Demand-led innovation - INNO

Transcription

Global Review of Innovation Intelligence and
Policy Studies
Mini Study 11
Demand-led innovation
Pr. Ian Miles (University of Manchester - MIoIR)
March 2010
INNO-GRIPS
Intelligence and Policy Studies
Global Review of Innovation
Disclaimer
The views, opinions, findings, and conclusions or recommendations
expressed in this mini study are strictly those of the authors. They do not
necessarily reflect the views of the European Commission. The European
Commission takes no responsibility for any errors or omissions in, or for the
correctness of, the information contained in this mini study. The mini study is
presented with a view to informing and stimulating wider debate.
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Executive Summary
This ministudy addresses Demand-Led Innovation (DLI). It begins by clarifying the
concept of DLI, and considering how this relates to the many similar terms that are
attaining considerable popularity. It defines a DLI process as involving the deliberate
design of innovation activity so that it substantially elicits and uses information about
user features, requirements, and creative ideas in the course of shaping research,
development, design, and/or other major aspects of the activity.
The role of demand in innovation has been extensively debated. The ministudy
reviews the schism between Schumpeter’s emphasis on technology breakthroughs
and Schmookler’s stress on innovators responding to the pull of market demand. Of
course, both technology-push and demand-pull may coexist. What may be important
is understanding how they relate and which dominates at specific times and in
particular types of industry. The schism continues to be reflected, however, in much
economic argument and indeed in policy thinking. We consider two types of DLI
policy - policy aimed at promoting DLI processes in industry (e.g. better utilisation of
tools for market research or user innovation strategies to enhance competitiveness);
and policy efforts to promote innovation or innovation trajectories of a particular types
(e.g. toward meeting Grand Challenges).
The ministudy reviews a great deal of survey research indicating the European firms
do in fact pay considerable attention to demand in planning and sourcing information
for innovation. The studies also demonstrate that demand-side innovation policy
measures tend to be seen as more influential than supply-side ones. Improved
intelligence about the demand side is seen as widely needed, and there are
expectations for innovation to be driven by demand for greater sustainability. But
these studies do not tell us a great deal about how demand might be used as a way
of stimulating more innovation and influencing its direction. There is less systematic
evidence about such approaches, and what is apparent is that there are many
complicated factors influencing both the evolution of demand and the linkages
between demand and innovation.
This complexity is reflected in the numerous policy instruments that have been
identified as relevant to DLI. The ministudy briefly reviews frameworks for thinking
about such instruments. The main message to emerge is the need for coordination
of policy efforts, and systematic evaluation of their effectiveness, if DLI is to play a
role in enhancing competitiveness and meeting Grand Challenges.
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Table of Contents
1. Introduction................................................................................................ 5
2. Beyond the Innovation Schism: Interrelating Push and Pull ...................... 8
3. Demand, Users and Innovation Intelligence ............................................ 15
3.1 Market Research and Market Orientation ............................................ 15
3.2 User Engagement ............................................................................... 21
3.3 Arguments against DLI ....................................................................... 25
4. Changing and Articulating Demand ......................................................... 28
4.1 Demand Management and Articulation ................................................ 28
4.2 Business Expectations for Demand-Led Innovation ............................ 29
4.2
Changing Demand Patterns and the Shaping of Demand ................ 30
5. DLI Policy and Policy Issues ................................................................... 34
5.1 Two Types of DLI Policy ...................................................................... 34
5.2 Influencing Demand and Influencing Innovation .................................. 35
6. Conclusions ............................................................................................. 41
Bibliography ................................................................................................... 42
Annexe 1: Sources and Definitions of Key Terms .......................................... 45
Annexe 2: The DLI Policy Literature .............................................................. 53
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1. Introduction
Demand-led innovation (DLI) has become a popular term in recent years – indeed,
there has been an explosion of interest in this and a series of related terms. Annexe
1 contains a detailed discussion of some of these terms, based on extensive
searching using Google and Google Scholar. We note that it is surprisingly hard to
locate reasonably authoritative definitions (or indeed any definitions at all) of many of
these terms. We also note that terms such as “user-led” and “user-driven” typically
attract more attention than equivalents such as “demand-led” and “demand-driven”,
reflecting the current upsurge of interest in user innovation - and in open innovation
more generally. We also note that a high share of use of some of the terms is in the
context of discussion of new directions in innovation policy – though this does not
apply to DLI. (In contrast, 2/3 of the “hits” dealing with “user-driven innovation”
actually relate to “user-driven innovation policy”). It is rather alarming that much of
the policy discussion does not seem to be operating with a clear definition of the key
concept, which is apparently well-understood and uncontentious. This is not actually
the case, since we find overlapping and sometimes contradictory definitions in use.
Definitions of “demand led innovation” are sparse on the ground, and there is
evidently some ambiguity in use of the term.
Thus it is necessary to begin with some essential points of clarification, and to
identify some key themes that appear from the definitions (and the surrounding
discussions that we have examined):
• “Innovation”, as is well-known, is an ambiguous term. It can refer both to
process involved in creating new artefacts, practices, procedures, etc., and to
these latter outcomes of the innovation process. When the term is used in
the plural (“innovations”) it typically refers to outcomes, but when it is
singular it may be have either sense. Thus DLI can be used to point to a
process or to the result of that process.
• The term “user” tends to be associated more with innovation activities that
derive from the users of particular technologies or practices, of that in some
way actively engage these users in the innovation process. However, this is
most strictly the case with terms like “user innovation” and “usergenerated innovation”. “User-driven innovation” may refer to innovation
processes where the innovators are simply attuned to user requirements
(which may involve market research, empathy, or first-hand observation of
usage practices).
• The term “demand” is more ambiguous. Sometimes it is employed in the
same way as “user”, sometimes it refers to more arm’s length knowledge of
users (or purchasers, who may not be the same economic agents). This
reflects the notion of “demand” as distinct from “consumption”: demand is the
expression in the marketplace of purchaser acceptance of a value proposition
– that is, the belief that the value obtained from a purchase will justify the
expense of that purchase. “Demand” is a term much used in economics, of
course, where “demand-side policies” for economic growth and the like are
very commonly encountered. “Users” and “consumption” start taking us into
the realm of sociology, however,
• “-Led” seems to be a stronger term than “-driven”, in the sense that
demand or users are seen as active sources of signals or ideas. They lead
the innovation process in specific directions, whereas drivers seem to be
more providing an impetus that may be taken in several possible directions
(alternative “solutions” to the “problem” that the driver is signalling). This is
clear from the definitions cited, for “demand driven innovation” – though we
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must admit that definitions of “demand led innovation” are very hard to come
by!
Having hopefully illuminated these points, we can move on to consider the approach
that will be taken in this mini-study. Here we will understand DLI to refer to an
innovation process. Demand-led innovations are the outputs of such a process.
What, then, is a DLI process? We present and elaborate on a basic definition in Box
1 below.
Box 1 Definition of Demand Led Innovation as a Process
A DLI process is understood to involve the deliberate design of innovation activity so
that it substantially elicits and uses information about user features, requirements,
and creative ideas in the course of shaping research, development, design, and/or
other major aspects of the activity.1
DLI will here be taken to include “user innovation” (UI) in the von Hippel sense –
innovation created by the user of a technology, product, or practice – in several
circumstances. In particular, UI will be included (a) when user innovations are
deliberately sought by a supplier in order to improve their product or seek new
product ideas; (b) when users commercialise or otherwise seek to diffuse their
innovation among other practitioners beyond their immediate community. However,
UI will not be included in this definition of DLI when the innovation is only employed
by the user individual or organisation itself.
We discuss policy at more length in a later section, but we can note here that DLI
policy can then refer to one of two quite different things. We present and elaborate
on these two types of DLI policy in Box 2 below.
Box 2 Two Types of Demand Led Innovation Policy
•
•
First, DLI policy can refer to policy aimed at promoting DLI processes in
general, or in a specific field). Example: policies to improve the utilisation of
market research tools or user innovation in the management of innovation in
commercial firms. We might label this demand-driven innovation policy.
Second, DLI policy can refer to efforts to promote innovation or innovation
trajectories of a particular sort, in a particular direction. Example: efforts to
stimulate uptake of low-energy light bulbs, so as to encourage more R&D into
improving these devices. We might label this demand-based innovation
policy.
These two meanings of DLI policy reflect a dichotomy in understanding of DLI that is
apparent not just in recent discussions of DLI, but in the analysis of innovation
processes more generally.
1 We reserve judgement as to whether marketing is included among these features of the innovation
process. We would not consider market research that is merely directed to how to advertise or brand a
product that has already been created with little exploration of demand side to be DLI.
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Much of the current discussion of DLI stems from the second of the policy definitions
– from concern with how social objectives (sustainability, coping with demographic
change, etc.) can be the focus of more innovation activity. Grand Challenges are
often, perhaps always, problems where technological and other innovations are
major parts of the solution. Supply-side initiatives – funding targeted R&D
programmes, for example – do not seem to be sufficient to mobilise industrial efforts
around these problems. Thus attention to DLI initiatives comes to the fore. The
issue can be seen as one of articulating demand so as to reflect the problems and
thus drive innovation accordingly.
However, it will be still be important to consider the issues implied by the first
definition of DLI policy, for several reasons. Perhaps the most important, in the
present context, is that we need to understand just how firms recognise and respond
to changing market demand, if we are hoping that such change can be used to
mobilise innovation to meeting Grand Challenges. In the idealised world of
introductory economics textbooks this might not seem to be necessary. Firms will
respond to market signals by orienting their innovation activities accordingly. In the
real world, no actors have perfect information or complete freedom to transform their
assets; innovation activities are path-dependent and shaped within national and
sectoral systems of innovation. Opportunities for innovation, and opportunities to
achieve commercial success for innovation in markets, vary over time and between
sectors and firms within sectors. From a policy perspective, better understanding of
DLI is required – to enhance competitive advantage and meet Grand Challenges.
Because of the resonance of early discussions of innovation processes with the
current debates, it is helpful to begin with an exposition of discussions that were
underway several decades ago.
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2. Beyond the Innovation Schism: Interrelating Push and
Pull
One of the oldest schisms in innovation studies is between technology push and
market pull accounts of innovation. In the former case, the initiative behind
innovation is supposed to lie in research and invention, with inventors creating
opportunities to satisfy people’s needs (whether or not these have been expressed),
often as a result of striving to understand better how things work. In the latter case,
the initiative derives from user needs as expressed through market demand and
other channels, with these being posed as problems that could do with innovative
solutions. The distinction draws a great deal on the supply-push/demand-pull
discussion in economics more generally.
While most commentators would agree that both between technology push and
market pull can be drivers of innovation, there has been considerable controversy
around the precise role of each – in general, in relation to the influence on the
innovation outcomes (e.g. technology push is supposed to encourage more radical
innovation, market pull more incremental ones), and in relation to specific cases and
conjunctures (e.g. does one or other form of driver predominate at particular
moments in history?).
The classic formulation of technology-push is the much-criticised “linear model’’ of
innovation. This is often declared dead, and just as often is resuscitated. It portrays
the innovation process as a set of stages – beginning with research (often in
laboratories), moving on to development, and then to production and marketing. One
reason for the continuing vitality of this model is the relative ease of funding research
as opposed to closer-to-market stages of the process. Another is the visible origin of
some very important innovations in laboratory research-based scientific discoveries –
the laser is a well-known case. It is apparent that some basic research does result
in new knowledge that engenders capabilities to transform the world in dramatically
new ways. In contrast, however, are many consultants, case studies and survey
analyses, concluding that successful innovation relies upon
identification of
customer requirements.
It would be quite possible to consider a reverse linear model, where it is demand that
is the leading force: mediated through marketing, with needs for improved products
being captured by sales and marketing staff, who feed information back up the firm: if
design and development are not enough to meet the requirements that have been
expressed, then new research may be invoked. But this sounds somewhat artificial,
because shortcomings with the product may well be experienced by or expressed to
the research department directly. Indeed, linear models tend to imply a single flow of
knowledge and action, whereas in practice there are many feedback loops and
reiteration of activity across stages of the innovation process. This is why “chain-link
models”, and the like, have tended to displace the linear model in more serious
discussion.
