Beyond Success: The Impact of Innovation Failures and Coping Strategies in the Medical Device Industry

This study examines the impact of medical device recalls—a form of product failure—on f irms’ innovative activities, focusing on both overall innovation and efforts within the specific product class of the recalled device. Using a novel dataset of FDA-approved medical devices and recalls from 2000 to 2021, complemented by firm- and patent-level data, we analyze how f irms adjust their innovation strategies following recalls. To this end, we construct a concordance table linking the CPC product classes used by the FDA to the International Patent Classification (IPC) system, identifying the most relevant patent classes for each CPC. Our preliminary findings indicate that while recalls do not significantly affect firms’ overall innovation activity, they lead to a notable decline in innovation efforts within the recalled product class. Furthermore, we find that firms’ existing technological competencies, along with technological and product diversification, play a positive moderating role in mitigating these negative effects. These results highlight the nuanced relationship between product failures and innovation, emphasizing the role of technological expertise and diversification in enhancing firms’ resilience.