How do Institutional Actors in the Financial Market Assess Companies’ Product Design? The Quasi-Rational Evaluative Schemes

Knowledge, Technology & Policy, Vol. 22, No. 4, pp. 241-258, 2010

40 Pages Posted: 8 Sep 2010

See all articles by Jaakko Aspara

Jaakko Aspara

Hanken School of Economics; Aalto University School of Business (formerly known as Helsinki School of Economics)

Date Written: August 30, 2010

Abstract

While various strategic business issues related to product design have been explored by academicians and practitioners, one issue has largely been ignored: How do financial markets assess and evaluate companies’ product design? The purpose of this article is to examine this issue, especially when it comes to the assessments and evaluations made by the most essential actors of contemporary financial markets: investment analysts and institutional investors. We develop propositions concerning the product design-related evaluative schemes and heuristics used by the financial market actors in evaluating companies as investment opportunities. We illustrate our propositions with examples from e.g. the mobile phone industry as well as with interview excerpts from interviews with investment analysts and institutional investors. Propositions are provided both for assessments of companies’ individual end products (‘design as the end product’ perspective) and for assessments of companies’ design capabilities (‘design as a capability’ perspective). In essence, our propositions highlight that the evaluative schemes used by financial market actors are partly rational, yet involve biases and are likely to lead to overvaluation and undervaluation of certain kinds of product designs by certain kinds of companies. Thus, even from the perspective of profit-maximization, many of the evaluative schemes of the financial market actors are, at most, quasi-rational. Moreover, the evaluative schemes of the financial market actors may motivate company managers to pursue certain kinds of product design rather than others – and may even lead to self-reinforcing (vicious or virtuous) circles of certain kinds of product designs being advocated.

Keywords: Strategic Design, Design Strategy, Financial Market, Investors, Investment Analysts

Suggested Citation

Aspara, Jaakko, How do Institutional Actors in the Financial Market Assess Companies’ Product Design? The Quasi-Rational Evaluative Schemes (August 30, 2010). Knowledge, Technology & Policy, Vol. 22, No. 4, pp. 241-258, 2010, Available at SSRN: https://ssrn.com/abstract=1673293

Jaakko Aspara (Contact Author)

Hanken School of Economics ( email )

P.O. Box 479
Helsinki, Helsinki 00101
Finland

Aalto University School of Business (formerly known as Helsinki School of Economics) ( email )

P.O. Box 21230
Helsinki, 00076
Finland

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