Dangers of Escalation of Commitment in Accounting

Dangers of Escalation of Commitment in Accounting This report analyses the issue of escalation of commitment to a course of action from the perspective of the pharmaceutical industry. Escalation can be defined as a situation where a failing venture is supplied with additional resources beyond the point of feasibility. As such, escalation carries substantial dangers for organisations by generating avoidable economic losses. The report inquiries into the generic causes of escalation by examining subject literature. Accordingly psychological, social, organisational and project-specific factors are identified as common escalation activators. Exploration into the particulars of the said industry categorises profitability issues, market performance concerns, maturing products portfolio alongside development pipeline conditions as features amplifying pharma companies vulnerability to escalation. The point is supported by real-life case examples located in the appendix. Appreciation of escalation causes allows for development of effective prevention policies. The report suggests preventive measures aimed at reducing the occurrence of escalation triggers, such as challenging the individual and social causes. Approaches for reducing other factors impact on decision-making are outlined in the form of strategy alteration as well as process management policies. The report finalises with suggestions on escalating situations management. Statement of Reference The aim of this 2000-word report is to inquiry the causes and dangers of escalation of commitment to a course of action from the perspective of pharmaceutical companies. This report is to assess the dangers of escalation of commitment to a chosen course of action through the perspective of pharmaceutical companies. In order to achieve the aim set, the paper first analyses the definition and threats arising from the phenomenon of escalation. Next, following the framework proposed by Ross Staw (1993) generic causes of escalation are summarised. Subsequently, the report looks at industry- and drug development-specific escalation triggers in an attempt to identify why the pharmaceutical companies are particularly vulnerable to the dangers of escalation of commitment. Then, escalation prevention provisions organised around tackling previously identified triggers are outlined. The report concludes with suggestions concerning the issue of escalating situation management. Escalation of commitment: Definition and dangers Escalation can be defined as a situation where an individual over-commits resources to a failing venture after receiving negative feedback on its performance. Having an option to discontinue, the decision-maker forgoes rational behaviour and devotes more money, time or effort in a false belief that greater involvement will bring the project to successful completion (Staw, 1981). Some examination suggests that escalation as such should not be automatically assigned negative connotation. Low level of employee commitment is also damaging to organisational performance; background factors might justify over-commitment (Heath, 1995). Another view assumes escalation to be a natural feature of the business decision-making that should be treated as an unavoidable expense (Bowen, 1987). The dominant notion supported by extensive research suggests that escalation of commitment should be acted against (Brockner, 1992) because of carrying dangers of: Ultimately leading to multiplication of avoidable losses; Introducing irrational decision-making; Undermining the basic premise of business activity: to maximise gains with minimal costs; Generating substantial opportunity costs Consuming unrecoverable resources, such as time. Appreciation of escalation triggers allows for development of efficient prevention methods aimed at reducing the occurrence of such factors, subsequently protecting the company from the aforementioned detriments. Generic causes of escalation Psychological Initial research suggested that escalation arises primarily from the natural incline of the human being to self-justify behaviour. Supplying the course of action with additional resources serves as unconscious defence technique: the individual reassures him/herself that the original decision made was rational (Staw, 1976). Self-justification need is heightened if the decision-maker holds responsibility for the resource allocation (Staw, 1981), which is typical for investment decision setting. Prospect theory applied to escalation suggests that self-justification is not vital prerequisite for its occurrence. Escalation is induced by the decision-maker using a frame to make decisions under conditions of uncertainty of results. The decision-maker views subsequent decisions in reference to outcomes of initial judgements in order to produce a coherent frame. The negative feedback on the initial resource allocation results in the subsequent distribution being viewed as a choice between definite and possible loss, or a negative frame. Subsequently individuals