Real Option Appraisal in R & D Outsourcing

Abstract

This chapter will stress MIS’ strides in R&D outsourcing, and it will also detail the risks and uncertainty associated with the process of outsourcing core areas of the business such as R&D. Moreover, the chapter will propose the use of real option analysis to assist in the decisions of: “Why should a firm outsource R&D?” and “How does a company select a viable vendor using a two-stage process?” The purposes of this chapter include: a discussion of the cutting edge usage of outsourcing for R&D; and, to alleviate the R&D outsourcing risks, we will explore the two-stage vendor selection approach in information technology outsourcing using real options analysis.