Real options innovation, Reconciling Innovation, Strategy and Value Management

real options innovation

In the world market, investment sector is one of the most profitable, but there are some risks.


We studied investment attractiveness features of innovative companies and provided proposals to improve this criterion. This goal achievement required a range of methods, in particular analytic and economic-statistic, generalized domestic and foreign experience on the subject.

A New Approach to Innovation Investment

Thus, the real option is an effective instrument in forming innovative economy. Real option allows taking into account economic risks, thereby significantly reducing financial losses.

It also forms the most productive management of financial, labor and innovation capital.

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In order to develop innovative economy and motivate innovation activities of companies, the Government in various countries develops legal framework to interact with private sector in public-private partnerships and provides a variety of state programs for innovative economy development.

Inthe Russia Federation Government adopted an innovative development strategy of the Russian Federation for the period up to [ 4 - 6 ].

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The economy of countries motivating the work on innovative developments, encouraging companies implementing innovative projects, develops more rapidly. Long-term economic growth depends on motivating domestic economic environment creation and strengthening for innovative business.

A real option is a toehold investment that buys you the right, but not the obligation, to make a subsequent investment when you know more. Consider how this way of thinking can help you avoid these common causes of innovation failure: The one big bet syndrome. The logic of real options supports this approach: essentially encouraging companies to take out a couple of different projects aimed at a promising market or technology, without huge risks. Remember such supposed first-moving winners as WebVan and Pets. Their particular bets were wrong, yet the viability of Internet-enabled business models has now been demonstrated.

In Russia, the introduction of innovations in various companies traditionally is carried out in functional control of separate departments [ 78 ]. Only a small number of companies can finance innovation of entire company, not just one high-risk department.

The latter can perform high growth in terms of both production and finance Figure 1.

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Figure 1: Russia in global innovation index, According to this chart, Russia is rising in this index in recent years. The country demonstrated a rapid change in rising up to 49th place in the rank.

Strategy, Value and Risk - The Real Options Approach

However, the crisis in the Russian economy slowed the innovation growth. Real options innovation is reflected in slower growth in global innovation index. However, inRussia has raised up to 43 in the rank, despite the fact that innovative development index of the country fell by 0.

Intense competition with foreign competitors [ 910 ].

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It is hard for Russian companies of the last two decades to compete with more advanced, large foreign companies. In innovative business, companies can succeed and compete if they are capable of bearing large financial expenses, covering high risks of innovation processes.

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Foreign companies have considered innovation as their business direction for many years, which allows not only stay afloat, but also conquering new markets, expanding capabilities, changing development strategy in unstable world economy. The possibility to use own resources in different countries provided international companies with the ability to attract cheap labour to carry out technical work, to invite leading scientists for innovative research and development.


Most international companies have established markets for their products, while Russian companies still have to take their place in embracing market. Human factor [ 1112 ]. Highly qualified staff prefers state-owned companies or foreign companies to take an internship and work abroad.

  • A New Approach to Innovation Investment
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For these reasons, many innovative companies face difficulties in forming a competent staff. In turn, this leads to additional costs to prevent consequences. Low growth rates [ 15 ]. Since the Russian economy is associated with high financial risk and is not stable enough for long-term investments, innovative companies with long payback period from the real options innovation of initial investment are not work for students on the Internet without investment for funding.

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State-owned companies and companies engaged in resource production still remain most preferred for investments. Unfavorable investment environment [ 78 ].

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In recent years, Russia has taken efforts real options innovation increase investment attractiveness for foreign investors, but despite this, the country is still not attractive for them. At the same time, one can observe low investor confidence in Russian institutions of business and property rights protection. High state expansion in the most important sector of economy does not allow investors to invest in attractive projects.

Foreign markets are provided with little information on Russian projects.

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