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Global Advisors is a leader in defining quantified strategies, decreasing uncertainty, improving decisions and achieving measureable results.
We specialise in providing highly-analytical data-driven recommendations in the face of significant uncertainty.
We utilise advanced predictive analytics to build robust strategies and enable our clients to make calculated decisions.
We support implementation of adaptive capability and capacity.
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Thoughts
Global Advisors’ Thoughts: Is insecurity behind that dysfunction?
By Marc Wilson
Marc is a partner at Global Advisors and based in Johannesburg, South Africa
Download this article at http://www.globaladvisors.biz/inc-feed/20170907/thoughts-is-insecurity-behind-that-dysfunction
We tend to characterise insecurity as what we see in overtly fragile, shy and awkward people. We think that their insecurity presents as lack of confidence. And often we associate it with under-achievement.
Sometimes we might be aware that insecurities can lie behind the -ias, -isms and the phobias. Body dysmorphia? Insecurity about attractiveness. Racism? Often the need to find security by claiming superiority, belonging to group with power, a group you understand and whose acceptance you want. Homophobia? Often insecurity about one’s own sexuality or masculinity / feminity.
So it is often counter-intuitive when we discover that often behind incredible success lies – insecurity! In fact, an article I once read described the successful elite of strategy consulting firms as typically “insecure over-achievers.”
Insecurity must be one of the most misunderstood drivers of dysfunction. Instead we see its related symptoms and react to those. “That woman is so overbearing. That guy is so aggressive! That girl is so self-absorbed. That guy is so competitive.” Even, “That guy is so arrogant.”
How is it that someone we might perceive as competitive, arrogant or overconfident might be insecure? Sometimes people overcompensate to hide a weakness or insecurity. Sometimes in an effort to avoid feeling defensive of a perceived shortcoming, they might go on the offensive – telling people they are the opposite or even faking security.
Do we even know what insecurity is? The very need to…
Read the rest of “Power, Control and Space” at http://www.globaladvisors.biz/inc-feed/20170907/thoughts-is-insecurity-behind-that-dysfunction
Strategy Tools
Strategy tools: Effective transfer pricing
So much has been written about transfer pricing. Yet it remains a bone of contention in almost every organisation. Transfer pricing is not merely a rational challenge – it often raises the emotions of internal service users and providers who argue regarding scope, quality, price and value.
We have found that effective transfer pricing relies on some fairly simple best practices and critical success factors.
Many organisations recover costs as a regular ‘below-the-line’ deduction from operating division income statements. In our experience, charge out is almost always preferable. This results in internal value judgements and negotiation regarding delivery happening closer to time of use.
We have typically seen that the realisation that internal pricing plays this role and the consequences of poor implementation are not well understood.
Results of poor transfer pricing implementation
Sub-optimal economic use decisions
Where costs / prices are higher than they should be, buyers pass this on as an inflated cost to their customers, experience margin squeeze, or utilise less of the service than they might have.
Strategically this can lead to incorrect decisions regarding the provision of services to the market and loss of market share.
Where costs / prices are lower than they should be, this can lead to overuse of a product or service and poor cost recovery from external customers.
Strategically this can result in the over promotion and sales of products and services that are achieving lower margins than thought, or that might even be making losses.
Sub-optimal investment and resourcing decisions
Incorrect pricing can lead to over- or under-investment in capacity and product or service quality. Further, the resourcing decisions will be incorrect should the price signal to the supplier be incorrect.
Political and emotional argument
Where buyers are unable to obtain assurance that an internal price is correct, there is typically resentment regarding the cost of the internal product and service and the sheltered position employees of the internal service provider occupy – in the buyer’s eyes free from commercial pressures.
Buyers and suppliers typically also argue regarding the quality of the service or product relative to the price paid.
Suppliers may react to criticism claiming their product or service is strategic in nature and refute its availability in the external markets.
Poor product / service quality
Poor price signals will result in lack of comparable product and service quality benchmarks. This can result in ‘gold-plating’ or poor-quality product and service provision.
Read more at https://globaladvisors.biz/2021/01/06/strategy-tools-effective-transfer-pricing/
Fast Facts
Fast Fact: The rate of technology adoption exploded in the 1990s
The 1990s were an inflection point in the adoption of new technologies. While radio showed fast adoption in the 1920s, new technologies introduced post 2010 had reached penetrations of more than 30% of the United States population within 3 years from launch. PCs...
