Real Options Reasoning and Innovative Performance in the Context of Dynamic Capabilities

Abstract

Innovation has always been along with great uncertainty, and companies that are seeking to develop new products or services should be flexible in their resources to cope with uncertainty. Presenting new goods, commodities or services mostly requires the expenditure of huge amount of both financial and human resources which, in turn, can endanger the company’s status in the market if it fails to fulfill the product requirements. In this way, firms increasingly realize that a flexible workforce helps mitigate downside risks and offers opportunities for achieving superior and innovative performance. Therefore, considering flexible investing plan such as real options reasoning can be regarded as one of top priority for innovative firms. In this regard, the primary and major question of the study will be whether real options reasoning or thinking as a strategy for uncertainty reduction matter when innovative firms are looking to increase their rate of radical and incremental innovative performance in rapidly changing and unpredictable environments? Through a comprehensive literature review, we will attempt to find out whether adaptive capability exercises a mediating role between real options reasoning and innovative performance? Also, the capacity of firms to create and exploit new knowledge is critical for innovative outputs. In other words, a firm’s innovation performance is an outcome of increases in its knowledge base and the success of real options thinking mostly depends on organizational ability to evaluate and utilize outside information and knowledge. Thus we will investigate the moderate effects of absorptive capacity on the relationship between real options thinking and innovative performance.