This paper aims to investigate the characteristics of RFID adoption and find a feasible way to decide the optimal adoption timing for RFID adoption. Due to the significant investment of this technology, RFID implementation could be considered in two stages -- internal and external adoption. Hence, a stage option pricing model (OPM) can be applied to calculate the optimal adoption time in the internal stage for the highest profit to the company. In this paper, we adopted OPM to solve the first stage internal adoption timing decision. Implications on the external adoption were also presented as a rational reference to managers.
This paper aims to investigate the characteristics of RFID adoption and find a feasible way to decide the optimal adoption timing for the RFID adoption. Due to the complexity and costs associated with the technology, RFID project could be adopted in two stages - internal adoption and external adoption, with the former stage acts as the requisite of the latter one.
[...] Their studies give a formal theoretical grounding for the validity of B-S option pricing model in evaluation of IT investments [29]. In the follow-up research, Benaroch and Kauffman stated another factor, a project's idiosyncratic risk, can be introduced into the model because it may decrease the option value of an investment opportunity. Nevertheless, they also provided a fact that the optimal adoption timing did not depend on the particular value chosen of this parameter in their case by sensitivity analysis. [...]
[...] From the results of the B-S model, Kumar concluded that it was not always attractive (in terms of option values) to select a riskier second stage project, yet the result from Margrabe's exchange model indicated that option values could either increase or decrease with an increase in project risk [28]. Taudes derived a new option named the “software growth option” in his research. It is created by IS functions in a software system that can be used in applications brought into operation at certain implementation decision points when found beneficial. [...]
[...] Later adoption of RFID will delay revenue earned in early years, tending to be a kind of loss, which was theoretically considered by researchers as the dividend paid of the underlying asset 30]. Therefore, the delay decision will not be optimal due to the “dividend paid” here. In addition, the revenue losing in this case is a continuous process and it is hard to find the last dividend payment date. Furthermore, the exercising cost will be declining rather than fixed with the obviously dropping expenditure of RFID technology in the future. [...]
[...] Using option pricing model we propose a practical approach to decide the adoption time for the internal stage to bring the highest profit to the company. Implications for the external adoption will also be discussed Research Background 2.1 RFID Technology FRID is a technology to identify or track objects with tags through radio frequency Basically, RFID technology is composed of three major components: RFID tag, RFID reader and transmitting information. RFID tag is a microchip with an antenna embedded, or put on as a label, in a product to transmit product data to a remote reader. [...]
[...] For example, it is rather straight forward to determine a time scope for the adoption t n and the maturity of the option Tm based on the prediction of RFID development and the company's strategy. Like previous research, half a year can be used to divide the time scope into several time of periods “creating” the dividend D payment date at the end of each period. Dividend payment refers to the revenue loss for the delayed adoption. t i , is the revenue lost during the course of waiting for the first stage implementation and T for the second stage, which, nevertheless, can also be estimated easier by market research data. [...]
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