In the late 1970s and early 1980s, when modern innovation studies were first
beginning to gather momentum as vital fields of enquiry, the linear model was coming
under critical scrutiny. There was lively debate around the major schism – the
relevance of technology-push and market-pull approaches to innovation. One classic
review of the arguments here, stressing the need for matching of technological
advance and changes in market demand, but also pointing out that how these
elements are combined (and which takes the lead) may vary from case to case, is
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Mowery and Rosenberg (1979).
Another important contribution was made by
Freeman (1982), who contrasted the views of Schumpeter and Schmookler, who he
took to be key proponents of technology-push and market-pull approaches. Freeman
interpreted their differing emphases as relating to different types of innovation – and
stages in the macrodynamics of innovation processes.
Joseph Schumpeter (1939) had attributed growth mainly to technological innovation,
in which entrepreneurs draw on scientific discoveries and the creative products of
inventors. Schumpeter’s work had been rediscovered in the 1970s, as one of the
few earlier economists to address innovation in a serious and sustained way. Jacob
Schmookler (1966), in contrast, was influential in developing the critique of the
technology-push, linear model of innovation. He used patent data and historical case
studies to support his case for the importance of market-pull. One of his conclusions
was that the number of patents in various American industries followed surges of
investment in them - rather than preceding investment. Growth seemed to be
leading to innovation; markets were pulling innovative efforts. The interpretation was
that high levels of demand lead to more efforts to solve problems associated with the
products in question, resulting to more patentable inventions, for instance.
Mowery and Rosenberg (1979) pointed out that Schmookler’s account faced
problems in addressing radical innovations. It is difficult to discuss market demand,
when the market knows little or nothing of the new products, their possible utility,
their suppliers, etc. Such radical innovations seem to have more to do with
technology-push and fundamental advances in science and technology.
Thus
Schmookler’s account of market-pull innovation seemingly applies to more
incremental innovations.
Freeman (1982) pointed out that patents can cover both radical and less dramatic
innovations. This may help account for the apparent conflict between Schmookler’s
claims about the influence of market growth, and Schumpeter’s emphasis on
creative entrepreneurs and their inventions as the source of new markets and
economic growth. Schumpeter addressed innovation’s role in the creation of new
markets, while Schmookler was looking more at expanding markets. These are not
necessarily the same thing: the major expansion of a market may take considerable
time to emerge. Schumpeter, too, was tending to emphasise radical innovations,
while the distinction between types of innovation was not so important to Schmookler.
The discussion does not stop here, however, since Freeman went on to introduce the
issue of long waves (Kondratieff cycles), which are major periods of economic growth
and stagnation. (The discussion of long waves had considerable traction in the
1980s, following the economic crises of the 1970s – and the rather mechanical
reading of a Kondratieff timetable as implying the imminence of a major depression.
The idea has experienced some revival in the light of current economic difficulties.)
Schumpeter related the growth upswings of long waves to major new technologies the steam engine and textile innovations for the first technological revolution (late 18th
and early 19th century); railways and metalworking and mechanical engineering
technologies in the second industrial revolution (mid 19th century); electric power,
internal combustion engines and innovations in the chemical industry (early 20th
century).
In each case, entrepreneurs were seizing new discoveries and inventions as
opportunities for investment, making profits from these innovations, and provoking
“swarms” of imitators to further build upon them. When the innovations are
sufficiently numerous and/or far-reaching, the result is new markets, growth, and
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employment.2 The debate about technology-push and market-pull takes on a rather
different flavour when viewed in the context of debates about “long waves”.
Freeman argued that the technology-push/market-pull debate can fruitfully be seen in
terms of the context of long waves. Though these waves remain controversial, the
point about major clusters of significant innovations, drawing on breakthroughs in
underlying technological knowledge, is a compelling one. Even if we put the longwave idea to one side for the time being, the distinction between more radical and
basic innovations, and more routine and incremental ones, remains vital. Radical
innovations – especially what came to be known as basic, “heartland” technologies –
are particularly important, opening up many new economic opportunities for products
and processes. But typically these require substantial time to be built into useful
products that are usable by large markets (skills, and sometimes standards,
infrastructure, and social innovation are required to make effective use of the
innovation). In terms of creating new profits and jobs – the economic upswing of the
long wave, if we are talking in such terms - the invention or even the initial
commercialisation of some basic new product is itself unlikely to be very important. It
is the diffusion of the innovation, involving the creation of new markets, large-scale
investment in the technology from imitators, and the like, that are important.
Indeed, Freeman’s “swarming” typically involves the emergence of multiple
innovations using the capabilities of the new heartland technology. There are
multiplier effects (demand for new capital goods, components, supply chains and
distribution and market channels, skills and labour, bursts of additional induced
innovations, etc.); and there is also need for structural adjustment.3 Freeman points
out that the mechanisms being discussed are far different from Keynesian demand
management as the source of growth. Schumpeterian investment in technological
innovations leads to rapidly growing new industries. This is unlikely to be a smooth
process: such growth reallocates resources across industries, leading to structural
changes that can cause problems for some.
The technology-push/market-pull schism may still underpin a good deal of
contemporary debate. We could consider some points of view as neoSchumpeterian,
in that they focus on technological breakthroughs that stimulate new demand, while
others are neoSchmooklerian, in that they focus on market demands that stimulate
the search for (and achievement of) technological innovations. We could see the first
type of DLI policy discussed above (demand-driven innovation policy, aimed at
promoting DLI processes in the economy and economic organisations), as being
2
Freeman also discusses the work of Gerhard Mensch (1979), who had claimed that major depressions
induce bursts of basic innovations, and that his empirical data supported this idea. The argument was
that, in periods of high economic growth, there is little incentive to undertake radical innovation, attention
is focused on making profits from minor innovation and product differentiation in established products
and markets. In contrast, during depressions, firms are confronted with the need to change their
strategies with markets stagnating; they search for new ideas, or re-examine ideas that were not
previously considered worthwhile. Mensch claimed to show strong bunching of innovations in three
decades of major depression - the 1830s, 1880s and 1930s –and he predicted similar bunching
innovations in the 1980s, which many Kondratieff enthusiasts expected to feature a major depression.
But Freeman argued that case study work tended to support the idea that financial constraints in times
of depression inhibit innovation. He also pointed out that data from the SPRU innovation data bank
suggested that there were peaks of basic innovations not only in the 1930s, but also in the 1950s and
1960s. Additionally, while Mensch gave little role to science in his account, the sorts of breakthroughs
leading to radical innovations may be hard to engender – simply investing in the search for a solution to
a difficult problem does not mean that one will be found (given the existing state of knowledge and
technique). In contrast, a major scientific breakthrough may be the basis for a huge swarm of inventions
and innovations.
3
The classic study of such structural adjustments – and one which did much to clarify what it takes to
qualify as a heartland technology – is Perez (1983).
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neoSchmooklerian, in that it implies an inadequacy in the systems that should be
supporting market-pull. The second type of DLI policy discussed above (demandbased innovation policy, aiming to promote innovation or innovation trajectories of a
particular sort) has more of a neoSchumpeterian feel to it, locating the problem in the
need to develop new technological trajectories, to create new market demands that
can make technological innovation more viable.4 (We come back to this point later.)
Mowery and Rosenberg spoke of the matching of technological capabilities and user
requirements, Freeman of the two as effectively participating in an elaborate dance
(where one or other partner may take the lead, but coordination is vital). But the
technology-push/market-pull schism remains influential. Until recently the role – and
especially the evolution – of demand has been rather marginalised in the economics
of innovation, even if the rule that an understanding of user requirements is a vital
element of successful innovation is widely accepted. This was pointed out by one
of Freeman’s colleagues in an early review of studies and data on successful versus
unsuccessful innovation. Rothwell (1977), describing his analysis of a large number
of purported success factors, wrote that:
Marketing and user needs… is the second area in which there is
agreement right across the board … and it is the area which is most
crucial in determining innovative success or failure. The majority of
successful innovations (on average, about 75% of successful
innovation) arise in response to the recognition of a need of one sort
or another (need-pull) as opposed to the recognition of a new
technical potential (technology-push). In those cases where a new
technical potential does become available first (which is more often
the case with the technically more radical innovations), then
successful innovators determine that a need exists before they
proceed with the project and take great pains to determine precise
user needs and to interpret them in the design of the new product or
equipment. Failure is associated with the ‘we know best’ attitude,
which is fairly common among technical inventors, who often fail to
see the need to consult potential users concerning their invention. A
frequent consequence of this is the production of an innovation
which, while being ‘technically nice’, and while satisfying the ego of
its inventor, has little to offer the user and so becomes a commercial
failure. Finally, success is furthered by an active marketing and sales
policy, while failure is associated with the ‘take it or leave it’
approach to the marketplace.” (p201)
Similar points are frequently made in the managerial – and of course in the marketing
– literatures.
With the rise of more systemic accounts of innovation, shifting the focus of analysis
away from the individual firm or innovator to the national or sectoral innovation
system, Markets and users are, of course, part of the systems, though the systems
approaches point to the importance of various intermediaries in helping to articulate
demand and translate information about user requirements and resources. These
relationships vary from system to system: we can expect differences across countries
and industries, for example.
4
Of course, this approach diverges from a great deal of neoSchumpeterian analysis is that it does not
begin with a technology-led heartland technology development, but rather looks for a series of
socioeconomic conditions that can lead to a shift in technological regime to one based on a new
heartland technology or set of technologies. See Green and Miles (1996).
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Some information on such issues has been provided over the last decade by the
series of INNO-BAROMETER surveys, which have explored a range of topics
influencing firms’ innovation activities. We shall draw fairly extensively on these
surveys in the remainder of this paper. The 2009 Innobarometer survey focused on
firms with 20 or more employees, in “innovation-intensive sectors”.5 It asked about
market and other factors that can play a role in triggering innovation (between 2006
and early 2009), differentiating between:
•
Technology-push factors
a) New opportunities to collaborate with universities and research institutes
b) Emergence of new technologies to be exploited
•
Demand-pull factors
c) Increased pressure from competitors
d) New opportunities to enter new markets or expand sales in existing markets
e) New demands from government/public sector clients (through public procurement)
f) New demands from commercial clients
Figure 1 shows that demand-pull factors were more likely than technology-push
factors to be cited as positive influences on innovation activities. Almost threequarters of the innovative enterprises saw one or more of the demand-pull factors as
positive influences; almost half cited increased demand from existing commercial
clients, while public clients were only seen as important by 16% of respondents;
around half cited “new opportunities to enter new markets or expand sales in existing
markets”. In contrast, just over 1/3 of firms reported one or both of the technologypush factors as a positive influence on their innovation. While only 3% of companies
cited only push-factors as positively influencing innovations, 40% cited only pullfactors; some 32% cited both. The Schmooklerian pattern appears to be dominating
– and it is hardly a surprise that only a minority of innovators are pursuing new
technology- and research-based solutions.
There were sectoral variations in the results. Technology-push is more prominent in
high-tech manufacturing (45% vs. 35% EU average), and in larger firms (63% of the
large enterprises vs. 29% of small enterprises). The range of variance was lower for
demand-pull factors, but these were more prominent in manufacturing – especially
low-tech manufacturing (77% vs. 72% EU average) - than the service industries.
Again, large enterprises were most likely to cite demand-pull (85%). The enterprises
that did not report positive influences from either technology-push or market-pull
were especially the smallest enterprises (20-49 employees: 27% vs. EU average
25%), and the less knowledge-intensive services (27%), and those with decreased
innovation investment (30%).
These results complement those of an earlier INNOBAROMETER study (2003), in
5
These sectors were: Aerospace engines, Aerospace vehicles, Defence, Analyt. Instr., Constr.
