Development of real option theory in the last 20 years

DEVELOPMENT OF REAL OPTION THEORY IN THE LAST 20 YEARS And ea Rózsa Uni e si y o Deb ecen, Facul y o Economics, Ins i u e o Accoun ing and Finance, Deb ecen, Hunga y [email p o ec ed]nideb.hu Abs ac : The main goal o his s udy is o o e an o e iew on he eal op ion heo y in he pas wo decades. The beginnings o eal op ion esea ches go back o he 1980s, wi h hei i s applica ions deployed in he na u al esou ce ex ac ion indus ies. A u he impo an miles one o de elopmen came in 1996, when upon Lenos T igeo gis’ ini ia i e a se ies o annual eal op ion con e ences was launched. This yea wi nesses he s aging o he 20 h con e ence, and he e o e i can be aken as a wo hy occasion o ha ing an o e iew on he main li e a y guidelines o he heo y wi h emphasis on he key ou comes. The i s pa o my s udy de ails he mos impo an esul s o eal op ion inancial alua ion. The second pa sheds ligh on he po en ial ela ionship o s a egic managemen and eal op ions in he ligh o li e a y esea ches. The hi d sec ion ocuses on he eal op ion esul s o s a egic decision-making. The in e p e a ion o he eal op ion p ocedu e as an o ganiza ional p ocess gi es way o linking he esul s o s a egic managemen o hose o inancial managemen by c ea ing an in eg a ed o ganiza ional decision-making model. This s a emen will be backed by he esul s pe aining o he eal op ion o ganiza ional models. Keywo ds: eal op ion, in es men alua ion, s a egic decision-making, o ganisa ional de elopmen JEL classi ica ion: G31, L21 1. In oduc ion and esea ch ques ion In ecen decades, he business en i onmen has unde gone conside able ans o ma ion, and consequen ly he adi ional models o in es men alua ion and he heo e ical app oaches o co po a e s a egy-making ha e also been al e ed. In in es men alua ion heo y, he eal op ion app oach and alua ion eme ged a e he inancial op ion analogy. This app oach has become especially impo an in ela ion o s aged p ojec s ha a e ha d o e en impossible o e alua e wi h con en ional me hods o discoun ed cash low, s ill ca y s a egic bene i s. Value-adding s a egic in es men s a e also closely associa ed wi h he mos ecen heo ies o co po a e s a egy. This line o hinking is ep esen ed by he heo y o dynamic capabili ies, as well as knowledge-based app oaches o s a egic and co po a e heo y, which ega ds he alua ion o s a egic in es men s and he managemen o in-p ocess changes as a sou ce o co po a e knowledge and o ganiza ional po en ials. Consequen ly, o in eg a ed co po a e managemen , he challenge o he day is how manage ial decision-making p ocedu es emb acing inancial, p oduc ion and s a egic p ocesses can be made e en mo e e icien wi h he applica ion o he eal op ions me hodology. I was S ewa Mye s o i s concei e he op ion-based idea o assessing u u e oppo uni ies ha a e inhe en in p ojec s. In 1977, he was s udying he po en ials o using op ion-p icing in he ield o eal- es a e p ope y in es men s, whe e he unde s ood ex a alue added by lexibili y as de e ed lea ning (Csapi, 2013a). In 1984, Mye s also poin ed ou ha con en ional alua ion me hods based on discoun ed cash low a e no able o handle p ojec s encompassing bo h p oduc ion and s a egic op ions, and he e o e p oposed op ion p icing is o be used o alua ion pu poses. This basic p inciple o med he ounda ions o eal op ion esea ches and hei co po a e applica ions. The heo e ical and p ac ical scien i ic esul s o he i s decade we e summed up in a dedica ed handbook by T igeo gis (1996). A u he impo an miles one o de elopmen came in 1996, when upon Lenos T igeo gis’ ini ia i e a se ies o annual eal op ion con e ences was