Are really new product development projects harder to shut down?

Abstract

Just as a good houseguest knows when it's time to say good-bye, effective managers must recognize when it's time to terminate a new product development (NPD) project. As a product progresses toward commercialization, a manager's reluctance to terminate a failing project becomes increasingly expensive. Despite this growing expense, however, many managers are reluctant to shut down failing NPD projects. Jeffrey Schmidt and Roger Calantone hypothesize that this reluctance may be even more pronounced for innovative new products than for incremental NPD efforts. They suggest that perhaps the excitement that really new products engender within a company makes managers more reluctant to shut down the NPD project, even in the face of clear-cut evidence that the project is not a winner. To test these assumptions, they conducted a decision-making experiment in which managers were asked to make go/no-go decisions at each stage in a hypothetical NPD project. One project involved an innovative new product; the other project involved an incremental development—that is, a line extension that offered only marginal size and cost reductions compared to current models. At the outset of the experiment, participants were given market share and profit objectives for assessing the new product's performance. At each stage in the hypothetical NPD project, the participants then received updated performance data. The performance data provided to participants was identical for the two hypothetical projects, and fell increasingly farther below the performance objectives as the project progressed. The results of the experiment support the hypothesized relationship between product innovativeness and managers' reluctance to terminate a failing NPD project. Given identical, poor, performance forecasts, the managers who participated in this experiment were more optimistic about the likelihood of success, were more committed to the project, and were more likely to opt for continuing the project when it involved the more innovative product. In fact, the participants were more likely to allow the highly innovative NPD project to proceed all the way through commercialization, notwithstanding the progressively ominous performance feedback.