Title: Applying options to evaluate service innovations in the automotive industry

Authors: Iuan-Yuan Lu, Liang-Hung Lin, Guo-Chiang Wu

Addresses: Institute of Business Management, National Sun Yat-sen University, 70 Lien-hai Road, Kaohsiung 804, Taiwan. ' Department of International Business, National Kaohsiung University of Applied Science, Kaohsiung 807, Taiwan. ' Department of Business Management, Southern Taiwan University of Technology, Tainan 710, Taiwan

Abstract: The service sector is important in the economy of most advanced countries. Focusing on service innovation, this study examines customer service activities in the automobile industry from 2001 to 2003, and identifies the most representative and innovative services of motor firms. These service innovations are not recommended under traditional discounted cash flow (DCF) assessment. However, a positive options-based net present value (NPV) motivates companies to innovate their service activities and thereby increase the number of products they sell. Evidence shows that an options-based evaluation is more suitable than traditional approaches. The results of this study should help managers to address and evaluate service innovations.

Keywords: automobile industry; options-based valuation; service innovation; automotive customer services; net present value; NPV; discounted cash flow; DCF.

DOI: 10.1504/IJTM.2005.007337

International Journal of Technology Management, 2005 Vol.32 No.3/4, pp.339 - 349

Available online: 06 Jul 2005 *

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