launched. This yea wi nesses he s aging o he 20 h con e ence, and he e o e i can be aken as a wo hy occasion o ha ing an o e iew on he main li e a y guidelines o he heo y wi h emphasis on he key ou comes. The i s impo an inancial consequence o he eme gence o eal op ion hinking and me hodology was he in oduc ion o he s a egic NPV ule and he iden i ica ion o he ypes o eal op ions. The s a egic NPV exp esses wo alue componen s: he con en ional ne p esen alue o di ec cash lows and lexibili y in p oduc ion, as well as he op ion alue o s a egic in e ela ions (T igeo gis, 1996). Ini ially, i seemed ha s a egic NPV model would c ea e g ounds o he conside a ion o he alue o in e ela ions among p ojec s and p oduc ion lexibili y, and addi ionally s a egic e ec s. Howe e , he s udy o long- e m s a egic c i e ia and he ou comes o he scien i ic de elopmen o s a egic managemen made i ob ious ha he op ion componen o s a egic NPV was no su icien and adequa e o he examina ion o he s a egic componen s o alue-adding in es men s. This ecogni ion di ec ed scien i ic a en ion o in eg a ed s a egic decision-making. The abo e s a emen is also con i med by he su eys o T ian is and Bo ison (2001) wi h la ge company manage s om 7 indus ies. Acco ding o schola s, he eal op ions echniques and p ocesses applied in p ac ice can be ca ego ized in h ee g oups (Csapi, 2013a): - eal op ions hinking (quali a i e analysis o decision-making p oblems, in e p e a ion o al e na i es), - eal op ion analy ic ools (applica ion o op ion p icing models in p ojec alua ion), - eal op ion o ganiza ional p ocess (managemen ool o he iden i ica ion and exploi a ion o s a egic op ions belonging o he ield o eal op ions). The signi icance o eal op ion o ganiza ional p ocesses a e unde lined by esea ch and de elopmen (R&D), pha maceu ical and ad anced manu ac u ing echnology p ojec s ha ea u e sequen ial s uc u es and special op ion cha ac e is ics. In hese cases, he eal op ions logic is applied as an analy ic and communica ion ool encompassing he en i e o ganiza ion. The esul s o he line o hinking emphasizing he eal op ion o ganiza ional alua ion p ocesses addi ionally led o he mode niza ion o he s a egic ne p esen alue. I was Smi and T igeo gis (2004) o i s p opose he use o he expanded s a egic NPV. The poin o his model imp o emen was ha o he ea lie s a egic NPV o mula he au ho s added s a egic op ion alues ha also in eg a ed ce ain esul s om game heo y. In he mean ime, he eal op ion app oach gained b oade in e p e a ion as such a o m o in es men in o physical asse s, human esou ces and o ganiza ional capabili ies ha imp o ed he abili y o espond o u u e e en s (Kogu and Kula ilaka, 2001). The po en ial co ela ions o capabili ies, eal op ions and esou ce alloca ion p ocesses we e s udied by Ma i an and Alessand i (2007), while a compila ion o s udies by Tong and Reue (2007) ocused on he gene al, mul ic i e ia applicabili y o eal op ions in s a egic managemen . In iew o D iouchi and Benne ’s indings (2012, p 43), he ela ionship be ween s a egic managemen and eal op ions can be summed up as ollows: „Resou ces and s a egic in es men s can be iewed as eal op ions, while go e nance modes and s a egic posi ioning decisions con ain eal op ion chains. The ad an age o managemen iew is ha i pays mo e a en ion o lea ning, manage ial compe ences and endogenous unce ain y. S a egic op ion decisions a e gene ally applied in he ields o a ious o ms o ma ke en ance, manage ial s yles and inno a i e in es men s. The e o e, co po a e pe o mance is a unc ion o he s uc u e and sequen ial design o hese ypes o decisions.” The b oade in e p e a ion o eal op ions and he mos ecen esul s o s a egic managemen esea ches u he con i m he de elopmen o he eal op ion app oach in connec ion wi h in eg a ed, o ganiza ional p ocesses. D iouchi and Benne ’s analysis (2012) looking a mo e han 200 p o essional publica ions assessed and sys ema ized he di ec ions o eal op ion decision-making, applica ions in s a egic and in e na ional p oduc ion p ocesses, as well as empi ical assessmen s (Table 1). Table 1. Main di ec ions in eal op ion s udies Real op ion decision-making S a egy and in e na ional p oduc ion Empi ical applica ions - Real op ion alua ion - Sha ed o p op ie a y op ions - Real op ion cha ac e is ics o in es men s - Real op ions logic - S a egic g ow h op ions - E ec s o eal op ions on pe o mance - Real op ions as capabili ies - P oduc ion ( lexibili y) op ions - Real op ion co po a e p ac ices Sou ce: D iouchi-Benne (2012), p 56. In he u he pa s o he s udy, I ha e summed up he mos impo an esul s o eal op ion inancial alua ion, analyzed he po en ial co ela ions be ween s a egic managemen and eal op ions in he ligh o li e a y esea ches, and inally e alua ed he eal op ion esul s o s a egic decision-making. 2. De elopmen o inancial in es men alua ion using eal op ion app oach S a ing ou om Mye s’ hough , he heo e ical and co po a e expe s we e aspi ing o e eal a ious ypes o eal op ions, and iden i y he mos usable op ion models o he e alua ion o he indi idual eal op ion cases. A he p esen , he associa ed li e a u e knows a b oad ange o eal op ion ypes (T igeo gis, 1996; Am am and Kula ilaka, 1999; Smi and T igeo gis, 2004; Rózsa, 2008; Bélyácz, 2011; Csapi, 2013b). The mos common ca ego iza ions a e:  na u ally occu ing eal op ions (de e men op ion, op ion o abandon, g ow h, s aged and compound op ions) and eal op ions ha can be inco po a ed wi h ex a cos s (modi ica ion and lexibili y op ions),  p oduc op ions, iming op ions and execu ion op ions (Kylaheiko e al., 2002),  lea ning op ions (Yeo and Qiu, 2003),  eal op ions along he empo al dimension (de e men , abandonmen ) and size- ela ed dimension (g ow h, change, expansion, compound, as well as explo a ion, ou sou cing and ainbow op ions) (Csapi, 2014),  lexibili y (simple, usually iming op ions connec ed wi h speci ic p ojec s, wi hou s a egic alues) and s a egic (gene ally g ow h and compound op ions belonging o mul iple p ojec s, ca ying conside able s a egic alues and leading o new alue-c ea ing p ojec s (Van Aa le, 2013). Table 2 shows he mos gene al eal op ions ca ego ies, as well as he associa ed indus ies and mos impo an publica ions. Table 2. Summa y o he ypes o eal op ions Op ion ca ego y Con en s Fields o applica ion Publica ions Op ion o de e The e is an op ion o acqui e a aluable land o esou ce. The company moni o s he ma ke e en s, ob ains addi ional in o ma ion by esol ing unce ain ies ha i in eg a es in o decision-making. Na u al esou ce ex ac ion indus ies, eal es a e de elopmen s, ag icul u al indus ies, pape p oduc s Tou inho (1979); Ti man (1985); McDonald and Siegel (1986); Paddock e al. (1988); Inge soll and Ross (1992); Ande son (2000) Op ion o abandon When ma ke condi ions ake an un a ou able u n, he company can e mina e i s ope a ions, sell he p ojec , and ealize he esidual alue. Capi al in ensi e indus ies, inancial se ices, new p oduc in oduc ions in unce ain ma ke s Mye s and Majd (1990); Be ge e al. (1996); McG a h (1999); McG a h and Ne ka (2004) Time- o-build op ion, s aged in es men sequen ial op ion The e is an op ion o abandon he p ojec while i is in p og ess in case he new in o ma ion is deemed as un a ou able. The commencemen o he indi idual phases is