Demand-Driven Innovation: An Integrative Systems-Based Review of the Literature

Abstract

In this paper, we provide a comprehensive review of the literature on demand-driven innovation, using a generic national innovation ecosystem map as a unifying framework. We organize the literature review around four key innovation dimensions and seven related demand-driven processes. Our review reveals that business networking which accelerates access to new markets and technologies is vital for free markets. But classical competition alone cannot sustain the creation of new technologies or innovation paths. Rather, national policy is essential in creating lead markets. On the other hand the private sector has a crucial task in leading R&D activity. We found that the relationship between R&D stock and productivity is mostly positive. With regard to cluster strategies our literature review suggests that increased variety of innovative activities strengthens regional economic growth through "spillover effects" between products and industries. Based on the literature, we found that universities are evolving to play a major role in the research of innovation. The enormous innovative potential of universities therefore should be directed toward shaping more effective tools for public–private cooperation. But innovation, whether its origin is in academe or elsewhere, must follow a standardization process in order to converge into a well-defined technology. Our paper highlights a fundamental paradox underlying pro-innovation policies: while innovators often express the desire for a liberal, open and flexible market system with minimal bureaucracy and governmental interference, to allow market-driven innovation to flourish, they often benefit greatly from a variety of governmental interventions that include direct or indirect financial support (such as tax credits).