Equipment, Apparel, Automotive, Build. Fixtures, Equip., Services, Business services, Chemical
Products, Communications equipment, Construction / Materials, Distribution services, Energy,
Entertainment, Financial services, Fishing and fishing products, Footwear, Furniture, Heavy construction
services, Heavy machinery, Hospitality and tourism, Information technology, Jewellery and precious
metals, Leather products, Lighting and electrical Equipment, Lumber & Wood Mfrs, Medical devices,
Metal Manufacturing, Oil and gas products and services, Other, Paper, (Bio)Pharmaceuticals, Plastics,
Power Generation & Transmission, Processed Food, Publishing and Printing, Sport and Child Goods,
Textiles, Transportation and Logistics, Utility. It is noteworthy that some service sectors are included –
among these being some that are not normally considered high innovators (e.g. hospitality).
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which the survey sample covered all economic sectors other than agriculture and
public administration. In this survey, managers were asked to select and prioritise
the two strongest factors (out of a list of six) that prompted their firms to innovate.
The first choice, among these factors was clearly consumers needs - the primary
driver for innovation for over 1/3 of managers. (Figure 2)
Figure 1 Push and Pull influences on firms in Innovation-Intensive Sectors.
Figure 2 First Choice among Key Drivers of Innovation among EU Firms
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There were some intriguing national differences,6 but here we can draw attention to
sectoral variations - “response to consumer needs” seems to be particularly
important for innovation among large companies; services sector companies; and
recently established ones. So again the Schmooklerian pattern seems to be
dominant. But, the survey also suggested that this dynamic might not be acting in an
optimal way. The respondents were also asked about what their own companies’
unsatisfied needs were, in terms of innovation.
While the survey report warned that the results should be interpreted in the light of
immediate economic circumstances (this survey included the difficult post-9/11
period), there was opportunity to compare with earlier versions of the survey.
Through three rounds of the survey, the leading need (twice) and second greatest
need (once) was “Accessing innovative customers and/or markets” (Figure 3).
This suggests that though market demand may be the largest driver of innovation,
market intelligence may still be felt to be rather lacking by the innovators. It is
interesting to put this response in the context of that to an earlier survey
(Innobarometer 2002), where views were sought about future market trends. More
than half of the managers interviewed expected that the market for introducing
innovative products in the coming years will become more receptive, while 30%
believed the market will remain unchanged and a minority of one in ten expecting the
market to become less receptive. These expectations would clearly imply the need
for better intelligence about customer requirements.
6 High proportions of managers prioritise “consumer needs” in Germany (47%), Denmark (46%) and
Austria (41%), while in Italy only 16% of managers cited these as the major incentive to innovate.
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3. Demand, Users and Innovation Intelligence
How does demand lead innovation in DLI? The answer to this question will have a
great bearing on efforts to use demand to influence innovation activities.
Since demand is the expression of consumer requirement through the market, then
this can be seen to be signalling about user requirements. But these signals can be
very hard to interpret, since the purchaser does not face an unlimited array of offers
from suppliers (thus being able to select precisely the combination of functions and
features that they are prepared to pay the specified amount for) – not to mention the
existence of information asymmetries and restrictions of the time devoted to making
decisions. Sometimes market dynamics are clearly signalling that one design is
preferred to another, but often suppliers need to gather additional intelligence to help
them determine just what it is that demand is signalling.
Figure 3 Unsatisfied needs for innovators
3.1 Market Research and Market Orientation
Even in the absence of technological innovation, market research may thus be very
important in informing suppliers as to what features of their products, their marketing,
and ancillary factors (the packaging, delivery channels, aftersales, etc.) are valued,
and which are the critical features for users. Market research techniques include
survey methods (often aimed at identifying distinct submarkets –
psychogeodemographics, etc.) and more qualitative approaches such as focus
groups and ethnographic studies of products in use. In B2B markets, use may be
made of discussions at trade fairs and exhibitions. Feedback about purchasers from
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sales and aftersales staff is also widely used as a source of information about user
reactions to existing products.
In such ways of gathering intelligence about users, information may be sought about
user requirements and about unmet demands which might be satisfied by new or
improved products, as well as about possible reactions to innovations. The user may
be unaware that she or he is providing such information, or unclear about what
organisation might be using the information in what ways. If the information has a
substantial impact on the innovation process, or is at least built systematically into
the process (so that where there is a change in demand the innovative activity is
modified), then we can consider this to be a DLI. It is the sort of activity that firms
often refer to as “customer-orientation” or “market orientation”.
Some authors distinguish between “customer orientation” and “market orientation”
(for example, Slater and Narver, 1998, 1999). They argue that being ‘customer-led’
is liable to be a short-term approach, with the organisation finding and responding to
customer satisfaction and expressed wants, usually in a highly incremental fashion
when it comes to innovation. Hazley (2007) suggests that the use of IT-based
Customer Relationship Management (CRM) systems is likely to capture and codify
the expressed needs of current customers – failing to provide foresight as to latent
needs and additional markets. In contrast, Slater and Narver see being market-led
as implying a long-term commitment to understanding customer needs: going beyond
recognising needs, to having deep insight into both expressed and latent
requirements, and to providing customer value through innovative solutions that can
be much more radical. They achieve this by close observation of customers’ use of
products in specific contexts, working closely with lead users (whose needs may also
be leading those of other users), and engaging in mutual learning with innovative and
experimental technologies – resulting in new solutions for unexpressed needs.
Agarwal et al., (2003) reviewed studies of market orientation, broadly supporting the
notion that organisational success requires determining and meeting the
requirements of target markets more effectively and efficiently than competitors. As
compared to what they call the selling concept (purchasers can be encouraged to
buy more of the company’s products, the firm must put its efforts into aggressive
selling approaches), the marketing concept assumes that purchasers have
requirements (needs) that they seek to satisfy through buying or not buying one or
other set of products, and should not need intense persuasion to acquire suitable
products. Agarwal et al. note that such a market orientation can provide a unifying
focus for employee efforts and projects, leading to superior performance, higher job
satisfaction and greater organisational commitment. (We would note, however, that
a similar sense of mission is often shared by members of an exciting innovative
technological project.)
The studies they reviewed, and their own research,
demonstrated some consensus that market orientation influences innovation as well
as performance – though few market orientation studies have specifically examined
innovation, other than in the guise of successful new product development.7
How, and how far, is market orientation realised in European firms? It is common for
surveys to explore the extent to which innovation ideas come from internal or
external sources, but Innobarometer (2007) examined which internal sources are
most important. We might suspect managers of some self-interest here, but it is
striking that they most frequently see the company’s management as the source of
innovation; the marketing department is cited much less frequently (just behind
7
For a review of studies on how R&D and marketing may be integrated, see Griffin and Hauser (1995).
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production engineers and technicians 8 – but ahead of research department and
design staff).9 (Figure 4)
The question about “sources of innovation” is also one addressed in Community
Innovation Surveys (CIS - which span most private sector enterprises in extractive,
utility and manufacturing sectors and in knowledge-intensive and business-oriented
services) with more than ten employees. In the 2004 CIS-4 survey, “customers of
clients” were among the top three (of 7) sources for EU firms, along with “suppliers”
and “own employees”. In one country “customers” ranked first and in one joint first
(Portugal and Bulgaria respectively). In fourteen countries, “own employees” ranked
first, followed by “customers” (which was cited by 25-50% of managers), and in six it
came third. Another question asked about cooperation with partners in the
innovation process – again suppliers were most frequently cited (in 13 out of 29 EU
Member States at least a quarter of innovative enterprises cooperated with suppliers).
“Clients and customers” were also prominent cooperation partners (in 15 countries
more than 20% of innovative enterprises cooperate with clients or customers (Finland
hits the high, at 41% - the same as the share cooperating with suppliers of equipment,
materials, components or software). (Eurostat, 2008)
An earlier Innobarometer (2003) had asked about plans and aspirations for new
approaches to the management of innovation - managers were asked to select two
approaches (from six options) to the management of innovation that their company
would focus on over the next two years. The first choice (as in an earlier survey) was
strengthening their relationship with suppliers/users (23% of managers). (Figure 5)
More companies were reported to be focusing on “Customer Relationship
Management” and/or “Supply Chain Management”.
This indicates at least a
recognition of the need to improve the sourcing of information from users (and
suppliers) – in other words, more attention to customer orientation and market
orientation. Innobarometer (2003) asked managers how far market demand was a
force obliging their companies to innovate. 86% of managers saw the market their
company is operating in as a force obliging them to innovate – 33% “rather agreed”,
53% “totally agreed”. (Figure 6)10 If the market is pushing them to innovate, it is no
surprise that greater market intelligence will be required.
8
At the EU-27 level, marketing and production have roughly equal roles in the promotion of innovation.
This balance is characteristic of just nine Member States. Production engineers are more important
than marketing staff in innovation perspective in Bulgaria, Spain, France, Lithuania, Hungary, Portugal,
Slovenia, and Latvia; marketing more than production in Belgium, the Czech Republic, Greece, Ireland,
Cyprus, Malta, Austria, Slovakia, Sweden, the UK, Norway and Switzerland.
9
Marketing-driven innovation was most widespread in Malta (63%), Romania (59%), Cyprus (56%),
Ireland (55%), Norway (53%) and Greece (52%) – and least so in Hungary (16%), Lithuania (25%),
Spain (26%) and Estonia (28%).
10
Agreement rates ranged from the very high 96% in Luxembourg and 95% in Denmark, to 79% in
Austria. Large companies (250+ employees), long established ones (for more than 30 years), and those
with major levels of exports (50% or more of total sales) were the ones most convinced that their market
obliges companies to innovate.
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Figure 4 Sources of Innovation within European Firms
Flash EB No 215 – 2007 Innobarometer p20
Figure 6 also presents results on whether managers in Member States feel that
enterprises will be rewarded compensate for their efforts in innovation by the market
that they are operating in. The conclusion is that the managers believe not only that
the market demands innovation, but also that it is receptive to them (i.e. it will reward
appropriate innovative efforts).
Less than 10% believed that the market would
become less receptive to innovation, while a majority believed it would become more
so. There are few differences across types of companies in these views – large
companies are somewhat more prone to see markets as becoming more receptive to
innovation.11
11
The countries seeing most future market receptiveness to innovative products were Greece (71%)
and Ireland (69%). Both of these countries also ranked highest in September 2002, with the United
Kingdom least convinced of this (46% - with 45% believing that the market will remain unchanged. Fears
that the market may become “less receptive” are relatively close to the average of 9% in all Member
States - strongest fears are expressed in Germany (14%) and Portugal (13%).
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Figure 5 Intentions for new approaches to innovation management
Innobarometer (2002) had asked about which market trends were expected to drive
innovation to a greatest extent, and three (of six) market trends were seen as
particularly influential: “higher quality requirements”, “increasing price competition”,
and “security and reliability of products”, all of which were cited by over 20% of
managers. Less popular choices (less than 15% of managers) were “greater userfriendliness and/or less service requirements”, “response to consumers’ leisure
needs” and “response to demographic and cultural change” – the latter result is
perhaps significant in view of the Grand Challenge presented by demographic
change (especially population ageing). (Figure 7)
These results varied somewhat across countries, and to a limited extent across
industry categories.12 The emphasis on quality – the most popular theme – is striking.
Assessment of what constitutes quality is very much a matter that depends on
understanding the market. Quality is a multidimensional phenomenon, and relates
very much to purchaser expectations and desires. Much the same can be said of
“security and reliability”, confirming that major market drivers of innovation are liable
to demand understanding of the demand side.
12
“Higher quality requirements” were stressed most in Portugal, Italy, Luxembourg, Greece and Spain,
least in Ireland, Belgium, Germany and the United Kingdom - “security and reliability” followed a similar
pattern. There was relatively little variation in the assessment of “increasing price competition” as a key
influence on innovation.
