From gut feel to educated approximations: Towards an integrated approach for technology valuation

Abstract

To understand the potential value of a technology a wide range of techniques is available. Examples are quantitative techniques such as discounted cash-flow, real options and decision trees and qualitative techniques such as roadmaps and scoring cards. However, very little has been written about their integrated use and more particularly over the life cycle of a technology. Whereas many companies have their own processes in place often combining qualitative and quantitative techniques, very few empirical studies have been performed to learn from these industry practices and provide an overall view on the process of valuing technologies. In this paper we propose an integrated approach, combining both qualitative and quantitative techniques. Based on ongoing case study research we will elaborate on the use of both qualitative and quantitative methods, and will provide a conceptual basis for integrating these techniques. By seamlessly integrating the qualitative foundations with quantitative projections, judgements can be turned into justification models (using for example decision trees and real options thinking), and scoring mechanisms can turn the collected gut feel into educated approximations for probabilities and financial projections. Although we do not assume a generic decision making process can be defined, the integrated logic provides a more consistent guide for R&D managers and adds to the body of literature, more particularly empirical studies, on the selection and use of a diverse set of valuation tools.