OPTIONS THINKING AND PLATFORM INVESTMENTS - INVESTING IN OPPORTUNITY

There are many factors which bias managers towards a myopic view of th e world: pressures from financial markets, strategy techniques, and in complete rules of financial evaluation. A major casualty of myopic rul es is the underinvestment in new capabilities, such as increasing the speed to the market, or the quality delivery of product and services. Investments in new capabilities are investments in opportunity: to be a player in new but uncertain markets requires learning new ways of do ing things. This article analyzes the costs of myopic rules and propos es an evaluation technique based on option pricing theory as a way to demonstrate the value of long-term investments in new capabilities as platforms into new markets. It examines investments in core technologi es, joint ventures, flexible manufacturing, and entry into foreign mar kets in terms of their platform value.