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評論人：趙郁文 新揚管理顧問股份有限公司 中華民國九十三年十二月四日

Corporate Venture Investment Decisions under Uncertainty: Real Options Reasoning versus Escalating Commitment Perspective. 評論人：趙郁文 新揚管理顧問股份有限公司 中華民國九十三年十二月四日. What is a strategic investment?. Realities: Long-term No short-term exit Not profitable Requiring further support

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評論人：趙郁文 新揚管理顧問股份有限公司 中華民國九十三年十二月四日

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  1. Corporate Venture Investment Decisions under Uncertainty:Real Options Reasoning versus Escalating Commitment Perspective 評論人：趙郁文 新揚管理顧問股份有限公司 中華民國九十三年十二月四日

  2. What is a strategic investment? • Realities: • Long-term • No short-term exit • Not profitable • Requiring further support • EC：Escalating Commitment • Conclusion: a failed financial investment? • For what? • You name it! • 「策略性投資」常是事後諸葛，成王敗寇

  3. Academic importance • CVI research into the “PORCESS” • Following Prof. Lee and Dr. Liu (2004) • Sequential investment decisions • Contrasts of two “seemingly” conflicting perspectives • Real Options Reasoning (ROR) • 決策者將投資視為「實質選擇權」，目的在掌握未來可能機會 • Escalating Commitment (EC) • 決策者在原有投資後，傾向於加碼，特別在高度不確定且負面回饋訊號出現時 • Cross-discipline endeavor • ROR: Strategic Management (Finance) • EC: Decision Science (Psychology)

  4. Empirical importance • The most difficult decision • Sequential decision with sunk costs • Conflicting signals • External signals: industry, competition • Internal signals: performance, intrinsic value • Important part of life for all investors • Individuals vs. corporate • Portfolio vs. strategic • In practice, we are dying for the answers….

  5. The essence of investment • The only and ultimate reason for investment: • For profit!! • Based on the expectation of the future (NPV) • Time frame is just one dimension. • Discounted cash flows • Inflow vs. Outflow • Cost of capital (for investment) • What goes wrong with bad CVI? • Bounded rationality • Agency problems

  6. Questions of the research • Is ROR/EC a perspective (tendency) or a behavior? • Are you measuring cognition (perspective) or behavior? • It is so easy to start with ROR, and end up with EC; sometimes vice versa. • Both cognition and/or behavior are changeable. • Subject to interpretation and response to future signals. • What is the relationship between ROR and a portfolio (financial) investment? What is the relationship between EC and a major (strategic) investment? • “Stake at risk” (賭碼）makes it different. • See p. 8 the definition of EC and Staw’s laboratory studies. • Beware of tautological propositions

  7. Critics of the basic questions • Is ROR and EC conflicting and contrasting perspectives? • ROR-type decision makers still limited by their bounded rationality, or subject to the sunk costs. • EC-type decision makers still evaluate SWOT before each sequential investment is made. • Can decision makers still take ROR after a series of investment decision? • Determinants of sequential investments • Too many and often mixed signals • Signal detecting, signal interpretation varies… • Who are the decision makers? • Garbage Can models: decision scenario (a Pandora’s box)

  8. Critics of the Framework • Constructs affecting sequential investment • External environment • Demand and supply (industry): growth of target industry • Competitive and complementary forces: Peer group’s decision • Technology and dominant design (Standard) • Invested firms • Milestones achievement • Alternatives at hand • Perceived value from the market • Investing firms • Resource status • Sunk cost (including personal reasons) • Past experience • Other investment scenario

  9. Critics of the propositions • Where do you stand? • Two research streams can not be tested with one piece of research • Each has its unique pre-conditions, methodology, and deductive logic. • Re-falsification must be conducted within the original context. • There are too many external NOISE in the research setting. • Good propositions should be: • Intellectually challenging • Unambiguous • Gateway to testable hypotheses

  10. Decision Grid Real Options Reasoning Escalating Commitment Venture’s Performance + ? YES YES (Proposition 2) NO _ Note: Other constructs can be applied and interesting Propositions can be derived.

  11. Suggestions on empirical test • In-depth interviews • To modify the framework and identify variables • To develop applicable measures and questions • Exploring underlying investment rationales • Collecting specific cases for survey • Mind the difference between “success” and “failure” • Identify the key informants • Samples • Financial investors vs. industrial investors

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