The Role of Departmental Thought Worlds in Shaping Escalation of Commitment in New Product Development Projects

Abstract

The debate over whether and how thought worlds of different departments (especially marketing and research and development [R&D]) affect managers' decision‐making behavior in new product development (NPD) is ongoing. A key challenge of these decisions is to deal with deteriorating NPD projects, which are often subject to escalation of commitment (EoC), with many firms wasting billions of dollars by throwing good money after bad NPD projects. However, understanding departmental thought worlds and their role for EoC in NPD could help firms stop this profusion. Thus, this research provides answers to the question of how thought worlds affect managers' tendency toward EoC in NPD decision‐making—both in general and under certain project characteristics. To do so, we conducted four studies based on real‐life scenarios with 460 highly experienced NPD managers from marketing and R&D, thus ensuring high validity and reliability. Our research is the first to explore the impact of thought worlds on EoC, thereby detecting that the importance of managers' thought worlds for shaping EoC varies with the NPD project's characteristics. Thus, depending on the specific project situation, different types of managers may be more or less capable of making proper NPD decisions. Moreover, results show that belief updating serves as a respective key mediator. Doing so enriches the theory by showing that managers' thought worlds can substantially influence a major mechanism (i.e., belief updating) of coping with cognitive dissonance. Finally, post hoc tests reveal departmental differences in EoC behavior between marketing and R&D that vary with a project's characteristics. These results imply that firms need to carefully consider who is in charge of making decisions on NPD project continuance in different project situations.