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Justifying the Origin of Real Options and their Difficult Evaluation in Strategic Management

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  • Thierry Burger-Helmchen

Abstract

This work explores and reviews the introduction of real option in the strategic management literature. The aim is to contribute to a better understanding of the origin of the real option. By distinguishing between shadow and real option, and implementing entrepreneurship in the traditional option valuation framework we obtain a more exhaustive representation of the strategic decision processes in the firm. We explain the creation of a real option as an entrepreneurial process, which transforms inventive ideas into profitable innovation. This constitutes a step toward an option based-theory of the firm by describing the emergence of a firm’s options and the strategic building of new competences for exercising these options. In addition, this approach offers a parallel understanding of why the real option theory is less used in practice than in theory.

Suggested Citation

  • Thierry Burger-Helmchen, 2006. "Justifying the Origin of Real Options and their Difficult Evaluation in Strategic Management," Working Papers of BETA 2006-31, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  • Handle: RePEc:ulp:sbbeta:2006-31
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    References listed on IDEAS

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    1. Bruce Kogut & Nalin Kulatilaka, 2001. "Capabilities as Real Options," Organization Science, INFORMS, vol. 12(6), pages 744-758, December.
    2. Witt, Ulrich, 1998. "Imagination and leadership - The neglected dimension of an evolutionary theory of the firm," Journal of Economic Behavior & Organization, Elsevier, vol. 35(2), pages 161-177, April.
    3. Michael D. Cohen, 1991. "Individual Learning and Organizational Routine: Emerging Connections," Organization Science, INFORMS, vol. 2(1), pages 135-139, February.
    4. Coff, Russell W. & Laverty, Kevin J., 2001. "Real options on knowledge assets: Panacea or Pandora's box?," Business Horizons, Elsevier, vol. 44(6), pages 73-79.
    5. Sydney D. Howell & Axel J. Jägle, 1997. "Laboratory Evidence on How Managers Intuitively Value Real Growth Options," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(7&8), pages 915-935.
    6. Patrick Cohendet & Patrick Llerena, 2003. "Routines and incentives: the role of communities in the firm," Industrial and Corporate Change, Oxford University Press, vol. 12(2), pages 271-297, April.
    7. Busenitz, Lowell W. & Barney, Jay B., 1997. "Differences between entrepreneurs and managers in large organizations: Biases and heuristics in strategic decision-making," Journal of Business Venturing, Elsevier, vol. 12(1), pages 9-30, January.
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    Cited by:

    1. Estelle Dhont-Peltrault & Etienne Pfister, 2007. "R&D cooperation versus R&D subcontracting: empirical evidence from French survey data," Working Papers of BETA 2007-17, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    2. Gisèle Umbhauer, 2007. "De l’amiante au chrysotile, un glissement stratégique dans la désinformation," Working Papers of BETA 2007-15, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    3. Sofia Pessoa e Costa & Stéphane Robin, 2007. "The Impact Of Training Programmes On Wages In France: An Evaluation Of The “Qualifying Contract” Using Propensity Scores," Working Papers of BETA 2007-18, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    4. Meixing DAI, 2007. "A two-pillar strategy to keep inflation expectations at bay: A basic theoretical framework," Working Papers of BETA 2007-20, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    5. Meixing DAI & Moïse SIDIROPOULOS & Eleftherios SPYROMITROS, 2007. "La transparence de la politique monétaire et la dynamique des marchés financiers," Working Papers of BETA 2007-19, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    6. Li Qin & Eleftherios Spyromitros & Moïse Sidiropoulos, 2007. "Monetary Policy with Uncertain Central Bank Preferences for Robustness," Working Papers of BETA 2007-23, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

    More about this item

    Keywords

    Real Option; Theory of the Firm; Entrepreneurship; Dynamic Capabilities.;

    JEL classification:

    • L29 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Other
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • M19 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Other

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