are prone to escalation by becoming risk-seeking: failing to accept a definite loss even at the cost of incurring greater in the future (Whyte, 1986). How the decision-maker perceives incurred costs, constitutes another escalation trigger (Garland Newport, 1991). Following prospects theory, the sunk costs effect suggests that costs incurred viewed in relation to the total expenditure induce a negative frame, leading to escalating behaviour. Linked with that, the dislike of waste provides another motivation to supply the course of action further, rather than face a definite loss (Arkes Blumer, 1985). Interestingly, excitement about the project outcomes (Schmidt Calantone, 2002), and sunk-time effect ­ (Navarro Fantino, 2009) aid escalation occurrence. Social Importantly, the aforementioned need to justify the correctness of behaviour is not limited to the individual and applies to the wider social context (Staw, 1976). Maintaining an image of a consistent decision-maker among peers proves equally, or more, important to meeting self-justification needs. The desire to obtain social approval is exacerbated under insecurity of the social status in the group, or in a presence of an adverse crowd (Staw, 1976). In such instances the individual is likely to model his/her behaviour to reproduce the model endorsed by the audience (Brockner, 1992). As the group replicates leader stereotypes that emphasize the need for decision-makers to be consistent in actions in order to be perceived as competent (Staw Ross, 1980), the individual aspiring to achieve consistency with the stereotypical image will over-commit not to distort others belief in their leadership potential, and to reaffirm position in the group structure. Intra- or inter- group competition can indicate escalation. The focus is shifted away from objective assessment of the possible outcomes of a chosen decision onto the motivation to win. The need to do whatever it takes to get a step ahead of the competitors introduces scope for irrationality and escalation as such irrational behaviour is common to both of the parties involved (Bazerman, 2006). Organisational Projects receiving strong organisational support are prone to escalation (Pfeffer, 1981 in Ross Staw, 1993), as the decision-makers identify them with the existence of organisation itself. Furthermore, the centrality of the project to organisational values and its entrenchment in the organisational structure account for the projects being continued despite reservations (Goodman et al., 1980 in Ross Staw, 1993). Unwinding the supporting infrastructure might threaten the very basis of working organisational structure; induce change that is often associated with risks and dangers. The costs of acceptance of status quo are perceived as minor to the potential dangers of modified environment. Maintaining reputation and consistency between values and actions prove to constitute forces inducing over-commitment from organisational perspective (Ross Staw, 1993). Companies having publicly announced success might be more hesitant to admit failure and discontinue with the course of action. Project-specific High development costs and risky market performance of the finished product, the acceptance of failures and losses as a feature of the RD process, and reluctance of decision-makers to emotionally detach from the prolonged projects account for greater escalation exposure of RD projects (Schmidt Calantone, 2002). Low potential reusability (Staw Ross, 1993) of the generated output results in reluctance to discontinue the venture in order to avoid waste. Negative framing induces the perception of exit costs, such as compensation packages as definite waste, leading to escalation. The advancement of the project on a timeline constitutes another threat due to sunk-cost effect (Navarro Fantino, 2009). Projects reaching advanced stages of development would be discontinued reluctantly because of accumulation of used resources, including time, and the perception of imminent availability of the anticipated gains. Industry-specific Escalation Triggers Profitability issues Recent data suggests that pharmaceutical companies are to face decline in profit figures in forthcoming years (Datamonitor, 2010). This can be attributed to steadily increasing drug development costs: the costs producing the final product exceed $1 billion, with as few as 20% of successful product entries achieving the break-even point (Innovation.org, 2010). Estimates suggest that pharmaceutical companies should launch two to four drugs annually to maintain steady profit margins (Gassmann Reepmeyer, 2005). However, due to high attrition rates the overall success of organisations strategy is often reliant on the success of a single project (Kola Landis, 2004). These factors pressurise the companies to continue with projects and disregard arising reservations to maintain profitability. Maturing product portfolio The reduction in new component approvals can be partially attributed to strengthening drug registration requirements. Other explanation lies in the