Building Dynamic Capabilities in Rapid Innovation-based Industries
Edited by Stuart Wall, Carsten Zimmermann, Ronald Klingebiel and Dieter Lange
Chapter 8: Deploying Strategic Initiatives: Further Consideration of the Flexibility–Stability Balance
Ronald Klingebiel ABSTRACT When drafting the plans for the rollout of strategic initiatives, firms consistently make decisions about the balance of flexibility and stability. Which elements of the project design should be defined in the planning phase (stable); when should commitment to a particular element be delayed until later during the rollout (flexible)? Central to this decision is the value of flexibility. This chapter reviews the current state of project planning concepts and real options theory to identify where they respectively succeed or fail to explain effective managerial decision-making. I use a simple illustration of a planning decision problem to explore the boundary conditions of flexibility value, i.e. under which conditions is it beneficial to create and maintain flexibility in the rollout of the strategic initiative. These conditions include (a) external and internal parameters such as uncertainty and complexity, and (b) a firm’s skills and routines for dealing with flexibility once it is created. Through a synthesis of these ‘general’ and ‘organisation-specific’ conditions, I point towards an extended conceptual framework for the managerial assessment of flexibility value. Using this, I argue that the project planning literature insufficiently and only indirectly considers flexibility value and its conditions. On the other hand, using real options concepts to describe managerial decision-making heuristics focuses too heavily upon general parameters, and too little upon organisation-specific conditions that influence flexibility value. I advocate a combination of project risk management with elements of real options theory, which may be better suited to explain managerial decision-making under uncertainty...
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