European Management Journal Volume 7 No 3 0 European Management journal 1989 1SSN 0263-2373 $3.00

Unchaining the Value of Design

Eric Schneider

Visiting Fellow in Management of Design Kingston Business School

Design in the 1980s is big business, but relatively few organisations seem to appreciate the nature and breadth of its potential contribution. To the extent that design has been absorbed into corporate thinking, it has primarily related to product design. There has been little done to incorporate design in its broadest sense into current business analytical and strategic frameworks. To redress the balance in this paper Schneider presents a picture of design as a broad ranging corporate resource, and suggests how, using analytical frameworks such as Porter’s value chain, design can be integrated into corporate strategic planning in a manner which exploits the breadth and subtleties of its contribution.

The UK in the 1980s has witnessed an explosion of interest in design. The High Street has been trans- formed, company images have undergone a metamor- phosis, designer labelling pervades, and knighthoods and other honours have been awarded. In political, economic, academic and business circles design has gained respectability. Design consultancies now employ over 30,000 people, have a combined turnover in excess of LllOOM, and a growth rate of approxi- mately 24% pa. * Design is no longer seen as the domain of the effete; it is big business and a necessary concern for even the most hard-headed businessman.

Despite such interest, the general level of awareness within organisations of the nature and breadth of the design contribution remains restricted. Design remains underutilised as a source of competitive advantage. It is still uncommon to find design considered a prime business function on a par with marketing, finance and production. Companies where the head of the design function is at senior executive level - such as Sony, Olivetti, Ford and Philips - remain the exception. Whilst design awareness is high in sectors such as that of fast moving consumer goods, in large parts of the industrial and heavy engineering sector, the level of interest and commitment remains low. Design is still frequently perceived in a narrow sense, either as an activity which is concerned primarily with the appear- ance and styling of a product, or one which is primarily related to the functional aspects of product engineering.

Many factors have obstructed a clearer vision of the potential design contribution and hence a more strategic approach to management of design activities. Three common but critical areas of misunderstanding relate

(a)

(b)

(c)

to:

what is meant by design, the links between design and innovation, and the role of the manager in the design process

the breadth of the potential contribution of design activities and designers

frameworks for perceiving and analysing the contribution of design within the context of corporate strategy and planning.

The purpose of this paper is to attempt to clarify these issues and to show how design fits into traditional analytical frameworks.

(a) Defining Design

Ask a dozen businessmen what they understand by the term design, and you are likely to get an equal number of different responses. The Oxford Concise Dictionary lists over 20 definitions and there have been many additional attempts by independent observers and critics to develop their own definitions. The fact

that there are so many highlights the difficulty in pinpointing the precise meaning of design. Generally, it does not matter that in everyday use the term is used very loosely - after all, we all recognise a pile of bricks without being able to define one. However, there are occasions when it leads to confusion and when an excessively narrow view of design hinders a broader, more strategic approach towards its management.

A very clear exposition of the problem is given by Fairhead2 who refers to three common uses of the term design. Using his example, in the sentence, “The success of Japanese firms is largely due to good design”, the term design can refer to:

(a)

O-4

(cl

the end product of design, e.g. the cameras, cars, hifi equipment, etc., that Japanese companies produce,

one specific functional activity, such as industrial design,

designing or the design process.

The problem in using the first two definitions is that they tend to inhibit a breadth of vision when consider- ing design issues. Focus on design simply as the end product, ignores the processes which resulted in such an achievement. The description of an aesthetically pleasing chair as being well designed tends to confuse the end product with the process which made it so. Focus on just one specific area of design - for example, product or graphic design - may result in other areas of design which may have relevance to the problem being ignored or excluded. A narrowly focused industrial designer may easily fail to acknow- ledge the importance of corporate identity design, packaging, or graphics to the overall success of the design for a new product.

For these reasons, the third definition of design is to be recommended. Design is the planning process for artefucts.3 Design by this definition is concerned with all aspects, from conception to final production and presentation, of man-made products and environ- ments. The advantages for the manager in considering design in this manner are: (a) it emphasises the management role in relation to design activities, (b) it provides a basis for evaluating design in relation to corporate objectives, and (c) it presents design as an interdisciplinary activity which is not just the realm of professional designers. The successful development of a new consumer electrical product involves marketing, production, finance, and sales functions as well as design. It relies on appropriate decisions in relation to briefing, packaging and promotion, and on the consideration of the engineering and production factors which might make for ease or speed of assembly, as well as aesthetic factors. Design occupies

UNCHAINING THE VALUE OF DESIGN 321

the space between creativity and innovation, and in most commercial situations the transition from a creative idea to its practical application is a team effort, a process, the successful outcome of which is as much a management responsibility as that of the designer.

