Comments for Valuating innovative business models: quantifying the unquantifiable

Erin Guertin

If you are also facing such difficulties, you ought to search the nearby London plumbers as they turn out to be the most crucial individual.

my web-site ... how to market your website for free; %anchor_text (https://web-promotion-specialists.pro/organic-search-marketing-for-business),

Comment awaiting moderation.
Nelson Cloquet

Denning, S. (2006). Effective storytelling: strategic business narrative techniques. Strategy & Leadership, 34(1), 42–48

ADANT Aurore, CALCUS Sophie, CLOQUET Nelson, VANDEN HERREWEGEN Géraldine, VIDREQUIN Charles. This executive summary provides concrete insights for managers on how to make effective use of storytelling to achieve business purposes. Storytelling is the art of telling a story for communication purposes. More and more firms find it central to address many of today’s key leadership challenges, like enunciating risks…
Read more

ADANT Aurore, CALCUS Sophie, CLOQUET Nelson, VANDEN HERREWEGEN Géraldine, VIDREQUIN Charles.

This executive summary provides concrete insights for managers on how to make effective use of storytelling to achieve business purposes. Storytelling is the art of telling a story for communication purposes. More and more firms find it central to address many of today’s key leadership challenges, like enunciating risks and opportunities. But the main question is: “How to make effective use of storytelling?”

The first key insight this article provides to managers is to underline that there is not only one right way to tell a story. Indeed, there are 8 different narrative patterns applicable to different situations and it is crucial to be able to identify them for an effective use of storytelling. Those patterns depend on the objective that is pursued: sparking action; communication who you are; transmitting values; branding; fostering collaboration; taming the grapevine; sharing knowledge; leading people into the future. Each objective goes hand in hand with a distinctive storytelling strategy. Next, while storytelling can become an effective management tool for achieving business purposes if used properly, it is not to be forgotten that it is only a mean and not an end. Finally, managers should keep in mind the importance of positive tonality during storytelling to generate action and reaction of the listening people.

Even though, storytelling is not a natural gift every manager masters, it can be developed by practicing. That implicates that to improve and develop manager’s storytelling skills, companies could organize activities such as coaching, seminars, training, etc. to learn from experts. It is also important to remind managers to take their time to write down their speech. Once they have a good base, they should rehearse to master the story. Once comfortable with their text and that when used to narrate it, it will be more attractive for the. Another implication for managers is that they should not only focus on improving their storytelling skills because it is only a mean and not an end. Therefore, developing their human resources skills, their organizational skills remains essential too.

However, managers have to be aware that storytelling also has its limitations. First, telling stories with a positive tonality can hide critical truths in practical situations. Hence, we must be vigilant about narrative fallacy. It could happen that managers design a false narrative to make themselves feel better. Second, there is very little empirical evidence assessing the impact on the consumer’s responses of storytelling. Consequently, managers should not be too optimistic regarding the effect of introducing storytelling as there are no studies showing which kind of story works and when. Moreover, too much focus on storytelling could irritate consumers.

Further references:
Bartel, C. A., & Garud, R. (2009). The role of narratives in sustaining organizational innovation. Organization Science, 20(1), 107–117

Maclean, M., Harvey, C., & Chia, R. (2012). Sensemaking, storytelling and the legitimization of elite business careers. Human Relations, 65(1), 17–40.

Show less
Reply
Gilles de Buijst, Alice de Walque, Guillaume Delande, Nathalie Garron, Robin Josse (Group 6)

(Article) Cassar, G. (2010). Are individuals entering self‐employment overly optimistic? An empirical test of plans and projections on nascent entrepreneur expectations. Strategic Management Journal, 31(8), 822-840.

Executive summary: Are individuals entering self‐employment overly optimistic? An empirical test of plans and projections on nascent entrepreneur expectations. – Key insights (“What?”): 1) NASCENT ENTREPRENEURS ARE OVEROPTIMISTIC The article explains that nascent entrepreneurs tend to be overly optimistic in their expectations about their business. In fact, according to the article, entrepreneurs tend to overestimate the probability that their activity would result in…
Read more

Executive summary: Are individuals entering self‐employment overly optimistic? An empirical test of plans and projections on nascent entrepreneur expectations.

