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Growth Options / Real Options

One reason Tesla Lost $10 Billion in Market Capitalization in a Breathtakingly short period of time

Understanding investor psychology can be baffling and frustrating for the managers of publicly traded corporations.  For instance, despite what many would regard as a stellar track record of proven performance, CEO Mark Fields was fired at Ford.  Apparently, the company’s success at making vehicles like its 150 truck the ride of choice for wealthy Americans (even besting longstanding luxury brands such as BMW and Audi) combined with Field’s determination not... read more »

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Innovation and Jobs-to-be-Done discussed in my latest newsletter

My latest newsletter offers observations and ideas that were discussed at two CEO Summits sponsored by Innosight and featuring keynotes by Clayton Christensen and myself.   We discussed Clay’s terrific new book, Competing Against Luck, some of my ideas regarding the management of portfolios of innovation and how to tackle innovation challenges generally. Have a look if you are interested – and I welcome comments and feedback! read more »

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Why managing an opportunity portfolio leads to surprising investment decisions

There is no shortage of interesting strategic activity going on in the intertwining worlds of content creation, telecommunications and other forms of distribution.  The recent sales of AOL and Yahoo! to Verizon are representative of a class of strategic moves that make sense in high-uncertainty environments in which anticipating, rather than predicting, is the requirement.  As I point out in a recent article in Fortune, investments like these, even though they... read more »

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Lessons from the Growth Outliers – HBR Article available for download

This is an article about an exceptional group of companies – publicly traded, with market cap as of 2009 of over $1 Billion USD – who were able to grow their net incomes by at least 5% a year for a total ten-year period.  In it, I find that they combine remarkable stability with remarkable change.  The first 500 readers to click on the link below will be able to... read more »

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New HBR article:  Living with Complexity and Link for Free Download

Gokce Sargut and I are working together on the fascinating subject of how organizations can sensibly and strategically cope with the demands of complex situations.  One of the papers from our ongoing research project is out in this months' Harvard Business Review.   We offer a perspective on why complexity is so hard to deal with (because it has interactive qualities that make outcomes unpredictable) and offer some suggestions on how... read more »

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Interesting application of options idea to “Green” Energy programs

A colleague of mine drew to my attention an NPR story about the Federal government's plans to develop green technologies.  In many ways, the approach echoes options reasoning:   Many small bets Substantial upside if the opportunity is successful Less concern about the rate of failure than the cost of failure Genuine uncertainty   A pretty interesting approach.  read more »

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Uncertainty and risk in discovery driven planning

I was recently fortunate enough to be teaching in a very interesting program for strategy consultants at IBM.  One of their senior leaders, an ex-BCG guy, pointed out to me that I really could use a picture to communicate the value of Discovery Driven Growth.  Here, therefore is his suggestion!  What it basically shows you is how uncertainty is brought down simultaneously with investment increasing so that you tie the... read more »

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Six Sigma is Deadly for Innovation - But then I’ve said that before!

Every so often, doubtless in a doomed bid to make the whole process of growth and innovation more predictable, some bright spark comes up with the idea of trying to apply six-sigma quality controls to the innovation process. They seem to think that if only innovation could be made more orderly, a more predictable result would ensue. I've said it before, and will say again, six sigma is not the... read more »

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This disruption thing is harder than it looks

In a recent Wall Street Journal article, writer Kimberly Chou reviewed the fates of several contenders to be disruptive technologies in the industries in which they were introduced. . Among these are the flip videorecorder, the "peek" phone and various forms of internet enabled devices. What they have in common is that they are all trying to carve out a niche in markets that were established at much higher price... read more »

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Real Options, the Living Dead, and how to play the possibility of failure in the financial markets

I’m a big fan of thinking of bets in highly uncertain environments in terms of options.  With growth options, I usually advise thinking of new opportunities as options – in which you place a small bet with a contained downside, that buys you the right, but not the obligation to make bigger bets later on.  Thus, you spread your risks, and if you win, you have the potential to win... read more »

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Yikes!  Putting your core business in discovery mode:  BlockBuster & Circuit City

The unsolicited attempt by video rental chain Blockbuster to take over electronics retailer Circuit City looks like a pretty desperate move.  In short, a company that prospered with the rise of the whole rent-it-out couch potato ethos that began to flourish in the 1980’s, hasn’t been willing or able to renew its core business, even as its advantages were eroding under pressure from competitors with different business models (such as... read more »

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Discovery Driven Strategy:  Options investments enable the right kind of failures (Amex Express Pay)

American Express has just announced that it is discontinuing the “Express Pay” offering that allows contact-less payments by consumers, along the lines of the popular Speedpass payment systems that were successfully implemented by gas stations to facilitate making purchases there.  The payments are linked to a key fob, which users wave at a receiving device to make a payment.  Unlike the Speedpass offer, however, the Express Pay device didn’t seem... read more »

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Google practices our idea!

In our first book, The Entrepreneurial Mindset, we suggested that companies achieve focus by allocating time to projects across different levels of uncertainty. In reading the Business 2.0 of December, 2005, we discovered that one of the darlings of today’s investors, Google, practices the same technique. Googlers call it the 70/20/10 rule: “We spend 70 percent of our time on core search and ads. We spend 20 percent on adjacent... read more »

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iPhone for positioning?

Is Steve Jobs playing the options game? In our book ‘The Entrepreneurial Mindset’ we argued that uncertain ventures could be treated as the real asset equivalent of financial options, building on a lot of great work done in finance. One type of option, which we call a ‘positioning option’ is most appropriate when the primary uncertainties are technical, or outside your control. Examples include when some new breakthrough is needed... read more »

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