The primary assessment tool at Philips electronics : capturing real options and organizational risk in technology portfolio management

I develop an extended scoring approach to build a balanced portfolio of new technology projects under uncertainty at early stages of development. My contribution is twofold. First, I show how the tool incorporates the option approach to decision making to create contingent claims on future market introduction of new technologies. Second, I focus on the endogenous organizational risk that essential competencies may not be (fully) in place when a firm introduces a new technology in the market, i.e. exercises an R&D option. When competencies are partly in place, successful market introduction is at risk and this risk lowers the option value of an R&D project compared to financial option valuation. I demonstrate how the tool captures this organizational risk in a qualitative setting. The insights gained originate from investigating the evaluation and selection of new technologies at Philips Electronics. The Primary Assessment Tool developed serves as a first step in amalgamating R&D and NPD option values with their organizational risk.