Seeing design as a planning process likely to involve a variety of functions does not mean that all aspects of the corporate management are necessarily the realm of the designer (although it may imply the need to train designers with a far greater understanding of broader corporate issues). It does mean that design considera- tions are the concern of managers. It also means that designers and managers alike need to recognise that design decisions are made by all of us - professional designers are not alone in making design decisions (see Dumas4 on Silent Designers).

(bl The Design Contribution

A second reason for the under-utilisation of design as a corporate resource has been the restricted view held by many managers and business analysts of the nature and scope of the design contribution, both to the performance of the economy as a whole and to individual organisations.

At Macroeconomic Level

Government level awareness of the failure of British industry to compete internationally in design terms has a long pedigree. Over a century ago a Royal Commis- sion was appointed to invetigate the relative design failings of UK companies at the Paris World Exhibition in 1867. More recent emphasis on design and recogni- tion of its importance to the wellbeing of the economy has followed in the wake of relatively poor UK post- war economic performance, particularly in the face of the aggressive market and competitive environments since 1973. Whereas most postwar diagnoses tended to focus on the issues of the price competitiveness of British goods and the related questions of how to improve productivity and industrial relations, more recently papers by Schott & Pick,5 Rothwell et al6 have emphasised the role of non-price factors and the importance of the nature and the quality of the product in competitiveness and the perception of value as perceived by the consumer.

In short, with low cost competition from Korea, Taiwan, etc., effectively removing the feasibility of Western companies to compete in terms of price alone, there has been growing awareness that “Britain must not only produce goods that are competitive in terms of price, (but) must also produce goods that are competitive in quality . . . (and that) the correct strategy

322 ERIC SCHNEIDER

is to get the price quality mix right for the particular market”.7 Design, of course, may contribute in all directions.

Moreover, design has been seen by some to represent the element of creativity in enterprise and business, the importance of which has been emphasised by “neo Keynesian” and “eclectic monetarist” economists as a critical part of the battle to halt UK industrial decline and to increase output and employment through greater global competitiveness.

Ultimate recognition of the importance of design at a macroeconomic level has been given by the impetus and encouragement given to design by the Thatcher government, and by its various sponsored initiatives. Ironically, however, the very need for such interven- tion reflects the failure of market forces alone to provide sufficient incentive for individual firms to help themselves in this direction. The government policy emphasis on education and sponsorship in effect recognises the need to change deep-rooted attitudes as well as to simply allocate funds.

At a Microeconomic Level

In contrast to the acceptance of the macroeconomic “design message“ - in government and academic circles at least - appreciation of the nature and value

of design at the level of the individual firm has been less than comprehensive.

Many factors have contributed to this. Design, an orientation towards product, and visual considerations generally, have been largely ignored as important considerations for managers as far as most business schools have been concerned. The short term quantita- tive performance criteria used the City together with current accounting practices have worked to discour- age a focus on the longer term and qualitative issues. The financial and legal background of many UK senior executives has left them much less prone to being product orientated than their Japanese and German engineer counterparts. And various deep-rooted socio- cultural educational factors have made a design and product orientation rare in UK organisations.

Yet logically, this lack of focus on design remains surprising. A summary examination of the resource make-up of a typical company highlights the large number of areas in which design considerations impinge. Figure 1 shows a resource audit adapted from Johnson & Scholes’ which highlights the areas where design is likely to significantly affect corporate perfor- mance. Via product design, communications, corporate identity as well as the design of environments, design affects most of the working conditions, and a large part of the production and marketing of an organisation’s

I OPERATIONS MARKETING FINANCE PERSONNEL OTHERS

PHYSICAL RESOURCES

‘HUMAN RESOURCES

~YSTEWS PRODUCTION CONTROL PRODUCTION PLANUINO PURCHASING

iNTANGlFlLES TEAM SPIRIT

YACHINES BUILDINGS YATERIALS LOCATION STOCK

OPERATIVES S-STAFF SUPPLIERS

QUALITY CONTROL

PRODUCTS I SERVICES PATENTS I LICENCES WAREHOUSES

ULESMEN YARKETING STAFF CUSTOYER

SERVICE SYSTEY DISTRIBUTION CWANNELS

BRAND NAME GOODWILL MARKET INFORMATION CONTACTS IMAGE

CASH SIZE OF R L D DEBTORS DESIGN STOCK

:z%;j

SHAREHOLDERS SCIEMTISTS LUMERS TECUNCXOGIST

DESIGNERS

cosnNa USUM4NAGEMENl ACCOUNTWG

PROJECT ASSESSMENT

IMAGE IN CITY KNowsIoW

LOCATION OF BUILDINGS

YAYAGEYENT SKILLS FlMRS

Fuwlffi A CONmoL

INFORMATION

IMAGE LOCATION

Figure 1 Resource Audit (adapted from Johnson 6 Scholes) Showing Areas Typically Affected by Design