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Figure 6 Influence of markets on innovation
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Figure 7 Markets trends affecting innovation
There are numerous details of these results that could be pursued further, but let us
just highlight one further finding before returning to the question of just how users
and demand are understood by enterprises. Innobarometer (2003) asked about the
time to market effect – the idea that the period between the time of conception of a
new product or service and its actual its launch on the market is shortening. This
phenomenon was very largely seen as a further spur to innovation. 90% of
managers agree (48% “totally agreed”, 42% “rather agreed) that companies would
need to continue to innovate when faced with shortening time to market. Again, this
can be seen as a factor driving requirements for deeper and fuller (and more rapid)
intelligence about markets and demand developments. Alam (2002) argued that
understanding target market needs and preferences can reduce time to market, as
well as other benefits such as helping reduce wastage of funds in development of
innovations that would prove ultimately unsuccessful, and improve product quality.
3.2 User Engagement
The Alam (2002) study is one of many that explores deeper levels of user
engagement in innovation than just the provision of information through market
research. Market research may be more or less well understood by users, but
essentially places them in a rather passive role: the firm is the active agent in seeking
innovation intelligence from users. “Usability testing” and related design activities
engage users (or surrogate users) in working with product prototypes, so as to iron
out design flaws and improve user-friendliness of the products and user manuals.
But suppliers can also work more intimately with users at earlier stages in product
development – and, indeed, product development can be initiated by and even partly
or extensively undertaken by users.
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The lead in developing understanding of such approaches in innovation research, of
course, is the work of Eric von Hippel (1986, 2005), who has studied both the role of
lead users in innovations and users as sources of innovation themselves. He
demonstrated the importance of such users in such consumer goods markets, as
sports and childcare equipment and games software, and more recently explored the
emergence of Internet-based communities where users work together on designing
and improving new and/or existing products. The explosion of interest in this work
follows on the shift to “open innovation” and the involvement of several leading firms
in trying to work with and mobilise such communities for their own innovation
activities.
We can again draw on European survey research to partly illuminate this
phenomenon, in this case focusing on non R&D-based innovation. (Future
Community Innovation Surveys are likely to give a fuller picture of user involvement
in innovation.) Innobarometer (2007) examined firms who innovated by upgrading or
customising products or processes that had been originally developed or created by
other companies. Figure 8 displays the results. The survey examined how these
firms cooperated with others. In the case of such non R&D-based innovation, the
original developer of the product or process being modified is, not surprisingly, the
most common cooperation partner.
Figure 8 Cooperation in Modifying Products and Processes Obtained from Others
Source: Innobarometer (2007)
But it is striking that, in the case of product innovation, customers are involved almost
as often as the originally developers (55% as compared to 58%). High-tech
companies tended to be particularly prone to use customers for advice (66% - more
in this case than original developers, at 46%). Medium-sized enterprises are
similarly particularly prone to use customer inputs when adapting products (61%),
compared to small and large companies. Process innovation involving modification
of processes, not surprisingly, is much less likely to involve customers (28%).
There are many ways in which firms can work with their users, and there are several
efforts to develop taxonomies of user engagement.13 A helpful classification scheme
13
For example, Gristock’s (2008) User-led Innovation typology differentiates between: (a) Users
driving ideas; (b) Users changing products; (c) Users changing services; (d) Users changing processes;
(e) Users changing systems; and (f) Users interacting via open systems.
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has been provided by Emily Wise (Wise and Bisgaard, 2008; Wise and Høgenhaven,
2008), who study user engagement in innovation in Nordic countries. This is based
on two main dimensions – how far the consumer needs are acknowledged
(acknowledged versus unacknowledged needs) and how far the users are involved in
the innovation process (direct or indirect involvement). User-driven processes can
be plotted on these two dimensions (Figure 9).
Figure 9 Modes of User-Led innovation
Source: Wise and Bisgaard (2008)
The two right-hand quadrants of this “map” involve what Wise and colleagues term
the WHAT phase of innovation – focusing on what to produce (the “fuzzy front end”,
and consisting of four steps: Opportunity Identification, Data Collection, Pattern
Recognition and Concept Ideas. The two left-hand quadrants represent the HOW
phase – the methods that will be used to produce the innovative product, and again
consisting of four steps: Conceptualization, Prototype, Test and Implementation. The
participation line indicates that in three quadrants companies gain access to user
knowledge by asking, observing or experimenting with them; in only one do users
innovate by themselves or take part in an innovation team. The articulation line
indicates that in three quadrants companies use users’ articulation of their needs
and/or takes these at face value, whereas in one quadrant companies gain access to
user knowledge without such articulation.
The four quadrants, in more detail are:
• Lower-Right Quadrant - Observation of users who are involved indirectly in
the process. The users’ articulation of their needs is not taken at face value.
Typical methods for involving users here: ethnographic methods such as
shadowing, user self-observation, guided tours in user homes and workplaces,
etc.
• Upper-Right Quadrant - Experiments with users who are involved directly in
the process. Though their articulations are taken at face value, they are not a
part of the innovation team. Typical methods for involving users here:
personal interviews, role-playing and living labs.
• Upper-Left Quadrant - User innovation where the users may be company
innovators or may participate as members of the company’s innovation team.
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•
(this is the only quadrant where this applies). Their articulation of needs is
taken at face value. The typical method for involving the users here: the lead
user approach.14
Lower-Left Quadrant - User test where users are not a part of the innovation
team, but their articulation of needs is taken at face value. Typical methods
for involving users here: focus groups and different kinds of user/usability
tests.
Elizabeth Sanders (2006) presented a similar framework for thinking about the role of
users in design processes. (Figure 10). The design research space here involves
four zones of activity. These are represented as large, light coloured areas in the
background. Inside these are clusters and smaller bubbles of activity. Clusters are
large and professionalised bodies of activity, with specialised journals, methods and
traditions of enquiry. Bubbles are smaller than clusters because they are not yet
supported by professional organizations.
User-centered design is a large zone. User-centered design is research-led; the
expert mindset defines the people as the reactive objects of study. It contains three
clusters emanating primarily from the applied social and behavioural sciences and
engineering (human factors/ ergonomics, applied ethnography and
usability
15
16
testing ). It also contains two bubbles (contextual inquiry
and lead-user
innovation 17 – this latter bubble spanning the area of overlap between the usercentered design and the participatory design zones).
14
The classic definition, from von Hippel (1986) is that “Lead users are users whose present strong
needs will become general in a marketplace months or years in the future. Since lead users are
familiar with conditions which lie in the future for most others, they can serve as a need-forecasting
laboratory for marketing research. Moreover, since lead users often attempt to fill the need they
experience, they can provide new product concept and design data as well.” (p. 791).
15
Sanders defines these Human factors/ergonomics as the study of how humans behave physically and
psychologically in relation to particular environments, products, or services (which borrows from
physiology, psychology and engineering). Applied ethnography shed defines as the qualitative
description of cultures and cultural practices, which is based on observational research (and borrows
from anthropology). Usability testing is defined as measuring how well people can use something for its
intended purpose (which borrows from cognitive psychology and cognitive engineering. Sanders notes
some overlap of people, methods, and tools between the human factors/ ergonomics cluster and the
usability testing cluster.
16
Contextual inquiry is, according to Sanders, most often used in the software development process. It
is a user-centered design method, employed early in the software development lifecycle, comprising
preparation, evaluation, analysis, and design phases. It involves discussion sessions – and more
recently design-led methods such as visioning and storyboarding - to explicate users’ daily routines or
processes and enable the product to be designed to either work effectively with (or help shorten or
eliminate) these processes.
17
Sanders argues that von Hippel’s approach is in principle participatory (including the recipients of
design in the design development process) - but only a specific type of user is seen to be capable of
such participation, the lead-users who are already innovating in the domain – which causes Sanders to
locate the lead-user innovation approach in the user-centered zone, which focuses on experts (even if
we are here talking of expert users.
Lead-user innovation is the low-hanging fruit of the participatory design zone. It is very effective for
highly specialized domains of expertise, but it is not able to address the needs and dreams of the large
number of ‘everyday’ people.
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Figure 10 Users in the Design Space
Source: Sanders (2006)
The participatory design zone is also large. Participatory design refers to efforts to
actively involve the people who are being served through design, throughout the
design development process as far as possible – ideally going beyond lead-users to
more everyday ones. Typically, participatory design methods use physical artefacts
as “thinking tools”, especially in the Scandinavian tradition.18 Generative tools seek
to create a shared design language to enable dialogue between
designers/researchers and users.19
3.3 Arguments against DLI
The “critical design approach” challenges DLI thinking on the grounds that this is
liable merely to reinforce established ways of doing things, and more broadly to
overlook possibilities for more radical change. More generally, one of the main
18
See for example, Bødker et al., (2000)
The critical design zone is said to have emerged more recently and is interpreted by sanders as a
reaction against the user-centered approaches’ focus on usability and utility. It is a more design-led
approach, with the designer in the role of the expert, asking about alternatives to prevailing situation
through designs that embody alternative social, cultural, technical or economic values. The “Probes”
mentioned here are ambiguous stimuli that designers send to people who then respond to them,
providing insights for the design process. No attempt is made to understand or to empathize with the
people probed; the objective is design inspiration. The materials used in probes research and in
generative tools approach can be quite similar, for example, disposable cameras with instructions for
use, diaries, daily activity logs, open-ended postcards to write, etc. But with probes, these materials are
sent to people who fill them out and send them back to inspire the designers, who do not meet the
respondents and explore what they were thinking when they filled out the probes. In generative tools,
such ‘probes’ in this case serve to prepare people for creative sessions.
19
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arguments against putting too much emphasis on DLI stems from the view that we
often do not know what our demand might be, until we can actually visualise the
things we might want to acquire. There was no demand for, say, portable MP3
players, before these were launched on the market. Once such a product proves
successful, it is possible to think of market research questions that might have
indicated consumer interest in such a gadget. The reasons for such devices rapidly
substituting for earlier equipment (in this case, portable CD and cassette players) can
be readily identified, and no doubt many potential purchasers would have expressed
interest in a cheap product that was smaller and lighter, did not require the purchase
and insertion of optical discs or audiotapes, was less prone to problems when
shaken, and so on. If we had been able to ask the right questions, we would have
been able to identify the potential for devices that do some or all of what MP3 players
do. If we had been able to explore consumer dissatisfaction with portable CD and
cassette players, in a sufficiently evocative way, we might even have been able to
spot what the key features of a superior product might be. But market research, it is
argued, does not usually provide such intelligence – thus the Schmooklerian view of
DLI is seen as inadequate for analysing radical innovation – and radical innovation is
seen in some quarters as the important strategy for sustained competitive advantage.
A good example of this philosophy in practice is Professor Jay Lee’s “dominant
innovation” approach. This proposes that innovators need to focus on the new valueadded services that they can deliver, not on traditional ideas of product development
based on R&D. This can mean more than simply improving current products so that
they can reach more users (the “unserved” group in Figure 11), or meet the obvious
unmet requirements of existing users (the “unmet visible needs” group in Figure 11).
It can mean extending into “unmet invisible user needs” – in other words, supplying
features and functionalities that the user may not have articulated any requirement
for, but which will be very welcomed in retrospect. Furthermore, it may involve
extending the activity of the firm to providing innovations that meet unexplored
requirements of completely new markets. Jay Lee’s argument is that by undertaking
this sort of innovation, the firm can still a huge march on its competitors.20
But the argument also implies that such innovations are liable to be non-DLI. The
innovator here is a visionary, able to visualise how technological capabilities may be
applied to generating a completely new product that will be of value in new markets.
It is interesting to note that for Lee, many of these innovations are based on a shift
from supplying material goods to supplying services (“servicisation”)21 – he cites the
example of aircraft manufacturers moving from simply selling engines to selling hours
of flight time (i.e. selling a service that embodies the engine, but also the
maintenance and eventual disposal of the engine, whose ownership remains with the
manufacturer). Value is added for the customer by continuous improvement of this
service, and addition of ancillary services to it – which can involve technological
innovation (in-flight monitoring devices), organisational innovation (systems to track
the location of engines in real-time and dispatch maintenance crews and equipment
when problems are detected), and innovation in terms of marketing (how the value
proposition is conveyed to the airline companies).22
20
For explication, see Lau et al (2007).