condi ioned on he success o he p e ious phase. I can be in e p e ed as a se ious o successi e op ions. All he R&D in ensi e sec o s, especially he pha maceu ical indus y; capi al-in ensi e p ojec s calling o long- e m de elopmen (e.g. la ge- olume cons uc ion wo ks, powe plan s); s a up o isky en e p ises Majd and Pindyck (1987); Ca (1988); T igeo gis (1993); Kemna (1993); Pe li z e al. (1999); Loch and Bode- G euel (2001); Lin and Pennings (2001); MacDougall and Pike (2003) G ow h op ions An ea lie in es men is ega ded as he p econdi ion o ano he p ojec . The success o he ini ial in es men can open up new, u u e in es men op ions o he company. In as uc u e-based o s a egic indus ies: especially high- ech, R&D, whe e he e a e complex p oduc gene a ions; s a egic acquisi ions; mul ina ional ac i i ies; o ganiza ional capabili ies Mye s (1977); Kes e (1984); T igeo gis (1988); Pindyck (1988); B ealey and Mye s (1991); Kes e (1993); Bo issiouk and Peli (2001); Tong and Reue (2006); B ou he s and Diko a (2010) Op ion o al e Unde a ou able ma ke condi ions, he company can ex end he li ecycle o he p ojec , inc ease he size o se ies p oduc ion o accele a e esou ce u iliza ion. On he o he hand, in un a ou able si ua ions, he company may cu back p oduc ion, o e en suspend p oduc ion empo a ily in jus i ied cases. Na u al esou ce ex ac ion indus ies (e.g. mining); design o equipmen and cons uc ion in cyclic indus ies; ashion p oduc s; consume goods; comme cial p ope ies McDonald and Siegel (1985); B ennan and Schwa z (1985); T igeo gis and Mason (1987); Pindyck (1988); De Neu ille (2003); Chung e al (2010) Flexibili y op ion, op ion o swi ch, , inpu and ou pu Unde condi ions o p oduc ion lexibili y, in case he e a e changes in he p ices o demand, he managemen o he company can change he ou pu s uc u e, p oduc s uc u e (p oduc ion lexibili y) o make he same p oduc s wi h he use o di e en ypes o inpu s (p ocess lexibili y). Ou pu changes: In he case o p oduc s ha a e sold in small olumes, o a ac luc ua ing demand (elec onics; oys; au omobile pa s) Inpu changes: elec ic powe ; ag icul u al c ops; chemicals; aw ma e ials equi ing mechanical p ocessing, pending oppo uni ies Ma g abe (1978); Kensinge (1987); Kula ilaka (1988); Kula ilaka and T igeo gis (1994); Lieblein and Mille (2003); Mol e al (2005) Compound op ion Op ions o op ion chains associa ed wi h o he op ions. Because o he mu ual dependencies, he alues o Mos o he eal p ojec s in he abo e-men ioned indus ies. B ennan and Schwa z (1985); T igeo gis (1993); Kula ilaka (1994); Schwa z mul iple op ions a e di e en om he amoun s o he indi idual alues o he same op ions. and T igeo gis (2001); T ian is and Bo ison (2001); Jiang e al (2009) Sou ce: ed. by me based on T igeo gis (1996), pp 2–3., as well as D iouchi and Benne (2012). Acco ding o T igeo gis (1996) ou closed- o m solu ions can be used in eal op ion analysis: Black and Scholes (1973), Ma g abe (1978), Geske (1979) and Ca (1988). I was in 1973 when Black and Scholes (B-S) wo ked ou he i s closed- o m solu ion o he alua ion o inancial op ions and wa an s. Mos o he op ion p icing echniques used nowadays a e some a ia ion o he B-S solu ion and p ocedu e. The Black-Scholes solu ion is used in he alua ion o de e men , abandonmen and g ow h op ions. The op ion o eplace a isk-ca ying asse ha did no pay di idends o ano he asse was e alua ed by Ma g abe in 1978. The only di e ence be ween he B-S and Ma g abe solu ions is he handling o he exe cise p ice. In he o me model, he exe cise p ice is de e minis ic (i is de ined in ad ance), whe eas in Ma g abe’s solu ion i is handled as a s ochas ic a