ESCALATION OF COMMITMENT IN SMALL BUSINESS SALES MANAGEMENT: WHEN PERSISTENCE MAY NOT BE THE BEST COURSE

OF ACTION

Jeremy A. WoodsUniversity of Cincinnati

The Cost of Escalation

Escalation of Commitment:• Sustained commitment to a failing course of action (Staw,

1976, 1981; Staw & Ross, 1978, 1978).

Costs of Escalation of Commitment in Sales Management:• Time.• Energy.• Sales Budget.• Dried up Sales Pipeline.• Underperformance.• Bankruptcy.

Extending Staw (1981) – Ideal Customer Vision

________ Staw, 1981 Proposed

Extension

+

+

+

Perceived Probability of Future Success

Perceived Value of Future

Success

Escalation of Commitment

-

+Perceived

Efficacy of Resources

Perceived Persistence of Cause of

Setback

Ideal Customer

Vision

Commitment to a Course

of Action

Extending Staw (1981) – Activity-Oriented Sales Goals

________ Staw, 1981 Proposed

Extension

+

+

+

Perceived Probability of Future Success

Perceived Value of Future

Success

Escalation of Commitment

-

+Perceived

Efficacy of Resources

Perceived Persistence of Cause of

Setback

Activity-Oriented

Sales Goals

Commitment to a Course

of Action

Small Business Owner-Managers

• High dependence on single/small group of decision-makers (Feltham et al., 2005).– High emotional attachment to business (Gómez-

Mejia et al., 2007).• Long-term dependence on single/small group

of decision-makers (Gersick et al., 1997).– Reduced internal debate about strategic decisions

(Ensley, 2006; Kellermanns & Eddleston, 2004; Zahra et al. 2004).

Salespeople

• Attribution of failure to a lack of sufficient effort tends to lead to continuing pursuit of a sales prospect (Sujan, 1986).

• Attribution of failure to unstable causes tends to lead to continuing pursuit of a sales prospect (Johnston and Kim, 1994).

Escalation of Commitment (Staw, 1981)

• Higher perceived efficacy of resources leads to higher perceived probability of future success, which leads to escalation.

• Lower perceived efficacy of resources leads to higher perceived probability of future success, which leads to escalation.

• Higher perceived value of future success leads to escalation.

Hypotheses – Ideal Customer Vision

________ Staw, 1981 Proposed

Extension

+

H2 -

+

+

Perceived Probability of Future Success

Perceived Value of Future

Success

Escalation of Commitment

-

+Perceived

Efficacy of Resources

Perceived Persistence of Cause of

Setback

Ideal Customer

Vision

H1a -

H1b +

H3 -

Commitment to a Course

of Action

H4 -

Hypotheses – Activity-Oriented Sales Goals

________ Staw, 1981 Proposed

Extension

+

H6 -

+

+

Perceived Probability of Future Success

Perceived Value of Future

Success

Escalation of Commitment

-

+Perceived

Efficacy of Resources

Perceived Persistence of Cause of

Setback

Activity-Oriented

Sales Goals

H5a -

H5b +

H7 -

Commitment to a Course

of Action

H8 -

Methods• Sample of 40 small business owner-managers.

– 75% of respondents male.– Over half of respondents age 40-49, another third age 50-69.– 77.5% of respondents had an ownership stake in their business.– Half of the companies (47.5%) were family businesses.– Half of the companies (50%) had 5 employees or less; largest 10% had over 100

employees.– Company industry and size profiles representative of national SBA averages

(Marshall et al., 2006).• Pilot survey instrument.

– Hypothetical decision-making scenario (continue to pursue big fish sales prospect or switch to pursuit of smaller new ones), with survey questions to measure dependent variables & covariates.

– Independent variables measured based on ACTUAL sales management practices (survey questions).

Independent Variables – Ideal Customer Vision

• “My company has a clear definition of the customer needs which we fulfill.”

• “My company has a clear definition of our competitive strengths compared to the customer’s other purchasing options.”

• “My company has a clear definition of our competitive weaknesses compared to the customer’s other purchasing options.”

Independent Variables – Activity-Oriented Sales Goals

• “My company sets sales goals based on amount of time spent with sales leads.”

• “My company sets sales goals based on total number of sales leads.”

• “My company sets sales goals based on the amount of time required to close a sale.”

• “My company sets sales goals based on the number of sales leads in different stages of the purchasing decision process.”

Results (MANCOVA & Log. Regression)

• H1a: Partially supported. (3 individual measures significant, but in OPPOSITE direction. Scale measure not significant.)

• H1b: Partially supported (3 individual measures significant, but in OPPOSITE direction. Scale measure also significant, also in OPPOSITE direction).

• H2: Not supported.• H3: Partially supported (scale measure significant, but

only in interaction with Gender & Age).• H4: Not supported.

Results (MANCOVA & Log. Regression)

• H5a: Not supported.• H5b: Partially supported (Scale measure significant,

but in OPPOSITE direction and only in interaction with ownership stake and family nature of business).

• H6: Not supported.• H7: Not supported• H8: Fully Supported. (Wald = 3.359, P < .067, B =

-.160, Exp(B) = .852, Minus 2 LL 25.366, Nagelkerke R-square .601).

Discussion & Future Research

• Pilot instrument needs to be refined– Decision-making scenario did not contain information on whether or

not target customer matched respondents’ ideal customer vision & activity-oriented sales goals.

– Decision-making scenario had poor information content on resources & causes of the setback.

– Respondents instructed to answer questions on escalation antecedent constructs based on chosen course of action, not based just on continued pursuit of the big fish.

• NEXT STEPS– In-depth case studies with small business owners to refine survey

instrument.– Rollout of survey instrument to larger, more representative sample.