Exam 6: Flexibility and Real Options

Toryn,Inc.,a major player in semiconductors,makes small investments of 5-10 percent of a firm's equity in many emerging technology companies.Toryn buys the company outright once that company's technological uncertainty resolves.The option that Toryn,Inc.uses is called a ________ option.

A stepping-stone option is recommended when both market and technical uncertainty are low.

A firm outsourcing distribution to a firm that distributes the products of many firms instead of outsourcing distribution to a firm that distributes only its production is an example of the option to ________.

What are stepping-stone options? What does a company do in a stepping-stone option?

According to Rita McGrath and Ian MacMillan,________ uncertainty refers to the extent to which managers understand how a new product or service will be received in the market.

A firm building a plant with the ability to add capacity at low cost is an example of the option to ________.

Using present value analysis does not work under conditions of uncertainty.

In reality,strategic choices are often made over time,in a ________ manner.

Market uncertainty refers to the extent to which managers understand the process by which a new product or service will be developed before that process is undertaken.

Cash flow projections can be reliable under conditions of uncertainty.

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. -Per the Rita McGrath and Ian MacMillan typology,to combat the uncertainty that Seymour Semiconductors faces,the company should use ________ options.

The greater the uncertainty,the more valuable a real option is.

A firm investing to create one product because that investment could lead to the development of other products in the future is an example of the option to ________.

Taking multiple small positions in alternative technologies and waiting until technological uncertainty is resolved to invest is what is meant by a ________ option.

Putting several new offerings in consumers hand to gauge their reactions and investing once consumer preferences are clear is what is meant by a ________ 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. -Seymour Semiconductors has strategic options when it has the ________,but not the ________,to invest in a particular strategy.

Under conditions of ________,the riskiness of the cash flows generated cannot be reliably anticipated.

How is the option to defer different from the option to contract?

There is no distinction between the concepts of risk and uncertainty.

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. -Lisa Monroe's decision to lay off 1,000 of the company's employees and hire contract and temporary workers in their stead gives Seymour Semiconductors the option to ________.