Real Options as a Srategic Management Framework

The purpose of this research was to examine the potential for applying the concept of real options to the DoD acquisition system. The key premise of real options is the application of strategic decision making and flexibility in the face of future uncertainties. This thesis sought to answer three research questions, how could real options be applied to the acquisition system, how could the acquisition system benefit, and what are the potential challenges to implementation within the acquisition system. These research questions were addressed through a comprehensive literature and a case study of the Operationally Responsive Space (ORS) initiative. The ORS initiative is a transformational activity sponsored by the DoD to develop a strategy for deploying a flexible and responsive satellite system architecture for meeting the direct needs of the Combatant Commanders. Transcripts from interviews with six members of the ORS initiative, representing senior decision makers and project leads, were reviewed to gain insight into the goals and strategies of ORS. This research identified several consistent themes in the execution of the ORS initiative that present opportunities for the implementation of a real options framework in the defense acquisition system: the need for a new business strategy; the need for flexibility in our systems and processes to respond to future threats; and the need to exploit emerging capabilities and technologies. The culmination of this research is recommendations for further study of the real options, in particular how it might be codified for the use within the defense acquisition system.

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