controversial innovation deficit experienced by the industry (Schmid Smith, 2004). Lower innovation figures account for pharmaceutical companies being faced with maturing product portfolio. Consequently, the companies engage in a variety of innovative projects overly-optimistically assessing their revenue potential, failing to discontinue when reservations arise. Eventually, the companies face greater losses as the projects fail to generate anticipated revenues, but incurring avoidable losses (Appendix: Dimebon case). Concerns for market performance The pressure to persist is further reinforced by the need to be consistent with companys vision (Ross Staw, 1993). Endorsing the projects demonstrates consistence with the mission statement; reaffirms the reputation as well as reassures the market and investors on following the profitable trail. However, forgoing ethical and safety aspects of drug delivery over concerns for market performance and cost-cutting proves detrimental (Appendix: GSK Puerto Rico Plant). Development pipeline conditions The specificity of the drug development pipeline further adds to the vulnerability to the dangers of escalation of commitment. The drug development time is estimated to surpass 10 years, with the costs amplifying as the project progresses (Accenture, 2007). This suggests heightened emotional attachment and excitement towards results, as well as existence of supporting infrastructure as powerful motivators of escalation. Attrition figures reveal that escalation is common in the industry as the most projects are withdrawn after reaching the most cost intensive stage of advanced clinical trials that precedes the registration process; or are recalled after reaching the patient due to safety concerns that have been ignored earlier on (Kola Landis, 2004) (Appendix: Avandia case). Escalation: how to prevent it? Tackling individual and social causes Perhaps introduce appraisal procedures emphasizing ones ability to build on past actions, rather than progression of the project. This will reduce managers fear of negative consequences if the project fails. Confidential treatment of sensitive matters, such as personal failures, will reduce the reputation retention motivation for escalation (Simonson Staw, 1992). Consider developing positive leader stereotypes supported by convergent organisational values emphasizing the rationality of decision-making. Furthermore, introducing panel decision-making procedures contribute to preventing escalation by reducing individual responsibility for the decision taken (Simonson Staw, 1992; Schmidt Calantone, 2002). Inviting members of relevant departments allows for assessing the projects success potential from a variety of angles limiting scope for escalation to arise. Ponder developing neutral decision frames by rotating managers in charge of the project so that different individuals held responsibility for initial and subsequent resources allocations (Simonson Staw, 1992). Additionally, foster for emotional detachment from sunk costs by introducing training in mental budgeting (Heath, 1995). Project evaluation and management Clear and achievable targets should be set out at the project initiation alongside exit points at various stages of progression (Schmid Smith, 2004). Measuring projects performance against set aims; assessing the efficiency with which resources yield results at the selected points allows for early estimation whether the project is following the anticipated pathway, thus allowing to avoid greater losses. Consider adopting attrite early strategy (Schmid Smith, 2004) as companys motto. Consider participation in multi-stakeholder analysis projects evaluating the potential value of innovative drug projects at early stages of development such as the consultations conducted within the European Healthcare Innovation Leadership Network (AstraZeneca, 2010). Ponder involving external parties in the project (Schmidt Calantone, 2002). Perhaps engage auditors to assess the success projects success potential at its outset or to devise effective contingency planning. This will ensure objectivity and independence of organisational politics. Consider outsourcing the project to subcontractors to avoid its institutionalisation in the organisational structure. Alternating middle-to-long-term strategy Consider renewing existing product portfolio and engagement in me-too drug developments. This ensures steady revenue generation from inelastic demand segments (Ganuza et al., 2009) and carries less risk comparing to reliance on anticipated gains from innovative compounds. Estimations suggest that involvement in drug-related sectors or focusing on advancement in licensed compounds constitute a potentially profitable alternative (Schmid Smith, 2004). Consider GSKs involvement in healthcare brands as an example. Managing Escalation Suppose the escalating situation arises, consider replacing the project manager or establishing panel assessment in order to remove the negative thinking frame, rid off the potential self-justification needs and assess realistically