With more public attention than ever being paid to the fast-moving, competitive, lucrative and sometimes life-altering world of medical device development, it sounds obvious to say that no company wants to experience a product recall.
And yet some professors from Harvard, Indiana and Georgetown universities have put a finer business point on the issue in a new report that analyzes 13 years of US Food and Drug Administration data.
“Product recalls slow many types of innovation for the firms that experience them,” Ariel D. Stern, an assistant professor of business administration at Harvard Business School and one of the authors of the report, told Harvard Business School Working Knowledge. “At the same time, we see that competitors are likely to accelerate their own innovation activities to take advantage of these weaknesses.”
The report, Recalls, Innovation, and Competitor Response: Evidence from Medical Device Firms, which was released in January, mainly follows two types of medical device innovation — incremental and major. As defined within the report, incremental innovation focuses on products that are more commonplace (such as catheters) that present limited risks and require less development time and resources. Conversely, major innovation (for instance, implantable cardiovascular devices) revolves around medical devices that are complex, costlier, involve higher risks and necessitate hefty development resources.
The effects of recalls differ depending on the innovation type, according to the report. With that said, here are some of its other key findings.
Medical Device Recalls Have Skyrocketed
From 2003-2015, the number of FDA regulated devices increased by 11 percent while the total number of recalls skyrocketed by almost 50 percent, according to the report. Couple that with the estimated cost of bringing a new device to market — between $31 and $94 million — along with the varying consequences of a recall such as rework, lawsuits, loss of reputation, and, of course, human harm, and the stakes become clear.
Medical Device Recalls Knock Teams Off Track by Six Months
A single recall can delay incremental innovation by over six months. That’s because a recall forces medical device development teams — specifically the functional experts — to shift focus away from improving the next release and instead submerge themselves in error analysis and correction. Aside from stunting product advancements, this scenario also drains significant revenue.
Competitors Capitalize on Medical Device Failures
In the case of a severe recall of a product considered a major innovation, competitors of the impacted company actually increase the speed of their development process to take advantage. According to the report, even a single, major recall can accelerate a rival’s innovation by one month. And while 30 days may not seem like a lot of time, those four weeks have been estimated to equate to roughly $10 million in revenue.
The report does outline some recommendations for medical device companies to avoid recalls. Points of guidance include investing in competitor recall intelligence tools, so organizations can react quickly when a rival fails. Another tip is for medical device companies to create specialized recall recovery teams that can step in when necessary and stop the drain of resources on rework.
Of course, the best approach to product recalls is ensuring they don’t happen. And that’s why another key conclusion was to conduct recall prevention activities, according to the report, as these measures are “more important than previously suggested.” In fact, the report’s lessons could easily translate to a variety of other industries, according to one of the authors.
“Whether your firm is making phones or drones or self-driving cars, recalls can divert efforts from subsequent innovations and spur your competitors to take advantage of the market opportunity,” Stern told Harvard Business School Working Knowledge.
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