Vermeulen and Sivanathan (2017) have shown that there are instances where the people who go it alone come out as the strongest; this is not in the case of technological advances and changes in the market dynamics. Companies such as Nokia and the British music company HMV are testimonies to this fact. The companies remained adamant to modify their successful strategies when upcoming industries in phones and music industry were busy adapting to the latest technological advances and marketing strategies respectively. The problem was related to escalation of commitment, which is the misplaced attachment to outdated strategies that assume or ignores the need to advance and try new methods. In technology, one should move with the group though intelligently. Sony is another company that has suffered from an escalation of commitment. The company has continued to invest in electronics after a long ten years history of losses. The company has lost over $8.5 billion
Escalation of commitments is engrained within the human brain. People show commitments to projects that have been tried and tested to show their viability. Few are willing to invest in new trends. Therefore, such minds would rather stick to their old strategies rather than learn new tricks. Factors informing this mindset include the fear of making a loss after huge investment, and one chooses to proceed rather than abandon a project in the hope of recovering in the future resulting in the sunk cost fallacy (Vermeulen & Sivanathan, 2017). It is linked to the second, loss aversion. With loss aversion, an investor decides to continue investing even though profit will be low after making an earlier investment in the project. The illusion of bias follows the other two factors. An illusion of bias is an assumption that one will or can manipulate the future. The fourth factor is the preference for completion where one determines to reach the finishing line even with a wrecked project. The fifth factor is the Abilene paradox where people agree though silently disagreeing to a concept. The final factor is personal identification in which one would simply decide to proceed with an abandoned project to avoid being seen negatively as losers or pessimists. The five factors create a hardened spirit that ignores counsel and drives someone into loss-making.
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Escalation of commitments is a danger that must be avoided in the dynamic world where factors influencing the success of a company or institution keeps evolving. It is caused by overconfidence and fear that blinds proper reasoning and judgment. These can be avoided by creating procedures for making decisions by involving others and motivating the management to consider new strategies. The article shows that companies like Nokia, HMV have had their share of this danger. I would consider Yahoo as an example of a company that faced a similar challenge given how its popularity dropped from early 2000s up to today. Yahoo was one a flourishing company valued at over $125B. It was sadly sold to Verizon to a meagre $5B in 2016. The management made bad investment decisions such as buying Facebook, Google, eBay, and YouTube, which are highly valued companies today. The company leaders probably suffered from the escalation of commitments challenge and could not see the potential that the start-ups had (Tynan, 2018).
References
Tynan, D. (2018). The Glory That Was Yahoo. Fast Company. Retrieved from https://www.fastcompany.com/40544277/the-glory-that-was-yahoo
Vermeulen, F. & Sivanathan, N. (2017). Stop doubling down on your failing strategy. Harvard Business Review
