Escalation of Commitment during New Product Development

Abstract

Although periodic review is a prominent feature of new product development (NPD) processes, important questions about how managers make critical continuation/termination decisions in risky NPDprojects remain unanswered. The authors test whether factors unrelated to a new product’s forecasted performance cause managers to continue NPDprojects into subsequent stages of development at rapidly accelerating costs. The results show that managers who initiate a project are less likely to perceive it is failing, are more committed to it, and are more likely to continue funding it than managers who assume leadership after a project is started. There is also the tendency toward increased commitment for more innovative products compared with less innovative ones. The results suggest that simply giving managers better information will not necessarily lead to better decisions. Finally, the results show that escalation of commitment is a more serious problem during NPDthan after the product is commercialized.