...cognitive scripts by corporate entrepreneurs in project termination decisions to corresponding levels of learning. Our longitudinal investigation of technology-based firms suggests that corporate entrepreneurs use three types of termination scripts: (1) undisciplined termination, (2) strategic termination, and (3) innovation drift. We illustrate the presence of each script and analyze learning implications during innovation projects (action learning) and after termination (post-performance learning). Based on our analysis we suggest that organizational learning is dependent upon the type of termination script individuals employ.

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Because of the strong impact that new product development has on the organization, the decision to proceed with or terminate a product development initiative is one of the most important but difficult decisions in corporate entrepreneurship (Balachandra, 1984; Green, Welsh, & Dehler, 2003). Product development initiatives may be ended too quickly, resulting in unrealized potential, or may be held on for too long, resulting in prolonged commitment to a losing course of action. This importance is underscored by the fact that failed new ventures can constrain a company's resources for decades and cost hundreds of millions of dollars (Balachandra, 1984; Boulding, Morgan, & Staelin, 1997; Royer, 2003).

In addition, a large percentage--between 25% and 35% (Boulding et al., 1997)--of new product development efforts end in failure. In a 4-year study of new product development at Nokia, McGrath, Keil, and Tukiainen (2006) found that 70% of corporate venturing investments from 1998 to 2002 were either discontinued or completely divested. In response, there is an emerging research stream that focuses upon learning from failure (McGrath, 1999; McGrath et al. ; Minniti & Bygrave, 2001; Shepherd, 2003; Sitkin, 1992). It has been suggested that failure, specifically in the context of new product development and corporate entrepreneurship, provides valuable learning opportunities such as a greater emphasis on innovation processes, increased search for solutions, additional motivation for adaptation, greater attention to information processing, an increased risk tolerance, and greater experimentation (McGrath, 1999; Sitkin, 1992). However, we know very little about how corporate entrepreneurs make termination decisions and how they capitalize upon the potential learning from these failed initiatives.

To facilitate understanding, we turn to a cognitive perspective. In entrepreneurship, the cognitive perspective has gained strength over the past decade because it demonstrates the importance of an individual's knowledge structures to judgments and decisions involving opportunity evaluation, venture creation, and the successful growth of new ventures (Mitchell et al., 2002). The cognitive perspective is especially applicable to learning from failure, as the literature has shown that entrepreneurs are more likely to engage in decision-making biases and heuristics such as counterfactual thinking; attribution of positive outcomes to internal causes and negative outcomes to external causes; underestimation of the time required to complete a project; and self-justification for escalation of commitment (Baron, 1998; Busenitz & Barney, 1997; Forbes, 2005; Shaver, Gartner, Crosby, Bakalarova, & Gatewood, 2001; Staw, 1981). Of particular relevance to the study of failure is the research on cognitive scripts--the process of ordered mental steps pertinent to a particular action, activity, or field of interest (Read, 1987)--because scripts provide a theoretical framework from which to organize the seemingly disparate decisions made by corporate entrepreneurs (Mitchell, Smith, Seawright, & Morse, 2000).

In this study we explore the intersection between new product development failures and entrepreneurial cognition in order to acquire a deeper understanding of the processes associated with project termination and the resulting actions that may lead to increased organizational learning. As such, and as part of a larger research program that investigated how large corporations could build a sustainable capability for developing innovative new ventures, we explored the cognitive scripts used by corporate entrepreneurs to terminate failing new product development ventures. Additionally, we illustrate the presence of each script and analyze learning implications.

We focus on the role of the corporate entrepreneurs because corporate entrepreneurs are seen as critically important to the innovation process (Brown & Eisenhardt, 1995; Cooper, Edgett, & Kleinschmidt, 1999) as they make strategic choices concerning which markets to invest in, which projects to select, and how to allocate resources (Cooper et al.). In addition, the cognitions of the lead entrepreneur strongly affect the organization's belief about new product development (Royer, 2003).

This paper reports our iterative journey from our initial theoretical framework, through qualitative inquiry--a process of balancing theoretical discipline with openness to additional interpretation--to final theory building. We begin by exploring three research precedents (termination of new product development initiatives; failure as an opportunity to learn; and entrepreneurial cognition) that influenced our initial theorizing. Next, we explain our methodology and the 3-year longitudinal investigation of new product development in 11 of the world's largest technology-based firms. We then present our findings, which suggest that corporate entrepreneurs use three specific cognitive scripts (undisciplined termination, strategic termination, and innovation drift) when making project termination decisions. Finally, we demonstrate how these scripts may lead to varying types and amounts of organizational learning. Based upon our analysis we define and detail how these findings contribute to understanding the role of human capital in technologically intensive corporate entrepreneurial settings.

Theoretical Development

Our theoretical development draws on three existing literature streams--(1) termination of new product development initiatives; (2) failure as an opportunity to learn; and (3) entrepreneurial cognition--as research precedents for our study.

