Demand, Challenges, and Innovation: Making Sense of New Trends in Innovation Policy

In recent years, the traditional rationale for innovation policy has been expanded to more explicitly contribute to tackling societal challenges. There is broad agreement that demand should be at the core of challenge-oriented innovation policy. Nevertheless, demand and demand conditions are poorly understood and not yet in the focus of challenge-oriented innovation policy. This article conceptualises demand-oriented innovation policies and their links to societal challenges. We differentiate demand and need, and highlight different forms of demand articulation. Then, we characterise three ideal-typical policies that relate to demand: traditional innovation policy, sector-specific policy, and challenge-oriented policy. These three ideal-types are discussed focussing on output legitimacy, input legitimacy, and operational requirements. This discussion highlights the specific challenges and opportunities of demand-oriented innovation policies and allows to derive a set of recommendations to increase the effectiveness of such policies.