How might a firm's management decide whether it should continue to invest in current known technology or in new, but untested technology? Resources:...
How might a firm's management decide whether it should continue to invest in current known technology or in new, but untested technology?
This is a great question. There are many variables that come into play in this scenario. In light of this, let me name a few of them.
First, the management may want to see if the current technology has runs its course. In other words, will this old technology be outdated in a few years? If so, the management would not want to invest. For example, investing in CDs now is not a great idea in view of digital music.
Second, the management should also research the new technology. Will this new technology thrive in the future? In other words, will it be the new wave of the future? If so, they may want to invest. If this new technology has not been tested, and the firm cannot test it themselves, then they might want to hold off. The lack of research or testing can be detrimental.
With that said, if the firm strongly believes in this new technology, then the firm may invest a small portion where they can benefit from the upside and not get too hurt, if things fall through.
Finally, being cash heavy is not a place to be in. There will also be bargains to be had.