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Demand and innovation

This research investigates the role that demand plays in driving and supporting innovation, looking at what businesses and other players in the innovation system can do to create new markets.

Analysis of innovation tends to focus disproportionately on the supply-side, with a strong emphasis placed on technology and productivity gains. There is a good reason for this: to a large extent, we want to separate innovation and long-term growth from short-term slumps in demand. But this has led to a widespread neglect of the role that demand plays within innovation, both in shaping the work of firms and in creating new markets.

In a largely service-based economy, we can no longer measure productivity in terms of units of production. Whereas it is relatively easy to count the number of cars produced by a factory, it is much harder to measure the productivity of an office that provides a service. Because of this, productivity is measured in cash terms (GDP per hour worked), and these cash terms are determined by market forces. Market forces involve both supply (how much it costs to make something) and demand (how much people are willing to pay for it). That means you can either boost productivity by producing more with less, or by making things that people are willing to pay more for – in other words, demand plays a role in driving innovation.

Companies have always sought to reflect demand to ensure there is a market for their products. But businesses also play a role in shaping demand, and in helping to create new markets that are difficult to foresee. Much of the success of the world’s biggest companies comes from their ability to shape consumer demand, rather than inventing novel technologies. It is clear that demand plays an important role in driving innovation, and should be considered more prominently within research and policy on innovation.

Current research

  • What are the links between demand, innovation and economic growth at a macro level?
  • How have consumer demands changed over recent years?
  • How have changes in demand shaped the economy?
  • How do companies best shape and reflect consumer demand to drive innovation?What policies might support more innovation-friendly demand?