Why Are Bad Products So Hard to Kill?
It is puzzling that firms often continue to invest in product development projects when they should know that demand will be low. We argue that bad products are hard to kill because firms face an inherent conflict when designing managers' incentives. Rewarding success encourages managers to for...
| Main Authors: | , |
|---|---|
| Other Authors: | |
| Format: | Article |
| Language: | en_US |
| Published: |
Institute for Operations Research and the Management Sciences (INFORMS)
2012
|
| Online Access: | http://hdl.handle.net/1721.1/75791 https://orcid.org/0000-0003-2758-0116 https://orcid.org/0000-0002-1635-3797 |
| _version_ | 1826196359237074944 |
|---|---|
| author | Simester, Duncan Zhang, Juanjuan |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Simester, Duncan Zhang, Juanjuan |
| author_sort | Simester, Duncan |
| collection | MIT |
| description | It is puzzling that firms often continue to invest in product development projects when they should know that demand will be low. We argue that bad products are hard to kill because firms face an inherent conflict when designing managers' incentives. Rewarding success encourages managers to forge ahead even when demand is low. To avoid investing in low-demand products, the firm must also reward decisions to kill products. However, rewarding managers for killing products effectively undermines the rewards for success. The inability to resolve this tension forces the firm to choose between paying an even larger bonus for success and accepting continued investment in low-demand products. We explore the boundaries of this argument by analyzing how the timing of demand information affects product investment decisions. |
| first_indexed | 2024-09-23T10:25:21Z |
| format | Article |
| id | mit-1721.1/75791 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T10:25:21Z |
| publishDate | 2012 |
| publisher | Institute for Operations Research and the Management Sciences (INFORMS) |
| record_format | dspace |
| spelling | mit-1721.1/757912022-09-26T17:46:40Z Why Are Bad Products So Hard to Kill? Simester, Duncan Zhang, Juanjuan Sloan School of Management Simester, Duncan Zhang, Juanjuan It is puzzling that firms often continue to invest in product development projects when they should know that demand will be low. We argue that bad products are hard to kill because firms face an inherent conflict when designing managers' incentives. Rewarding success encourages managers to forge ahead even when demand is low. To avoid investing in low-demand products, the firm must also reward decisions to kill products. However, rewarding managers for killing products effectively undermines the rewards for success. The inability to resolve this tension forces the firm to choose between paying an even larger bonus for success and accepting continued investment in low-demand products. We explore the boundaries of this argument by analyzing how the timing of demand information affects product investment decisions. 2012-12-19T21:51:13Z 2012-12-19T21:51:13Z 2010-05 2009-01 Article http://purl.org/eprint/type/JournalArticle 0025-1909 1526-5501 http://hdl.handle.net/1721.1/75791 Simester, D., and J. Zhang. “Why Are Bad Products So Hard to Kill?” Management Science 56.7 (2010): 1161–1179. https://orcid.org/0000-0003-2758-0116 https://orcid.org/0000-0002-1635-3797 en_US http://dx.doi.org/10.1287/mnsc.1100.1169 Management Science Creative Commons Attribution-Noncommercial-Share Alike 3.0 http://creativecommons.org/licenses/by-nc-sa/3.0/ application/pdf Institute for Operations Research and the Management Sciences (INFORMS) MIT web domain |
| spellingShingle | Simester, Duncan Zhang, Juanjuan Why Are Bad Products So Hard to Kill? |
| title | Why Are Bad Products So Hard to Kill? |
| title_full | Why Are Bad Products So Hard to Kill? |
| title_fullStr | Why Are Bad Products So Hard to Kill? |
| title_full_unstemmed | Why Are Bad Products So Hard to Kill? |
| title_short | Why Are Bad Products So Hard to Kill? |
| title_sort | why are bad products so hard to kill |
| url | http://hdl.handle.net/1721.1/75791 https://orcid.org/0000-0003-2758-0116 https://orcid.org/0000-0002-1635-3797 |
| work_keys_str_mv | AT simesterduncan whyarebadproductssohardtokill AT zhangjuanjuan whyarebadproductssohardtokill |