Gopesh Anand(L) and Ujjal Kumar Mukherjee(R ), both professors of business administration at Illinois. / Photo credit - Fred Zwicky/Illinois University

A recent study conducted by University of Illinois Urbana-Champaign business scholars sheds light on the dynamics of organizational learning from failures, particularly in innovation-driven sectors like pharmaceuticals and medical devices. 

Led by Indian-American business administration professors Gopesh Anand and Ujjal Kumar Mukherjee, the research examines two distinct types of failures: process-related slip-ups and design-related knowledge gaps.

Analyzing over 100 publicly traded U.S. firms in the medical device and pharmaceutical industries from 2000-2016, the study found that firms gained more organizational learning from design-related recalls than process-related ones. 

Anand explained that while slip-ups entail knowing what to do but failing to execute, knowledge gaps involve not realizing one is making a mistake. Interestingly, firms exhibited greater learning from the latter.

Furthermore, the research highlighted that firms with a robust innovation culture, as evidenced by accumulated patents and investments in research and development, were better equipped to learn from design-related failures. 

Despite the inherent risks associated with innovation, such firms were found to recover from failures more efficiently, thereby enhancing their competitiveness in the long run.

Mukherjee emphasized the importance of not shying away from innovation, as it fosters a culture of continuous improvement and resilience. He noted that in innovation-driven industries like pharmaceuticals and medical devices, competitive advantage stems from the ability to innovate rather than cost or scale alone.

“This implies that either slip-up failures do not create an impetus in firms encountering them or that it’s more challenging for firms to reduce the occurrence of slip-up failures,” Mukherjee said. “In either case, it points to the unresolved challenge of maintaining continuous attention to compliance and the need for deliberate efforts to maintain compliance regardless of the presence or absence of any impetus from slip-up failures.”

The implications of this study extend beyond the pharmaceutical and medical device industries, with potential relevance to other regulated sectors such as automotive and toys, as well as less regulated industries like software platforms. Anand cautioned against superficial solutions to problems, citing Boeing's current challenges with quality and safety as an example of the pitfalls of such approaches.