Strategic Growth Options

Kulatilaka, Nalin; Perotti, Enrico

doi:10.1287/mnsc.44.8.1021

Cited by 479 publications

(304 citation statements)

References 8 publications

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“…A structural approach is explicit regarding the nature of future competition. Kulatilaka and Perotti (1998) follow this approach by evaluating the decision to launch a new technology in the context of different conjectures about market structure. This solution marries the industry structure analysis to core competence, but through the stipulation that the analysis is forward-looking rather than focused on current market structure.…”

Section: Discussion: How Good a Heuristic?mentioning

confidence: 99%

Capabilities as Real Options

Kogut

Kulatilaka

2001

Organization Science

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444

293

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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 an appropriate heuristic framing of competencies and exploratory search. A real options approach marries the theory of financial options to foundational ideas in strategy, organizational theory, and complex systems. We join these approaches to identify three pairs of concepts: scarce factor and the underlying asset in option theory, inertia and irreversibility, and the ruggedness of landscape and option values. Strategic theories of resources largely define a core competence as unique and non-immutable. In doing so, this definition has wrongly forgotten Barney's initial insight into scarce factor markets as determining the valuation of a competitive asset. Financial theory of real options derives its heuristics of investing in exploratory search by inferring future value of today's investments from market prices. We apply the three conceptual pairs to the evaluation of capabilities as real options through a formal descriptive model. The valuation of core capabilities is derived from observing the price dynamics of correlated strategic factors in the market. Because of inertia, managers cannot easily adjust the wrong set of organizational capabilities to the emergence of market opportunities. However, firms that have made investments in capabilities appropriate to these opportunities are able to respond. From this description, we define core competence as the choice of capabilities that permits the firm to make the best response to market opportunities. The heuristic framing of capabilities as real options guides the normative evaluation of the balance between exploitation and exploration. [Key words: strategy, options, capabilities, heuristics, irreversibility, complexity] 2 Strategizing is the application of heuristic frames to analyze the world and to generate normative evaluations of potential avenues of implementation. Strategy research reflects competing ideas about how the world looks, or what the world needs. However, like their counterparts in engineering or architecture, strategy researchers distinguish themselves from practitioners by their attention to an articulation of theory and evidence. It is this serious concern for the design of practice by an investigation of the appropriate theoretical framing that is the mark of applied sciences in professional schools (Simon, 1969).There is currently debate in strategy research between the importance for a firm to "position" itself in the market or to focus on developing unique capabilities. Ned Bowman (1995) made the distinction between strategies that look in the mirror and those that look through the looking glass. In the parlance of contemporary strategy research, resource and ...

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Section: Discussion: How Good a Heuristic?mentioning

confidence: 99%

Capabilities as Real Options

Kogut

Kulatilaka

2001

Organization Science

Self Cite

444

293

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“…A number of studies, including [19], [3], [10], [12], [9], [8], and [20], consider symmetric firms in order to examine the preemptive behavior of competition. In these models, if the value of the optimal entry of the leader is greater than the value of the entry for the best reply of the follower, then both firms want to become a leader.…”

Section: Value Functions Of the Benchmark Casementioning

confidence: 99%

“…A typical model incorporating the real option into game theory is sometimes referred to as an investment game, in which two firms decide the exercise timings of their investment options in a duopolistic market. Previous studies, such as [19], [3], [12], [9], and [20], investigated competition by symmetric firms. An important implication about the previous studies is that an advantage of the first mover and a negative externality of the rival's investment reduce the value for the option of the firms and accelerate the timing of the investment.…”

Section: Introductionmentioning

confidence: 99%

Real Options and Signaling in Strategic Investment Games

Watanabe

2018

JORSJ

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A game with an incumbent and an entrant is considered. Each of them decides a timing of an investment into a new project. The profit flows of both firms involve two uncertain factors: (i) demand for the market observed only by the incumbent, and (2) fluctuation of the profit flow described by a geometric Brownian motion observed by both firms. The optimal timing of the investment of the incumbent under high demand is earlier than that under low demand, if the entrant's timing is fixed. However, the earlier investment of the incumbent may reveal information of high demand to the entrant, so that the early investment of the incumbent would accelerate the timing of the investment of the entrant. This earlier investment of the entrant reduces monopolistic profit of the incumbent before the investment of the entrant. Therefore, the incumbent under high demand may delay the timing of the investment strategically in order to hide the information. In the present paper, equilibria of this signaling game are characterized and sufficient conditions for the strategic behavior of the incumbent are obtained.The values of both firms in equilibria are compared with the case of complete information and the welfare loss is investigated. I observe that the marginal profit in the duopoly for the high-demand incumbent is small the incumbent invests strategically, whereas the incumbent invests truthfully if marginal profit in the duopoly is sufficiently large. Strategic behavior of the incumbent is also observed when the investment cost or volatility of the incumbent is large or the investment cost of the entrant is small.

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“…Finalmente, en el de las opciones reales, el objetivo metodológico no es tanto aislar el flujo de caja del intangible sino introducir en él el impacto secuencial de la capacidad de decisión por parte del equipo directivo (abandonar, retrasar, o disminuir son algunas de las posibles decisiones) ante expectativas cambiantes de un entorno sujeto a grandes dosis de incertidumbre (Myers, 1977;Kulatilaka, 1998), por ello podría combinarse con cualquiera de los métodos de ingresos expuestos. La AICPA (2011) lo recomienda para la valoración de patentes o gastos de investigación y desarrollo, dado que se cuentan con una protección legal que otorga a la empresa gran capacidad de decisión (Schwartz, 2001;Rubio y Lamothe 2010).…”

Section: Los Modelos Financieros Frente Al Marco Teóricounclassified

Valoración de marcas a través de modelos financieros. Una aplicación a Melia Hotels International

Rubio-Marín

Paredes

2017

Cuad. Estud. Empres.

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RESUMENEl objetivo de este artículo es examinar y desarrollar un modelo financiero de valoración de marcas y su posterior aplicación a la industria hotelera. Metodológicamente el artículo analiza la idoneidad del método del exceso de rendimiento en periodos múltiples (MERM) respecto al marco teórico, a la norma contable internacional y, más concretamente, a la problemática de la marca en el sector hotelero, a través de su aplicación a la empresa cotizada Melia Hotels International. El desarrollo de esta metodología, pese a ser una de las más utilizadas por las grandes consultoras, no se había abordado anteriormente con suficiente profundidad, constituyendo la principal aportación del artículo. Los resultados de la aplicación a Melia Hotels revelan la adecuación del método al fin propuesto, así como la gran importancia que tiene la marca frente a otros activos en el sector y, por tanto, la necesidad de conocer su valor para poder gestionarla adecuadamente. Todo ello resulta especialmente útil en operaciones corporativas como las fusiones y adquisiciones en las que, además, la norma contable obliga a determinar el valor de los intangibles adquiridos.

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Strategic Growth Options

Cited by 479 publications

References 8 publications

Capabilities as Real Options

Capabilities as Real Options

Real Options and Signaling in Strategic Investment Games

Valoración de marcas a través de modelos financieros. Una aplicación a Melia Hotels International

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