This project investigates the issue of unwarranted escalation of commitment and organisational inertia stemming firm problematic governance mechanisms at Queensland Horticulture Institute (QHI), a business arm of Queensland Department of Primary Industries (DPI), in its attempt to change its mode of operations and implement the purchaser- provider model. Unwarranted escalation of commitment refers to situations where decision makers allocate additional resources to a failing course of action. While organisational inertia "takes a stable/arm when the behaviour of the system regularly repeats it past and when it is very difficult to change that behaviour to some other state, it requires a significant change to shift from a state of equilibrium" (Stacey, 1996). In this regard, QHI continues to implement this change process despite inertial forces resisting deep structural change from occurring. Change is a dynamic process that can take up to three years or more to complete (Bodi, Maggs and Edgar, 1997; Schein, 1997: Senge, Kleiner, Roberts, Ross, Roth and Smith, 1999). As a consequence, this report represents a preliminary analysis and a historical snapshot of the period from 2/96 to 10/99 as QHI's operations are still undergoing change.
While there is a lot of contemporary literature in the area of escalation of commitment, there is limited research that examines the phenomenon at an organisational level and even fewer studies that focus on institutional factors. However, the most notable exceptions were the case studies by Ross and Staw (1986; 1993). This earlier work indicates that models of organisational unwarranted escalation focusing on institutional factors have not reached theoretical saturation. In addition, this study explores whether unwarranted escalation of commitment can be better explained by inertia and governance mechanisms.
The unit of analysis is the organisational level using multiple theoretical perspectives on a single case study. Although this study looks at a single case study being QHI, this project part of a larger research program being the Strategic Partnership with Industry Research and Training (SPIRT) project and small arcs grant with QHI being one of four cases in total (Shulman and Wollin, 1996).
This project is conducted within a three -level methodological design. The "macro"- research design is analytic induction developed by Eisenhardt's (1989) model for theory building from cases. The "meso"- research desif,'11 is case study research, primarily based on interviews, although supplemented with secondary evidence obtained from the SPIRT project. Finally, the "micro" research design in this project employs historical research, based primarily on secondary evidence.
Although institutional factors proposed by Ross and Staw (1986; 1993), may be influential in the decision making processes leading up to unwarranted escalation of commitment, it is somewhat limited in explaining underlying causes that may have an affect in escalation of commitment. Namely, the roles of deep institutional structure inertia, corporate govemance mechanisms and stakeholder diversity. Modifications to existing theory are proposed to address these issues.
Models of unwarranted escalation of commitment need to recognise the role that stakeholder interests play in determining the success or failure in staying with a particular course of action. When there are diverse stakeholders that hold different expectations of a particular course of action or major change strateb'Y as in QHI's case, this can lead to conflicting interests and goals against the proposed change processes (Hill and Jones, 1998; Miller and Dess; 1997, Robbins, Bergman, Stagg, 1997; Hubbard and Davenport, 1996, Stacey, 1996; Thompson and StrictIand, 1996; Robbins and Bamwell, 1994a; Robbins and Bamwell, 1994b; Robbins and Mukerji, 1994). This in tum can lead to inertia resulting in marginal changes occurring on a more operational level rather than revolutionary change occurring when the fundamental levels of deep stmcture reconfigure (Gould, 1989; Gersick, 1991).
To attempt to overcome some of the institutional deep structure and affect fundamental rather them incremental change at an operational level, the first step is to analysis the types of inertia that exist within an organisation. At QHI being a complex inter-dependent research environment there exist several areas of inertia including, cOf,'1utive, motivational and obligatory inertia. In addition, communication and leadership are also important aspects that ought to be reviewed when implementing a change process within an organisation. This is because they are important tools to help override resistant elements and deep structure inertia within an organisation (Gould, 1989; Gersick, 1991; Stacey, 1991; Stacey, 1996).
Although models of unwarranted escalation of commitment provide some practical advice to managers and decision makers to prevent and manage escalation of commitment through organisational exit (section 2.4), they also need to take into account corporate governance mechanisms. This is because formal control systems that are problematic help to create inertia and hence increases the risk of escalation of commitment. When a formal system is problematic this can co-exist or be overridden by informal networks that frustrate the formal governance mechanisms through loopholes. These loopholes are usually established over long periods of time through deep institutional structures and become engrained into the culture of the organisation. As result these loopholes become very challenging to overcome when trying to implement strategic change within an organisation (Bodi, Maggs and Edgar, 1997; Schein, 1997: Senge, Kleiner, Roberts, Ross, Roth and Smith, 1999). In QHI's case, the current system is proving to be problematic as the formal control system has too many checks and not enough balance.