The Error Of Fixed Strategies In IT Innovation Investment Decisions

Allocating an IT Innovation budget to technologies in different maturity stages (mature vs. fashionable IT innovations) is a demanding task for companies. Due to the dynamic innovation cycles with new emerging technologies, many IT innovation investment decisions follow a bandwagon behavior or fixed investment strategies. Instead of optimizing the IT innovation budget’s allocation to mature or fashionable IT innovations and following a mindful investment strategy, fixed strategies with naïve diversification are the rule in practice. To contribute to the decision making process regarding the IT innovation budget’s allocation, we aim on the optimized allocation to mature and fashionable IT innovations via a dynamic optimization model incorporating the idiosyncrasies of IT innovations and a company’s innovator profile. Though determining the optimum in practice seems to be virtually impossible, we argue that deviating above or below the theoretical optimum leads to a substantial difference regarding the IT innovation budget’s value contribution. For that we examine the valuation error resulting from underor overinvesting in mature and fashionable IT innovations due to deviating from the theoretical optimum. By providing our ex ante dynamic optimization model and analysis we contribute to the decision making process regarding the engagement in new emerging IT innovations.