Critical organizations can lend greater credibility to innovations

Organizations that scrutinize and criticize companies can also become valuable partners when new products and services are brought to market. A study of German companies shows that such partnerships are associated with higher sales for companies that have previously faced media criticism and in industries where levels of corporate responsibility vary widely. However, the researchers did not find any general sales advantage.

During the pandemic, a German telecommunications company wanted to launch an app that would alert users if they had been in close contact with someone who had tested positive for COVID-19. For the app to work, it needed to be used by many people. The problem was trust.

In one of the five interviews the researchers used to develop and illustrate their argument, a company executive explained that the company had previously faced media criticism for data breaches. Now, it needed to convince people to use an app that raised questions about surveillance and privacy. The company therefore partnered with a digital rights organization. The organization reviewed the app in detail and provided advice on how to address users’ concerns. When the app was launched, the company announced the partnership.

Criticized companies stand out

The quantitative study is based on just over 5,000 observations from more than 3,200 German companies during the period 2016–2022. The researchers investigated whether collaborations with nonprofit advocacy groups—such as environmental and human rights organizations—are linked to the sale of new or improved products and services.

Such collaborations were rare. They occurred in just under 8 percent of the observations in the study.

The researchers did not find any statistically significant general correlation between these collaborations and higher sales of innovative products. For companies that have previously faced media criticism for irresponsible products or services, however, the picture is different. In those cases, the collaborations are linked to higher sales.

The researchers call this proposed explanation “role-based legitimacy.” This means that a new product or service may be perceived as more consistent with social and ethical expectations when an organization that normally scrutinizes companies nevertheless chooses to collaborate. It is not the organization’s prestige that is decisive, but rather its independent role and the fact that it has reason to speak out.

Only 44 observations pertain to companies that have been the subject of this type of media criticism. The researchers therefore do not assess the extent of the difference in sales.

When Responsibilities Differ

A company’s own reputation is not the only factor that matters. Researchers have found a similar pattern in industries where companies differ significantly in their approach to environmental issues, social responsibility, and corporate governance.

In those industries, collaborations with nonprofit advocacy groups are linked to higher sales of innovative products. When there are fewer differences in the level of accountability, this clear correlation is not evident.

The researchers argue that significant differences can make it difficult for customers to determine which companies’ claims of social responsibility are credible. An oversight organization can then provide a signal that the company would find more difficult to convey on its own.

A partner who can also speak up

Companies typically seek out partners to gain access to new technology, knowledge, or expertise. But organizations that work on environmental issues and other social causes can contribute in a different way.

The study does not show that the partnerships themselves lead to higher sales. The companies choose their own partners, and other differences between them may influence the results. Nor have the researchers directly examined how customers perceive the partnerships.

A partner can therefore be important not only when a new product or service is being developed, but also when it is being introduced to the market. This is the researchers’ central argument. When customers are uncertain about a company’s commitment to social responsibility, it can make a difference if an organization that has reason to be critical nevertheless chooses to collaborate with the company.

More about the article and the authors
The article Does Innovation Success Require Advocacy? Stakeholder Involvement in Firm Innovation (free to download) is published in the academic journal *Strategic Management Journal*.

The authors are Paolo Carioli and Christoph Grimpe, both of Copenhagen Business School, Denmark; Karin Hoisl, University of Mannheim, Germany; and Wolfgang Sofka, Copenhagen Business School, Denmark.