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BUSINESSES have a solid IT infrastructure in place . But while the infrastructure does the job , it relies on legacy systems that are outdated , clunky and unable to integrate with more recent innovations . Admitting when it ’ s time to change ? That ’ s a common challenge , known as the sunk cost fallacy .
Introducing the sunk cost fallacy
The sunk cost fallacy is a natural tendency to continue implementing a strategy because an organisation has invested in it , even when it ’ s clear that abandoning it and taking a different course would be more beneficial . Sunk costs – those that have already been incurred and can ’ t be recovered – are often heavily taken into consideration when making business decisions . This commonly results in a block on investment into new technology or Digital Transformation as the process and solutions that are currently in place and have been invested in . While not fit for future purpose , they adequately fulfil the immediate needs of the business .
But it ’ s when organisations start considering their sunk costs when determining strategy that irrational decision-making – the sunk cost fallacy – comes into play . The sunk cost fallacy is something that is typically an issue for more established companies with significant legacy infrastructure and technology that has underpinned their core processes for a long time .
There are several reasons why businesses fall victim to sunk cost fallacy . First , there is a perception that undoing old projects and
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THE SUNK COST FALLACY IS A NATURAL TENDENCY TO CONTINUE IMPLEMENTING A STRATEGY BECAUSE AN ORGANISATION HAS INVESTED IN IT , EVEN WHEN IT ’ S CLEAR THAT ABANDONING IT AND TAKING A DIFFERENT COURSE WOULD BE MORE BENEFICIAL .
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