"New research identifies the consequences that actually motivate a company to
change after product recalls.
Researcher Guiyang Xiong, associate professor of marketing at Syracuse
University, and colleagues approach the question by thinking about companies as
if they were little children.
“Say I’m in school and I hit one of my friends, and my parents tell me, ‘Don’t
do it again,'” Xiong says. “After a month I might hit another kid, unless I get
punished. In the same way, companies won’t learn from their mistakes unless
they get punished, and punished in a way that they actually care about.”
As reported in the journal Production and Operations Management
researchers turned to the topic of product recalls to identify several factors
that bear upon whether a company will want to change, as well as measures a
company can take to help prevent future incidents.
Recalls of products posing a safety hazard to the public can severely damage a
company’s reputation and hurt its bottom line, so product-recalling firms
should be strongly motivated to learn from prior crises. Yet, repeated recalls
seem to indicate that this isn’t always the case.
Considering a sample of 276 product recalls in the consumer packaged-goods
industry, the authors’ motivation-based model predicts that public firms, by
default, do not invest in improvements after a recall. What pushes the
companies toward change is a strong and public signal from investors in the
form of stock market penalties, which indicate waning confidence and
willingness to invest and can lead to higher borrowing costs and other impacts
on the company’s performance. Thus, the more severe the penalty, the more
motivated the firm should be."
Via Rixty Dixet.
*** Xanni ***
Chief Scientist, Xanadu
Partner, Glass Wings
Manager, Serious Cybernetics