projects success potential (Simonson Staw, 1992). Consequently, ponder engaging external consultants to develop plausible solutions and introduce other point of view independent of the political and organisational influence. Otherwise, evaluate potential salvage value of the project towards establishing uses other than the initial one anticipated (Appendix: Viagra case). Furthermore, consider whether external financial support for advanced research is available; and if is feasible to use towards accomplishment of the projects aims. Otherwise, ponder engaging in partnership with a company undertaking research in similar compound in order to combine knowhow and reduce costs. Appendix Avandia case Recent withdrawal of GSKs highly innovative and best-selling diabetes drug, Avandia, in EU was caused by the linkages with deaths by heart failures among the patients on the medication (FT.com, 2010b). Allegedly, the company was aware of the severity of adverse effects, however launched the drug to the market (Avandia Recall News, 2010). Estimations suggest that GSK could face between $1.1bn and $6bn in compensation costs (FT.com, 2010a) that could have been avoided had the company ceased the project when safety concerns were brought to light. Additionally, bad publicity incurred after the allegations surfaced resulted in fall of GSK share prices, and the company facing negative profit accounts (FT.com, 2010c). Dimebon case Pfizer has recently withdrawn from advanced clinical trials (undertaken in partnership with Medivation) of highly anticipated Alzheimers disease cure, Dimebon, after the drug exhibited no promising therapeutic results (MedScape Medical News, 2010). The reservations about the curative properties of the compound have been raised at early stages of the process. It is assumed that the logic behind Dimebons miraculous effects was never properly investigated. Furthermore, similar compounds failed in previous trials (ABC News online, 2010). Escalating behaviour in such case could be linked to Pfizer losing patent rights the currently marketed Alzheimers treatment, Aricept and was in need of a profitable replacement. As a result of failure to investigate and evaluate promptly, Pfizer has incurred $725 million in RD costs (the Economist.com, 2010). GSK Puerto Rico Plant case GSK is reported to pay $750m in penalty payment to US government and other claimants following allegations on manufacturing malpractice and failure to adhere to safety standards in production plant in Puerto Rico. The allegations regarding mal-adjusted doses of active ingredients and ineffectiveness of drugs submitted to government programmes were revealed by a former employee and resulted in the company being charged with a criminal offence (Wall Street Journal Law Blog, 2010). Viagra case Initially Viagra was developed as a cordial drug aimed at decreasing blood pressure and preventing cardiac arrests. Clinical trials unexpectedly revealed potentially exploitable and marketable properties of the drug: high effectiveness in fighting erectile dysfunction in men. In the six months following its launch as a revolutionary treatment, in 1998 Viagra worldwide sales have exceeded  £300 million (BBCnews.com, 1999).

All About Maps Essay

What are maps? Maps are the world reduced to points, lines, and areas, using a variety of visual resources: size, shape, value, texture or pattern, colour, orientation, and shape. A thin line may mean something different from a thick one, and similarly, red lines from blue ones. How do maps represent reality? A photograph shows all objects in its view; a map is an abstraction of reality. The cartographer selects only the information that is essential to fulfil the purpose of the map, and that is suitable for its scale. Maps use symbols such as points, lines, area patterns and colours to convey information. Why are maps important? A map gives a miniature â€Å"picture† of a very large space. A map is a guide to a space you have not encountered before. Maps have distance, mountains, rivers, and shapes of places or destinations. With a map, one does not have to depend on local directions. For a small price, it is a direction finder and a dependable way to take a journey. What are atlases? An atlas is a collection of maps in book form. Atlases are made for different regions and areas, and are prepared for desk use or travel use. A travel atlas is usually packaged for easy use during a trip, often with spiral bindings so it can be folded flat, and with maps at a large zoom so that they can be easily consulted on the go. A desk atlas features sizes and bindings that are typical for reference books: usually a paperback or hardcover format. Lines of latitude These are imaginary lines that circle the world in an east-west direction. They tell you how far north or south a place is from the Equator. They are drawn parallel to the Equator. There are five main lines of latitude. They are the Equator, the Tropic of Cancer, the Tropic of Capricorn, the Arctic Circle and the Antarctic Circle. Lines of longitude Longitude is the