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Book cover: Advances in Strategic Management

Advances in Strategic Management

ISSN: 0742-3322
Series editor(s): Professor Brian Silverman

Subject Area: Strategy

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Capabilities, Real Options, and the Resource Allocation Process

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Title:Capabilities, Real Options, and the Resource Allocation Process
Author(s):Catherine A. Maritan, Todd M. Alessandri
Volume:24 Editor(s): Jeffrey J. Reuer, Tony W. Tong ISBN: 978-0-7623-1427-0 eISBN: 978-1-84950-494-2
Citation:Catherine A. Maritan, Todd M. Alessandri (2007), Capabilities, Real Options, and the Resource Allocation Process, in Jeffrey J. Reuer, Tony W. Tong (ed.) Real Options Theory (Advances in Strategic Management, Volume 24), Emerald Group Publishing Limited, pp.307-332
DOI:10.1016/S0742-3322(07)24011-2 (Permanent URL)
Publisher:Emerald Group Publishing Limited
Article type:Chapter Item
Abstract:In this paper, we consider the relationship between the investment decision process and returns to investments in capabilities. We draw on characteristics of capabilities to develop a framework that identifies four components of the returns to an investment that are derived from industry-based versus firm-specific elements, and option and non-option elements. We then link these components to elements of the resource allocation process. In taking this approach we place the study of real options into the larger investment context, recognizing that they co-exist with and should be understood in conjunction with other investment characteristics. These arguments highlight the importance of connecting the investment process with realization of returns, thereby providing the conceptual foundations for a decision tool.

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