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..."
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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. Todays
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 Dorniers 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the outdated guessing and betting methods.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.
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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
Dr. Klaus G. SAUL; Leiter Fachausschuss S1.3
INNOVATIONSMANAGEMENT
DEUTSCHE GESELLSCHAFT FÜR LUFT- UND RAUMFAHRT - LILIENTHAL- OBERT e.V. (DGLR) 53175 Bonn