Ariel Stern (Harvard Business School)

Product recalls create significant challenges for R&D intensive firms, but simultaneously generate potentially lucrative opportunities for competitors. Using the U.S. medical device industry as our setting, we develop predictions and provide evidence that own firm recalls slow new product development activities, while competitor firm recalls accelerate them. We also examine two firm-level moderators that influence the recall and new product development relationship: product scope and ownership structure. We find that own firm recalls slow new product development for all firm types: a single own firm recall slows new product development up to 43 days, equating to more than $10 million in revenue lost in this high-margin and highly competitive setting. We also find that competitor firm recalls are associated with accelerated development times, but only for broad (vs. narrow) product scope firms and public (vs. private) firms. A one standard deviation increase in competitor firm recalls for these firm types accelerates new product development by more than two weeks. Organizational resources and financial incentives are thus key determinants of whether firms can effectively capitalize on the potential market opportunities created by competitor recalls. In post-hoc analyses, we explore whether future product quality is predicted by post-recall submission times, but find no evidence for this relationship. This result suggests that new product development delays following own firm recalls are more likely driven by organizational distractions than by product quality learning, and that firms react strategically and rationally by speeding new products to market after competitor recalls.