Also described as “servitisation” and “servation”.
22
This discussion is informed by conversations with Professor Lee, and material at the IMS Center
website: http://www.imscenter.net/
21
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Figure 11 The Innovation Matrix
Source: “The Innovation Matrix” at http://www.dominantinnovation.com/home accessed
31/07/09
Similar ideas are articulated in various ways by numerous commentators. For
example Slywotzky and Wise (2003) talk about “demand innovation”, rather than DLI.
The focus on anticipating the next-generation needs of customers and connecting
these with assets such as unique access to customers or window on the market , or
specialised technical know-how.
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4. Changing and Articulating Demand
4.1 Demand Management and Articulation
The discussion about DLI does not just reflect changes in the industrial innovation
process, such as those signified in the term “open innovation”, and the need for
researchers, managers, and policymakers to take account of these. It also rises to
the fore, as noted earlier, because of the increased attention being paid to demandside policies as efforts to influence innovation – especially innovation in Europe.
Perhaps demand can be managed so as to stimulate more innovation, for example to
move R&D investment closer to the Barcelona target. Perhaps demand can be
managed so as to shift the direction of innovation, for example to support more effort
into renewable energy sources, assistive living and cognitive enhancement for elderly
people, detection and treatment of infectious diseases, and other Grand Challenges.
Before proceeding further, we should note that in this context we are not using the
term “demand management” in either of the senses that are familiar in
macroeconomics and in utilities strategy. The macroeconomic use of the term refers
to using economic instruments (taxation, money supply, etc.) to influence aggregate
demand in order to achieve macro objectives such as averting threatened recession.
The use by utilities (especially the energy industry, which began talking about
demand side management in the early 1970s energy crisis), refers to seeking to
influence end users’ consumption of energy (or other resources) to limit problems
such as peak demand hitting higher levels than the system can tolerate or cope with
economically; the quantity or pattern of use over time may be targeted by appropriate
schemes.
In this context we are considering demand as an influence on innovation. Demand
management may be sought by suppliers, and there is much discussion of their
proactive roles in creating new markets.23 But more generally, demand is influenced
by general economic conditions (affecting levels of disposable income and
investment funds, willingness to take risks, etc.) and by policy measures (public
procurement, taxation and subsidies, awareness campaigns, etc.). Demand can also
be expressed by various intermediaries; for example, trade and voluntary
associations can press for particular standards, for ethical investment and sourcing,
for or against various regimes for testing (e.g. use of laboratory animals), and for a
range of social and environmental objectives. In some instances, we can consider
this to be more the articulation of demand than demand management. These
intermediaries are taking on the role of representative of the purchaser, and are
making vocal and explicit criteria that they believe are guiding or should guide
purchaser choice.24
Often this voice is necessary because there are insufficient
product alternatives among which the purchasers can choose, or else information
about the alternatives leads a great deal to be desired. The usual case is that
alternative choices would be made was product variety or product information
sufficient.
23
A pivotal study here is Doughrty (1990)
An interesting case study of the intermediary role played by the Dutch Steering Committee on Orphan
Drugs is presented by Boon et al (2007).
24
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4.2 Business Expectations for Demand-Led Innovation
Without examining what factors underpin the anticipated trends, Innobarometer
(2009) asked managers about demand trends that would provide them with greatest
opportunities for innovation (in the coming two years). Four options were presented,
and Figure 12 presents the key results. It is interesting to note that challenges facing
Europe were seen as most important, with only 15% of respondents citing emerging
export markets as a major opportunity.25 Even fewer (12%) mentioned demands in
public services (education, social or health services), suggesting that procurement for
these areas was not seen as critical by most. 16% saw opportunities in serving the
increasing number of older people.26 In contrast, sustainability and energy efficiency
was the most commonly cited main driver of innovation over the next two years, with
almost a third of managers naming this as a key trend. (This choice was especially
popular among larger firms and high-tech sectors, and those with increasing sales
revenues and more revenues from innovation.) The implication is that some Grand
Challenges may be seen as more promising opportunities for innovation than others
– though there are still numerous firms in the minority groups, and perhaps the point
is that energy use is an issue confronting all sectors.
Figure 12 Perceived Market Opportunities for Innovation
25
Manufacturing firms were more likely to nominate exports as a future stimulus.
The respondents least likely to see any opportunities were from smaller firms, and those with
declining revenues.
26
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4.2 Changing Demand Patterns and the Shaping of Demand
Long-term trends in demand have been studied to a surprisingly limited extent.
Business (intermediate) demand has been explored in relation to, for example, the
Schumpeterian growth of new sectors and the demand for their products, and the
emergence of a more complex industrial division of labour with substantial shifts to
use of producer services by businesses across the economy. Such studies
frequently explore these issues via input-output analysis.
Consumer demand can be explored via patterns of consumer expenditure, with a
very detailed study of US trends over the last two decades of the twentieth century
being presented by Moran and McCully (2001). Personal consumption expenditures
(PCE), 27 currently accounts for about two-thirds of total domestic demand, From
1959 to 2000, Moran and McCully reported 3.6% annual growth in real consumer
spending (slightly faster than the 3.5% for total domestic demand). The share
accounted for by services’ increased (from 40% in 1959 to 58% in 2000), reflecting
increased shares of services such as medical care, finance, recreation, and
education. The share accounted for by nondurable goods decreased, in contrast
(from 47% to 30%), with most categories declining. Durable goods’ share only
decreased slightly (from 13% to 12%), with declining shares of new cars, household
appliances, and furniture and bedding, offsetting increasing shares of new trucks and
consumer electronics. Actually, because of the relatively small share accounted for
by durable goods, which can be considered to be household investments, we see a
rather different picture when examining growth rates. Here, the largest annual
average growth rate is 5.5% for durable goods, as compared to 3.8% for services,
and 2.8% for nondurable goods. Figure 13 presents a more detailed breakdown,
though readers are referred to the original article for much more detail.28
While consumer demand trends may be expected to vary across countries – not least
because of differences in the structure of public welfare provision, as well as
demographic and more general economic factors – this bias toward goods rather
than services is interesting, in that it seems to support the “Gershuny hypothesis”, of
which more later. More generally, the trends seem to confirm a rather more
elaborate version of Engel’s Law, in which we see increasing real incomes as leading
to higher spending on discretionary items and higher quality products (“superior
goods”) relative to spending on basic products and necessities. Moran and McCully
(2001) report that much of the increase in discretionary spending was for home
furnishings, motor vehicles, recreation (both in-home entertainment and away-fromhome recreation), financial services (reflecting increasing household financial assets),
intercity travel (particularly air travel), and electricity (for air conditioning, household
appliances, audio and video equipment, and computers). With higher homeownership rates came higher spending on home furnishings.
27
PCE here consists of expenditures on goods and services by individuals and by the nonprofit
organizations that serve them, in this study being those resident in the USA or U.S. civilian and military
personnel stationed abroad, and residents travelling or working temporarily abroad. PCE consists
primarily of market transactions and includes purchases from private business, from government
enterprises, and from government agencies (consisting mainly of tuition payments for higher education,
and charges for medical care and water and sanitary services). PCE includes expenditures financed
through certain government programs— primarily those that provide medical care to the elderly, poor,
military dependents and retirees; aid to students; and assistance for purchases of food and fuel.
2828
See also Redmond (2001), who explores the trend over this period toward spending rather than
saving consumer income.
30
INNO-GRIPS
Figure 13 Trends in Personal Consumption Expenditures (PCE) in the USA
Source: Moran and McCully (2001).
Other drivers included demographic change (higher spending for medical care —
including home health care, nursing homes, and prescription drugs)
and
technological innovation (which applies to pharmaceuticals, and to consumer
electronics and communication services). Changes in tastes and lifestyles were
apparent in more expenditure on meals away from home and more versatile vehicles
(minivans and sport utility vehicles), on child-care services, on recreational activities
such as casino gambling, lotteries, sightseeing, and amusement parks.
Engel’s Law had often been seen as underpinning a shift from goods towards
services, and thus the growth of the service economy. Jonathan Gershuny (1978),
however, argued that the picture is more complicated. On the one hand, demand
does shift away from basic activities such as food and shelter, and towards more
sophisticated ones such as education and recreation. On the other hand, within
these categories of activity there are alternative modes of provision of the consumer
requirement. Mobility can be provided via public transport or private ones – the
purchase of a service (bus journey) or a good (motor car), respectively.
Entertainment similarly can be provided via the purchase of a service (theatre or
cinema ticket) or a good (TV and DVD system, for example). The Gershuny
hypothesis was that technological innovation meant that the prices of goods were
tending to decline more sharply than those of services – and that in many cases
quality improvements were greater for goods than for services. The result would be
a shift in demand within the activity categories form services to goods. This did
appear to be the case for many (if not all) activities), across several decades in a
number of European countries examined by Gershuny and Miles (1983). The picture
will be complicated by service innovation (Gershuny saw great potential in the
31
INNO-GRIPS
application of new technologies to services) and by changes in household structure
and lifestyle (arguably behind the rise of fast food services, for example). But the
long-term trend in consumer demand will be hard to explain simply in terms of a
growth in demand for services relative to goods. With this interpretation of the
Engel’s Law failing, we have little basis on which to go beyond expecting shifts from
basic necessities to more discretionary expenditures (whether these are interpreted
as indicating more quality, luxury, sophisticated taste, lifestyle fragmentation – or
indeed, consumerism).
There have been several lines of analysis that have sought to explore future
prospects for consumer demand – many of these are simple market forecasting
exercises, but a few studies go beyond this, with one that is particularly interesting
and relevant here being Lührmann’s (2005) analysis of long-term implications of
population ageing.29 There are a few studies that seek to address the relationship
between demand change and innovation at a macro-level, notably Guerzoni (2007)
and Saviotti (2008), but these are highly exploratory approaches.30 Andersen (2007)
reviews the treatment of demand in innovation studies. (One interesting feature of
his study is the repositioning of the Schumpeter/Schmookler schism in terms of the
acquisition of innovations by purchasers. His point is that purchasers need to
evaluate an innovation, and in the case of a Schmooklerian innovation they do so in
terms of established preferences – it has to meet conventional requirements as well
as improving upon performance. A Schumpeterian innovation transcends routinebased decision making – it may be so radical that buyers need to be convinced that it
will have acceptable functionality and that new characteristics should be taken into
account in product selection. The innovative entrepreneur needs to persuade buyers
to change their preferences, for example by good marketing. Lead users have a role
to play in establishing new rules for product evaluation.)
There are also a few studies of firm strategy that go beyond the nostrums of how
managers need to pay attention to consumer demands, to discuss broader changes
in innovation and delivery of goods and/or services, notably Howells (2004). Howells
highlights the fact that consumption is often not a single event but a sequence of
events and activities spread over time. Recognition of this can influence suppliers’
decisions as to whether to supply their product as a good or a service. This helps
understand the shift towards “servicisation” of products on the part of some
manufacturers. In the present context, it can be linked to the discussion of ecoservices or “eco-efficient services”, one form of which is aimed at reducing
environmental impacts by selling customers a service (which can be repeatedly
supplied by the same good) rather than by selling each customer another copy of the
same good – car pooling is a well-known example.31
What is lacking is sustained analysis of how to work with changing patterns of
demand – and more importantly, given interest in Grand Challenges, how these
trends might be shaped. There are analyses of the role of marketing and corporate
efforts to create markets for new products of one type or another. There are
29
The study examines Germany, forecasting developments from 200-2040. Age structure and the
intergenerational distribution of spending power were shown to have significant effects on aggregate
demand (given the assumptions of the model used), while decreasing average household size, and
number of households do not. Design of the pension system has only a minor impact on the distribution
of incomes and total expenditures and on aggregate demand.
