Growth and Fitness through Innovation
How to augment the returns from your stake


 

 

© Klaus G. Saul

6. Re-adjust your stake

Making irreversible investment decisions in the face of uncertainty is risky. Being able to change a decision as new information becomes available helps reduce the risk. Traditional decision-making tools neglect the value of such flexibility. Real options, on the other hand, provide a theoretically sound tool for valuing management's strategic scope. This is why uncertainty asks for evolutionary innovations that allow to pursue mechanisms as described by the Black-Scholes model to capture real options opportunities.

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The problem with rigid business plans is that they prevent stakeholders from responding to opportunities that emerge as the future [EXHIBIT 26] becomes clearer. Instead they are bound to earlier rigid assumptions that increasingly appear to be wrong. Sam Blyakher has illustrated the situation as follows: “....rigid assumptions are rather like planning a drive from New York to Los Angeles with only fragments of a map, and then sticking firmly to your original route even as you see highway signs and find out what the real traffic and road conditions are like..."

EXHIBIT-26.gif (24938 Byte)

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In spite of that there are always people ready to play riskful games as Russian roulette. One of these was the German inventor Claude Dornier in the beginning of last century. Dornier claimed that his goals were always ambitious enough to produce a reasonable outcome whatever might happen. He argued that changing the business plans would produce prohibitive costs. Indeed, he felt comforted by his preference to look for simple strategic patterns and to adhereto them as long as possible.

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But the breath taking speed of change in the New Economy no longer tolerates such attitudes. Today’s changes affect all parameters of the highly interconnected complex socio-economic system. Resources, investments, strategies and stakes need to be re-adjusted permanently in response to new information and the rapidly progressing knowledge. Whilst all the inflexible systems of Dornier’s days progressively die out.

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Fortunately there are new management tools being developed to allow modern stakeholders to overcome the outdated guessing and betting methods. Modern innovation managers pursue innovative ideas evolutionary. They adhere to the models for valuing options in accordance with 1997 economics Nobel Price Winners Fischer Black, Myron Scholes and Robert Merton. Their evolutionary innovations are being upgraded permanently and kept on the optimum path by means of their flexible management tools.

EXHIBIT-27.gif (23090 Byte)

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Some features of the evolutionary innovations can be illustrated by studying the empirical investigations of the European Foundation for Quality Management (EFQM). These investigations allow to derive indicators {Zink, K.J. (1995)} that address the difference between transient and persistently growing enterprises. The resulting criteria can be separated into a structural group and a second one describing the tactical and functional adaptability of the companies [Exhibit 27].In the last two chapters we learned how to increase the opportunities for innovative evolutions. We saw the mechanism which drives the irreversible growth and we understood the catalytic role of knowledge for the advancement of the progressive change.

 

 


LITERATURE

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  2. Cooper, R.G. et al. (1998) Portfolio Managem. for New Prod. (Perseus Books, Reading, Mass. USA)
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  17. Popp, W. (1988) Zur Planung von F&E-Projekten. (Die Betriebswirtschaft 6, S. 735-749)
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  19. Russel, B.(1927) An Outline of Philosophy (London p.27)
  20. Schumpeter, J.A. (1911) Theorie der wirtschaftlichen Entwicklung (Nachdruck Berlin 1964)
  21. Saul, K.G. (1999) Leitbegriff “Innovation” Fachgespr. der Eur. Akademie (Bad Neuenahr- Ahrweiler, Sept. 1999)
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  25. Zink, K.J. (1995) TQM als integratives Managementkonzept (Carl Hanser Verlag München, Wien)

      klaus.jpg (17071 Byte)

      Dr. Klaus G. SAUL; Leiter Fachausschuss S1.3 INNOVATIONSMANAGEMENT
      DEUTSCHE GESELLSCHAFT FÜR LUFT- UND RAUMFAHRT - LILIENTHAL- OBERT e.V. (DGLR)    53175 Bonn


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