The Concorde Effect

Beginning in the 1960s, the French and British governments jointly financed the development of a supersonic airplane capable of shuttling passengers between Europe and America at breakneck speeds. But even before the first Concorde was fully assembled, analysts realized that the program would be a financial loser. Despite overwhelming evidence that they would never recoup their financial outlays, both governments persisted in pouring billions of dollars into the project. And they continued to subsidize the Concorde's unprofitable operation for nearly three decades until safety issues caused its demise. What was their reasoning for not cutting their losses along the way? They believed that they had invested too much money in the program to quit.

Today, all the French and British governments have to show for their investment is an unflattering economic theory named for their costly doggedness: the Concorde Effect. Also known as the sunk-cost fallacy, the Concorde Effect refers to the human tendency to futilely persevere with an enterprise once we've invested money, time, or effort.

Organizations also exhibit the Concorde Effect by clinging to their outdated methods and practices. Managers are often quick to dismiss suggested new approaches, a problem manifested in the age-old corporate proclamation, "This is the way we've always done it." Policy makers -- especially those entrenched at the top of a bureaucracy -- are often the people who established the very procedure being challenged. For that reason, their emotional investment in the practice is too great to let it go.

To lead effectively, you must recognize when it's time to cut and run, whether that means getting rid of unprofitable business lines or changing the way work gets done. Unless, that is, you have billions of dollars to waste.