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Identifying flexibility in the open innovation process based on real option theory

Terzieva, E. (2012) Identifying flexibility in the open innovation process based on real option theory.

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Abstract:Problem to be solved: In the open innovation (OI) process managers of firms face an array of options at different stages of the innovation process. The problem of choosing a course of action that would lead to better innovation outcome with less overall risk for the firm exists. Thus, a method offering an improved and sophisticated decision-making is needed. Need: In order to provide managers with a framework, that if followed, will lead to reduced overall risk one needs to: gain insight about the amount of risk companies face when engaging in OI; find where the risk comes from and provide a scenario analysis for different outcomes of OI. Moreover, this research is based on operationalising flexibility in different stages of the OI process. Analysing resulting scenarios and accounting for trade-offs, leads to creating an algorithm at the disposal of management for better decision-making. How to solve the problem: This research aims to solve the problem by developing a model to analyse the risk of innovating by identifying sources of flexibility in an OI project and assessing its value under the lens of Real Options Theory (ROT). The model will serve management to come up with more effective innovation strategies. RESULT OF THE WORK: My work analyses innovation uncertainty at different stages of the OI process of a firm. Also, the risk of different paths of innovation that can be undertaken will be compared under a Real Options (ROs) lens. This analysis provides a model and an algorithm based on that model, which advises how to achieve less overall risk and improve OI strategy, based on the presence of flexibility in operations. Providing a checklist of flexibility points is the core of the model. Moreover, this theoretical checklist will be applied to real OI projects for comparing managerial decisions in accomplishing goals, outlining best practices. All in all, the result of this work provides proactive management with the freedom to apply the created algorithm at each decision-step in the OI process and advise for a choice of a decision or a decision path that is better than other action possibilities.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
Link to this item:http://purl.utwente.nl/essays/62491
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