Spider-man & Overcommitment
The Irrationality of Organizational Escalation: The Danger of Spider-man & Overcommitment
By Henry Han-yu Shen
Spider-man: Turn Off the Dark is an upcoming rock musical featuring music and lyrics from U2’s Bono and The Edge and originally directed by Julie Taymor, best known for the hit musical The Lion King.
This musical is also the most expensive Broadway production in history, with a record-setting initial project budget of $52 million. The show’s opening has been repeatedly delayed while the production cost continues to accrue, currently totaling a whopping 70 million dollars. The final estimated budget approaches 100 million dollars, with no guarantee of profit return and below-average reviews.
Spider-man’s situation exemplifies a classic case of organizational failure. Marked by producers’ continuously irrational contributions of monetary support to a seemingly hopeless project. In many ways this case is similar to the failed Shoreham Nuclear Power Plant program as analyzed by Ross and Staw (1993). The Shoreham project also experienced an escalation of project cost – from an initial $75 million to the final cost of $5 billion – and it a classical example of how organizations become increasingly committed to losing courses of action over time.
We can draw several parallels by comparing the Spider-man Broadway production to organizational escalation. We can see that economic data alone cannot easily deter organizational leaders from withdrawing from a full-scale course of action, especially in cases involving something that is highly subjective in its value (such as a Broadway production). When we consider that the cost of production for Spider-man continues to rise, the initial psychological over-commitment of the producers can become even stronger. Such forces appear to have come into play, trapping the producers into a losing situation while they continue to throw money into the project. It is important for future producers, or any organizational leaders, to keep in mind the existence and properties of these different types of escalating determinants in order to avoid clouded judgment and behavior when making decisions.
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Interesting point, but it fails to acknowledge a key difference: As the Spiderman producers spend more and more, they also build hype for the show. In a sense, they are getting double for their dollars: Covering production costs, and building hype.
Ticket sales, as I understand, have been robust.
Ticket sales are building because people want to see this train wreck of a show. Actors are being hurt in the rehearsal process and people tend to want to witness this. I think safety is a major reason for the delayed schedule. The reviews have not been positive, stating things like (and I am paraphrasing) the show is boring and the audience is waiting for something to happen.
I do not think the ticket sales are due to the additional time spent or money spent on the project. At what point is it a considered sunk cost and you move on…
We have an example of this here in NJ. The Xanadu project, which was billed as an shopping/entertainment experience, has cost a billion dollars over a 7 year period. Taxpayer dollars were drawn into a project that is nowhere near to opening and the only answer is to pour more money into it.
This “might” be a valid argument but there seems to be many underlying assumptions without quantification. As a reader, I can only believe this argument if I infer the following:
1. At $100 Million in total funding, tickets over the course of the production (without additional funding) will net less than $48 Million (the difference from the initial funding.
2. The actual completion of the project for the producers is worth nothing for future projects (i.e. Their professional reputation and earning potential for future projects isn’t worth an additional $48M.
3. The producers have 100% of the decision making process (i.e. there are no silent partners or contractual obligations legally binding them to complete the program if fiscally possible)
4. And as some have already mentioned, the publicity isn’t fostering any additional ticket sales.
If none of these inferences, or additional ones I haven’t thought of, hold true then (to put it in statistical terms) we must reject the null hypothesis. Correlation is not causation.
That is exactly what I was thinking about to post after reading the article.
I am lucky to have deeper knowledge on some projects where costs ended up few times higher than forecasted, milestones were delayed again and again, but in every case there was an important goal to be achieved, which was not known to the observing public. This determined the course of action after each checkpoint, no matter if it seemed as loosing course of action.
It would be interesting to explore:
- The evolutionary brain processes involved in over-commitment and we assume over-confidence. Why would our distant ancestors have found these behaviors adaptive?
- Individual differences in these behaviors/traits/personalities. Assume some kinds of people are more vulnerable to these behaviors.
- Social drivers: How do groups support and drive these behaviors since it appers all these behaviors occur in group settings — by individuals.
What appears to be missing is critical thinking and the kind of independent thinking and arguments that occur in the best science and medicine, engineering, etc.
But the evolved, and we assume largely unconscious, drivers (always) win.
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This is why we have the idiom, “Don’t throw good money after bad.” Instances are not hard to find.
Ego. Pride goeth before a fall. Interesting how the rationalization machine will cause many people to disregard survival instinct.
Henry,
I don’t think this is a clear case of irrational behavior, although it may very well turn out that way. Suppose the show makes $250k profit per week for 120 weeks (Wicked has consistently grossed >$1M per week since 2003[1]). That would cover the expected additional $30M to start putting on the show. Even if the show ends up being net loss, continuing to invest in it could still be a good idea. As long as they make at least $30M, they can recover some of the $70M that’s they’ve already sunk into it.
[1] http://www2.broadwayworld.com/grossesshow.cfm?show=WICKED
We might be over-analyzing the producer’s situation: This may be a simple dilemma of runaway hopes and a serious case of loss aversion.
Sometimes I feel this irrational behaviour applies to my continued attempts to finish a PhD, the currency being time instead of money.
What struck me odd about the Spider Man TOTD site was the creative team was mentioned first, and the cast was mentioned second. Huh. Maybe that’s a bad sign. Not sure if I went to the official sites, but here is a very small sample.
Spider Man TOTD Creative team first, cast second
Jersey Boys Cast first, creative team second
Rock of Ages Cast first, creative team second
Lion King Cast first, creative team second
Hey, I hear what you are saying. I am going to get a little picky here, though. I don’t know where the new money came from. Did the original investors invest more? Did new investors come along? If the original investors got out at their “outs,” they did not get trapped. They took a risk, took a loss, and moved on. It is also possible that new investors got a sweetheart deal to come in. Maybe they got something for twenty-five cents on the dollar. If new investors came in, I’d really like to know how that works. Do they get revenue after the original investors are paid off? Do they buy out the original investors at twenty-five cents on the dollar?
Isn’t it Sunk Cost Fallacy that the article is talking about ?
I often think how hard past behavior (short term) can dramatically influence the outcome of someone decisions to an extent that they would never chose that direction if the situation was presented to them on paper. Whether its because someone wants to appear coherent to himself and others or to procrastinate the felling of loss it seems that past decisions (often times wrong decision) can change dramatically the course of action.
I see this often with short term traders (in financial markets). After a trade is open every minute is a decision of invest (letting the trade go) or close it. We often see a trade go bad and people are so influence by the path to the current state of things (losing money) that their decision can be the exact opposite if the trade was not open and they had to decide.
What a heck are you guys talking about?
I though this was something about the Spiderman.