Ross Thompson, Senior Lecturer in Strategic Management, Northampton Business School

As a strategic management lecturer I am often bemused by the fact that students and colleagues alike seem terrified at the thought of introducing the concept of real options into the strategy curriculum.  I was so perplexed that I put this very question to Professor Robert Grant of Boconi University when he visited my University’s campus recently.  Rob thought that the problem was rooted in the negative impression many academics and students had towards the complex mathematics involved in the valuation of options. Taking on board Rob’s comments I have concluded that educators such as myself have not done a very good job at ‘selling’ options (no pun or should that be put! intended) and have given students, and the wider community, the impression that these are highly technical and specific financial instruments that are so remote from real life meaning that studying them is unwarranted. Nothing could be further from the truth.

These negative impressions are largely based upon the perceptions of financial options, or to put it another way, derivative options, options that have no primary asset identity and instead are based upon the value of an underlying primary asset such as a share, commodity or bond.  Treasurers use these instruments to hedge risks, arbitrageurs look to make profits via cross-market trades and traders (like me) use options speculatively. However this is less than half the story as many options are real rather than derived and affect all aspects of our lives.  They are also worthy of consideration when it comes to decision making in both our personal and business lives.

An option can be described as a right but not an obligation to do something and therefore exist in all walks of life from  getting married to taking the train or a coach.  Options are therefore valuable as they give us choice; this value is caused by a number of factors but principally by the ability to delay a decision until further information becomes available thus increasing the chance of making a better decision.  One such real option though is particularly important to me and other educators: the level of optionality embedded in degree programmes. 

As part of my own research interest in graduate employability, I am very interested in learning the scope and value of the various career options embedded in University degree programmes. What I am suggesting is that certain degree subjects are more option laden than others and this, often hidden, component adds to their value as they effectively contain the key to many careers. Probably the best example I have found is mathematics; this subject is simply replete with options because as well as being a highly rated academic subject, it provides an excellent technical underpinning for careers in science, engineering, actuarial science, accounting, surveying and manufacturing to name but a few.  Sometimes degrees that seem specialist in nature and therefore look, on face value, to be lacking in options do indeed have a number of embedded options.  Let’s now take the example of engineering: initially one might think that an engineering graduate who decides not to pursue a career in engineering may be a little stuck for choice. On closer examination though, one can see that the core skills needed to succeed in engineering (such as mathematical modelling skills) are similar to those needed in financial career such as technical analysis and structured finance.

This is very interesting and sends out two very clear messages. Firstly, educators who are interested in maximising the employability of students on their degree programmes should consider identifying and advertising the embedded career options in their courses.  Secondly, prospective students should also consider the embedded career options on degree programmes before making their final selection decisions.