1. Bowman and Hurry (1993) Academy of Management Review
Strategy through the option lens: An integrated view of resource investments and the incremental-choice process
Bowman and Hurry (1993)
Academy of Management Review
Presented by Hyeonsuh Lee

2. Background
Resource investments and unfolding strategy choices are two related elements.
Strategies emerge from resources. Strategies, in turn, often generate further resources.
Through the option lens, strategy is seen as a process of organizational resource-investment choices, or options.
Viewing organizational resource investments in terms of their ability to generate choices is helpful in the study of strategy.
Option analysis has been applied to strategies of global expansion and alliances and technology development, and corporate acquisitions and restructuring.
Although researchers considered these individual strategies, the present article is concerned with the strategy process itself.

3. Strategy through the option lens
Resources and the bundle of options: resources as a bundle of options for future strategic choices.
Options arise from the interplay of the organization’s existing investments, its knowledge and capabilities, and its environmental opportunities.
Options come into existence when existing resources and capabilities allow preferential access to future opportunities.
Shadow options and sense making: shadow options must be recognized.
The recognition of shadow options occurs through retrospective sense making.
Managers must “make sense” of organizational actions and resources before they can identify the potential available courses of action.

4. Strategy through the option lens
Incremental strategy and the option chain
Options awaiting recognition
Strategies are produced by the sequential striking of the option chain.
Choices to switch investment streams
Incremental options

5. Strategy through the option lens
The activation of options: Upon recognition of a shadow option, managers are motivated to secure preferential access, to wait and see if the opportunity materializes, and to develop the skills necessary to exploit it fully.
Given uncertainty, this move usually involves making a small investments rather than a large, risky investment.
When the opportunity materializes, and the organization is ready to exploit it, the option will be struck when managers make a larger investment.
Acquisition strategies of Japanese firms (Hurry, 1993)
Begin as joint ventures
Gain sufficient expertise to operate in the U.S.  Recognizes a shadow option embedded in the venture  the firm buys a passive-interest equity stake in its U.S. partner  strikes the option by making a friendly acquisition.

6. Research propositions
Downside risk and optimal inertia
Proposition 1: Organizations holding better developed bundles of options will expand more aggressively in growing markets and economic upturns and they will persist longer in difficult markets and economic downturns, than competitors holding less developed option bundles.
Bundle of options cushion the downside risk of future investments, strengthening its ability to expand aggressively and to withstand losses during the course of growth.
Zone of optimal inertia is wider (where the investment stay constant)
Perceived environmental uncertainty
Proposition 2 Given realistic perceptions of environmental uncertainty, organizations that hold options during unstable periods and strike options in stable periods will show superior long-term growth and profit performance compared to organizations exhibiting other types of investment behavior.

7. Research propositions
The size and timing of organizational investments
Proposition 3: Organizations that enter new businesses and markets by linking investments – so that small options are followed by large strikes – will perform better than those entering with only discrete small, or large, investments.
Proposition 4: The performance of org investment in option strikes is related to investment timing as follows – from (a)=high performance to (e)=low perf: (a) call struck after receiving both signals, (b) puts struck after receiving only the opportunity-arrival signal, (c) calls struck after receiving only the opportunity-arrival signal, (d) calls and puts struck after receiving only the expiration signal, (e) calls and puts struck before receiving either signal.
Signal 1. Arrival of the opportunity: possible end to the “wait and see” period
Signal 2. Expiration signal: indicates the imminent closure of the opportunity
The portfolio of options
Proposition 5: Organizations with structures that are capable of holding a portfolio of options will show wider diversification, with fewer divestitures, than organizations with structures that restrict choices to an option on a portfolio of assets.

8. Contribution to strategy and organization theory

9. A new type of explanation for empirical findings
Strategy and selection: the interaction between an organization and its environment takes place across successive time periods. Positioning in t for opportunities in t+1.
The garbage can: “solution exist in advance of problems (March & Olsen, 1976)”  when shadow options (solutions) recognized, allow decision makers to strike them as and when opportunities (or problems) arrive.
Mean consensus: implies agreement on the distinct investment streams to be followed, and it will ensure option strikes as opportunities arrive.
The risk-return paradox: risk seeking implies that managers may strike options earlier, and with less information.

10. Real options approach increases the benefit of firms.
Discussion
Does the real option theory resolves the timing dilemma? (McGrath, 1997)
Favor an early entry
Dierickx and Cool (1989): “Time compression diseconomies” – early, aggressive entry in the face of technical uncertainty is critical.
Dixit and Pindyck (1994): a firm only can reduce technical uncertainty only through investment, delays would put firms at risk of competitive preemption.
Disadvantages of an early entry
Lieberman and Montgomery (1988): moving early subject a firm to bear costs of infrastructure
Real options approach increases the benefit of firms.
Options have greater value in uncertain markets
Viewing the technological challenge as a series of sequentially exercised options accommodates a milestone-oriented, iterative management process.  advances learning