If you’ve owned a car much beyond the average US ownership of 6 years, you’ve likely reached the point where you had to decide whether or not to stay committed to your aging wheels. Rising repair and maintenance costs will cause you to consider the point at which it makes sense to cut your losses and invest in a new(er) ride.
I’m there right now. With both of our cars. *Sigh*
It can be difficult to decide when to abandon an older vehicle, especially when other factors such as nostalgia, an upcoming young driver, or fear of the unknown get added to the mix. Many times car owners find themselves in a sort of “commitment escalation,” pouring more time and money into vehicles, hoping the effort will pay off in the end (or at least break even).
What Is Commitment Escalation?
In the world of strategic decisions, commitment escalation is a very real and deadly assumption that can undermine the health and momentum of an organization or team. Commitment escalation is the assumption that pouring more effort and resources into a decision will increase the chances of success.
A great example of commitment escalation from the corporate world is Motorola’s Iridium project. In the 1980s, phone coverage around the world was weak. It could take hours of dealing with an endless string of telephone operators across several different countries to get a call through from Dallas to Dubai. There was a real need within the business community to improve phone access around the world. Motorola envisioned solving this problem using 66 low-orbiting satellites, enabling users to place a direct call to any location on the planet. At the time of idea development, the project was technologically advanced, sophisticated, and made good financial sense. Motorola spun off Iridium as a separate company in 1991. It took researchers a total of 15 years to develop the product from idea to market release.
Unfortunately for Motorola, by the 1990s the landscape for cell phone technology was dramatically different from that in the 80s, and widespread cell phone coverage around the world eliminated the majority of the projected customer base for Iridium. Had they been paying attention to these developments, the decision makers could have abandoned the project at some point in the early 1990s, cutting their losses. Instead, they released the Iridium phone to the market in 1998. The phone cost $3,000, and it was literally the size of a brick. Moreover, it was not possible to use the phone in moving cars or inside buildings. Not surprisingly, the launch was a failure, and Iridium filed for bankruptcy just one year later. After some $5 billion spent to develop the product, the company was purchased for $25 million by a group of investors who scaled down its operations and modified it for use by the Department of Defense to connect soldiers in remote areas not served by land lines or cell phones.
What Fuels Commitment Escalation?
There are a wide variety of things that can cause us to overcommit to a decision, project, or program. For many decision makers, it is simply hard to admit that they were wrong. This may be because of personal pride or being afraid of the career consequences of such an admission. Regardless, it seems easier to press on than to concede. In addition, leaders may incorrectly believe that spending more time and energy might somehow help them recover their losses. The remote possibility of success in the end justifies the means.
Other elements that fuel this deadly assumption include:
- Psychological Factors – As we’ve mentioned in an earlier post, people have an almost uncanny ability to see only what aligns with their beliefs. Much like sports fans who concentrate on their own team’s great plays and the other team’s fouls, decision makers tend to see only what confirms their preferences. The confirmation bias can be a major roadblock to sensible withdrawal from losing courses of action.
- Social Pressures – Leaders may persist in a project not only because they don’t want to admit error to themselves but also because they don’t wish to expose their mistakes to others. No one wants to appear incompetent. Especially when a person’s fate is tied to performance, hanging on in the face of losses makes sense.
- Also consider that our ideas of how a leader should act can also foster foolish persistence. Culturally, we associate persistence—“staying the course,” “sticking to your guns,” and “weathering the storm”—with strong leadership. Persistence that happens to turn out successfully is especially rewarded. If people see persistence as a sign of leadership and withdrawal as a sign of weakness, why would we expect leaders to back off from a floundering initiative? Recent research demonstrates that even though it may not add to the welfare of the organization, persistence does make a manager look like a leader.
- Structural Issues – Simply put, all the rules, procedures, routines, and politics of an organization can cause “administrative inertia,” making it easier to persist in a losing effort than maneuver through the red tape required to make a change in course.
How Do You Avoid Commitment Escalation?
Effective leaders avoid commitment escalation by distinguishing between when persistence may actually pay off versus when it might mean over-commitment. How can you do this? Here are a few examples to consider:
Establish strict turning back points. Better and more objective decisions are made outside of high-pressure situations. As you lay out the implementation path of a decision through uncertainty, identify the key points at which the risk clearly outweighs the rewards and monitor those thresholds carefully. When you reach a turning back point, cut your losses and move on.
Plan for periodic evaluations. An initially sound decision must be inspected along the way to see whether the decision still makes sense, or if a pivot needs to be made. Schedule evaluation times in advance to monitor performance against projections.
Create an organizational climate that celebrates (or at least doesn’t severely punish) failure. As we stated above, many decision makers fall victim to this deadly assumption out of fear of admitting or facing the consequences of failure. If you establish a working environment where individuals do not fear failure, it can go a long way in preventing commitment escalation.
HUB Will Help You Implement Escalation-Resistant Plans
In order for your decision and plans to be “escalation-resistant,” you need processes and tools that will help you expose and overcome deadly assumptions. The HUB experience provides an environment where teams can follow proven processes and use time-tested tools while learning from and collaborating with other innovative leaders and teams. If you’re looking to gain clarity in your strategic thinking, as well as to exchange ideas, gain insights, and accelerate results in the areas of City Impact, Generosity, Multisite, Leadership Development, or Succession Planning, click on the banner below to learn about HUB.
This blog is part of a 7-post series. Click to read each of the posts: #1 Anchoring, #2 Framing, #3 Confirmation Bias, #4 Others Understand Things the Way I Do, #5 I Knew it All Along, #6 The Overconfidence Effect, #7 Commitment Escalation.
Image Source: hdimagelib.com; http://www.martinlisec.com