| Abstract: | ![]()
During the past five years, Kimberly‐Clark (K‐C) has faced a familiar management challenge: How can senior managers bring the rigor and discipline used to make daily operating decisions to the uncertain and risky world of innovation? The challenge was particularly acute at K‐C because the company is well known for its reliance on Return On Invested Capital (ROIC) and Discounted Cash Flow (DCF), both measures that are widely believed to lead to undervaluation of projects with risky upside potential. This article discusses how and why K‐C adopted and now uses the real options approach to project evaluation and management. The authors also share some lessons learned during the adoption process, including how the company adapted the real options framework to its own circumstances and requirements. The K‐C experience shows that successful adoption rests on a number of factors that have less to do with the rigor or precision of quantitative models than with matters of corporate process and organizational design. |
