The business of design

As businesses across the globe seek new ways of outperforming their rivals in today’s highly competitive marketplace, Stacey Sheppard asks if ‘Design Thinking’ could be the solution they have been looking for.

“Companies who want to be successful with design have to understand the meaning and the value of design, and they need to work with design strategically.”

In the 1950s Thomas J. Watson Jr. of IBM famously said: "Good design is good business." Coming from the man who was President of a company that is today ranked second in Interbrand's 2010 ranking of the most valuable global brands - pipped to the post only by Coca-Cola - this may just be  advice worth taking. And yet many companies seemingly still haven't taken it on board. Or at the very least they struggle to see the potential benefits that good design can bring to business.

But as economies the world over emerge bruised and battered from the worst financial crisis since the Great Depression, business has become acutely aware that the economic downturn has led to great change in our consumer-driven society. For better or worse there has been a revolution in our collective consciousness as consumers everywhere are feeling the pinch and demanding more - more authenticity, more quality, more reliability and more innovation. Quantity is no longer at the top of the consumer agenda and this has led to a profound transformation in our economy.

From the industrial revolution we moved into an age of mass manufacturing, shortly followed by a service-based economy. We then progressed into a digital age that saw the development of an information economy and now many are hailing what they call the emergence of the design economy. As markets continue to globalise at an alarming rate, developed nations are finding themselves increasingly pitted against countries like China and India. We simply cannot compete on the price and sometimes even the quality of products emerging from these developing countries. This has lead to us having to increasingly compete on the grounds of innovation, creativity and imagination. 

This shift has profound implications for every business leader and manager among us. In order to achieve these new standards of innovation, creativity and imagination, business leaders need to look elsewhere for their competitive advantage. As such, businesses are now turning to design as a way of improving their performance, increasing their market share and gaining a competitive edge, which can in turn result in improved turnover and growth.

Designomics

A new term that has been doing the rounds lately in the sphere of design is 'designomics' - a word that has been created to explain the way in which design has the potential to be a major driver of economic growth. For many observers, a design-based economy now represents the best opportunity for businesses to be able to create growth, value, higher revenues, better profits and more jobs in the coming years. Design is increasingly seen as a way of providing the necessary tools, perspectives and methodologies that we now need in order to generate new economic value.

But whilst design can bring benefits to the business success of a company, can it really be held up as a panacea? If you take the case of some of the world's most successful companies, the leaders in their particular market, you will see the likes of Apple, Nike, Nokia, Siemens, BMW, Dyson and Sony, to name but a few. All these companies have one thing in common - their strategic use of design. They are all what can be referred to as design-led companies. Based on this outlook, it would be easy to assume that by following suit and giving a greater importance to the function of design, revenues will increase along with business success.

Dr Peter Zec is past president of the International Council of Societies of Industrial Design and founder of the internationally recognised red dot design award. He says: "Companies learn from each other and they observe each other in the market. And when they see that the leaders in the market or that their main competitors do better, then they start to think about why this is. Of course the first question is probably 'do they have a better price?', and then the second one is 'do they have a better technology?' And if they can see that these companies don't have a better price, in fact sometimes they are more expensive, and the technology is probably also the same, then it is clear to them that design makes the difference," explains Zec.

However, it is not always easy for businesses to follow the lead of the most successful design-led companies, particularly if they do not understand design in the first place. "Companies who want to be successful with design have to understand the meaning and the value of design, and they need to work with design strategically," says Zec.

"The most important thing for any company is to do their homework in the area of how to install design within the company and they certainly need to have good research and development programmes. Because if they don't, design cannot help. Design comes on top. But if you already perform well with your technology and if you have your finances in order, then design can really make the difference."

However, many companies today have yet to grasp the power of design as a strategic business tool that can be used as a way to increase sales. In fact, in many cases just the opposite is true. Investments in design are all too often misunderstood as expenses and this is what Dr Zec has explored in his new book Design Value, A Strategy for Business Success. "When you employ a designer or when you install a design department in a company, you see very clearly what it costs to do that, because you have to pay your bills to the designers or you have to pay the wages of your in-house designers. But on the other side, on the income side, until today nobody had really measured what part of the income relates to the design success," says Zec.

