Strategic and cultural contexts of real options reasoning in innovation portfolios

Abstract

Decision makers find creating an innovation portfolio challenging, because more innovative projects are associated with a higher degree of uncertainty. In this study, we investigate the potential benefits of applying real options reasoning (ROR) in innovation portfolio management from an attention‐based view. Using a sample of 137 innovation portfolios with multiple informants, we investigate ROR's influence on portfolio innovativeness and, ultimately, on portfolio success in a mediated model. Further, we analyze the moderating influence of an innovation portfolio's organizational context—entrepreneurial orientation and innovation climate—on ROR's application. The results support ROR's positive relationship to portfolio innovativeness and portfolio success. The analysis also supports the positive interaction between entrepreneurial orientation and ROR with respect to portfolio innovativeness. This study contributes to the literature by demonstrating the relationship between ROR and portfolio success, mediated by portfolio innovativeness. In addition, the study's analysis offers an explanation of previously mixed findings regarding ROR's benefits by considering the firm's strategic and cultural innovation contexts. The findings underline the relevance of strategic support for ROR's effectiveness in innovation portfolio management. Furthermore, the findings encourage managers to implement ROR, but also stress the essential contribution an entrepreneurial orientation makes when the managers do so.

The innovator's media dilemma: How journalists cover incumbents' adoption of discontinuous technologies

“…Our research also contributes to practice. In particular, it indicates that top executives and decision makers in R&D need to expand their understanding of the innovation process to consider the effect of a firm's innovation activity and innovation portfolio (Kaufmann et al, 2021) on news media coverage. By showing that different types of technological innovations receive fundamentally different coverage from the news media, we remind practitioners that a firm's innovation trajectory carries important and potentially challenging paradoxical consequences beyond those traditionally considered in innovation management.…”

Tackling uncertain future scenarios with real options: A review and research framework

“…The seminal paper by Brennan und Schwartz (1985) identified the beginning of the practical implementation of RO valuation techniques to projects characterized by high uncertainty, long time horizons, and staging of decisions, such as mining investments. Formal valuation techniques are not always applicable to investment projects, especially when the value of operating flexibility and strategic adaptability cannot be quantified, which is typically the case with R&D projects, investments in new technologies, and innovation portfolios (Gunter McGrath and Nerkar, 2004;Kaufmann al., 2021;McGrath, 1997;Özdemir and van den Ende, 2021). Thus, scholars distinguish between the RO valuation, which applies formal models to estimate RO value, and RO reasoning, which identifies RO value conceptually, applying logic and heuristics (Trigeorgis & Reuer, 2017).…”

The human side of innovation management: Bridging the divide between the fields of innovation management and organizational behavior

“…It is people who bring new products and services to market and sell them (Feurer et al, 2019;Homburg et al, 2019). And it is people who envision and advocate strategies for future directions of innovative efforts to investors, customers, and fellow organizational members (Kaufmann et al, 2021;Tellis, 2006) Despite the burgeoning research on the human side of innovation, some important questions remain unanswered. One reason for this might be that research on the human side of innovation is located at the intersection between two distinct areas of inquiry-innovation management and organizational behavior-with independent histories and different theoretical perspectives (Brenton & Levin, 2012).…”

“…It is people who bring new products and services to market and sell them (Feurer et al, 2019; Homburg et al, 2019). And it is people who envision and advocate strategies for future directions of innovative efforts to investors, customers, and fellow organizational members (Kaufmann et al, 2021; Tellis, 2006)…”