Cascading Failures in New Product Development

Abstract

While product failures are harmful to both consumers and firms, extant research in technology management and innovation does not provide sufficient answers for why they occur. In this research, I investigate what causes firms to experience product failures when they develop new products through the exploitation of their existing stock of technological knowledge. I examine an underexplored condition where a firm’s existing technology has undiscovered flaws to show how these hidden defects affect its new product quality. I find that if a firm develops new products by building on its prior technology with hidden defects, the new products have a high risk of failure. I reason that a firm’s bias toward exploitation leads the firm to fall into a competency trap and to overlook failures in its new product development process. Moreover, I argue that new products which recombine technologies across a firm’s distant technological and/or organizational boundaries are less likely to fall into this persistence of failure. Using a unique dataset on medical device recalls and predicate devices, I provide empirical evidence supporting my arguments.