Capabilities as Real Options

@article{Kogut2001CapabilitiesAR,
  title={Capabilities as Real Options},
  author={Bruce Kogut and Nalin Kulatilaka},
  journal={Organization Science},
  year={2001},
  volume={12},
  pages={744-758}
}
Strategy research consists of a balance between positive and normative theory. Normative theories suggest particular heuristics, or cognitive representations, to find appropriate solutions. Heuristics permit faster solutions to real-time problems; they also suffer from the potential of negative transfer to inappropriate applications.The theory of real options provides the appropriate heuristic framing of competencies and exploratory search. A real options approach marries the theory of… 

Figures from this paper

The Bounded Rationality Bias in Managerial Valuation of Real Options: Theory and Evidence from IT Projects
TLDR
This work shows how managers' valuation of real options are systematically biased by their bounded rationality, and contributes the first set of empirical measures for all key types of realOptions.
Falling Off the Fence?
Finance's option theoretic framework has recently been extended into a prescriptive approach to corporate strategy. This “real options” approach has refocused managerial attention on the strategic
Dilemmas in Exercise Decisions for Real Options on Core Competencies
This article explores potential dilemmas for firms applying real options heuristics to guide investments in core competencies. The financial options analogy misses some critical strategic issues
IDENTIFYING BOUNDARIES FOR THE APPLICATION OF REAL OPTIONS TO BUSINESS STRATEGY
The concept of real options has generated considerable interest within the management literature in recent years. The appeal of the framework is natural given the high degree of uncertainty that
Resource Allocation in Strategic Factor Markets: A Realistic Real Options Approach to Generating Competitive Advantage
This paper develops a realistic real option theory of resource allocation decisions in strategic factor markets. Competitive advantage in factor markets is underpinned by market failures that allow
Strategy Process Dilemmas in Exercise Decisions for Options on Core Competencies *
Although a real options heuristic may offer a powerful process innovation to help firms invest in strategic assets under great uncertainty, it has never been studied from the perspective of strategy
Real options theory in strategic management
Research summary: This article provides a review of real options theory (ROT) in strategic management research. We review the fundamentals of ROT and provide a taxonomy of this research. By
Real Options Theory and International Investment Strategy: Past, Present and Future
This study reviews the research on international investment strategy from a real options lens and discusses avenues for future research. Uncertainty has been a persistent feature in international
Technological Investment Decisions: Implications for Real Options Logic
When faced with technological opportunities over time, what is the optimal investment strategy for a ...rm seeking to invest in the very best technology? We discuss an alternative scenario of high
Valuing Intangible Assets Through Real Options Theory: Some Critical Remarks
Employing Real Options Theory (ROT) for intangible assets’ valuation seems to be very promising. Nevertheless, the ROT attitude for valuing “fluid” situations, where a pre-ordinate path to follow
...
...

References

SHOWING 1-10 OF 127 REFERENCES
Options Thinking and Platform Investments: Investing in Opportunity
There are many factors which bias managers towards a myopic view of the world: pressures from financial markets, strategy techniques, and incomplete rules of financial evaluation. A major casualty of
Investment Under Uncertainty.
How should firms decide whether and when to invest in new capital equipment, additions to their workforce, or the development of new products? Why have traditional economic models of investment
An evolutionary theory of economic change
This study develops an evolutionary theory of the capabilities and behavior of business firms operating in a market environment. It includes both general discussion and the manipulation of specific
Strategic Factor Markets: Expectations, Luck, and Business Strategy
Much of the current thinking about competitive strategy focuses on ways that firms can create imperfectly competitive product markets in order to obtain greater than normal economic performance.
PORTFOLIO CONSIDERATIONS IN VALUING EXECUTIVE-COMPENSATION
This paper analyzes the valuation of a compensation contract from a manager's perspective. This perspective is appropriate, for example, in research on the incentive effects of a compensation plan,
Strategic Growth Options
We provide a strategic rationale for growth options under uncertainty and imperfect competition. In a market with strategic competition, investment confers a greater capability to take advantage of
Optimal Sequential Investment When Capital is Not Readily Reversible
When investment opportunities arrive one at a time and are reviewed sequentially, a corporation's optimal policy differs from a standard net present value rule if the corporation exercises control
Strategy through the Option Lens: An Integrated View of Resource Investments and the Incremental-Choice Process
This article develops an option-theoretic perspective for organizational strategic management. Grounded in the basic intuition that people seek to “keep options open” in situations that involve an
Real Options: Managing Strategic Investment in an Uncertain World
Martha Amram and Nalin Kulatilaka suggest a smarter new way to think about strategic investments in terms of real options. By applying options thinking - the concept underlying the recent Nobel
...
...