30
Guerzoni provides a helpful review of the treatment of demand in innovation studies, and adds to the
Schmooklerian account of market size as a driver of innovation by considering how more sophisticated
markets provide information to innovators about user requirements. Saviotti explores sophistication and
the increasing variety of products that become available.
31
Behrendtet al (2003); Bartolome, M. (2003) is one of several studies focusing on eco-efficient
producer services.
32
INNO-GRIPS
analyses of awareness campaigns and the role of incentives in changing behaviour
in areas such as food consumption, use of tobacco and alcohol, and a number of
environmental technologies (e.g. low-energy light bulbs).32
The OECD (2002) study of sustainable consumption drew on (Vlek’s) Needs,
Opportunities and Abilities (NOA) which relates demand to consumer needs and
opportunities, and their abilities to fulfil those needs (objectives of maintaining or
improving quality of life or well-being). Opportunities are external facilitating
conditions (the availability, accessibility, prices, and information of goods and
services). Abilities are the capacities of individuals or households to procure goods
and services (e.g. income, available time, space to store goods, distance to facilities,
cognitive and physical status). This approach stresses the multiple drivers of demand
and consumption (implying that there are many options for policy to influence
consumption patterns – but also that there are liable to be many points of
“stickiness”.33
32
An annotated bibliography of relevant material in the passenger transport field has been prepared by
the UK Energy Research Centre’s Technology and Policy Assessment team in its project on policy
strategy for carbon emissions reduction in this sector - see
http://www.ukerc.ac.uk/Downloads/PDF/09/0904TransAwarenessMktg.pdf (and also
http://www.ukerc.ac.uk/ResearchProgrammes/Phase%20II/TPA/TPAHomePage.aspx for work on the
“rebound effect”).
33
See Jackson and Michaelis (2003) for a review of approaches to consumption and sustainability
policies.
33
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5. DLI Policy and Policy Issues
5.1 Two Types of DLI Policy
The general arguments for public policies to promote innovation – market failure and
system failure arguments – need not be rehearsed here. Why should there be
interest in DLI policy? The argument in this paper, and the policy literature more
generally, has been that without better understanding of the role of demand in
innovation processes and systems, policies are likely to overemphasise the supply
side, and thus fall short on various grounds.
Earlier, we noted that DLI policy might refer to two rather different things (Box 2).
One was policy aimed at promoting DLI processes in general, or in a specific sector
or technology. This demand-driven innovation policy is aimed at overcoming
Schmooklerian failures of firms to take sufficient account of demand signals. We see
such thinking in several policy initiatives, for instance in the Finnish Ministry of
Employment and the Economy’s (2009) promotion of “user-driven innovation policy”.
Tools to support better linkages with demanding users may be emphasised – support
with development and use of new web-based tools, and the sorts of user-centered
and participative design process discussed above. More basic support for the
utilisation of market research information and tools may be part of such a strategy,
and government support for statistical and other analysis of broad market trends can
be seen in this context.
This sort of neoSchmooklerian demand-driven policy approach can be justified as a
reaction to the perceived failure of much R&D and other supply-side innovation policy,
which has not always resulted in commercialised or socially adopted innovations.
There has been a perception that such policy is too readily “captured” by interested
parties on the supply side, who promote the technology development that suits their
own commercial or research organisations, and only tack on claims about market
demand for their ambitions as a legitimating ploy.
The neoSchumpeterian argument about DLI policy, which we suggested might be
called demand-based innovation policy, is not incompatible with the above. It is
quote possible to promote closer engagement with users and to seek to promote
innovation or innovation trajectories of a particular sort, in a particular direction.
Indeed, “lead users” are often seen as vital in the location and/or creation of the
niche markets that are often seen to precede development of new mass markets and
technological regimes. However, the flavour of policy here is quite different, in that it
seeks to shift demand in order to induce technological innovation. Whereas most
neoSchumpeterian analysis sees demand shifts as triggered by technological
innovation, this version of the approach sees new demand conditions as creating the
stimulus for technological innovation which will hopefully reinforce these demand
shifts and reproduce them on a wider scale.
Whichever approach is taken, the question can be asked as to how far public policies
can play a role in promoting or otherwise shaping innovation – and whether these are
more effective on supply or demand sides. Again, Innobarometer (20099) results
can be mobilised, surveying managers in innovation-intensive business sectors.
The Innobarometer asked about five public innovation facilitating policies, including
two SUPPLY-SIDE POLICIES (Changes in tax environment (e.g. R&D or innovation
tax credits; Changes in public financial support (grants, loans, support for recruiting
34
INNO-GRIPS
new staff etc.)), IDEMAND-SIDE POLICIES ( New requirements from environmental
regulations or standards; New requirements from other regulations or
industry/technical standards;) Services provided by intermediaries (e.g. technology
transfer agencies, patent offices)). The survey asked whether such policy actions,
since 2006, had positively contributed to innovation. Strikingly, demand-side policies
were most widely reported as having such an influence. (Figure 14) 48% reported a
positive effect from at least one policy-related change – the most influential being
new environmental regulations (these encouraged or required 35% of the enterprises
surveyed to innovate). 30% reported a positive effect from new regulations. The
implication is that DLI policy may actually be rather more effective than other policy
approaches.34
5.2 Influencing Demand and Influencing Innovation
DLI policies of the neoSchumpeterian kind are aimed at influencing demand, so as to
effect innovation of various kinds. A Schmooklerian strategy, aimed at achieving
similar effects, would be one that focused on achieving or enhancing linkages
between users of particular types of innovation and the suppliers and potential
suppliers of such products.
Figure 14 Policies with Positive Effects on Innovation
Source: Innobarometer (2009)
These strategies come to the fore when innovation is positioned in terms of Grand
Challenges, as one of the leading ways of addressing major problems that confront
our societies. Technological innovation will be only one of the approaches needed
here – there may be requirement for social innovations (new types of care for the
34
Demand-side policy changes were seen to influence innovation activities positively especially in hightech manufacturing (54%), in large enterprises (61%) among firms that felt that innovations can be sold
as part of public procurement contracts (63%), those where a significant part of the sales came from
innovative products and those who reported increased innovation investment between 2006 and 2008
(57%-58%). Enterprises that operated internationally were more likely to enjoy supply-side policy
benefits than those with domestic focus (63% vs. 42%). Differences were less marked with respect to
supply-side policies, where most benefit was reported by firms able to increase their sales revenue in
the same period (40%), knowledge-intensive services sector (36%) and the largest enterprises (36%),
as compared to the EU average of 33%.
35
INNO-GRIPS
elderly?) or organisational and institutional ones (improved environmental taxation
schemes?). Demand management of the classic kind can play a role. But shaping
demand and demand links to innovation will have a critical role to play.
Creating an Innovative Europe (The Aho Report, Aho et al., 2006) argued that low
levels of business investment in research and innovation in Europe resulted to a
great extent from the lack of an innovation-friendly market in which new products
could be launched. To create such a market required harmonised regulation,
ambitious use of standards, a competitive intellectual property rights regime - and
demand-side measures. In particular, they stressed public procurement as such a
measure, and called for large-scale strategic actions that could mesh were called for
to create an innovation-friendly demand that could be complemented by supply-side
measures for research and innovation around what came to be known as Grand
Challenges.
The Aho report stressed public procurement, but this is only one of a range of
policies that can be used to seek to influence innovation from the demand side.
Edler (2007) presented a rather comprehensive framework for examining such
methods, which is reproduced in Table 1 below. This lists a range of approaches to
influencing private demand, alongside those influencing public demand and those
with a more systemic orientation.
It provides a helpful overview of what can be
done – and whose impacts may need to be examined.
36
INNO-GRIPS
Global Review of Innovation Intelligence and Policy Studies
Table 1 Edlers’ Typology of Demand-side Policies for Innovation
Instrument
1. Public demand
General
procurement
Role of
State
Method of Functioning
Buy and
use
State actors consider innovation in general procurement as main criterion (e.g. definition of needs, not
products, in tenders)
State actors specifically demand an already existing innovation in order to accelerate the market
introduction and particularly the diffusion. This can include the targeted co-ordination of different
government bodies and moderation with manufacturers.
State actors stimulate deliberately the development and market introduction of innovations by
formulating new, demanding needs. This can include the targeted co-ordination of different government
bodies and moderation with manufacturers.
State actors are part of a group of demanders and organises the co-ordination of the procurement and
the specification of needs.
Special form: catalytic procurement: the state does not utilise the innovation itself, but organises only
the private procurement
Strategic
procurement
(technologyspecific)
Buy and
use
Co-operative
procurement
Buy / use
moderation
2. Support for private demand
Direct support for private demand
Demand subsidies Co-financing The purchase of innovative technologies by private or industrial demanders is directly subsidised
Amortisation possibilities for certain innovative
Tax incentives
Co-financing
technologies
Indirect support for private demand: information and enabling (soft steering)
State actors start information campaigns, advertises new solutions, conducts demonstration projects (or
Awareness building
Informing
supports them) and tries to create confidence in certain innovations (in the general public, opinion
measures
leaders, certain target groups)
Voluntary labels or
The state supports a co-ordinated private marketing activity which signals performance and safety
Supporting
information
features.
Informing
campaigns
/continued
37
INNO-GRIPS
Table 1 continued
2. Support for private demand (continued)
Direct support for private demand
Training and
The private consumers or industrial actors are made aware of innovative possibilities and
Enabling
further education
simultaneously placed in a position to use them.
Organising
Societal groups, potential consumers are given voice in the market place, signals as to future
Articulation
discourse
preferences (and fears) are articulated and signalled to the marketplace.
Regulation of demand or of the interface demander – producer (steering via standardisation)
Regulation of
The state sets norms for the production and introduction of innovations (e.g. market approval, recycling
product
requirements). Thus demanders know reliably what certain products perform and how they are
performance and
Regulating, manufactured. The norm affects firstly the producer (norm fulfilment), but spreads to the demander by
manufacturing
means of the information about norm fulfilment
controlling
Regulation of
("command
product information and control")
The state creates legal security by setting up clear rules on the use of innovations (e.g. electronic
Usage norms
signatures)
Support of
The state stimulates self-regulation (norms, standards) of firms and supports / moderates this process
innovation-friendly
and plays a role as catalyst by using standards
Moderating
private regulation
activities
Standards to
Moderating, State action creates markets for the consequences of the use of technologies (emission trading) or sets
create a market
organising
market conditions which intensify the demand for innovations
Systemic Approaches
Integrated demand
Strategically co-ordinated measures which combine various demand-side instruments
measures
Combination
Integration of
of various
demand- and
Combination of supply-side instruments (R&D programmes) and demand-side impulses for selected
roles
supply-side
technologies or services.
measures
Source: Edler (2007)
38
INNO-GRIPS
We should note that there are many discussions of how to influence demand that do
not have a specific focus on innovation impacts. This is indeed true for most of the
literature on “sustainable consumption”, not to mention the “demand management”
analyses undertaken by public utilities and some service firms. Edler’s review is
unusually systematic in how it addresses the links between demand related policies
and innovation. The challenge it poises is development of systemic instruments
Another helpful account has been provided by the Finnish Ministry of Employment
and the Economy (2009) of what it terms “Demand-driven innovation policy”.
Such policy is seen as being justified both by its potential contribution to meeting
Grand Challenges, and by the scope for enhancing the competitiveness of firms, in
other words in both neoSchumpeterian and neoSchmooklerian terms. Rather than
use public/private demand as the structuring framework, policies are classified in the
Finnish study into:
•
•
•
•
Knowledge and capability development;
Development of incentives;
Infrastructure improvements; and
Regulatory reform.
Knowledge and capability development is highlighted because DLI requires
greater knowledge and competence on the part of suppliers and the users that they
engage with. (Competence development is equally required in public procurement.)
