change on IoT development project

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Abstract

The emerging information technology of internet of things (IoT) has caught much attention from both theoretical research and production practice. The application of IoT in manufacturing industry can dramatically improve business process efficiency and promote organizational performance. However, firms tend to hesitate in the investment decisions, which poses great challenges to the IoT application progress. Besides the investment nature of long cycle and high risk, the “organizational factors” are also non-ignorable. A general organizational change model is first refined according to the organizational change of Jianghuai Auto Company when applying IoT. Based on the binomial lattice tree framework, we propose a two-stage real options model to solve the optimal investment problems in both stages of internal pilot and product life-cycle management (PLM) expansion. Investment costs and future benefits are considered to investigate the promoting effect of organizational factors in project implementation. This paper demonstrates the internal causes and significances of organizational change for IoT development project, which is also theoretically meaningful for explanation of real options approach in organizational area.

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Acknowledgments

This work is supported by National Nature Science Foundation of China (Nos. 71231004, 71521001, 71171071, 71501058 and 71571060), Anhui Province Natural Science Foundation (No. 1608085QG167) and the Humanities and Social Sciences Foundation of the Chinese Ministry of Education (No. 15YJC630097). Panos M. Pardalos is partially supported by the project of “Distinguished International Professor by the Chinese Ministry of Education” (MS2014HFGY026).

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Authors and Affiliations

  1. School of Management, Hefei University of Technology, Hefei, China

    Zhiping Zhou, Xinbao Liu, Jun Pei, Lin Liu & Chao Fu

  2. Key laboratory of Process Optimization and Intelligent Decision-Making of Ministry of Education, Hefei, China

    Zhiping Zhou, Xinbao Liu, Lin Liu & Chao Fu

  3. Department of Industrial and Systems Engineering, Center for Applied Optimization, University of Florida, Gainesville, FL, USA

    Jun Pei & Panos M. Pardalos

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  1. Zhiping Zhou
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  2. Xinbao Liu
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  3. Jun Pei
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  4. Panos M. Pardalos
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  5. Lin Liu
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Correspondence to Xinbao Liu.

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Zhou, Z., Liu, X., Pei, J. et al. Real options approach to explore the effect of organizational change on IoT development project. Optim Lett 11, 995–1011 (2017). https://doi.org/10.1007/s11590-016-1006-8

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