Real options theory in strategic management

CITATION

Trigeorgis, L., & Reuer, J. J. (2017). Real options theory in strategic management. Strategic Management Journal, 38(1), 42-63. doi:10.1002/smj.2593

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ABSTRACT
Research summary: This article provides a review of real options theory (ROT) in strategic
management research. We review the fundamentals of ROT and provide a taxonomy of this
research. By synthesizing and critiquing research on real options, we identify a number of
important challenges as well as opportunities for ROT if it is to enhance its impact on strategic
management and potentially develop into a theoretical pillar in the field. We examine how
ROT can inform the key tensions that managers face between commitment versus flexibility as
well as between competition versus cooperation, and we show how it can uniquely address the
fundamental issues in strategy. We conclude with suggestions on future research directions that
could enhance and unify the thus-far distinct main approaches to real options research.
Managerial summary: Real options theory (ROT) applies the heuristics and valuation models
originally designed for financial securities to the domain of corporate investment decisions
(e.g., joint ventures [JVs], foreign direct investment, research and development [R&D], etc.)
and strategic decision making under uncertainty. This article provides a synthesis of this body
of research in strategic management and related disciplines. We suggest how ROT can address
fundamental issues of strategy, including the dilemmas managers face between commitment versus
flexibility as well as between competition versus cooperation. We discuss how three distinct
approaches to real options analysis can complement each other, and we identify some of the main
challenges and opportunities for ROT to become a theoretical pillar in strategy


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