Strategist's Toolkit: Real Options Analysis

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Из курса от партнера University of Virginia

Business Growth Strategy

316 оценки

University of Virginia

Business Growth Strategy

316 оценки

Курс 3 из 5 — Specialization Business Strategy

Get the tools you need to analyze, evaluate and recommend specific actions organizations can take to grow their value and avoid common growth pitfalls. Learn to determine how best to build value, whether by scaling existing markets, entering established markets or creating new markets through innovation and acquisitions. Apply these concepts in case studies of industry leaders JetBlue, Starbucks, Intel Corporate Venturing and Tata Motors.

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Growth through Innovation

Introducing new ideas, processes, and products that disrupt the market is another common growth strategy. In this module, we'll unlock the keys to innovation, from building an innovative capability to appropriating value from innovation to determining an innovation strategy. Using the Real Options Analysis tool, we'll show you how to grow through innovation and good practices for doing so. The Intel Corporate Venturing case provides an opportunity for you to practice this tool and apply course concepts to a real-world scenario.

Strategist's Toolkit: Real Options Analysis2:25

Познакомьтесь с преподавателями

Michael Lenox
Senior Associate Dean and Chief Strategy Officer
Darden School of Business
Jared Harris
Samuel L. Slover Research Chair in Business Administration
Darden School of Business

So let's discuss real options analysis.

Another tool in your strategist's toolkit.

Real options analysis actually has its roots in the area of finance, but

has been used by many strategists as they think through various capital budgeting

decisions.

The idea of a real option is the idea that there is value in having optionality.

What do I mean by that?

Considering two investments that you might make.

One is an all-in investment, you gonna invest in a new product,

and you have no opportunity to pull back from that investment once it's made.

The second is staged, and there are opportunities

as you go through that development process to cut off those investments.

The ladder creates optionality.

The ladder creates

a value because now you don't have to be all in with those expenditures.

Real options analysis, in its technical way, is a way of calculating that

actual optionality that is created by a stage gate process.

Now, we can go through the specifics of how to calculate a real option, but for

our brief note here, I'll just talk it more conceptually.

The idea very simply, again, is if you can imagine an investment opportunity like R&D

or Innovation, or you might abandon or develop a project or a product.

At various points in that development process you might collect additional data,

and then make a decision whether to continue or not.

So as you see in this little decision tree here,

there are various decision points in which you can decide to abandon the product

versus continuing to commercialize it and develop it.

That again, that value and

having the ability to stage, gives you optionality value.

So it's often useful, when thinking about innovation or even other capital

investments, to think about to what degree is there optionality provided?

To what degree could I stop investment at a point in time?

So you think about something like a merger in acquisition,

that tends to be an all-in type of investment there,

as opposed to internally developing some product or service.

At which point, you might be able to learn some and cut back at a future date.

This is the underlying logic of a real options analysis.

And again, one can get quite technical and try to calculate those, but

one could also just simply use that as a decision logic when thinking about whether

one choice, or one decision, is better than another.

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