New service development in high tech sectors: a decision making perspective

Many service companies active in high tech sectors have implemented largely decentralized decision architectures in their innovation processes. This is done to improve responsiveness under extremely dynamic and uncertain business conditions. As a consequence of the empowerment of decision-makers at the product management level, the success of the New Service Development (NSD) process will increasingly depend on individual product managers’ information processing and decision-making performance. The present study investigates antecedents of decision-making effectiveness in the high tech NSD process, and reports on a case study performed in the mobile telecommunication services industry. NSD project managers’ unique task conditions are articulated, and some antecedents and moderators of effective decision-making are identified in a study of four innovation projects. Findings are integrated in a theoretical framework. The study reveals the crucial role of decision-makers’ flexible use of various cognitive styles, their proactive attitude, and their capability to mentally represent innovation interfaces with the customer, the technology and the firm. Managerial implications and suggestions for further research are provided.management and organization theory ;

NARROW FRAMING EFFECTS ON REAL OPTIONS: THE CASE OF IT APPLICATION PORTFOLIOS

Real options theory has been advocated as a solution to IT investment problems with uncertainty around future outcomes and the inability of traditional financial measures to account for managerial flexibility. On the one hand, it is argued that real option analysis captures and formalizes managers’ intuition, thus creating a disciplined decision making process. On the other hand, the intuitive valuation of the options is criticized due to the prevalent effects of various judgmental biases. Through this study, we try to capture one of the biases that can affect the real option value at exercise time in an IT application portfolio setting i.e. narrow framing. We also explore the impact of uncertainty around outcomes on real option exercise time. By conducting an online experiment using experimental choice analysis with IT managers as subjects, we try to see if they are prone to simplifying complicated real option exercise decisions by isolating them

Facilitating leadership decisions

This chapter illustrates that in order to reach a decision a leader must decide which persons should be involved in the process and when. A relatively common method of involving others is delegating the decision to a group. A main objective of this is often to generate as many innovative ideas as possible, and different techniques can be employed for this, including brainstorming. The proposal generated must then be validated by the group using different criteria on the basis of which it is then relatively easy to filter out proposals that do not reach the goals that have been set. However, a leader needs to collect additional information in order to reach a decision. By the use of information technology vast amounts of information may be accumulated. Thus, different kinds of filtering or weeding methods must be used in order to quickly obtain relevant information. This information can help leaders create forecasts and minimize risks. They must also be able to present their ideas in the most attractive way possible in order to be heard and arrive at decisions. The design of the presentation is therefore critical. Sometimes it is not enough for leaders just to present an idea, they are then obliged to negotiate in order to reach a decision

Making Bad Decisions: firm size and investment under uncertainty

This paper presents a 'real options' model of investment under uncertainty, which incorporates the assumption of a financial market characterised by asymmetric information and which can explain the stylised facts of firm growth. The decision-making situation faced by small and medium-sized enterprises (SMEs) features much greater constraints on the ability to gather information in order to reduce uncertainty about their investment opportunities, compared with that faced by large companies (LCs). This necessarily causes relatively poor decision-making by SMEs, and explains their substantial death rates.

Uncertainty and stepwise investment

We analyze the optimal investment strategy of a firm that can complete a project either in one stage at a single freely chosen time point or in incremental steps at distinct time points. The presence of economies of scale gives rise to the following trade-off: lumpy investment has a lower total cost, but stepwise investment gives more flexibility by letting the firm choose the timing individually for each stage. Our main question is how uncertainty in market development affects this trade-off. The answer is unambiguous and in contrast with a conventional real-options intuition: higher uncertainty makes the single-stage investment more attractive relative to the more flexible stepwise investment strategy

Managerial risk in information technology investments : effects of framing, narrow framing and time inconsistent preferences on real options exercise decisions

Real options theory has been advocated as a solution to risky IT investment decisions. IT investments decisions are risky due to uncertainty around future outcomes and the inability of traditional financial measures (like NPV, IRR) to account for inherent managerial flexibility. On the one hand, it is argued that real options analysis captures and formalizes managers' intuition, hence creating a disciplined decision making process. On the other hand, the intuitive valuation of the options is criticized due to the prevalent effects of various judgmental biases. In this dissertation, we explore three potential biases that can affect the real option exercise decisions in terms of either suboptimal option exercise choice due to framing and narrow framing effects, or suboptimal exercise time due to time inconsistent preferences of IT managers. We test for framing effects in individual IT project decisions and narrow framing effects in IT portfolio decisions, by conducting an online experiment among top and mid-level IT professionals. The results show that IT professionals are prone to framing real options at exercise time and simplifying complicated real option exercise decisions by isolating them in IT portfolios. Further, their decisions are influenced by their personal risk preferences. We analyze the effect of time-inconsistent preferences of present-biased managers on the exercise time of real growth and abandonment options and the realized values using a discrete time option valuation model. The results show that present-biased managers are more likely to exercise growth options early when the net payoffs are low, the growth option payoffs have high volatility, and the risk free discount rate is small. Also, present-biased managers are more likely to exercise abandonment option late when the net payoffs from continuing the project are high, salvage value of the project is low, and the rate of change in the salvage value over the period of time is low. In addition, present biased managers are more likely to exercise a growth option early in its life when the project is performing well. We provide implications for practice and IT governance

Performance Feedback, Firm Resources, and Strategic Change

Combining insights from the behavioral theory of the firm and the resource-based view we investigate the antecedents of strategic change in fast-changing environments. We hypothesize the independent and joint effects of performance feedback and of flexible and specific resources on strategic change. Using an unbalanced panel of 493 publisher-year observations we find that negative performance feedback triggers more strategic change. Further, while flexible resources have no direct influence on strategic change they weaken the negative relationship between performance feedback and strategic change. Finally, we find that larger stocks of specific resources lead to less strategic change.Performance feedback; strategic change; resource-based-view; video game industry

Real options and investment under uncertainty: What do we know?

No abstract available for this paper.

Bringing tasks back in: an organizational theory of resource complementarity and partner selection

To progress beyond the idea that the value of inter-firm collaboration is largely determined by the complementarity of the resources held by partners, we build a theoretical framework that explains under which conditions a set of resources or capabilities can be considered as complementary and resulting in superior value creation. Specifically, we argue that the tasks that an inter-firm collaboration has to perform determine complementarities, and that complementarities arise from similar and dissimilar resources alike. We capture this relationship in the concept of task resource complementarity. Further, we examine factors that impact on the relevance of this construct as a predictor of partner selection. Finally, we discuss which implications arise for a theory of the firm when tasks are explicitly incorporated into the conceptualization of resource complementarity