Searching for new sources of innovation: The role of consumers

Giada Di Stefano, Professor of Strategy and Business policy - November 15th, 2011
cosmetic innovation

While economic research has traditionally emphasized knowledge and technology as the main force driving innovation, Giada Di Stefano, Alfonso Gambardella and Gianmario Verona have noticed renewed interest in demand as a potential source of innovation, and urge companies to develop demand-oriented skills and even embrace users in order to better match internal and external sources of innovation.

Giada Di Stefano ©HEC Paris

Giada Di Stefano has been assistant professor of strategy and business policy at HEC since January 2012. She obtained her M.Sc. in business administration in 2003 then her PhD in (...)

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Shampoos and anti-wrinkle creams are what set Giada Di Stefano on her path of research into sources of innovation. When working as product manager for L’Oréal, she noticed that technical innovation, which one wouldn’t necessarily associate with cosmetics, was behind a number of novel products—those based on a new molecule for example. But the company also tracked the preferences of users—of the market—to come up with new lines of products, such as “cosmeceuticals”, i.e. cosmetics resembling pharmaceutical products. “I could see the potential concrete applications of the theoretical debate,” recalls Giada Di Stefano. However, as a student, she realized that economic theory considered science and technology as the main “push” driving innovation and the debate appeared to have been more or less deadlocked since the 1980’s. “A strong position had been taken in 1977 by two authors, Stigler and Becker, who stated that de gustibus non est disputandum: consumers’ tastes were outside the scope of economic theory and best left to psychologists and anthropologists,” says Giada Di Stefano. At that time, scholars considered demand merely as a complement to technology, as a way of orienting innovation to better target the needs of the market.

But in recent years, academic literature on innovation started arguing that demand may play a more active role. This revived interest in the literature, together with Giada Di Stefano’s observations on the field, prompted her to take a closer look at the interaction between the two potential sources of innovation. She and her co-authors compiled the most relevant literature on the themes of innovation, technology and demand, and created a new framework of analysis.


CLUSTERS OF RESEARCH THEMES

The three researcher literally “mapped” the field: using statistical analyses they clustered the 100 most influential papers on the subject into five broad groups; the clusters were then positioned on a two-dimensional map to make sense of the different underlying dimensions (internal/external factors, demand/technology). “We fitted it all into the big picture,” says Giada Di Stefano. And the big picture was still heavily focused on the classical role of technology in fostering innovation, with a particular emphasis on the role of knowledge and competences. Indeed, the two largest sets of related articles dealt with the capabilities of firms: internal skills, alliances with other firms, but also marketing skills involved in successfully developing new products. A cluster of more recent papers, including one pivotal 1994 contribution by Eric von Hippel at MIT (the author who coined the term “consumer active paradigm”), highlighted the role of users as generators of innovation. In practical terms, it could mean consumers improving on a good, and eventually becoming entrepreneurs, or developers contributing to open-source software. The fourth set of articles covered the overall system in which companies are embedded: their environment comprises competitors (or potential allies) as well as university laboratories, all of which may spark new ideas. The final and smallest cluster of articles dealt with issues of technology diffusion and adoption.


DEMAND AS A RENEWED DRIVER OF INNOVATION

This work by Giada Di Stefano and her co-authors highlighted how much economic science still heavily focused on internal factors needed to make a better use of technology. But it also shed light on a growing body of work focusing on demand as a source of innovation in its own right – and therefore on its increasing relevance for companies. “A typical example is extreme sports equipment,” says Giada Di Stefano. “There are studies describing how kitesurfers, for instance, will start modifying their kites to improve their performance. It’s mostly do-it-yourself in your garage up to a point, then some go on to manufacturing equipment themselves...or to partnering with companies that have the manufacturing or marketing capabilities to produce modified kites in a more efficient manner.” Indeed, specific competences are needed to successfully leverage both internal and external sources of innovation. Giada Di Stefano also points to resources and competences as sources of innovation themselves, but again, these competences are more and more demand-oriented. For instance, if a cosmetics company comes up with a new active ingredient with anti-wrinkle properties, they need to decide what to do with it. Should it be embodied in cream, serum, or mask? Under which brand should it be marketed? Should it be sold in mass retailers or in drugstores? All these questions are important to bring an innovation to market, and this requires demand-oriented competences. Giada Di Stefano says that many signals come from the economic and cultural environment, and companies need to understand them in order to figure out potential directions in which the market may go. “For example consumers may be more demanding of natural, organic products, and companies should try to channel their innovation efforts to match these changing tastes,” she adds. It’s almost as if companies “imported” knowledge from the market.


Based on an interview with Giada Di Stefano and her article “Technology Push and Demand Pull Perspectives in Innovation Studies: Current Findings and Future Research Directions” co-authored with Alfonso Gambardella and Gianmario Verona (Research Policy  Vol. 41 Issue 8, 2012).

APPLICATIONS IN THE WORKPLACE
APPLICATIONS IN THE WORKPLACE

Companies that do not already rely on inputs from consumers must become more sensitive to demand. While focus groups may long have been considered a good practice, rather than bringing consumers together to talk in a secure room, perhaps it is time to let the voice of consumers emerge on its own, and listen to it in its own environment. As an illustrative example, Giada Di Stefano mentions the practice of reading blogs written by people who are in effect the end users, or who actively discuss issues in the sector. “There are cases in which managers could also ask themselves if such users would be willing to develop products with their firms,” adds the researcher.

METHODOLOGY
METHODOLOGY

Giada Di Stefano, Alfonso Gambardella and Gianmario Verona compiled a list of 1,555 articles published from 1976 to 2010 on the subject of innovation, technology and demand, from the ISI Web of Science database, and selected the 100 most cited and influential ones. Then they mapped the structure of the research field using statistical analysis: examining co-citation to determine similarities in themes and approaches, they grouped the papers into clusters of related articles, each cluster dealing with one specific perspective on innovation. Then they analyzed the underlying network structure linking contributions to one another.