Understanding the advantages of open innovation practices in corporate venturing in terms of real options

Part of the advantages of using an open innovation (compared to closed innovation) in corporate venturing can be explained by applying the real options approach. Open innovation in risk-laden activities such as corporate venturing has the following advantages: i. benefits from early involvement in new technologies or business opportunities, ii. delayed financial commitment, iii. early exits reducing the downward losses, and iv. delayed exit in case it spins off a venture. We furthermore argue that these benefits do not automatically materialize. Innovation firms have to learn new skills and routines to develop the full `real option¿-potential of open innovation practices.

[1]  D. Teece,et al.  DYNAMIC CAPABILITIES AND STRATEGIC MANAGEMENT , 1997 .

[2]  Christoph H. Loch,et al.  Special Issue on Design and Development: Project Management Under Risk: Using the Real Options Approach to Evaluate Flexibility in R...D , 2001, Manag. Sci..

[3]  Werner H. Hoffmann,et al.  How to Manage a Portfolio of Alliances , 2005 .

[4]  Thomas Keil,et al.  External Corporate Venturing: Strategic Renewal in Rapidly Changing Industries , 2002 .

[5]  Daniel A. Levinthal,et al.  What Is Not A Real Option: Considering Boundaries for the Application of Real Options to Business Strategy , 2004 .

[6]  W. Vanhaverbeke,et al.  Choosing Governance Modes for External Technology Sourcing , 2006 .

[7]  Gregory G. Dess,et al.  Can real-options analysis improve decision-making? Promises and pitfalls , 2004 .

[8]  Zenas Block,et al.  Corporate Venturing: Creating New Businesses Within the Firm , 1993 .

[9]  Rita Gunther McGrath,et al.  Real options reasoning and a new look at the R&D investment strategies of pharmaceutical firms , 2004 .

[10]  George S. Day,et al.  Wharton on Managing Emerging Technologies , 2000 .

[11]  Geert Duysters,et al.  *Alliance Capability as a Mediator between Experience and Alliance Performance: An Empirical Investigation into the Alliance Capability Development Process , 2005 .

[12]  M. Tushman,et al.  The ambidextrous organization. , 2004, Harvard business review.

[13]  Kent D. Miller,et al.  Technology search investments: evolutionary, option reasoning, and option pricing approaches , 2004 .

[14]  Harbir Singh,et al.  Building firm capabilities through learning: the role of the alliance learning process in alliance capability and firm‐level alliance success , 2007 .

[15]  E. H. Bowman,et al.  Strategy through the Option Lens: An Integrated View of Resource Investments and the Incremental-Choice Process , 1993 .

[16]  Jeffrey H. Dyer,et al.  Alliance capability, stock market response, and long‐term alliance success: the role of the alliance function , 2002 .

[17]  Elizabeth Olmsted Teisberg,et al.  An option valuation analysis of investment choices by a regulated firm , 1994 .

[18]  Philip M. Marcus,et al.  The Visible Hand: The Managerial Revolution in American Business , 1979 .

[19]  Henry Chesbrough,et al.  Designing Corporate Ventures in the Shadow of Private Venture Capital , 2000 .

[20]  W. Scott,et al.  Tracking the Giant Corporation@@@Scale and Scope: The Dynamics of Industrial Capitalism. , 1991 .

[21]  Harbir Singh.  Building firm capabilities through learning: the role of the alliance learning process in alliance capability and firm-level alliance success , 2007 .

[22]  B. Nooteboom.  Inter-Firm Collaboration, Learning and Networks: An Integrated Approach , 2003 .

[23]  Peter J. Lane,et al.  Relative absorptive capacity and interorganizational learning , 1998 .

[24]  Henry Chesbrough,et al.  Open Innovation: The New Imperative for Creating and Profiting from Technology , 2003 .

[25]  Daniel A. Levinthal,et al.  ABSORPTIVE CAPACITY: A NEW PERSPECTIVE ON LEARNING AND INNOVATION , 1990 .

[26]  Richard Leifer,et al.  Radical Innovation: How Mature Companies Can Outsmart Upstarts , 2000 .

[27]  S. Zahra,et al.  Absorptive Capacity: A Review, Reconceptualization, and Extension , 2002 .

[28]  C. Häussler,et al.  Inter-Firm Collaboration , 2005 .

[29]  M. Lenox,et al.  When do incumbents learn from entrepreneurial ventures?: Corporate venture capital and investing firm innovation rates , 2005 .

[30]  W. H. Hoffmann.  Strategies for managing a portfolio of alliances , 2007 .

[31]  M. Tushman,et al.  Ambidextrous Organizations: Managing Evolutionary and Revolutionary Change , 1996 .

[32]  Paul J. H. Schoemaker,et al.  Profiting from uncertainty : strategies for succeeding no matter what the future brings , 2002 .

[33]  J. West,et al.  Open innovation : researching a new paradigm , 2008 .

[34]  Nalin Kulatilaka,et al.  Real Options: Managing Strategic Investment in an Uncertain World , 1998 .

[35]  Geert Duysters,et al.  Learning mechanisms and differential performance in alliance portfolios , 2007 .

[36]  Boris Durisin,et al.  Absorptive capacity: Valuing a reconceptualization , 2007 .