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From CT Scans to COVID-19: How heightened perceptions of risk drive innovation in technology and market direction

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Alberto Galasso, Hong Luo

What do COVID-19, malfunctioning airplanes and CT scanner mishaps have in common? All three have led to human suffering and heightened perceptions of risk. But they have prompted rich opportunities for innovation too.

New research from professors at the Rotman School and Harvard Business School concludes that jumps in consumers’ sense of risk can spur companies to develop new technologies that enhance safety and lead to fresh market directions.

The study looked at what happened after reports in 2009 that a Los Angeles hospital had delivered eight times the radiation needed for a computed tomography (CT) scan procedure to more than 200 patients. Some experienced hair loss. 

A subsequent investigation found the problem had occurred in other jurisdictions too but was due to a technician error and not inherent faults with the machines. Nevertheless, patients and their doctors became more sensitized to the potential risks of CT technology. The study found a decline in the use of high radiation procedures in the aftermath.

Along with that, patents more than doubled for radiation diagnostic devices that highlighted radiation control features designed to alleviate patient risk. There was also a 30 per cent rise in applications for similar devices to the U.S. Food and Drug Administration.

“There were all sorts of innovations,” says Alberto Galasso, a professor of strategic management at the Rotman School and the Rotman chair in life sciences commercialization, who co-wrote the paper with Hong Luo of Harvard Business School. “Some were really simple changes — like changing the software to make it harder to change the settings — but also more radical innovations such as an alternative way of constructing the image using significantly less radiation.”

The shift was made possible by consumers’ willingness to pay more for safer technology because of their heightened concern, the study points out. For example, hospitals increased their CT equipment upgrades and replacements after the over-radiation incidents became public.

Large companies were more likely to take on more radical innovations than small companies and moved faster and more intensively with their changes.

Innovation is less likely to happen though if there is a safer alternate technology that consumers can turn to instead, the paper said, such as opting for non-nuclear forms of energy after a reactor accident. It can also be suppressed by the threat of government, legal or political intervention, such as a complete ban on the technology.

The current COVID-19 pandemic represents a similar innovation opportunity, says prof. Galasso. A simple trip to the grocery store is now regarded as a much riskier activity than it used to be, leading to the installation of plexiglass barriers, low-contact digital technologies and a rethink about store layouts. The push to experiment may even prompt innovations that go beyond reducing virus transmission, such as improvements to online shopping.

“It’s a really bad time and people are losing jobs,” acknowledges Prof. Galasso. “But it’s likely that some of these technologies are going to stay.”

The study is forthcoming in Management Science

Alberto Galasso is professor of strategic management and Rotman chair in life sciences commercialization at Rotman. His research is focused on the determinants of innovative activity, the management of innovation and the functioning of markets for technology.
Hong Luo is the James Dinan and Elizabeth Miller associate professor of business administration in the strategy unit at Harvard Business School. Her elective course — Good Strategies in Flawed Markets — provides a market-imperfection perspective on firm strategy.