Design value

The fact that design normally shows up as a cost factor in a company's balance sheet and not under earnings or as part of the proceeds prompted Peter Zec and his co-author Burkhard Jacob to explore ways in which the value of design could in fact be calculated in a way that can be better understood by business people. Whilst the dogma of business economics unfortunately limits the purpose of a company to profit maximisation, the goals and objectives of design go above and beyond this to include improvements in the user experience and increased consumer engagement, connection and interaction. Consolidating these two objectives in order to come up with a business strategy in which design is seen as an investment that helps to maximise profits is particularly tricky.

"In general the way we understand design, from the historic background, has always been bent towards aesthetical questions, maybe also towards functionality and usability. But design itself deals with quality terms, and it's very hard to transform quality into quantity. We also have different kinds of languages; we have the language of designers, and designers don't like to talk in quantity terms; they are only focusing on the quality of a product.  And on the company side, managers and marketing people are used to working with numbers. So it has always been very hard to look at design in a way that satisfies both sides," explains Zec, who has now come up with an actual mathematical formula, which allows designers to prove the value of their work in purely economic terms, turning costs into investments.

Once the value of design investments can be determined it is also important to understand that such investments are different from those that a company would traditionally make in other assets, such as machinery for example. David Godber is Deputy Chief Executive of the UK's Design Council, a government funded agency funded by the Department of Business Innovation and Skills. He believes that investment in design can take far longer to generate visible returns.

"A design investment is one that actually needs time to grow.  You've got to plant the seeds of design and actually nurture it over time, so a brand takes time to travel, to become known, to build a customer base and loyalty, and new product takes time to develop and engineer, manufacture and launch and then gain traction in the marketplace. It's been described on many occasions as a 'jam tomorrow investment'. It is something you need to find as a founding culture of an organization," explains Godber.

Designing demand

Companies like Apple, Nike, Dyson, Nokia and BMW are lucky enough to have design in their DNA. Their company culture is founded on design and this has given them distinct advantages in the market over their competitors. They have understood at a very early stage the benefits that working in close collaboration with designers can offer.

In this new design economy, personal and customer relations are more important than ever and consequently businesses need to understand the power of design to create emotional connections with consumers, and to understand what it truly is that they want from a product or service. "There's a whole knowledge that designers possess because what they're doing is putting the customer at the heart of their decision-making processes and they're developing solutions to meet customers' needs not just evolving what already exists, so design is essentially the revolution not just the evolution," says Godber.

Companies wanting to benefit from this knowledge have two choices. They can either enlist the help of external design consultancies or install their own in-house design team. Both options have clear advantages and disadvantages. David Fisher is Director at the global design and innovation company SeymourPowell, which has helped a great number of international brands produce some of the milestone products of the last two decades, including the first cordless kettle for Tefal in 1985, the first truly mobile phone for Nokia in 1987, the Baby G watch for Casio in 1996 and the interior of Virgin Galactic in 2006.

Explaining why SeymourPowell attracts such big international brands, Fisher says: "We're experienced and have a reputation for not only working with global companies, but challenging them and their beliefs, because we understand how they work and the microclimates they inhabit - and they know we know."

However, Zec believes that if the competition is particularly strong it may be necessary for a company to install their own in-house design department. "Companies who want to be successful with design have to understand the meaning, the value of design, and they need to work with design strategically, and this is almost easier if they really invest into their own design department."

Whatever path companies decide to follow, there is no denying that design value can help enhance the innovative strength of a company. "If you think of design as a process and not just as the end result then it's easy to understand how innovation is just an intrinsic part of it - rather than the other way around," explains Fisher. "If you look at the origins of the word innovation you will see that it comes from the Latin for new (nova). So when a firm is bold enough to be 'innovative' they are basically looking for something new - that's all.

"Once they've found the idea they usually work it through to its inevitable conclusion in a linear way. But what design is brilliant at is finding the 'new' during a process that opens up a problem, throws everything up in the air and then dissects it bit by bit to explore the many different opportunities and solutions in a very disciplined and iterative way. Once we have a number of big ideas to consider, we can create context and then whittle these ideas down based on the criteria of the original business challenge. (Good) designers can handle this organised chaos - big companies have to be more linear."

