G lobal S trategic S trategic M anagement M anagement F orum F orum G lobal S trategic S trategic M anagement M anagement F orum F orum 全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇 6 論文題目 / 報告人 p1 Corporate Venture Investment Decisions under Uncertainty: Real Options Reasoning versus Escalating Commitment Perspective* 林舒柔 台灣大學國際企業研究所 *: This paper has benefited from a substantial discussion with professors Ji-Ren Lee and Ming-Je Tang. The usual disclaimers apply. 中華民國九十三年十二月四日

G lobal S trategic S trategic M anagement M anagement F orum F orum G lobal S trategic S trategic M anagement M anagement F orum F orum 全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇 6 論文題目 / 報告人 p2 Strategic Investment Decision Making under Uncertainty  Sequential decisions, rather than a one-shot decision  Once a company initiates an investment, how does it make its subsequent investment decision.  Two relevant research streams  Real options reasoning  Escalating commitment

G lobal S trategic S trategic M anagement M anagement F orum F orum G lobal S trategic S trategic M anagement M anagement F orum F orum 全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇 6 論文題目 / 報告人 p3 Real options reasoning versus Escalating commitment  Bowman & Hurry (1993) :  Waiting for signals or not  Adner & Levinthal (2004)  McGrath, Ferrier & Mendelow (2004)  Zardkoohi (2004)

G lobal S trategic S trategic M anagement M anagement F orum F orum G lobal S trategic S trategic M anagement M anagement F orum F orum 全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇 6 論文題目 / 報告人 p4 Corporate Venture Investment Decisions under Uncertainty  Corporate Venture Investment : focal firm’s equity investment in an entrepreneurial firm Miles & Covin (2002)  Organizationally separate from focal firm  Beyond existing business scope  Start-up or on embryo stage Characterized by  High uncertainty  Sequential rather than once-for-all decision making

G lobal S trategic S trategic M anagement M anagement F orum F orum G lobal S trategic S trategic M anagement M anagement F orum F orum 全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇 6 論文題目 / 報告人 p5 Main Objectives  Real Options Reasoning versus Escalating Commitment  Investigate corporate venture decision making

G lobal S trategic S trategic M anagement M anagement F orum F orum G lobal S trategic S trategic M anagement M anagement F orum F orum 全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇 6 論文題目 / 報告人 p6 Theoretical Background  Real Options Reasoning (ROR) Financial options Real options reasoning Real options pricing Basic assumptions : bounded rationality Purchase options : Make small investment initially and wait for the opportunity The higher the uncertainty is, the more valuable the flexibility is. Strike options : Make full investment when the situation is favorable

G lobal S trategic S trategic M anagement M anagement F orum F orum G lobal S trategic S trategic M anagement M anagement F orum F orum 全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇 6 論文題目 / 報告人 p7 Theoretical Gap – Real options  Focus on the benefit from keeping an option  Less attention paid on the option-strike timing  Bowman & Hurry (1993)  Opportunity-arrival signals  Expiration signals

G lobal S trategic S trategic M anagement M anagement F orum F orum G lobal S trategic S trategic M anagement M anagement F orum F orum 全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇 6 論文題目 / 報告人 p8 Proposition – Real options reasoning  Proposition 1: In the context of CVI, the investing companies will follow real options decision logic to make their subsequent investment decision on the venture they have initially invested.  Proposition 1a: An expected high growth of the target industry the focal venture is in will serve as an opportunity- arrival signal, which will induce the investing company to increase its commitment to the focal venture.  Proposition 1b: Peer group company’s increasing commitment on a venture of the same industry will serve as either an opportunity-arrival or an expiration signal, which will induce the investing company to increase its commitment to the focal venture.

G lobal S trategic S trategic M anagement M anagement F orum F orum G lobal S trategic S trategic M anagement M anagement F orum F orum 全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇 6 論文題目 / 報告人 p9 Conceptual Framework-- Real Options Reasoning Real options reasoning Expected market growth Peer-group firm’s action Subsequent Investment Decision Escalating Commitment Negative feedback Strategic Orientation Sunk cost Past performance

G lobal S trategic S trategic M anagement M anagement F orum F orum G lobal S trategic S trategic M anagement M anagement F orum F orum 全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇 6 論文題目 / 報告人 p10 Theoretical Background  Escalating Commitment People’s escalating tendency Negative feedback enforce the escalating tendency Uncertain ultimate outcome Rational or irrational Past empirical evidence Individual decision making & Organizational decision making Laboratory experiment & Case study Four categories of determinants (Staw, 1997) Psychological, social, project and organizational determinants

G lobal S trategic S trategic M anagement M anagement F orum F orum G lobal S trategic S trategic M anagement M anagement F orum F orum 全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇 6 論文題目 / 報告人 p11 Theoretical Gap – Escalating Commitment  The need to identify the organizational determinants

G lobal S trategic S trategic M anagement M anagement F orum F orum G lobal S trategic S trategic M anagement M anagement F orum F orum 全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇 6 論文題目 / 報告人 p12 Proposition Development– Escalating commitment  Proposition 2: In the context of CVI, a negative performance feedback of the focal venture will induce the investing company to increase its commitment to the focal venture.  Proposition 2a: When the investment on the focal venture involves substantial sunk cost, the tendency of escalating commitment will be enhanced.  Proposition 2b: The investing company’s previous successful CVI experience will enhance the tendency of its escalating commitment.

G lobal S trategic S trategic M anagement M anagement F orum F orum G lobal S trategic S trategic M anagement M anagement F orum F orum 全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇 6 論文題目 / 報告人 p13 Conceptual Framework-- Escalating commitment Escalating Commitment Negative feedback Sunk cost Past performance Strategic Orientation Real options reasoning Expected market growth Peer-group firm’s action Subsequent Investment Decision

G lobal S trategic S trategic M anagement M anagement F orum F orum G lobal S trategic S trategic M anagement M anagement F orum F orum 全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇 6 論文題目 / 報告人 p14 Proposition Development– Strategic orientation as an moderator  Proposition 3: A firm’s strategic orientation will affect its adoption of either internal or external signals as decision reference. Specifically, an investing company pursuing low- cost advantages will tend to take external signal as decision reference, while a company pursuing differentiation advantages will be more likely to escalating its previously made commitment.

G lobal S trategic S trategic M anagement M anagement F orum F orum G lobal S trategic S trategic M anagement M anagement F orum F orum 全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇 6 論文題目 / 報告人 p15 Conceptual Framework-- Strategic orientation as an moderator Strategic Orientation Real options reasoning Expected market growth Peer-group firm’s action Escalating Commitment Negative feedback Sunk cost Past performance Subsequent Investment Decision

G lobal S trategic S trategic M anagement M anagement F orum F orum G lobal S trategic S trategic M anagement M anagement F orum F orum 全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇 6 論文題目 / 報告人 p16 Conceptual Framework-- Real Options Reasoning Real options reasoning Expected market growth Peer-group firm’s action Escalating Commitment Negative feedback Strategic Orientation Subsequent Investment Decision Sunk cost Past performance

G lobal S trategic S trategic M anagement M anagement F orum F orum G lobal S trategic S trategic M anagement M anagement F orum F orum 全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇全 球 化全 球 化經 營 策 略 論 壇經 營 策 略 論 壇 6 論文題目 / 報告人 p17 Implications and Conclusions  We provide a multi-determinant view of decision making behavior under uncertainty.  Our conceptual framework has made a further positive conversation between ROR and EC.  Future research opportunities:  Examine the propositions by empirical study  Performance implication of adoption differential decision logics.