To continue investment in a collaborative innovation project: A good decision?

Collaborative innovation projects are projects in which firms come together to jointly develop and commercialize a new building product, system or service. They are an example of the type of inter-firm relationships that are said to enhance construction innovation. Organisational behaviour research, however, suggests that firms participating in collaborative innovation projects run the risk of escalating commitment and may continue to invest for irrational reasons. The current study examined whether firms in the Dutch construction industry participating in such projects are susceptible to this escalation. Two escalation effects were investigated: the effect of expected loss of sunk costs, and the effect of perceived project stage. The study surveyed 154 firms participating in 25 collaborative innovation projects. The hierarchical nature of the data (i.e. the firms are all nested within innovation projects) meant a hierarchical linear model was used to examine the effects. A statistically significant association was found between expected loss of sunk costs and the likelihood of a firm continuing investment. However, contrary to what escalation theory would predict, the association was found to be negative, rather than positive. No statistically significant association was found between perceived project stage and the likelihood of a firm continuing investment. These results suggest that, when deciding whether or not to continue to invest in a collaborative innovation project, firms in the construction industry are unlikely to fall victim to either of the two escalation effects. Rather, the negative association identified raises the question as to whether firms are abandoning collaborative innovation projects too early.