Design thinking

The way that designers tackle problems has gained traction in business spheres recently and what has become known as 'design thinking' is now being heralded by some as a viable alternative to Business Intelligence. Tradition BI takes an analytical approach and the method of thinking is convergent, which means it focuses on eliminating alternatives so that there is one alternative to focus on. Design thinking, on the other hand, is divergent and encourages as many alternatives as possible, adding ideas rather than discouraging them, until the best possible outcome is reached.

The traction that design thinking has gained has led some commentators to propose that CEO's don't need to simply hire designers, they need to think like them too. Fisher believes that this can only be beneficial. "If CEO's begin thinking like designers then they will be able to build their business practices around design process - which would be amazing. My humble process philosophy is 'just build it and then try to break it' - meaning, get to the idea quickly in as real and as tactile a way as possible; so you can understand it and see what's right or wrong with the idea, then use that first-hand knowledge to make it better. As opposed to processes built around marketing's self-justifying need for de-risking ideas with focus groups and quantitative research - which has been known to kill good ideas. Design is about having an idea and going for it with a collective mindset as opposed to sitting back in judgement while others do it."

Design is, in essence, about risk taking and pushing the boundaries of an organisation. Great design often stems from CEO's who are willing to place bets in design. When Apple launched the iMac, it did so in an already saturated market and still managed to enchant consumers - a bet that clearly paid off.

Good design really is good business, but only if it is truly integrated into the company structure, says Fisher. "Design needs oxygen, it needs to breath and find the space to explore and try new things. Don't restrict it by sitting it between engineering and marketing and then poking it from both sides. And don't just wait for it (design) to come up with the idea by itself. Engage with it, and take it through the entire business process of developing new products. Let it see as much as possible because it will see things that business-people don't - and it will listen and observe with an open mind, because design is simply about making things better...for people.

Measuring design value

The design value is the monetary (present) value determined at a specific point in time. It is calculated using the design-relevant earnings before interest and tax (EBIT), the design strength, the design continuity, and a valuation of the design property of a company. The purpose of its determination lies above all in giving the industry a better understanding of the chances and risks design offers, because to date design has at best appeared as a cost factor in the balance sheet and not as part of the earnings.

The formula:

Design value = [ Design revenue x (Design strength + Design continuity) ] + Design assets

Design Case study

Joe Ferry, Head of Design at Virgin Atlantic explains the importance of investing in design as a way of remaining competitive and meeting brand expectations and why senior management buy-in makes all the difference.

Virgin Atlantic Airways has innovation as a core brand value and uses design as a key competitive differentiator. How important is it for you, as Head of Design, to have the support of senior management when it comes to innovation?

It's absolutely essential. In fact, I couldn't do my job if I didn't have the support from senior management, because you need to have people that understand about design, understand about innovation and are fully supportive of the need to invest in differentiation.  So I can spend my time focusing on making sure that the designs and innovations we are producing are the very best and focusing on how I can collaborate with all the other elements around the company so that we're not only creating something that aesthetically is pleasing, but we're also very much focused on delivering an element that improves customer experience. 

Having the support from the senior management helps me make sure that we deliver to the best of our abilities.  But I think that it's a very good relationship because they have seen the power of design and innovation, they've seen the return on investments that we've made, and they realise that in order for us to be relevant in the context of the aviation industry we need to continually improve and modify our products and service, and we use innovation as a tool to do that so that the brand expectation from all of our guests is lived up to.

For example, with the upper-class suite that we invested in just after 2001, we saw a return on our investment within two years.  And that has kept us competitive; it's meant that our product and service differentiation is above and beyond those of our competitors. We had a bit more pressure on us during 2001 because our competitors had a flat bed and we needed to have a flat bed very quickly.  Other airlines were definitely cutting back on investment and product innovation and some completely stopped altogether and removed their design teams. And that was at a time where we ramped up, because we knew that in order to survive our product and service differentiation had to be better than our competitors. 