Selected News
Term: Real option
A real option is the flexibility, but not the obligation, a company has to make future business decisions about tangible assets (like expanding, deferring, or abandoning a project) based on changing market conditions, essentially treating uncertainty as an opportunity rather than just a risk. – Real option –
Real Option
Core Characteristics and Value Proposition
Real options extend financial options theory to real-world investments, distinguishing themselves from traded securities by their non-marketable nature and the active role of management in influencing outcomes1,3. Key features include:
- Asymmetric payoffs: Upside potential is captured while downside risk is limited, akin to financial call or put options1,5.
- Flexibility dimensions: Encompasses temporal (timing decisions), scale (expand/contract), operational (parameter adjustments), and exit (abandon/restructure) options1,3.
- Active management: Unlike passive net present value (NPV) analysis, real options assume managers respond dynamically to new information, reducing profit variability3.
Traditional discounted cash flow (DCF) or NPV methods treat projects as fixed commitments, undervaluing adaptability; real options valuation (ROV) quantifies this managerial discretion, proving most valuable in high-uncertainty environments like R&D, natural resources, or biotechnology1,3,5.
Common Types of Real Options
| Type | Description | Analogy to Financial Option | Example |
|---|---|---|---|
| Option to Expand | Right to increase capacity if conditions improve | Call option | Building excess factory capacity for future scaling3,5 |
| Option to Abandon | Right to terminate and recover salvage value | Put option | Shutting down unprofitable operations3 |
| Option to Defer | Right to delay investment until uncertainty resolves | Call option | Postponing a mine development amid volatile commodity prices3 |
| Option to Stage | Right to invest incrementally, like R&D phases | Compound option | Phased drug trials with go/no-go decisions5 |
| Option to Contract | Right to scale down operations | Put option | Reducing output in response to demand drops3 |
Valuation Approaches
ROV adapts models like Black-Scholes or binomial trees to non-tradable assets, often incorporating decision trees for flexibility:
- NPV as baseline: Exercise if positive (e.g., forecast expansion cash flows discounted at opportunity cost)2.
- Binomial method: Models discrete uncertainty resolution over time5.
- Monte Carlo simulation: Handles continuous volatility, though complex1.
Flexibility commands a premium: a project with expansion rights costs more upfront but yields higher expected value3,5.
Best Related Strategy Theorist: Avinash Dixit
Avinash Dixit, alongside Robert Pindyck, is the preeminent theorist linking real options to strategic decision-making, authoring the seminal Investment under Uncertainty (1994), which formalised the framework for irreversible investments amid stochastic processes4.
Biography
Born in 1944 in Bombay (now Mumbai), India, Dixit graduated from Bombay University before earning a BA in Mathematics from Cambridge University (1963) and a PhD in Economics from Massachusetts Institute of Technology (MIT) under Paul Samuelson (1965). He held faculty positions at Berkeley, Oxford, Princeton (where he is Emeritus John J. F. Sherrerd ’52 University Professor of Economics), and the World Bank. A Fellow of the British Academy, American Academy of Arts and Sciences, and Royal Society, Dixit received the inaugural Frisch Medal (1987) and was President of the American Economic Association (2008). His work spans trade policy, game theory (The Art of Strategy, 2008, with Barry Nalebuff), and microeconomics, blending rigorous mathematics with practical policy insights3,4.
Relationship to Real Options
Dixit and Pindyck pioneered real options as a lens for strategic investment under uncertainty, arguing that firms treat sunk costs as options premiums, optimally delaying commitments until volatility resolves—contrasting NPV’s static bias4. Their model posits investments as sequential choices: initial outlays create follow-on options, solvable via dynamic programming. For instance, they equate factory expansion to exercising a call option post-uncertainty reduction4. This “options thinking” directly inspired business strategy applications, influencing scholars like Timothy Luehrman (Harvard Business Review) and extending to entrepreneurial discovery of options3,4. Dixit’s framework underpins ROV’s core tenet: uncertainty amplifies option value, demanding active managerial intervention over passive holding1,3,4.
References
1. https://www.knowcraftanalytics.com/mastering-real-options/
2. https://corporatefinanceinstitute.com/resources/derivatives/real-options/
3. https://en.wikipedia.org/wiki/Real_options_valuation
4. https://faculty.wharton.upenn.edu/wp-content/uploads/2012/05/AMR-Real-Options.pdf
6. https://www.wallstreetoasis.com/resources/skills/valuation/real-options
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