The Design Paradox: The Contribution of In-house and External Design Activities on Product Market Performance

Competition forces firms to find new ways to advance in the market and be innovative in order to differentiate themselves from rivals. Design activities may be one of several key factors contributing to new product development. The success story of Apple's iPod has shown that the right design can be a decisive factor when a new product enters the market. During the recent past, scholars justified the opinion that R&D activities conducted in-house by a company are not the only way to acquire new technological knowledge and to produce innovations. This issue has also attracted attention within the context of open innovation amongst scholars, policy makers and business leaders who have recognized the pronounced role of external knowledge flows within the innovation system. Several studies have already dealt with the impact of design on general company performance or innovation outcome. They, however, did not specifically link design to collaborative or externally sourced innovation. This paper empirically investigates the impact of design activities and their collaborative pattern on a firm's innovation performance. To be more precise, we assess the question how market novelties or products which have only been slightly improved, i.e. are only new to the firm but not to the market, are driven by design issues. We use a sample of Belgian firms stemming from the fifth wave of the Community Innovation Survey (CIS) and show that design activities supplement a firm's innovation performance. Moreover, we find that the success of market novelties is driven by design which is mainly conducted in-house, while success of products only new to the firm is also influenced by design activities developed with external partners. This phenomenon which we label as the "design paradox" may be due to possible spillover effects and leakage of information to outsiders caused by collaboration with external partners.

Czarnitzki, Dirk and Susanne Thorwarth (2009), The Design Paradox: The Contribution of In-house and External Design Activities on Product Market Performance, ZEW Discussion Paper No. 09-068, Mannheim, published in: Journal of Product Innovation Management.