Suppliers require networking skills and the ability to identify opportunities to create
value for the end user; and users need skills to be demanding, responsible and
participative stimuli for innovation. This highlights the role of new design approaches,
and ways of managing intellectual property in open innovation arrangements.
Foresight approaches are suggested as helping to identify market trends (including
potential for creating lead markets), and raising awareness about innovative solutions.
New web-based tools may play roles in Foresight and networking.
Development of incentives necessarily includes financial incentives (including taxrelated ones), that can be used to support and steer user-driven research,
development and innovation activity. Public procurement is another source of
incentives to innovators, with the public sector acting as lead market or demonstrator
for specific types of product or production process. The European Union’s Lead
Market Initiative for Europe selected six areas, in which to create lead markets in
Europe: eHealth, protective textiles, sustainable construction, recycling, bio-based
products and renewable energy.
Infrastructure improvements relevant here include those to do with the Information
Technology infrastructure, where compatible systems are stressed by the Finnish
policymakers (along with the quality, openness and the trustworthiness associated
with the system and its users). Innovation platforms and development environments
that permit networking across traditional sectoral boundaries are another area for
effort – e.g. with “Living Labs” initiatives and Public Private Partnerships.
Regulatory reform (and standards issues) also loom large, for example the issues
involved in the terms of the utilisation of data held by the public sector, so as to make
it more readily available for user-driven innovation activities, more efficient for users
of information and for commercial actors. In many cases, DLI requires collaboration
between various service providers, which may also call for regulatory change to
promote partnerships between service providers. Intellectual property rights and
39
INNO-GRIPS
related issues of valuing and assessing intangible assets need to be addressed
(especially where open and user innovation are involved, raising questions of
stakeholder rights, returns and responsibilities). Regulation is an familiar driver of
demand and innovation in areas such as environment and health, but these
innovation impacts need to be taken into account when drafting regulation (for
instance, by setting challenging targets for the market actors involved). “Softer”
forms of steering, such as recommendations and labelling should also be considered,
as enabling better-informed purchaser choices.
We have noted earlier the multiplicity of factors influencing demand, and the theme of
this paper has been the complex relationships that interrelate demand and innovation.
This necessitates “joined-up” DLI policy – and evaluation of such policies and
learning about what their success (or otherwise) tells us about the DLI system.
Edler (2007) similarly concludes that demand based innovation policy will call for a
high level of commitment on the part of policymakers. Strategic intelligence will need
to be developed and applied at different levels and in different forms, with substantial
networking and coordination of governance across institutions and levels of policy.
Equally, DLI policies need to be “joined up” with supply-side measures. It is quite
possible that some future Schumpeterian breakthroughs will emerge that strongly
bear upon some of the Grand Challenges. These might be associated with major
technological opportunities offered by Information Technologies (e.g. e-Agriculture,
assistive technologies), Biotechnologies (e.g. anti-ageing treatments, crops adapted
to climate change), and Nanotechnologies (promising dramatic improvements in
photovoltaic, battery and fuel cell systems, for example) – if the incentives are right.
DLI policies are manifold – but DLI policy needs to be a comprehensive approach.
40
INNO-GRIPS
6. Conclusions
Demand-led innovation is attracting a great deal of attention, and a sophisticated
discussion has already emerged about the relevant policy instruments here. There
has been some discussion of how policies have been pursued in different countries
(e.g. Edler 2007). But there is still a shortage of evaluation of such policies. This
means that the main arguments for them must rest on the underpinning case for the
importance of DLI, and such limited evidence as we have been able to muster from
Innobarometer and related sources about the importance of DLI and demand
elements of public innovation policy. It is also apparent that there is some confusion
engendered by the lack of clarity about basic terminology here, and this ministudy
has sought to clarify the main terms used.
Despite the fuzziness of some of the key concepts – or at least, the varying ways in
which they have been employed – it is clear that the topic of DLI is a very important
one. Whether a Schmookler or a Schumpeter perspective is adopted, or what sort of
synthesis of the two is articulated, the need to take demand into account in fostering
successful industrial innovation, and in helping innovation confront the Grand
Challenges of our time, is inescapable. We cannot wait for scholarly clarification of
the complex and evolving links between demand and innovation before policies are
formulated. Indeed, policymakers have not waited, and have already developed a
large palette of actual and potential policy instruments. The major challenge may be
one of coordination of the application of different DLI tools, and integrating such tools
with more conventional supply-side measures.
Policy evaluation will be difficult, because of this necessary intertwining of numerous
instruments and strategies. But it should be given very serious attention, because it
offers opportunities to learn about what does and does not work effectively, and how
to better orient innovation to meeting Grand Challenges. It will also almost inevitably
lead to learning about how DLI processes operate in practice, even as it contributes
to reshaping such processes.
The likelihood is that a review of the DLI literature in the year 2020 will be much more
extensive than that provided in this ministudy. There will be much more relevant
research to draw upon, including case studies, survey analyses, and evaluation and
assessment of policies and programmes. But it is also likely that DLI practice will
have itself been transformed. The DLI of coming years will be influenced by changes
in management philosophy and strategy that learn from business experience; and it
will also be influenced by policy interventions, whether these deliberately aim to
accomplish such changes, or are seeking to shift innovation trajectories to better
meet grand challenges.
41
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DC:
Bureau
of
Economic
Affairs,
available
at:
http://www.bea.gov/scb/pdf/national/nipa/2001/0301pce.pdf
43
INNO-GRIPS
Mowery, D. and N. Rosenberg (1979), "The influence of market demand upon
innovation", Research Policy, Vol. 8 pp.103 – 153
OECD (2002) Policies to Promote Sustainable Consumption: An Overview, Paris:
OECD,
original
link
inactive
but
currently
available
at:
http://www.redpml.cu/Biblioteca%20virtual/tema3/Pol%EDticas%20para%20promove
r%20el%20consumo%20sostenible.pdf
Perez, C., (1983) “Structural Change and Assimilation of New Technologies” Futures
15 no 5 pp357-375
Redmond, W.H. (2001) “Exploring Limits to Material Desire: The Influence of
Preferences vs. Plans on Consumption Spending” Journal of Economic Issues, Vol.
35, No. 3 pp. 575-589
Rothwell, R., (1977), “The characteristics of successful innovators and technically
progressive firms (with some comments on innovation research)” R&D Management,
Volume 7, Issue 3 pp 191-206
Sanders, E.B. N. (2006) “Design Research in 2006” Design Research Quarterly –
col. 1 no.1. pp 1-8 available at: http://www.drsq.org/issues/drq1-1.pdf
Saviotti, P.P. (2008) “Structural change and economic development: the role of
consumption” presented at The Role of Consumption for Structural Change in the
Economy, Max Planck Institute for Economic Research, Jena, July 16-18
Slater, F. and J. C. Narver (1998), “Customer-Led and Market-Oriented: Let’s Not
Confuse the Two,” Strategic Management Journal, vol. 19 (10), pp 1001–1006.
Slater, F. and J. C. Narver (1999), “Market-Oriented Is More than Being CustomerLed,” Strategic Management Journal, 20 (12), pp1165–68.
Slywotzky, A. and R. Wise (2003) “Three keys to groundbreaking growth: a demand
innovation strategy, nurturing practices, and a chief growth officer” Strategy &
Leadership, vol. 31 no.5, pp12-19.
Shmookler, J. 1966. Invention and economic growth. Cambridge: Harvard University
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von Hippel, E. (1986) “Lead Users: A Source of Novel Product Concepts”
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Wise, E. and T. Bisgaard (2008) User-Driven Innovation: Context and Cases in the
Nordic Region (Presentation of Final Report) NICe/Winnoway meeting, Karlstad,
September 9, 2008 available at: http://www.foranet.dk/upload/karlstadtb_(4).pdf
Wise, E. and C. Høgenhaven (2008) User-Driven Innovation: Context and Cases in
the Nordic Region NORDEN, Nordic Innovation Centre, available at:
http://www.nordicinnovation.net/_img/final_report_udi_context_and_cases_in_the_no
rdic_region_web.pdf
44
INNO-GRIPS
Annexe 1: Sources and Definitions of Key Terms
Table A1 provides definitions of several key terms in this literature, insofar as
reasonably authoritative ones could be located. It actually proved surprisingly difficult
to locate definitions of many of these terms. It is very common for them to be used
as if they were unproblematic and commonly understood – even though standard
dictionaries rarely mention them. The definitions we have located are diverse,
sometimes contradictory, and frequently overlapping – indeed, in many discussions
several terms are equated. Sometimes, too, there are proprietary uses of the terms,
as management consultants have sought to label specific methods “Demand
Innovation”, “User-Centered Innovation” and the like. Several results of the web
searching are striking:
• “Demand-led innovation” is by no means the most commonly encountered
term. Indeed, it is used much less often than several other terms, including
several using “demand” and others using “user” (there are other terms, too,
using “consumer” but we shall not consider these here. “User” terms seem
to regularly attract more attention than “demand” terms.
• Though this is not displayed in Table A1, a remarkable proportion of the “hits”
are actually about policy and this work frequently follows “innovation” on
these web pages. Policy discussion is very lively – and in some cases
threatens to overwhelm discussion of the phenomenon itself! This is not the
case, interesting, for DLI, where less than 1% of the hits are for DLI policy
(and even fewer where we consider “user-led). In contrast, 2/3 of those
dealing with “user-driven innovation” are followed by policy (though only 6%
of “demand-driven”). Just under half of the “demand-based innovation” hits
are ones where the phrase is immediately followed by “policy”; in contrast
“user-based innovation policy” is very rarely used (only one “hit”).
• We also note that many of the web pages encountered derive from Nordic
countries, especially Denmark and Finland.
45
INNO-GRIPS
Table A1 Terminology relevant to Demand-led innovation.
(note: definitions referring to specific management tools have been omitted)
Term
"Demand led innovation"
“Hits” in Google…
Web
Scholar
784
Definitions (all websites accessed 31/07/09)
59
No precise definitions located. Relevant discussions include:
“Demand led innovation occurs when technology lags behind the customers'
requirements” - source DLI 1
“The more users, customers and citizens that are able to intelligently use the
products and services that are on offer as well as to articulate their own needs
and uses, then the better the recipe for innovation. Social innovation is clearly
relevant to this notion of demand led innovation.” - source DLI 2
"Demand driven innovation"
2660
144
“Demand-driven innovation is customer driven, based on new or changing
customer needs, tastes, and preferences.” - source DDI 1
“In demand-driven innovation, how to respond to the diverse needs of
customers will become the key. Some innovative examples … are epochmaking in that people's needs, many of which they themselves are not even
aware of, are explored and met. In that sense, they are fine examples of
demand-based innovation. … Their success is due to their highly innovative
approach to uncovering latent market demand.” - source DDI 2
46
INNO-GRIPS
Table A1 continued
Term
"Demand side innovation"
Web
Scholar
1170
113
“Demand-side innovation is a different animal, and companies need to manage
it differently. It's not about product features or functions but about how a
company orchestrates its customer interactions and relationships. It's innovation
with respect to how companies go t o market, as opposed to what they bring to
Market… few companies have thought through the implications deeply. As
demand-side innovation becomes the central innovation process within most
companies, managers can no longer relegate it to a secondary role. …
Innovation on the demand side can uncover new sources of growth by
illuminating opportunities in unexpected places.” - source DSI 1
“Demand-Side Innovation …shifting innovation toward 'the demand side'….
simply means innovating customer experiences and relationships, not products
and services.” - source DSI 2
"Demand based innovation"
276
9
[a large majority of the Google Scholar “hits” are actually for the phrase
“demand based innovation policy”]
“the limited sense of a company being responsive to how customers use and
consume its products and services (sometimes called “demand-based”
innovation)…” - source DBI 1
“Demand pull innovation”
189
73
“Market- or demand-pull innovation occurs when a strong need or demand for a
particular service or product draws people to search for a way to provide it. In
this case, an innovator has an idea about how to meet that particular need,
develops the product, and sells it” – source DPI 1
47
INNO-GRIPS
Table A1 continued
Term
"Demand innovation"
"User led innovation"
Web
Scholar
30300*
4620
815*
note that the number of “hits” collected here is hugely inflated because of the
inclusion of “demand” as a verb (- e.g. these drivers demand innovation…”) and
by such formulations as “demand, innovation”… “Demand innovation” itself is
however used in a few cases:
“Demand innovation focuses on using one’s product position as a starting point
from which to do new things for customers that solve their biggest problems and
improve their overall performance.” – source DI 1
309
“This paper argues that user-led innovation is a composite phenomenon, and
puts forward a typology which distinguishes between user-led changes to ideas,
products, services, processes and systems.” – source ULI 1.