angular distance, measured in degrees, east and west of the Prime Meridian, which is at 0o. These are imaginary lines that run across the Earth’s surface in a north-south direction, from the North Pole to the South Pole. Legends and symbols Since a map is a reduced representation of the real world, map symbols are used to represent real objects. Without symbols, we wouldn’t have maps. Both shapes and colours can be used for symbols on maps. A small circle may mean a point of interest, with a brown circle meaning recreation, red circle meaning services, and green circle meaning rest stop. Colours may cover larger areas of a map, such as green representing forested land and blue representing waterways. To ensure that a person can correctly read a map, a Map Le

Philosophy of Nursing Leadership Essay

I have worked in healthcare for over thirteen years both as new scare nurse and as an informal leader and as an appointed manager. Throughout this process I have experienced many different feelings towards my managers and experienced several different types of management styles as related to our recent management concept learning. A prior class text book definition states â€Å"Philosophy looks at the nature of things and aims to provide the meaning of the nursing phenomena. Philosophies are the broadest in scope and provide a broad understanding† (Blaise & Hayes 2002 p. 98). Combining a defined leadership theory with my own personal nursing philosophy engages a higher level of understanding about personal concepts and ideas of my past experiences and the possibility for growth as a leader. Peter Drucker’s theory in regards to involving the entire organization in planning and establishing the management process has been implemented for many years at my current employmen t, to include weekly staff meetings with open discussions and an anonymous â€Å"drop box† for problems or ideas to be shared with upper management. We also give one-hundred dollar bonus to any employee who presents a new idea or plan and the hospital corporation agrees to use it. This form of staff participation in leadership by Peter Drucker was used to advise the heads of General Motors, Sears, General Electric, W.R. Grace and IBM, among many others. Often times Drucker offered his management advice to non-profits like the American Red Cross and the Salvation Army. Drucker’s theory in the health care setting encourages individual autonomy and embraces the ideal of leaders not being born but can should be taught and encouraged to use their best judgments for every unique situation. Drucker is quoted as stating â€Å"Leadership is something scientific but has artistic expression.† Artistic expression is individualized and when an organization encourages this individuality of its member’s the results can in turn provided broader solutions and opportunity for growth.  This form of collaboration of many different unique perspective and special skills are imperative in today’s health care system as specifically outlined by the American Nurses Association (ANA) â€Å"recognition of the expertise of others within and outside the profession, and referral to those other providers when appropriate† (2003, p.8) The increasing competitive nature of health care and ever changing technology and change make it imperative for a health care organization to work together as a team for the betterment of the patient outcomes and a hospital’s long term viability. Personal Growth as a Nurse Leader With review of my personal experiences in my nursing career, I can now see the obvious management transitions that took place at the facility I worked at. When I first started working, I basically felt like a â€Å"warm body† only there to perform certain tasks at certain times and felt of no real value to actual hospital’s overall revenue or outcome. Looking back at the management style from that time, I felt no real structure or individual importance toward the outcome of the hospital I worked for. The hospital was a non-profit, government owned facility and the resulting management style is easily related to the Laissez-faire leadership form. With this â€Å"hands off† (Finkleman, p6) form of management comes a great lack of feeling of security or capability to grow and learn as a nurse. Three year after working there a new company bought out our hospital and many extreme changes happened. Computer charting came in, new managers, new rules, new standards and m any people left because of these changes. Not because they were bad changes but because they simply did not want to accept change. With these changes emerged a new management technique that follow the Drucker philosophy of encouraging staff participation, goal setting and leadership learning with in the hospital. I will never forget the first time the hospital administrator came up to me, shook my hand and simply asked how everything on my nursing unit was going. If I had any problems or concerns. This form of management encouraged professional growth and self-esteem. I became more familiar with small skills such as intravenous