Associate Professor Eyal Biyalogorsky
Associate Professor Eyal Biyalogorsky and colleagues Professor William Boulding and Professor Richard Staelin of the Fuqua School of Business at Duke University teamed up to study a pattern of behavior common among decision makers: to remain committed to a failing course of action even when evidence of failure is obvious. Their study, “Stuck in the Past: Why Managers Persist with New Product Failures,” was published in the April 2006 issue of the Journal of Marketing. While previous theories predict that decision makers who choose to launch new products would want to continue with it in the face of eminent failure, these theories do not account for why decision makers who had not been publicly involved with the initial launching would also choose to continue down the same path. Biyalogorsky and his co-authors provide plausible answers to why these patterns persist and what organizations can do to avoid such situations. The researchers asked 142 MBA and executive MBA students to review a proposed product introduction that had either “positive” or “very positive” market prospects. Some of the participants were asked whether to proceed with the product launch, while others were not required to make a public commitment one way or the other. All participants were then given negative feedback about the product’s performance during its first two years on the market. Of the 130 participants who chose to launch the product, 52 percent chose to continue with the failing product. The researchers found that many of those not asked to make an initial public recommendation were among the group that decided to stay the course. So, saving public face, or managers’ public commitment to the product, was not a necessary variable in the managers’ decision to continue on. The researchers contend that the participants formed positive impressions about the product before receiving negative reviews of its performance. This caused managers to give less weight to the new, negative information. The researchers also found that managers often misinterpreted negative information from others because people who delivered the bad news warped the information to conform to the manager’s existing beliefs—they try to put a positive spin on a bad situation. Decision makers are trapped by their inability to acknowledge the veracity of negative information, especially when it goes against previously held beliefs. The researchers suggest several steps that organizations can take to reduce the likelihood that managers are biased by an existing set of beliefs and misinterpreting feedback. Biyalogorsky and his co-authors also recommend changing organizational structures so that decisions to continue or discontinue projects are made by someone without existing beliefs. They also recommend that organizations establish rules before launching a product so that objective data about a project’s success or failure are seriously considered.