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Working Paper HBS Working Paper Series 2020 Recalls and Innovation: Own and Competitor Firm Responses |
Innovation is the lifeblood of firms that operate in R&D-intensive industries. While strong incentives to innovate in these industries exist, product recalls create challenges for impacted firms and opportunities for their competitors. Using the U.S. medical device industry as the empirical setting, we develop predictions and provide evidence that own firm recalls slow innovation activities, while competitor firm recalls accelerate innovation activities. We find that these relationships are most pronounced when recalls and innovation directly overlap in product area. We further unpack the mechanisms that drive these dynamics. Own firm recalls slow innovation activities for all firm types, but competitor firm recalls are only associated with accelerated innovation for broad product scope firms and public firms—indicating that organizational resources and incentives are key determinants of whether firms can effectively capitalize on market opportunities. In post-hoc analyses, we find that longer post-recall submission times do not predict subsequent quality—suggesting observed delays are driven more by distractions than by learning. Firms thus react strategically and rationally to competitor firm failures by speeding innovations to market.
Keywords: product recalls; System Shocks; Innovation and Invention; Medical Devices and Supplies Industry;
Ball, George P., Jeffrey T. Macher, and Ariel Dora Stern. "Recalls and Innovation: Own and Competitor Firm Responses." Harvard Business School Working Paper, No. 19-028, September 2018. (Revised March 2020.)