iable. The Ma g abe solu ion is simila ly used in he alua ion o de e men , abandonmen and g ow h op ions. Beyond he de e minis ic exe cise p ice, Geske’s name is associa ed wi h he solu ion connec ed wi h he alua ion o compound op ions. Geske’s model is applied in sequen ial (s aged) in es men decisions. In es men s o his kind a e o en ound in he case o R&D and echnological decisions (Pe li z e al., 1999). In 1988, Ca de ined his solu ion o compound op ions wi h he applica ion o s ochas ic exe cise p ices. Ca ’s solu ion can be de ec ed in applica ions ha a e simila o he ones in he Geske model. Haah ela (2012) summa izes he a ious eal op ion alua ion app oaches. As an al e na i e o closed- o m solu ions, he analyzes simula ion-based me hods (Copeland and An ika o , 2001). Ano he al e na i e is p esen ed by he la ice and ee-based me hods. Haah ela (2010) demons a ed one example o an enhanced la ice app oach o eal op ion alua ion ecombining inomial la ice wi h changing ola ili y. Finally, he emphasized he applicabili y o he mos no el uzzy pay-o me hods (Collan e al., 2009 in Haah ela, 2012). 3. De elopmen o s a egic managemen and po en ial eal op ion ela ions In co po a e s a egy and he s udy o o ganiza ional decisions, he eal op ion pa adigm o e s an especially ema kable amewo k o decision-making unde unce ain ies (Sanchez, 2003, D iouchi and Benne , 2012). Acco ding o Kogu and Kula ilaka (2001), eal op ions as in es men s in o capabili ies p omo e o ganiza ional lea ning, c ea e alues, and sus ain he compe i i e edge. Ba ne (2008) claimed ha eal op ion decision-making is he abili y o manage s o ecognize, main ain, suppo and exploi eal op ion oppo uni ies in hei own speci ic business en i onmen s. When companies en e a new de elopmen li ecycle, knowledge becomes a undamen al compe ence, whe eas lea ning se es as he sou ce o ad an age in compe i ion (Mille , 2002). Acco ding o B äu igam e al. (2003), he eal op ion heo y is sui able o econciling de elopmen phases wi h inhe en endogenous and exogenous unce ain y ac o s. McG a h e al. (2004) ega ds eal op ions as he d i ing o ce behind choice and he e ogenei y, and a gues ha eal op ion easoning is a aluable con ibu ion o he exis ing lea ning, decision-making and o ganiza ional heo ies. Smi and T igeo gis (2004) summa ize he key esul s conce ning ex e nal and in e nal iews o he i m and app oaches o s a egy (Table 3). Table 3. Mos impo an iews o he i m and co po a e s a egy Types/Scien i ic a ea Publica ions Main conce n Ex e nal compe i i e ad an age Po e (1980) s uc u al condi ions and compe i o posi ioning s a egic con lic Shapi o (1989) B andenbu ge and Nalebu (1995) s a egic in e ac ions In e nal esou ce-based iew Rumel (1984), We ne el (1984), Teece (1980, 1982 asse accumula ion dynamic capabili ies P ahalad and Hamel (1990) Hayes and Wheelw igh (1984) Teece, Pisano, Shuen (1997) asse accumula ion, eplicabili y Linkage eal op ions and games Smi and Ankum (1993) Kula ilaka and Pe o i (1998) Bowman and Hu y (1993), McG a h (1997) adjus ing decisions in dynamic and compe i i e en i onmen Sou ce: Smi and T igeo gis (2004), pp 39. In iew o he impo an s a egic implica ions, i can be assumed ha in spi e o i s nume ous ad an ages s a egic NPV is no sui able o he coo dina ion o s a egic and inancial p inciples, which aims a he c ea ion o s a egic lexibili y (Rózsa, 2008). In he s a egic NPV model, he abo e- de ailed long- e m s a egic c i e ia canno be in eg a ed. On he o he hand, i has been e idenced ha hey a e jus as essen ial pa s o s a egic in es men decision-making as he ma hema ically mo e manageable u u e cash lows, es imable discoun a es, as well as simple and compound op ions ha can be assessed wi h he use o inancial op ion models. This se o issues has also di ec ed he a en ion o schola s o o s a egic decision-making. 