Termination of New Product Development Initiatives

It is difficult to overestimate the value of new product development, especially in highly dynamic markets with increasing levels of competition, high technical obsolescence, and short product life cycles (Griffin, 1997). In the Product Development & Management Association's study of new product development best practices, Griffin (1997) found that 49% of firm sales came from products commercialized over the previous 5 years. However, new product development is an inexact science with a large percentage of new initiatives failing prior to launch. One of the first studies exploring new product development success rates indicates that approximately 33% of new product development initiatives fail (Booz, Allen, & Hamilton, 1968). Other research provides similar results, with Boulding et al. (1997) reporting a range of 25-35% as unsuccessful; Crawford (1979) reporting a failure rate of 36%; and both Page (1994) and Griffin (1997) reporting that 41% of new development initiatives are unsuccessful. Thus, even though a significant amount of research has focused on how to improve the product development process, the rate of failure in new product development initiatives has remained relatively stable over time.

Because at least one-third of new initiatives fail, a significant responsibility for corporate entrepreneurs is to understand new product development termination processes and how firms can learn from failed initiatives. According to Cooper et al. (1999), top performing product development firms place significant concern on having the right balance of projects and the right number of projects. In order to maintain this optimum balance of number and type of project, corporate entrepreneurs must make termination decisions regarding failing or poorly performing initiatives. Schmidt and Calantone (2002, p. 103) propose that "... projects that should have been abandoned during development sometimes proceed through commercialization only to fail in the market at substantially higher costs...." Although the costs of failure are high, the real "failure" may be in not learning from previous failures and applying that knowledge to future initiatives (McGrath, 1999).

Failure as an Opportunity to Learn

Following McGrath's lead, we define failure as "the termination of an initiative that has fallen short of its goals" (1999, p. 14). Therefore, failure results when corporate entrepreneurs make the decision to terminate an ongoing new product development initiative. In his work concerning learning through failure, Sitkin (1992, p. 231) argues that "failure is an essential prerequisite for effective organizational learning and adaptation." The old adage "grief is far too an important emotion to waste" seems applicable to failure. In a sense, failure is far too expensive to waste--especially when it encompasses one-third of new development initiatives!

McGrath (1999) argues that an anti-failure bias may lead to the loss of important lessons and result in unanticipated negative consequences such as misrepresentation of causal connections, competence traps, reduced incentive to take action, and defensive routines. Learning from failure in new product development allows organizations to "improve new product developments projects and avoid earlier made mistakes" (Harkema, 2003, p. 342). What then determines whether a firm has the ability to stop failing projects and learn from the failed process? Royer's (2003) study of failed internal new ventures like RCA' s Selectavision (which lost the industry battle to the video cassette recorder) and Essilor's "next generation" bifocal lens suggests that an organization's failure to stop projects is often due to an individual-level cognition that develops into a general group belief. That is, the cognition of the corporate entrepreneur plays a critical role in decisions made throughout the new product development process.

Cognition in the Learning Process

Previous research indicates that cognition is important to understanding the continuation/termination decisions of the corporate entrepreneur. Researchers have argued for some time that an understanding of the mental processes of entrepreneurs will enable researchers to build a well-grounded foundation toward systematically explaining the individual's role within the process of entrepreneurship (Mitchell et al., 2002). These authors explain that "entrepreneurial cognitions are the knowledge structures that people use to make assessments, judgments, or decisions involving opportunity evaluation, venture creation, and growth" (p. 97). Here, we seek to extend this line of research by examining cognitions within the process of learning from failure.

Cognitive dimensions that have been related to termination decisions include perception of personal responsibility and commitment (Schmidt & Calantone, 2002); attribution bias (Forlani & Walker, 2003); championing (Markham, 2000); and advocacy and unobserved performance thresholds (Green et al., 2003). For example, Schmidt and Calantone (2002, p. 104) found that "managers who initiate a project are less likely to perceive it is failing, are more committed to it, and are more likely to continue funding it...."

While we have learned a great deal from this previous research, Royer (2003) suggests that the difficulty in "killing bad projects" usually comes down to a more human impulse: an individual's desire to believe in something (the success of the new venture). She explains that organizations lose money persisting after new ventures that show classic signs of failure because of cognitive beliefs that begin at the individual level and move to the organizational level. "This sentiment [widespread belief in the new venture's inevitable success] typically originates, naturally enough, with a project's champion; it then spreads throughout the organization, often to the highest levels, reinforcing itself each step of the way. The result is what I call collective belief, and it can lead an otherwise rational organization into some very irrational behavior" (p. 6).

How then do corporate entrepreneurs make termination decisions and take advantage of the learning that could occur from these failed initiatives? Placing Royer's (2003) work, which highlights the importance of cognition to termination, alongside the work of Mitchell et al. (2000), which suggests that cognitive scripts are integral to new venture creation, provides an important theoretical foundation from which to study this question. Cognitive scripts, specifically ability scripts, refer to an individual's knowledge structures concerning the capabilities, skills, and knowledge required to create a new venture (Mitchell et al.). "Ability...

NOTE: All illustrations and photos have been removed from this article.



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