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An Empirical study of capital budgeting practices for strategic investments in C.I.M. technologies

Author: Slagmulder, R. ; Bruggeman, W. ; Van Wassenhove, Luk N.INSEAD Area: Technology and Operations Management Series: Working Paper ; 94/53/TM Publisher: Fontainebleau : INSEAD, 1994.Language: EnglishType of document: INSEAD Working Paper Online Access: Click here Abstract: In recent years, an increasing number of companies have been struggling to justify strategic technology investments using traditional capital budgeting systems. The existing accounting-based decision models (such as discounted cash-flow) are said to be no longer adequate to help evaluate investments in technological innovation, mainly because of the strategic, intangible nature of the benefits involved. As a result, traditional capital budgeting methods have been heavily criticized of discouraging the adoption of advanced manufacturing technologies and thus undermining the competitiveness of western firms. Some authors would argue that the only alternative is to exempt these strategic investments from the control of accounting systems, while others have developed sophisticated methods for performing an integrated strategic and financial investment analysis. At this point, however, it is still unclear which approach is prevalent in practice and which factors contribute to effective investment decisions
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In recent years, an increasing number of companies have been struggling to justify strategic technology investments using traditional capital budgeting systems. The existing accounting-based decision models (such as discounted cash-flow) are said to be no longer adequate to help evaluate investments in technological innovation, mainly because of the strategic, intangible nature of the benefits involved. As a result, traditional capital budgeting methods have been heavily criticized of discouraging the adoption of advanced manufacturing technologies and thus undermining the competitiveness of western firms. Some authors would argue that the only alternative is to exempt these strategic investments from the control of accounting systems, while others have developed sophisticated methods for performing an integrated strategic and financial investment analysis. At this point, however, it is still unclear which approach is prevalent in practice and which factors contribute to effective investment decisions

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