“What is User-led Innovation? …User-led activity changes the rules of
innovation… New ideas do not always first appear from within an industrial R&D
operation - sometimes it is users who have the innovative ideas that lead to new
and improved products and services. Users, either as firms or final consumers,
are often best placed to identify what needs to be done and may also be able to
design, build and distribute their own solutions: innovation led by users…New
products or services can now emerge without ever having been near an R&D
lab, with users leading every stage from invention to innovation… In many
industries the closed culture of innovation no longer applies, and it is users who
have broken down the barriers – some firms are closer to their customers than
ever before… Many of today’s user-innovators have the capability to modify
existing products and services and to create new ones….” - source ULI 2.
Cont.
48
INNO-GRIPS
Table A1 continued
Term
"User led innovation" (cont)
"User driven innovation"
Web
Scholar
4620
309
63400
763
“User-led innovation is based on the notion that new ideas do not always first
appear from a formal industrial research and development. Users too are part of
the development process rather than being distinct from it. After all, users are
the best people to tell you what they want in the product or service since they
are the ones using it and therefore know what the short comings are. Users
these days are smarter and better connected than they were a generation ago.
They are even able to help design, build and distribute their own solutions. This
is “user led innovation.” - source ULI 3.
“User-driven innovation activity utilises information about users (customers, user
communities, customer companies) and employs users as active participants in
innovation activity. The key aspect of user-driven innovation is information on
user needs, whether recognised, hidden or likely to emerge in the future.” –
source: UDI 1.
(cont.)
49
INNO-GRIPS
Table A1 continued
Term
Web
Scholar
"User driven innovation"
(cont.)
“User-Driven Innovation is the process of tapping users’ knowledge in order to
develop new products, services and concepts. A user-driven innovation process
is based on an understanding of true user needs and a more systematic
involvement of users … User-driven innovation encompasses both meeting
user needs and involving users in the process” – source: UDI 2.
“User-Driven Innovation is the process of tapping users’ knowledge in order to
develop new products, services and concepts. A user-driven innovation process
is based on an understanding of true user needs and a more systematic
involvement of users.” – source: UDI 3.
"User side innovation"
414
10
[note that the majority of Google hits are referring to one line of work on
standardisation removing the latter word reduces the number of “hits” to 169,
and removing other mentions that also involve reference to standards brings the
level down to single digits!] No definition located.
"User based innovation"
551
64
“User-based innovation : explanation …Faced with new and unexpected local
situations, users have to solve problems that designers failed to anticipate, and
are thus in a position to teach and inform those who design systems….The user
will be motivated to find a solution that will fit exactly with his/her specific needs
and circumstances. In contrast, the supplier may have an incentive to create
solutions that are “good enough” for a wider range of potential users… Users in
a very broad sense acquire a certain kind of knowledge which is particular to a
specific site and/or usage… When knowledge is costly to transfer or “sticky” (for
instance, knowledge about some particular circumstance of the user), the focus
of the problem-solving activity can shift from supplier to user… The creation of
technical and organizational systems through which the producer leaves it up to
users to make adjustments and develop the design that suits them best
(toolkits). … The emergence and upsurge of user cooperatives which take over
the function of innovation … Users participate in the community design and
build innovative products for their own use and freely reveal their design to
others. Others then replicate and improve the innovation that has been revealed
and freely reveal their improvements in turn.” – source: UBI 1.
50
INNO-GRIPS
Table A1 continued
Term
"User-centered innovation"
"User innovation"
Web
Scholar
10,900
(also, 3,630
for "usercentred
innovation")
149
(also, 97 for
"user-centred
innovation")
“User-centered innovation processes offer great advantages over the
manufacturer-centric innovation development systems that have been the
mainstay of commerce for hundreds of years. Users that innovate can develop
exactly what they want, rather than relying on manufacturers to act as their
(often very imperfect) agents…Moreover, individual users do not have to
develop everything they need on their own: they can benefit from innovations
developed and freely shared by others… The user-centered innovation process
… is in sharp contrast to the traditional model, in which products and services
are developed by manufacturers in a closed way, the manufacturers using
patents, copyrights, and other protections to prevent imitators from free riding
on their innovation investments. In this traditional model, a user’s only role is to
have needs, which manufacturers then identify and fill by designing and
producing new products. The manufacturer-centric model does fit some fields
and conditions. However, a growing body of empirical work shows that users
are the first to develop many and perhaps most new industrial and consumer
products. Further, the contribution of users is growing steadily larger as a result
of continuing advances in computer and communications capabilities.” – source
UCI 1.
“User-centered innovation sets the customer or the user as the starting point for
the innovation process in order to differentiate from the competitors through
uniqueness in value proposition, as experienced by the user…. In usercentered innovation, the company is leading the innovation process - as
opposite to Lead User innovation, where the user is in charge. User-centered
innovation is characterized by the systematic search for unmet user needs at
the starting point for innovation.” – source UCI 2.
46400
1850
“User innovation refers to innovation by consumers and end users, rather than
suppliers.” – source UI 1.
“Manufacturer innovation is defined as an agent innovating in order to sell the
innovation. User innovation is defined as an agent, person or organization
developing an innovation because the products existing do not match their
needs or requirements.” – source UI 2.
51
INNO-GRIPS
Sources of Definitions cited in Table A1
"Demand led
innovation"
"Demand driven
innovation"
"Demand side
innovation"
"Demand based
innovation"
“Demand pull
innovation”
"Demand
innovation"
"User led
innovation"
"User driven
innovation"
"User side
innovation"
"User based
innovation"
"User-centered
innovation"
"User innovation"
DLI 1: Stewart Robinson (2005) “Distributed Simulation and Simulation Practice” Simulation, Vol. 81, No. 1, pp5-13.
DLI 2: “Social Innovation and the OECD: Interview with Andy Westwood”, in OECD (2008) , CFE Insight no 4 July 2008 at
http://www.oecd.org/dataoecd/23/29/41594786.pdf
DDI 1: Alex Osterwalder (2005) “Design spaces for business model innovation” November 29, 2005 at
http://business-model-design.blogspot.com/2005/11/design-spaces-for-business-model.html
DDI 2: Kiyoshi Kurokawa (2007) “Keynote: ‘Innovation 25’ Long-Term Strategic Guidelines and The Future of Japan and the World”, presented at Global
Innovation Ecosystem 2007, available at http://crds.jst.go.jp/GIES/archive/GIES2007/en/symposium/summary/kurokawa.html
DSI 1: Jeffrey Rayport (2005) “Demand-Side Innovation” in Harvard Business Review, 20 Breakthrough Ideas for 2005 at http://bizanalyst.net/KnowledgeBase/Career-Development/07%20HARVARD%20BUSINESS%20REVIEW.pdf
DSI 2: “Breakthrough Ideas for 2005” at Innovation.net at http://venture2.typepad.com/innovationnet/2005/02/breakthrough_id.html
DBI 1: C. K. Prahalad and Venkatram Ramaswamy (2003) “Corporate Strategy, Management of Technology and Innovation: The New Frontier of
Experience Innovation” Sloan Management Review at:
http://sloanreview.mit.edu/the-magazine/articles/2003/summer/4442/the-new-frontier-of-experience-innovation/
DPI 1 : CERF (1996) Commercializing infrastructure technologies p9, Reston VA: Civil Engineering Research Foundation
DI 1: Adrian Slywotzky and Richard Wise (2003) “Three keys to groundbreaking growth: a demand innovation strategy, nurturing practices, and a chief
growth officer” Strategy & Leadership Vol. 31 No. 5 Pp 12 – 19
ULI 1: Jenny Gristock (2008) “A Typology of User-Led Innovation: The case of ‘Anything Left-Handed’, the world’s first real and virtual shop for left-handed
goods.” Working Paper, Department of Biology and Environmental Sciences, University of Sussex, available at http://eprints.sussex.ac.uk/1741/
ULI 2: “What is User-led Innovation?” at CENTRIM (University of Brighton) InnovationWiki at: http://innovationwiki.brighton.ac.uk/index.php/What_is_Userled_Innovation%3F
ULI 3: Gilbert Change (no date), writing at MSC Malaysia’s Multimedia Development Corporation, Technepreneur Division available at:
http://www.technopreneurdevelopment.net.my/cms/General.asp?whichfile=Articles&ProductID=23468&CatID=
UDI 1: Finnish Ministry of Employment and the Economy (nd) Demand and user-driven innovation, at http://www.tem.fi/index.phtml?l=en&s=2382
UDI 2: Emily Wise and Casper Høgenhaven (2008) User-Driven Innovation: Context and Cases in the Nordic Region. p.21 NORDEN, Nordic Innovation
Centre, available at: http://www.nordicinnovation.net/_img/final_report_udi_context_and_cases_in_the_nordic_region_web.pdf
UDI 3: Emily Wise and Tanja Bisgaard (2008) “ User-Driven Innovation Context and Cases in the Nordic Region
Presentation of Final Report” NICe/Winnoway meeting, Karlstad, September 9, 2008, available at: http://www.foranet.dk/upload/karlstadtb_(4).pdf
No definition located.
UBI 1: Dominique Foray (2002) “Three Models of Innovation for the Knowledge Economy” pp 6-7 OECD/CERI Improving Innovation International
Conference, December 6, 2002, Berlin - Postdam, Germany
From: Erik von Hippel (2005) Democratizing Innovation pp1-2 Cambridge: MIT Press. Available at: http://web.mit.edu/evhippel/www/democ1.htm
UCI 2: Arne Stjernholm Madsen and Signe Lagoni (2007) User-centered innovation (first presented at Pharmaceutical & Medical Packaging conference
2007) available at http://www.strategic-innovation.dk/Engelsk/E_User-centered%20innovation.html
UL 1: Wikipedia (nd) User Innovation at http://en.wikipedia.org/wiki/User_innovation ]
UL 2: INNOCEPT CONSULT (nd) The source of innovation WHITE PAPER chapter 6 at http://www.mobity.dk/media/2009/02/the-source-of-innovation.pdf
52
INNO-GRIPS
Annexe 2: The DLI Policy Literature
Rather than undertake the large-scale analysis represented in Annexe 1, let us just
note that the two terms “Demand driven innovation policy” and “User-driven
innovation policy” are currently much more heavily represented in Google “hits than
in Google Scholar ones – suggesting that the scholarly literature is following well
behind the policy discussion. “Demand driven innovation policy” receives 164
Google hits, 7 in Google Scholar; for “User-driven innovation policy” the respective
figures are 43300 and 3! "Demand-led innovation policy" receives 8 and 3
respectively!
Definitions of the first two terms are provided by the Finnish Ministry of Employment
and the Economy website:
• “Instead of examining individual enterprises, a demand-driven innovation
policy targets the markets as a whole. The objective is to promote the
emergence and diffusion of innovations by stimulating demand for them and
developing the conditions for their adoption.”
• “User-driven innovation policy provides a stimulus for user-driven innovation
in the public and private sectors. This is implemented through more
systematic collaboration with users in innovation activity, increasing the level
of user-driven innovation activity as well as research into, and knowledge and
understanding of, the benefits of such innovation activity.”
We should note that the analyses in each Annexe could be considerably extended by
examining further terms, for instance “Customer driven innovation”.
53

Demand-led innovation - INNO

Transcription

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