Two ways to effectively reduce escalation of commitment
This article discusses two specific approaches that decrease the escalation of commitment of managers in an NPD project –to be precise, decision-makers’ habit to pursue with an innovation project regardless negative feedback that the first investment has not reached its goals.
The approaches to decrease managers’ decisions to continue funding a losing course of action are:
- Visual decision aides
- Consultant advice (third-party)
Using both approaches will have the strongest effect. Furthermore, the escalation of commitment issue can be reduced more effectively before an innovation project is launched while using both approaches.
Why are managers often too unwilling to end underperforming New Product Development Projects? Because:
- They become psychologically committed to
- Investments are made in the initial (losing) course of action they chose
Escalation situations are those where decision-makers are confronted with negative feedback about a previously chosen course of action and must decide whether to persist with or withdraw from the previously chosen course of action. Escalation of commitment is defined as the continuation in a losing course of action.
The advice of a consultant (third party)
Advantages of a consultant:
- They don’t have earlier beliefs about a project
- They are able to find problems and work efficiently
- They make more rational decisions
Visual decision aids
Advantages of visual decision aids, i.e. colorful graphs
- They are easier to check
- They allow comparisons between two or more elements
- Clarifies complex relationships, visualize trends, make forecasts, and provides an overview of business activities.
- Helps to enrich the information environment by structuring underlining uncertainties
- Improves data comprehension
Keep the visual decisions aids as simple as possible, because this makes it easier for decision-makers (including management) to understand the information they present.
This is when a consultant who uses visual decision aids that are not difficult to grasp and clearly highlights a given project failure or success. This is only effective when decision-makers can use them well. Therefore, combining both approaches is valuable, and reduces the weaknesses of both approaches separately. Mixing botch approaches helps highlight sunk costs and reduces personal involvement in innovation project funding.
Escalation of commitment during the NPD process
It’s proven that individuals’ willingness to allocate money to a doubtful project increases absolutely and linearly as it moves closer to completion.
Managers are more likely to end an underperforming NPD when they use:
- Consultant advice
- Visual decision aids when making go/stop decision
- Consultant advice and visual decision aids (strongest effect)
Therefore, applying both approaches, will deliver the strongest de-escalation effect in a stage-gate system. Furthermore, this effects have more effect before commercialization. Actually, the earlier the better.
Thus, try to receive advice from an external consultant, someone who was not involved in the project, might be an effective approach to prevent managers from continuing commitment to a losing course of action.