4. Analysis o s a egic decision-making conce ning eal op ions Se e al models ha e been p oposed o ackle he p oblem. These models place emphasis on he comple ion o s a egic decision-making wi h he eal op ions heo y. Am am and Kula ilaka’s (1999) model conside s he iden i ica ion o he sou ces o unce ain ies and decision-making al e na i es as a p incipal o ganiza ional esponsibili y whe e e icien implemen a ion necessi a es s a egic and inancial eal op ion communica ion. I is ollowed by he selec ion o alua ion pa ame e s, and hen he execu ion o he op ion alua ion models. Based on he esul s and he ob ained c i ical s a egic alues, a s a egic decision-making space can be d awn up ha enables con inuous con ol and he edesigning o p ocesses. Simila ly, Smi and T igeo gis (2004) ecognized he demand o complexi y – he necessi y o o ge ela ions be ween inancial and s a egic planning – and i s hey ied o imp o e he decision-making p ocess by expanding he s a egic NPV. The essence o hei p oposal is exp essed in he ollowing equa ion. expanded s a egic NPV = passi e NPV + op ion p emium + s a egic op ion alue The poin o he heo e ic model imp o emen was ha o he ea lie o m o inancial alua ion he au ho s added s a egic op ion alues ha also in eg a ed ce ain esul s om game heo y. The complex model hey ecommended is demons a ed in Table 4. Table 4. E ec o s a egic planning on he ma ke alue o he company Ma ke alue (Expanded NPV) Value con ols S a egic planning Valua ion me hodology STRATEGIC VALUE S a egic POSITION Compe i ion s a egy Game heo y FLEXIBILITY VALUE Adap i e capabili ies S a egic planning Real op ion alua ion NET PRESENT VALUE Compe i i e ad an ages P ojec planning Discoun ed cash low Sou ce: Smi and T igeo gis (2004), pp 4–5. In my opinion, he Smi and T igeo gis model, while i gi es e y de ailed desc ip ion o s a egic issues, ails o abandon he undamen al assump ion conce ning he p io i y o inancial decisions. The si ua ion is simila o hose esea ches and esul s ocusing on eal op ion o ganiza ional p ocesses ha ela e o he o ma ion o eal op ion alua ion p ocesses. F om among hem, he mos no able esul s ha e been published by Am am and Kula ilaka (1999), as well as Copeland and An ika o (2001). The p ima y objec i es o he bo h models a e o acili a e he analysis o p ac ical cases, as well as simpli y he pe o mance and applica ion o eal op ion calcula ions. My ea lie s udies (Rózsa, 2008, 2015) call his iew a e e se app oach, and sugges ed ha i should no be he op ion app oach ega ded as he p ima y aspec in which we y o embed s a egic ac o s, bu on he o he way ound: we a e a he o conside he ecogni ion, alua ion o op ions, he applica ion o he op ion app oach i sel as a co po a e capabili y, ac o se ing as he ounda ion o knowledge. To his end, I ha e de eloped he so-called s a egic eal op ion model (Table 5). Table 5. The sugges ed s a egic eal model STRATEGY REAL OPTION VALUATION FEEDBACK compe i i e ad an age eal op ion ypes model selec ion o ganiza ional asks knowledge and inno a ion unce ain y op ion e alua ion ope a ing p oblems con inuous de elopmen ma ix-based app oach s a egic decision-making space changing en i onmen dynamic capabili ies op ions o exe cise condi ions o exe cise new in o ma ion Sou ce: Rózsa (2015) On he basis o my model de elopmen in Rózsa (2008, 2015) I s a ed ha : “In he p ocess o decision-making and implemen a ion, s a egic, eal op ion, alua ion and eedback analyses ha e o be pe o med