What keeps managers away from a losing course of action? Go/stop decisions in new product development

Abstract

The purpose of this experimental study is to test whether specific approaches can reduce escalation of commitment - namely, decision-makers' tendency to persist with an innovation project despite negative feedback that the initial investment has not reached its goals. This study focuses on the decision process for 137 research and development managers who must decide whether to abandon previously chosen courses of action or to continue in the face of probable and increasing losses in a stage-gate system. The results show that visual decision aids and consultant advice reduce managers' decisions to continue funding a losing course of action. The results also show that using both approaches simultaneously has the strongest effect. Finally, the study reveals that the escalation of commitment issue can be reduced more effectively before an innovation project is commercialized while using both approaches. © 2013 Product Development & Management Association.