Exam 6: Flexibility and Real Options

Maintaining options that create strategic flexibility can be thought of as a third generic business level strategy.

An example of the option to contract is to use contract and temporary employees instead of full-time employees.

Under conditions of ________ market uncertainty and ________ technical uncertainty,investments in new products and services have limited real option value.

Under conditions of uncertainty,cash flow projections are ________.

For a firm to have strategic flexibility,it must possess strategic options.

A decision making setting is said to be risky when the outcome of that decision is not known with certainty,and the possible outcomes associated with that decision,and their probability,are also not known before a decision is made.

Market uncertainty refers to the extent to which managers understand how a new product or service will be received in the market.

The Black-Scholes model is used in valuing financial options.

Seymour Semiconductors is a major global player in the semiconductor and microchip industry. In the space that they compete in, there is tremendous technological uncertainty as disruptive innovations seemingly come out of nowhere to upend well-entrenched incumbents. These disruptions are often fast and are increasingly by companies that do not compete head-to-head with Seymour Semiconductors. In addition, market tastes for the end products that feature Seymour Semiconductors' components also change rapidly. The company was hurt financially when the market shifted away from personal computers (that accounted for a significant portion of Seymour Semiconductors' revenues), first to tablets, and then to other mobile devices. The company's new CEO, Lisa Monroe, has decided that the company's basic approach to strategy should change. Toward this, she has mandated that, at any point in time, Seymour Semiconductors should be able to choose from several different strategic options instead of a fixed and planned course of action that the company has pursued since it beginning. One of her mandates called for the company's future manufacturing plants to be built with the ability to add capacity at low cost. In addition, she wants to lay off 1,000 of the company's employees and hire contract and temporary workers in their stead. Finally, Monroe wants the company to use the real options approach to manage the combination of technological and market uncertainties. -To combat the uncertainty that Seymour Semiconductors faces,Lisa Monroe should direct the company to ________.

The concepts of flexibility and real options are closely related to the importance of history and path dependence that are potential sources of sustained competitive advantage.

The shorter the time to maturity,the more valuable a real option is.

The lower the cost of exercising a real option,the lower is the value of that real option.

Seymour Semiconductors is a major global player in the semiconductor and microchip industry. In the space that they compete in, there is tremendous technological uncertainty as disruptive innovations seemingly come out of nowhere to upend well-entrenched incumbents. These disruptions are often fast and are increasingly by companies that do not compete head-to-head with Seymour Semiconductors. In addition, market tastes for the end products that feature Seymour Semiconductors' components also change rapidly. The company was hurt financially when the market shifted away from personal computers (that accounted for a significant portion of Seymour Semiconductors' revenues), first to tablets, and then to other mobile devices. The company's new CEO, Lisa Monroe, has decided that the company's basic approach to strategy should change. Toward this, she has mandated that, at any point in time, Seymour Semiconductors should be able to choose from several different strategic options instead of a fixed and planned course of action that the company has pursued since it beginning. One of her mandates called for the company's future manufacturing plants to be built with the ability to add capacity at low cost. In addition, she wants to lay off 1,000 of the company's employees and hire contract and temporary workers in their stead. Finally, Monroe wants the company to use the real options approach to manage the combination of technological and market uncertainties. -The uncertainty that Seymour Semiconductors faces is with regard to ________.

Firms may not be able to create flexibility in their cost leadership strategy.

Strategic options are different from real options.

If the value of an option is $4.59,it means an investor should be willing to pay up to $4.59 for the ________,but not the ________ to buy the stock.

Gambling at a casino is an example of a risky decision.

A low exercise price suggests a higher probability of the option being exercised.

Strategic options exist when firms have the ________,but not the ________,to invest in a particular strategy.

The effect of uncertainty on the value of a real option is extremely important.