Valuing technology, setting up strategy: real option and SMEs

Abstract

Many businesses are actively managing their strategy to improve corporate activities and portfolios performance but the practice is sadly uncommon in the case of small- and medium-sized enterprises (SMEs). The need of strategic practices is very crucial to survive; yet with limited resources and expertise, SMEs are at loose end. The condition is worsened by current strategic practice that fails to incorporate uncertainty and flexibility. With the application of Real Option Valuation (ROV) among large firms, this paper suggests an enhancement to SME’s current strategic planning. ROV applied with Option Metrics Space (OMS), allows managers to obtain quantitative and qualitative information on two main investment dilemmas, to invest or not to invest, and when, and at the same time match the decision to their limited resources and capacity. Seen as a better approach, incorporation of ROV into strategic planning values proposed project as a multi-stage operation, dynamically assessed over time rather than broken into several pieces. As a result, SMEs are able to decide on investments that are worth undertaken through an improved strategic planning practice.