– Key insights (“What?”):
1) NASCENT ENTREPRENEURS ARE OVEROPTIMISTIC
The article explains that nascent entrepreneurs tend to be overly optimistic in their expectations about their business. In fact, according to the article, entrepreneurs tend to overestimate the probability that their activity would result in an operating venture.
That lead us to the concept of the inside view. Which is also called the “planning fallacy”. This concept tries to explain why an entrepreneur is positive or negative while making a forecast.

2) HOW THE INSIDE VIEW AFFECTS EXPECTATIONS IN AN OVERLY OPTIMISTIC WAY
When an entrepreneur adopts an inside view, he will make forecasts based on specific details of the case, obstacles to the project’s completion and by constructing scenarios of future progress. The expectations are influenced by the specifications of the situation rather than on the outcomes of similar cases or “base rate” information.
The high uncertainty of the forecasting task increases the risk of a greater cognitive bias. This situation of high uncertainty is particularly present in the entrepreneurial world.

3) STRONGER OVER OPTIMISTIC VIEW IN THE AREA OF NEW TECHNOLOGIES
The third point raised by the article is that it is more complicated for entrepreneurs in the technological area to stay rational in their expectations because all is new. The technological sector moves fast implying a greater uncertainty than in other sectors.
—————
– Managerial Implications (“So What?”):
1) OUTSIDE VIEW (using experience from previous similar ventures already completed)
Due to his/her inside view, the entrepreneur is more confident in his/her expectations of the future outcomes of the project than what eventually occurs. Entrepreneurs perceive the tasks to achieve as controllable, which exacerbates their overoptimism.
Therefore, to mitigate that risk, decision makers should take more outside sources of information into consideration. In addition, they should keep track of the abilities and potential actions of competitors.

2) OPTIMISM IS GOOD
Still, we take here the risk to come up with an inconclusive , half-and-half point but we think optimism is something important to have for businesses. Some can argue that it is better to have a positive leader that might commit mistakes than one that is always right. It gives dynamism to the business and might also boost the willingness of the company to innovate.

3) THE PSYCHOLOGICAL IMPACT OF THE OPTIMISM OF BUSINESS LEADERS
Even if entrepreneurs are wrong in their expectations, an overly optimistic view can generate positive externalities. For example, an optimistic business leader will motivates more easily his team or convince investors to put money in their project. We saw that the general business climate can condition the future. Let’s be concrete, if people are afraid by an oil shortage, they will quickly buy most of the gazoline and effectively create an oil shortage. This influence might also happen in the business world. If an entrepreneur is optimistic, his company will be perceived in an optimistic way and that could lead to positive externalities.
—————
– Limitations:
1) THE SAMPLE IS LIMITED TO THE UNITED STATES
The sample used in this article contains only people from the US mainland. Their overconfidence may come from the American culture in which the American dream still occupies an important place. This study does not consider the fact that, on other continents, the behavior and self-confidence of individuals is fundamentally different from those of Americans partly due to their different culture. The socio-cultural context is not taken into account in this study, although it probably has a significant impact on the results it presents.

2) RELATING ON PAST EXPERIENCE TO REDUCE THE EXPECTATION BIAS
As seen in the implication part, one way of reducing the expectation bias due to managerial practices is to relate to past experience. This solution is not applicable in the case of a totally new product which would be launched on a new market because experience in that specific area just doesn’t exist.

3) THE INTEGRATION OF THE EMOTIONAL ASPECT
The article explains where this exacerbated optimism comes from. However, it does not deeply cover the emotional aspect of this overconfidence, and being aware of the cognitive mechanisms behind it could be helpful in emotion regulation. If nascent entrepreneurs are aware of the influence of their emotions on decision-making processes, and have tricks to regulate it, it will be easier for them to have more objective expectations. We have found some answers to this issue thanks to an article we used in our further readings.
—————
– Further references:
——
1) Flyvbjerg, B. (2013). Quality control and due diligence in project management: Getting decisions right by taking the outside view. International Journal of Project Management, 31(5), 760-774.
This paper highlights the difficulty to estimate ex post realizations when analyzing the ex ante expectations. It goes even further by describing what quality control is in the context of project management, and demonstrate it with a real-life project. In one word, the paper learns how to de-biase project management.

2) Im, M., & Oh, J. (2016). Effect of emotion regulation as a de-biasing mechanism on overconfidence in investment behavior. Journal of Financial Services Marketing, 21(3), 209-225.
This one states that people who are able to regulate their emotions, and especially the strong positive ones such as pride, will be able to reduce bias concerning the future of business.

3) Trevelyan, R. (2008). Optimism, overconfidence and entrepreneurial activity. Management Decision, 46(7), 986-1001.
This article distincts confidence in two different dimensions by making a distinction between optimism and overconfidence.

BONUS) Lovallo, D., & Kahneman, D. (2003). Delusions of success. Harvard business review, 81(7), 56-63.
We decided to propose a “bonus article” as it was too old to be considered as further reference. We still think it is a very interesting article as it has inspired most of the previous works.

Show less
Reply
Valentin Vendy (Group 10)

Courtney, Hugh. “Decision-driven scenarios for assessing four levels of uncertainty.” Strategy & Leadership 31.1 (2003): 14-22.

Key insights : The article underlines the way scenario planning can be used while taking into account the risks and the potential uncertainties in a decision-driven way. To build your decision-driven scenarios you have to know on which level of uncertainty you are. The article has classified uncertainty among 4 different levels. Level 1: A clear enough future: the future…
Read more

Key insights :
The article underlines the way scenario planning can be used while taking into account the risks and the potential uncertainties in a decision-driven way. To build your decision-driven scenarios you have to know on which level of uncertainty you are. The article has classified uncertainty among 4 different levels. Level 1: A clear enough future: the future is predictable enough to identify a dominant strategy choice that is best across the range of potential outcome. It’s better for companies to do sensitivity analysis as they can collect data. Example : Location of a new Mcdonald’s restaurant. Level 2: Alternate futures: decision-makers face Level 2 uncertainty when they can define a limited set of possible future outcomes which are MECE (mutually exclusive, collectively exhaustive) and when only one of which will occur. Example : The future president of America. Level 3: A range of futures: decisions makers can only bound the range of future outcomes, they cannot identify a limited MECE set of outcomes.This level is often faced by companies when they try to identify the demand for a new product or service they will launch. Level 4: True ambiguity: futures outcomes are unknown and unknowable, companies and managers can’t even find a range of possible futures outcomes of possible scenarios. What the managers should do is to work backwards. The scenarios here are a set of assumptions that are credible regarding analogous situation that you faced in the past. Example : Brexit.
Implications :
The implications depend on which level of uncertainty the company faces.
– Level 1: Simulation and sensitivity analysis are great provided that you already have data. The idea to directly launch a prototype instead of waiting for the perfect final product allow the company to collect new information, observe, analyze and then improve the project with accuracy. Example : Mcdonald’s decided to test a restaurant prototype in Hong-Kong.
– Levels 2&3 : Gathering a set of experts will help you to identify the scenarios which are more difficult to predict and are not in your field of business. In those levels, it is essential to be proactive. Example : Besix has a partnership with a legal firm to help with juridical issues that may happen.
– Level 4 : Managers and employees should be reactive, react quickly to change, create new decision trees and range of scenarios. Example : The 9/11 terrorist attack pushed the airports to be more cautious about security in order to prevent potential future attacks.
Limitations :
– This way of integrating uncertainties is mainly focus on the short-term and doesn’t mention any long-term vision which is also important to identify and to link with the short-term strategy.
– It can be expensive to gather a team of experts and difficult to find the right experts for the right issues.
Further references:
-Marren, P. B., & Kennedy Jr, P. J., (2010), Scenario planning for economic recovery: short‐term decision making in a recession, Strategy & Leadership, Vol. 38 Issue: 1, pp.11-16. Online : https://www.emeraldinsight.com/doi/pdfplus/10.1108/10878571011009831
→ Scenario planning can be used to make short term economic decisions.
-Meissner, P., & Wulf, T., (2013), Cognitive benefits of scenario planning: Its impact on biases and decision quality, Technological Forecasting & Social Change. Online : https://ac.els-cdn.com/S0040162512002375/1-s2.0-S0040162512002375-main.pdf?_tid=8a1eda27-008d-4480-ac6b-2d543c0b4b56&acdnat=1544169735_2520a03287e94062fdb95612d8dd2023,
→ Analyzes the effect of scenario planning in decision making as well as on decision quality.
-(video) Shell, Navigating an Uncertain Future. Online : https://www.youtube.com/watch?v=nwub4Bhr-aM.
→ Shell explains how they use scenario and face the future uncertainties.

