I recently discussed with a friend who has been involved in different corporate innovation centers for many years about the many ways proper optionality can be built. And he was telling me how he was going back to Real Options strategy (I capitalize 'Real Options' because it's an established term, even if very few know or remember what it is–which is the point of this article).

Our chat was:

  • [Him] A thing I'm working on is the application of 'real options' in innovation. It's a concept used a lot at [redacted] when I was there (until 2008).
  • [Me] The sniper's strategy?
  • [Him] What do you mean?
  • [Me] We'll have to talk about it over coffee; I don't know if we're discussing the same thing. What I know about 'Real Options' was approaches to decide when a market turnaround would become interesting (however improbable) and to set alert flags to make decisions quickly. Like a sniper.
  • [Him] Oh yes, that's it, exactly. Basically, have lots of positions in place to be able to take advantage of any turnaround."

I must say I wasn't 100% sure what he was talking about, as it was a long time since I heard the term Real Options. The core idea is very similar to portfolio strategies, which are so useful in Zone 2 innovation.

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Real Options is a strategic approach that originated in financial management but has been extended to various business domains, including innovation and project management. It involves treating business decisions as similar to financial options and considering the flexibility to adapt and change strategies as new information becomes available. This aligns well with the unpredictable and dynamic nature of innovation and market trends.

The step-by-step approach to building Real Options would be something like this: