The sunk cost trap is the tendency to cling to past investments that don’t make sense anymore. This phenomenon often occurs when businesses need to modernize their systems. And it leaves many companies trapped on outdated, inefficient systems.
In other words
There’s a realization that a system’s ROI is diminishing, and a change is in order. Still, there’s an institutional reluctance to move forward because of past financial (and current emotional) investments. But the simple fact is, systems eventually need to be replaced. I think we all recognize that. A more visionary approach focuses on a new system’s future costs and benefits rather than fretting over what you’ve sunk into the old system that’s not delivering value anymore.
The typical scenario
An enterprise invested heavily in a system or custom solution that was once a good idea but now is an obstacle to process, productivity and profit. It’s a highly customized on-premises solution sitting on an old server that’s ready to croak. There’s no access to the source code, or the developer has moved to a mountain top in Tibet. The C-suite doesn’t want to admit they spent hundreds of thousands on a solution that is now no good. Middle management is nervous about drawing attention to an inadequate system. And staff tasked with maintaining the rickety system fear an upgrade threatens their job.
Get with the program
If you’ve found yourself in this situation, choose a programmatic way to analyze your current solution, future needs and the investment required to modernize. I found a good resource for this from Gartner. It’s a 3-step evaluation process that helps identify current problems and the best approach to take going forward. Click here for the link.
Falling into the sunk cost trap is a lot like hanging on to a lousy poker hand. Are your CRM cards looking iffy? If so, reach out and we’ll deal you a winning hand!