Show less
Reply
Anonymous

Ghosal, Vivek, and Prakash Loungani. “The differential impact of uncertainty on investment in small and large businesses

Authors of the paper are trying to prove, with empirical analysis, how investments respond to changes in uncertainty about profits and whether or not this response is different in industries that are dominated by small firms against those dominated by relatively larger firms. Small firms are defined as firms which have a maximum of 100 employees, and big ones are…
Read more

Authors of the paper are trying to prove, with empirical analysis, how investments respond to changes in uncertainty about profits and whether or not this response is different in industries that are dominated by small firms against those dominated by relatively larger firms. Small firms are defined as firms which have a maximum of 100 employees, and big ones are firms with more than 100 working people.
Regarding the key insights of our paper, we first need to explain what are the 4 hypotheses made in order to confirm the final results.
1 The firm size is used as a proxy for capital market access to test empirically the fact that the impact of profit uncertainty on investment may differ across firms. Indeed, some firms could not fund on outside bank borrowing or external equity.
2 Sunk costs (that refers to costs that have already been incurred and cannot be recovered) can be seen as a barrier-to-entry. The fact is that markets with few large firms are more likely to integrate firm with higher sunk costs. According to that, industries dominated by small firms integrate firms with less sunk costs.
3 About risk preferences, the authors of the paper are not aware of any work to demonstrate that attitudes vary by firm size. The only valuable indication in the theory is that under uncertainty, firms with greater risk aversion will tend to have lower outputs and inputs.
As a conclusion of this text, there are two key findings. Firstly, it appears that the sign of the relationship between investment and uncertainty is negative. Secondly, the negative impact of uncertainty is greater in the small firm industry than in large firm industry.
For the situations explained in the paper we found two possible managerial implications. The first implication is that, in order to integrate risks and address uncertainties, the company can make sensitivity analysis and build scenarios. It will help them have more information about the risks and uncertainties and therefore better cope with their potential impact. The second implication is for industries dominated by small firms. In these industries, there is no sunk cost barrier. Therefore, small firms should find other barriers to prevent large firms from entering their market. An example would be intellectual knowledge.
Finally, we can highlight three limitations of this paper. The first one is that it doesn’t totally apply to Start-ups. Indeed, a Start-up must make investments in order to grow-up and develop its business even in a context of higher uncertainty about profit. The second limitation is that, sometimes, you can receive a risk premium for not staying in a risk-free environment and, so higher uncertainty can lead to a higher risk premium. And that higher premium can be an incentive to invest. The last limitation is that some industries require firms to keep taking risks and making investments even if uncertainty about the future profits of these investments increases. We can think about the high-tech industry or pharmaceutical industry.
To get wider picture about the topic, further references are suggested below:
• Leahy, John, and Toni Whited, “The Effect of Uncertainty on Investment: Some Stylized Facts,” Journal of Money Credit and Banking 28 (1996), 64-83.
• Dixit, Avinash, and Robert Pindyck, Investment Under Uncertainty (Princeton: Princeton University Press, 1994).

Show less
Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

Identify the bibliographic reference you are commenting.

You may use simple HTML tags to add links or lists to your comment:
<a href="url">link</a> <ul><li>list item 1</li><li>list item2</li></ul> <em>italic</em> <strong>bold</strong>