Organizational Learning and the Error of Fixed Strategies in IT Innovation Investment Evaluation

Though many IT innovations do not meet the high expectations, the investment evaluation of fashionable IT innovations, that in contrast to mature IT innovations are currently hyped but lack broad institutionalization, often follow a gut feeling. To enhance a company’s ability to innovate with IT, literature emphasizes organizational learning through continuous innovating. We extend existing IT innovation literature by developing a dynamic optimization model that determines the optimal allocation of an IT innovation budget to mature and fashionable IT innovations by considering organizational learning. As this theoretical optimum often cannot be implemented in practice, companies apply fixed strategies which seem to be suitable but do not consider the effect of organizational learning and the fashionable IT innovation’s probability of success. We examine the evaluation error from underor overinvestments in fashionable IT innovations and how this error is influenced by organizational learning and a fashionable IT innovation’s probability of success.