Stuck in the Past: Why Managers Persist with New Product Failures

Abstract

In this research we examine the phenomenon of escalation bias in the context of managing new product introductions. In particular, we propose a formal descriptive model that captures the potential effects of confirmatory bias. We do this by having the initial belief structure (i.e., the set of beliefs leading to the first decision) non-normatively affecting the manager's perceptions of new information along with its normative role in the updating of beliefs. This over-weighting of the initial (positive) belief structure can lead the manager to continue (improperly) with a (losing) course of action.

Deadlines in Product Development

“…Previous research has explored why some projects seem to stop too late. Reasons include project managers' excessive optimism (March and Shapira 1987), escalating commitment to chosen paths (Boulding, Morgan and Staelin 1997), and ignorance of negative information (Biyalagorsky, Boulding and Staelin 2006). Simester and Zhang (2010) find that bad products are hard to kill because managers have better knowledge about project quality.…”

Radical innovation in strategic partnerships: A framework for analysis

“…Since the market value of the research is uncertain, it is difficult to say whether the alliance performs satisfactorily. Prior studies have shown that as resources and efforts invested into research increase, partners may find it difficult to terminate unsuccessful projects because stakes are so high (Biyalogorsky et al 2006). A "failure trap" -sunk costs of previous investments motivates partners to continue with their commitment even in the face of escalating losses.…”

Harbingers of Failure

“…The new product development literature has identified escalated commitment (Boulding, Morgan and Staelin 1997;Brockner and Rubin 1985;Brockner 1992,), an inability to integrate information (Biyalagorsky, Boulding and Staelin 2006) and distortions in management incentives (Simester and Zhang 2010) as possible explanations. Our identification of this class of Harbingers provides an alternative explanation.…”