How terrorism kills innovation and kicks out human talent

By Professor Dimitris Petmezas, August 2023

When unthinkable events such as terrorism occur, the impacts can be devastating, long-lasting and far more widespread than anyone might immediately consider. Professor Dimitris Petmezas explains…  

When setting the stage for innovation, companies must have a few core elements in place: an open culture that promotes sharing of ideas and experimentation, talented staff inclined and motivated to engage in such work and a level of organisational and financial stability to be able to facilitate this. Whilst firms that have a healthy attitude toward innovation are, typically adept at embracing uncertainty and navigating new, challenging waters, unpredictable external events such as acts of terrorism occurring in the vicinity of an organisation can for obvious reasons, make creating and maintaining these environments impossible.  

We’ve seen through previous research how, in the aftermath of terrorist events, businesses face significant struggles. Aside from the day-to-day of continuing to run a business amid such tragedy, there are deeper consequences which can limit or destroy a company’s capabilities. For example, the potential for mergers and acquisitions (M&A) for companies in locations where attacks occur is significantly hindered – both in the short and long term. These firms can become less attractive to potential acquirers, have pre-standing deals withdrawn and even find themselves facing the reality of accepting lower acquisition premiums, making it difficult to bounce back. As a result, local economies take a significant hit as firms’ profitability and productivity crumbles.   

With this, understandably, comes a domino effect on workers, who might find their jobs no longer as stable as they once were, or whose experiences of the events may impact upon their ability to do their work or desire to remain in the same location. Coming full circle, does the loss of staff and talent then pose a further challenge for the wider organisation, and indeed local economy, when it comes to organisational recovery, as well as future growth and development?  

My latest research, undertaken with colleagues Eliezer Fich (LeBow College of Business, Drexel University) and Tung Nguyen (Faculty of Finance and Investment, Academy of Policy Development, Vietnam), seeks to find the above out by exploring the impact of terrorist attacks on inventor productivity and mobility. Our sample was not insignificant – we observed innovative activities at US-based firms following every terrorist attack occurring between 1985 and 2019, according to the Global Terrorism Database (GTD). This totalled more than 2.1 million inventor-year observations at innovative firms located within 400 miles of an attack and recorded our results over the five-year period following each event.  

We constructed two proxies of terrorism based on a firm’s proximity to an attack. The first flagged cases where the distance between a firm’s HQ and the attack’s location was within 100 miles. The second indicated whether corporate HQs and terrorist strikes resided within the same metropolitan statistical area (MSA). Our reasonings for these distinctions were based on the idea that the effect of terrorism decreases the further away a firm may be from ‘ground zero’, and to remove the possibility that inventions developed before an attack might distort our findings.  

We discovered that within five years of an attack, in which at least one life was lost, patents per employee and per inventor declined by 5.82% and 1.69% respectively for the average firm located within 100 miles of an attack location. We also uncovered a robust negative association between terrorism events and invention activity at the inventor level. Within a five-year period after a lethal terrorist attack, inventors in firms afflicted by the strike were associated with a decline in patents of 2.18% and in citations by 5.35%.   

In addition, echoing what was witnessed in the M&A arena, the value of inventions was also seen to suffer, as patents generated by inventors in attacked locations declined by as much as 4.4%. Not only that, but, in the aftermath of a deadly attack, inventor ingenuity also seemed to take a dive. The data revealed that inventors went on to produce patents that integrated existing knowledge from fewer dissimilar areas and, as a result, had a lower originality value.   

In regard to being able to source and retain inventive talent, our research showed that this too posed a challenge. On average, firms located within 100 miles of a fatal terrorist strike were associated with a 3.92% reduction to the pool of inventors, saw a 1.98% decline in the number of new inventors hired and, in a further loss, suffered a 3.05% increase in inventors leaving the area.   

For firms that were already operating under tight finances before a terrorist attack, the impact was, understandably, heavier. Our results revealed that, notably, constrained firms generated patents from fewer locations after an attack, suggesting they were less able to either outsource invention activities or conduct them in areas further away from the attack site.   

Regardless of a firm’s financial standing, across the board, it wasn’t uncommon to see those classified as ‘star’ inventors subsequently relocate to firms in distant locations.   

So, what can we take from this? Whilst the first and (rightly) most important focus of any attack response should be to the protection and respect of life, it’s also important to do what we can to ensure that livelihoods can also go on, help communities to recover and limit further fallout. Whilst the impact to creative roles like innovation is significant, there are other roles within a company that seem to fare better in the aftermath of a terrorist attack – for example CEOs gaining a pay rise to encourage their continued loyalty.  

But, for any company seeking to come through such troubled times, the message is clear: whilst it is vital to focus on the fundamentals in times of unprecedented hardship, it does not do well to lose sight of the elements that make your organisation stand out – notably its creative talent. Whilst some staff will indeed hold steady, proving their resilience in a show of loyalty and unity, others will undoubtedly seek their fortunes elsewhere.   

And without that innovative spark, what else is left? Sometimes, after the storm passes, it’s the rainbow that lifts us up. 

More information on Professor Dimitris Petmezas' research interests.