Abstract
Optionality is the state of having options. It’s a context where you can select from a set of choices without being under any obligation to do so. We usually have a common-sense understanding of the term. Who amongst us hasn’t used the phrase ‘let’s keep our options open’ at least once in their life? Optionality is about options that are available to you. Strategic optionality involves using options in a strategic way, to understand their payoffs, and selectively acting on them. In the same common-sensical way, we know that options are most useful in a context of uncertainty, when the future is uncertain, and you are unsure of the best way forward. We take common-sense as our starting point and delve deeper into the idea here in this chapter.
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Notes
- 1.
See Rumelt et al. (1991).
- 2.
For an entertaining exposition of the abstraction, that is, Homo economicus, see Thaler, 2000.
- 3.
See Simon (1956).
- 4.
See Taleb (2012).
- 5.
US Department of Defense News Briefing, available at https://archive.ph/20180320091111/http://archive.defense.gov/Transcripts/Transcript.aspx#selection-401.0-406.0
- 6.
Reference: The Economist, ‘Method in the madness’ – Why the world’s biggest software firm looks increasingly acquisitive (April 17th, 2021): https://www.economist.com/business/2021/04/15/the-method-in-microsofts-merger-madness
- 7.
Reference: Taleb, N. N. (2001). Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets. Random House.
- 8.
Company website (visited on Dec. 1, 2021): https://www.microsoft.com/en-us/Investor/acquisition-history.aspx
- 9.
Company website (visited on Dec. 1, 2021): https://www.microsoft.com/en-us/research/
- 10.
Bezos’ letter to shareholders can be accessed here https://www.sec.gov/Archives/edgar/data/1018724/000119312516530910/d168744dex991.htm.
References and Further Readings
Frank, R. H. (2016). Success and luck: Good fortune and the myth of meritocracy. Princeton University Press.
Makridakis, S. G., Hogarth, R. M., & Gaba, A. (2009). Dance with chance: Making luck work for you. Simon and Schuster.
Rumelt, R. P., Schendel, D., & Teece, D. J. (1991). Strategic management and economics. Strategic Management Journal, 12(S2), 5–29.
Malkiel, B. G. (2020). A random walk down wall street: Including a life-cycle guide to personal investing. WW Norton & Company.
Simon, H. A. (1947, repr. 2013). Administrative Behavior. Simon and Schuster.
Simon, H. A. (1956). Rational choice and the structure of the environment. Psychological Review, 63(2), 129.
Simon, H. A. (1979). Rational decision making in business organizations. The American Economic Review., 69(4), 493–513.
Thaler, R. H. (2000). From homo economicus to homo sapiens. Journal of Economic Perspectives, 14(1), 133–141.
Taleb, N. (2005). Fooled by randomness: The hidden role of chance in life and in the markets. Random House.
Taleb, N. N. (2012). Antifragile: how to live in a world we don’t understand. London: Allen Lane.
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Datta, S., Kutzewski, T. (2023). Strategic Optionality: Introducing the Idea. In: Strategic Optionality. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-17354-7_4
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DOI: https://doi.org/10.1007/978-3-031-17354-7_4
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