Identifying escalation of commitment in B2B new product development projects using data envelopment analysis

Purpose – Business managers are constantly faced with the decision to continue or abandon new product development projects. However, this type of decision may not be easy. These decisions are usually prone to bias of managers. Managers are known to escalate their commitment toward failed projects. It is also not easy to identify projects that are suffering from escalation of commitment. The purpose of this paper is to propose an objective escalation identification method. Design/methodology/approach – This paper proposes an objective escalation identification method using data envelopment analysis (DEA). The results from DEA are compared with those of subjective methods of identifying escalation. Findings – The objective estimate of escalation given by DEA was comparable to the subjective estimate of escalation given by the managers in the survey. Research limitations/implications – DEA is sensitive to outliers and managers should be careful in selecting projects that are to be included for comparison. DEA does not give statistical fit indices as it is an operational research based technique. Practical implications – DEA is an objective and automatic tool that makes the decision of managers easier. Managers can use this tool by inputting the output and input variables of their projects and then see which ones are escalated, therefore need to be abandoned. As a consequence, escalation of commitment and big losses can be prevented especially in new product development area. Originality/value – By using the proposed objective approach, escalation of commitment and associated big losses can be prevented especially in new product development area.