Why, When, and How are Real Options used in Strategic Technology Venturing?

Abstract

This research is motivated by the role of real options as a risk management and uncertainty filtering methodology that helps minimize downside risk and maximize upside potential of a firm's investments. It seeks to answer “why, when and how are real options used in strategic technology venturing?” This research tests for the role of real options in decision making involving three types of firms in decreasing order of technology-dependence–technology-driven (where the profit is fully dependent on new technology creation and leveraging), technology-based (where the profit is enabled and supported by technology), and technology-neutral (where the profit is almost independent of technology). It also deals with strategic, tactical, and operational types of decisions driven by real options. Finally, this research assumes an environment (business ecosystem), where co-opetitive conditions trigger the use of real options (why), that serve to transform the position, posture, and propensity of businesses to innovate, and thus they co-evolve (when) into more effective and efficient forms of businesses (co-specialization) (how).