Financial Strategy, Second Edition

3

Why Bad Projects Are So Hard to Kill

Isabelle Royer

YOU CAN STILL FIND THEM on eBay, sleek and gleaming videodisc players with LP-sized discs. The product: RCA's SelectaVision – one of the biggest consumer electronics flops of all time.

But it isn't simply the monumental failure in the marketplace that makes the SelectaVision story worth remembering. It's that RCA insisted on plowing money into the product long after all signs pointed to near certain failure. When the company developed its first prototype in 1970, some experts already considered the phonograph-like technology obsolete. Seven years later, with the quality of VCRs improving and digital technology on the horizon, every one of RCA's competitors had abandoned videodisc research. Even in the face of tepid consumer response to SelectaVision's launch in 1981, RCA continued to developed new models and invest in production capacity. When the product was finally killed in 1984, it had cost the company an astounding $580 million and had tied up resources for 14 years.

Companies make similar mistakes – if on a somewhat more modest scale – all the time. Of course, hindsight is 20/20; it's easy after the fact to criticize bold bets that didn't pay off. But too often managers charge ahead in the face of mounting evidence that success is pretty well unachievable.

Why can't companies kill projects that are clearly doomed? Is it just poor management? Bureaucratic inertia? My research has uncovered something quite different. Hardly ...