So we had two options; either the world was going to come to an end and there was no point in investing in design; or the market was going to return, and when it did we would have the better product to our competitors. So it's a very brave decision and that's where you need senior management to completely support you and have a complete understanding of the power of design and innovation so that they are prepared to make the very big decisions of investing when everything else around the world is contracting and saving money.

How do you go about communicating the value of design across the organisation? How have you overcome the challenge that is presented due to the fact that is it quite difficult to measure how much value design can bring to an organisation?

In terms of the bottom line, it does depend upon which project you're doing; some projects are far more difficult to assess a monetary return on investment. Now if you make a seat lighter that's an automatic weight-saving, which equates to fuel saving, which equates to money. So there are ways of illustrating your return on investment.

I think the hardest area to really illustrate return on investment is brand equity. Even if you are not having a direct return on investment from a management point of view, there are things that you would do, for instance, putting a Jacuzzi in a clubhouse and having the largest clubhouse in the world, which adds to the expectations of your brand. The whole communication around the globe of what we're doing and how we're reestablishing our brand presence as being an innovator, doing things that other people wouldn't do and being a consumer champion, has become very important in an age where social networking and global communications are so much more prevalent, and it doesn't really matter to a certain extent what you say about yourself, because there will be thousands and thousands of people telling each other what they think about you. So honesty and truth in your product and service is going to be even more paramount in the future, and therefore there is no escaping the fact that you need to invest.

Design case study

Marko Ahtisaari, Director of Design Strategy at Nokia, outlines the importance of user experience and how the Finnish company hopes to radically change the smart phone market of the future.

The design culture at Nokia definitely has a respect for people and their daily use of devices.  Perhaps Nokia as a brand more than any other company, perhaps even more than any other nongovernmental organization or nation has done more to impact social change by making technology accessible to people and I think with that comes a sense of responsibility. The designers are quite wary of the impact that the technology is having, and this means that there is a lot of respect for observation, looking at everyday use. 

There are several billion people that daily rely on a basic key map to make calls and to text message and given the way we've designed our phones for true mobile use, they can text one handed and nearly blind. And this cultural kind of muscle memory is critical. So incremental innovation is important in situations like this as you must respect usage and not suddenly just forget about how people are used to using technology and how it fits into their everyday life. Incremental innovation is important because behaviour changes slowly in that sense.

Radical innovation is important when an industry is in its early stages, trying to locate a dominant design, and that I think is the situation with smart phones.  And I think in smart phones and these mobile computing devices, we need to make a radical innovation in the ease-of-use and how that operating system is designed.

Where the industry is really missing a trick with the move to touch interfaces is touch interfaces are immersive. You have to sit there and stare at these things, use two hands, for the most part, and your head is down. If I'm successful in the coming years, in addition to really innovating on the smart phone platform, the basic setup of the operating system, I want to allow people to hold their head up again. And I think that's a worthy, radical innovation to look for.

Design case study

Alessandro Finetto, Director of Global Consumer Design Europe for Whirlpool

The history of Whirlpool in Europe, and in the world, is quite recent, as the decision to become global only came at the beginning of the 90s with the acquisition of the white appliances business from Philips. In order to be a global company it was decided that we needed to have multiple brands in our portfolio that could work locally for different requirements. It was at that time that there was a decision to invest in design in order to create what we call internally a 'Visual Brand Language' that can create a consistent style and aesthetics across our brands . Industrial design was then used on a different level in order to put the customer at the centre and to really understand customer needs.

After this we started to concentrate on brand evolution over three, four, five years. So it became very important for the company to have a dialogue with designers about what the scenario would be five years from now. And this was the start of 'design thinking' at Whirlpool. The people that are part of the design team participate in a review with the CEO of the company about what is going to happen in the next five years.

What we have done is to instill an innovation attitude in everybody that works for Whirlpool. We have tools like the Whirlpool Virtual University, so all the employees can follow courses if they want to. Even in the factory you have monthly meetings for educational training of new people, new employees, frequently people of the design team are part of this and they train people in what exploration and research means and how you can do research in your normal every day life by just observing.  So we are all on the front line when it comes to transforming ideas to concepts and the concepts to an eventual business case.