access, medications, equipment and general patient involvement, I began to find myself more interested in the art of health care and learning. Challenges and learning became my journey and led me to a management position in the  emergency room department. I grew as a person and as a nurse. I learned so many things about health care and genuinely cared for my co-workers. Their input was invaluable and helped us create new policies and systems to give our patients better care. I learned mostly about myself and who I wanted to be as a person and a leader or example to other nurses. I became very confident after ten years in this department and enjoyed the teamwork of this area and wanted to be able to do more with this invaluable acquired knowledge. I came to an understanding of a nurse’s ability to provide their perspectives and past experiences to help other care for the patients. In conclusion, with the educational advancements and experience I hope to continue to learn how to be an effective leader. I would like to see our organization encourage some the emotional intelligence theory philosophy into our practice to encourage stronger relationships between all staff. As stated in (Finkelman, 2011 p 10), â€Å"emotional intelligent leadership is key to creating a working climate that nurtures its employees and encourages them to do their best with enthusiasm, in turn this pays off in improved business performance.† I believe that all people inherently want to be recognized for what they do and need positive reinforcement. With future leadership roles I hope to incorporate both of these leadership theories of including the employees in the organizations plans, group problem solving and building good leaders along with stronger emotional relationships built on encouragement and positive reinforcement to provide an open positive learning environment with s trong inter employee relationships. References Blais, K., & Hayes, J. (2002). Professional nursing practice. (2011 ed., Vol. 6, pp. 2, 27-29, 268). Upper Saddle River, NJ: Pearson. Retrieved from http//www.pearsonhighered.com Finkelman, A.(2006).Leadership and Management for Nurses. (2011 2nd ed., pp. 5-13).Upper Saddle River, NJ: Pearson. Retrieved from http//www.pearsonhighered.com Nursing Times. (2011) Leadership Skills for Nurses. Retrieved from http://www.nursingtimes.net/Journals/2011/j/n/i/Leadership-Skills-for-Nurses. pdf

Lessons Learned from Enrons Failure - 957 Words

The well-established company Enron, which was once ranked by Fortune as â€Å"the most innovative company in America† faced bankruptcy and thus the downfall of Enron. One of the causes of Enron’s failure is that there is a weak corporate governance of board of directors. Their lack of social responsibility from the 4 main criteria identified by Archie Carroll, which is economic, legal, ethical and discretionary responsibilities. They only want to make profits without taxes and move up, leaving all the details behind for worrying later. They are doing business using the classical view, where the management’s only responsibility in running a business is to maximize profit . Secondly, Enron’s fall was initiated by a flawed and failed corporate†¦show more content†¦These broad guidelines can help ensure that scandals such as Enron’s would not happen again . Besides that, lessons that can be learned form Enron’s failure is to be careful on making the right or wrong choice, as there is always a first intentional misstep. This first misstep often involves a small transgression, but none are more important; because this small compromise or minimal transgression will almost always lead to worse conduct. Once you step over the line, it is difficult to go back to the right course. In Enron, because a manager made a bad decision, so he tries to cover it up. In fact, he should try to solve that problem critically, whether it is tax frauds or corporate offenses, otherwise, after the first misstep, it always gets easier and easier to continue these misconduct . Finally, the lessons that can be learned form Enron’s failure is learn to be satisfied with what you have legitimately earned, as greed is a vicious vice that can destroy you. If you judge success in life by what you can accumulate, you will never be fully content, as someone will always have more, your children or others will always want more from you, and therefore, you will never have enough. It is in the human nature to be greedy, but not until you have to take illegal actions to earn it. Consider this example, managers in Enron such as Jeffrey Skilling wanted to make more money and at the end, they received their punishments. Skilling was sentenced to 24 years in prison inShow MoreRelatedThe Collapse Of Enron And Enron1736 Words   |  7 PagesEnron demise and also lessons can be learnt from Enron case study. The approach which have used in this paper to respond, the case study question are the background of the case organization and how business structure had been use b y the case organization. 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