Establishing the Value of Flexibility Created by Training: Applying Real Options Methodology to a Single HR Practice

Organization Science, Vol. 21, No. 3, 2010

Posted: 17 Sep 2011

See all articles by Ales S. Berk

Ales S. Berk

SEB LU / University of Ljubljana - School of Economics and Business

Robert Kaše

University of Ljubljana - Faculty of Economics

Date Written: June 1, 2010

Abstract

This paper refers to the conceptualizations of strategic flexibility, real options, and human resource (HR) options to build a model for valuing future-oriented and organizational flexibility-enhancing aspects of training. By adopting an indirect approach to measuring HR options by valuing particular investment projects in which human capital is involved, we satisfy the conditions for applying the Black-Scholes option valuation model and avoid the problematic measurement of the stand-alone value of human capital. The proposed valuation model is elucidated by a case study from the mobile telecommunications industry. The results indicate that in rapidly growing markets based on emerging technology, the generation of HR options based on training should be encouraged. Broader applicability and limitations of the valuation model are discussed and directions for further development of the valuation model are given.

Keywords: valuation model, real options, human resource management, training, human capital, intangibles

JEL Classification: M12, M53, G31, G13

Suggested Citation

Berk, Ales S. and Kaše, Robert, Establishing the Value of Flexibility Created by Training: Applying Real Options Methodology to a Single HR Practice (June 1, 2010). Organization Science, Vol. 21, No. 3, 2010, Available at SSRN: https://ssrn.com/abstract=1928887

Ales S. Berk

SEB LU / University of Ljubljana - School of Economics and Business ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

Robert Kaše (Contact Author)

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

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