Escalation of commitment in decision making is a cognitive bias-driven phenomenon that leads individuals and organizations to invest resources in failing projects persistently. In this article, we will describe the escalation of commitment and the impact that it has within an organization. We will use the case of New Coke as an example to illustrate escalation of commitment.
Escalation of Commitment in Decision-Making
Escalation of commitment is a phenomenon deeply ingrained in human decision-making. It occurs when individuals or groups persist in investing resources in a project or decision despite mounting evidence suggesting its impending failure. This often irrational behavior is driven by cognitive biases, notably the sunk cost fallacy and confirmation bias. The ramifications of escalation of commitment extend far beyond mere financial losses; they can severely impact decision-making processes and the very culture of organizations.
Escalation of Commitment in the Case of New Coke
To illustrate the concept of escalation of commitment, one need look no further than the infamous case of New Coke, introduced by Coca-Cola in 1985. Coca-Cola, embroiled in a fierce battle with arch-rival Pepsi, decided to alter the formula of its flagship product in a bold bid to gain market share. Even though taste tests unequivocally favored the original formula, Coca-Cola’s top brass remained steadfastly committed to New Coke, pouring substantial resources into its promotion and distribution1.
As New Coke’s sales began to languish, Coca-Cola adopted a counterintuitive approach, doubling its commitment to the product by intensifying investments in advertising and distribution. Despite mounting evidence suggesting the product’s failure, the company supported the product. It took several months of dwindling sales and negative consumer feedback before Coca-Cola conceded to abandon the new formula and revert to the original recipe.
The consequences of this escalation of commitment were profound. Coca-Cola had invested millions of dollars in developing and promoting the new product, only to see it flounder in the market. Cognitive biases, particularly the sunk cost fallacy, were instrumental in driving the decision to persist with New Coke. Executives clung to the misguided belief that they had already invested too much to retreat.
Impact on Organizational Culture and Decision-Making
Escalation of commitment is not a solitary event confined to a single project or decision. It has the potential to infiltrate an organization’s culture and its very decision-making processes. In environments where escalation of commitment is anticipated, decision-making tends to become rigid and impervious to change. Stakeholders become entrenched and unwilling to entertain alternative viewpoints or consider course corrections.
Mitigating Escalation of Commitment
Organizations must foster a culture of open and candid communication to avert the detrimental consequences of escalation of commitment. Leaders are responsible for encouraging employees to voice their concerns about projects or decisions. Moreover, they should demonstrate a willingness to consider alternative perspectives and, if necessary, adjust their course of action. Organizations can also implement robust processes for the routine evaluation of project effectiveness. These mechanisms allow for flexibility and adaptation when a project is veering off course.
Conclusion
In sum, escalation of commitment is a phenomenon with far-reaching repercussions for both individuals and organizations. Understanding the cognitive biases underpinning this behavior is the first step toward mitigating its impact. By nurturing a culture of open communication and introducing systematic evaluations of projects and decisions, organizations can sidestep the negative consequences of escalation of commitment and make more sound and effective choices2.
The cautionary tale of New Coke is a stark reminder of the importance of being open to alternative perspectives and ready to pivot when the situation demands it. In the ever-evolving decision-making landscape, adaptability is often the key to success.
References
- Fripp, G. (2022, August 28). New Coke Case Study (Part 1). Great Ideas for Teaching Marketing. ↩︎
- Thompson, L. L. (n.d.). Making the Team: A Guide for Managers. O’Reilly Online Learning. ↩︎
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