in all he phases o decision-making. I ha e de ined he undamen al ques ions ela ing o he ou elemen s o he ex ended model as ollows: - Wha a ole does he p ojec unde e iew ha e in acqui ing compe i i e ad an age, o by wha s a egic cha ac e is ics does i suppo he sus enance o compe i i e ad an age? - Wha sou ces o unce ain ies a e an icipa ed o occu ? Wha eal op ion ypes is i wo h concen a ing on? Which a e he mos impo an ones? - Wha is he alue o he eal op ions ha a e also inancially assessable? Wha should be he nex decision? - Wha o ganiza ional asks ha e o be execu ed in he gi en phases o he p ojec , wha esponses can be gi en o he ope a ing p oblems occu ing, wha en i onmen al and in o ma ion changes need o be aken in o conside a ion, and how do hey a ec he commencemen o he nex phase? “ The oppo uni ies o c ea ing s a egic amewo k sys ems ha e also been analyzed by Csapi (2013), and by e e encing Ge man sou ces she has p oposed he ollowing s a egic app oach (Table 6). Table 6. Flowcha o s a egic eal op ion managemen STRATEGIC ANALYSIS FORMATION AND SELECTION OF THE STRATEGY APPLICATION OF THE STRATEGY Iden i ica ion o eal op ions Valua ion o eal op ions Real op ion managemen Cap u ing eal op ions Selec ion o alua ion me hods Go e nance o eal op ions Examina ion o he op ion analogy De e mina ion o he alua ion pa ame e s Adjus men o s uc u es and sys ems P io i iza ion o eal op ions Implemen a ion o alua ion P o ision o in o ma ion, aining, mo i a ion o employees Sou ce: Csapi (2013)a, p 84. I can be claimed ha his la e wo models a e in close co ela ion wi h he mos ecen esea ches. D iouchi and Benne (2012) gi e a de ailed analysis on he ole o eal op ions in s a egic decision- making, and summa ize he esul s o he mos ecen s udies in he ligh o he eal op ion deba e. Table 7. P ac ical applica ion o eal op ions Real op ion ends S a egic decision-making Case s udies Manage ial assessmen s OPTIMIST Lin and Pennings (1998) Lin and Pennings (2001) Bo issiouk and Peli (2001) Mille and Pa k (2004) Rayno and Le oux (2004) T ian is and Bo ison (2001) REALIST Kemna (1993) De Neu ille (2003) MacDougall and Pike (2003) Alessand i e al. (2004) K ychowski e al. (2010) Busby and Pi s (1997) Howell and Jagle (1997) G aham and Ha ey (2001) Mille and Shapi a (2004) Ve bee en (2006) PESSIMIST Philippe (2005) Ryan and Ryan (2002) Sou ce: D iouchi and Benne (2012), p 55. 5. Conclusions The main conclusion o he heo e ical de elopmen o eal op ions heo y in he pas 20 yea s is ha by oday he sys em o eal op ion ools has become an indispensable elemen o co po a e s a egic decision-making. The s a egic NPV me hod and i s expanded e sion a e b oadly known, and success ul p ac ical applica ions also exis , especially in pha maceu ical, R&D, ad anced manu ac u ing echnologies and elec onic ield o in es men s. A he same ime, coo dina ion o s a egic, p oduc ion and inancial aspec s calls o in eg a ed model de elopmen . The e ha e been a emp s in he associa ed li e a u e o sa is y his heo e ical demand, bu a u he di ec ion o esea ch is embodied in i s p ac ical es ing. The po en ial e ec s o he eal op ion app oach on o ganiza ional p ocesses a e subjec o u he esea ch. As opposed o he mains eam end o s udies, my sugges ion is ha p e e ence should be gi en o he e e se app oach, i.e. ha i should no be he op ion app oach ega ded as he p ima y aspec in which we y o embed s a egic ac o s, bu on he o he way ound: we a e a he o conside he ecogni ion, alua ion o op ions, he applica ion o he op ion app oach i sel as a co po a e capabili y, ac o se ing as he ounda ion o knowledge. 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