products. Take into account the effects of a design orientation on the “soft” vaiues of an organisation - its culture, beliefs and standards, and so on - and the nature of the design contribution is even larger.

It may be useful at this stage to consider the contribu- tion of design to corporate performance as falling into two main categories, which we will describe here as the Primary and Secondary contributions. It is also worthwhile to distinguish the direct effects of design from the indirect effects.

Primary Contribution

The primary contribution of design to an organisation results from the appropriate use of design in four main areas, namely in the design of the organisation’s (1) products, (2) communications, (3) environments, and (4) corporate identity.

1 - Product Design Product design is concerned with the planning process for products. It may embrace a range of sub-disciplines including product engineering, industrial design and even packaging design. The appropriate design of products may add competitive advantage and value to a company in three ways:

(1)

(2)

(3)

Reduce Costs: Design for simpler or cheaper assembly, e.g. involving the use of fewer or more standardised components or improved production processes, may work to lower the relative cost of producing a product.

.Add u Price Premium: Design may also help to add a premium to a product’s selling price by increas- ing its differentiation from other products. This may be on the basis of physical and functional charac- teristics of the end product (e.g. its performance, durability, appearance, etc.) as well as on the basis of its perceptual and emotive attributes (e.g. appeal to lifestyle, associative qualities, and so forth).

Improve Lead Times and Responsiveness: Design involving more integrated and flexible product ranges, for example, and greater use of common components may work to improve the relative dynamic capability of an organisation by improv- ing the lead times or responsiveness of the product to market and consumer needs.

With product differentiation in many markets becom- ing increasingly based on image rather than “real” differences in physical performance, the subtle percep- tual and emotive power of design is becoming correspondingly more important. The design of the new Mazda RX7, for example, may have permitted Mazda to increase its relative positioning (and pricing) on the grounds of its physical and functional charac- teristics (e.g. speed, cornering abilities, general visual

UNCHAINING THE VALUE OF DESIGN 323

appeal); but also because its physical appearance bears a strong perceptual resemblance to a Porsche with which it is likely to be associated. In the maturing markets for personal stereos, Sony, Aiwa, Philips et al, have sought to segment markets using both physical attributes via incremental improvements in technology (e.g. lighter weight, smaller size, improved noise reduction systems) and more perceptual decorative or surface design changes to appeal to different lifestyles (e.g. yellow heavy duty sporty Walkman, yuppie executive personal stereos in Filofax type cases, etc.).

Product design may contribute to corporate perfor- mance both directly and indirectly, with effects that may be both tangible and less quantifiable. The short term quunfifiable effects may be reflected in changes to the company’s profit level and margin via the sales revenue and costs of goods sold items in the annual accounts. Research and development into new techno- logies, finishes, or form may have direct longer term effects. Product design may also indirectly influence corporate morale and image, marketing policies, and indeed longer term strategies, for example, via its effects on a company’s product range. There may be few short term direct benefits for car manufacturers in designing prototypes, “cars of the future” or in winning racing events; but the longer term image, morale, and technological research implications may be considerable. Regardless of its commercial success, the introduction of the futuristic Ford Probe into the US market symbolises and conveys a whole new level of confidence and innovative spirit - as well as a new standard of performance - to both staff, customers and competitors in a manner which no corporate documentation could have achieved. Similarly the indirecf or knock on effecfs of designing a product using 15% fewer components, or standardised components throughout a range may be considerable in terms of stock control, ordering and other operations logistics.

2 - Communications Corporate communications may similarly convey “facts” (physical, functional) and “feelings” (perceptual, emotive responses) about an organisation’s identity, products and environments. The appropriate design of packaging, point of sale material, advertisements, instructions, tender docu- ments and so forth, may be important to support the effectiveness of both the product and company offer- ing. Communication design may convey information more efficiently, or may be more effective in conveying perceptual associations of quality, reliability or similarity through two-dimensional images and tactile sensations.

For example, the design of a new order form for a mail order company may enable the contents of two previous forms to be combined. In this case the direct short term effect of communications design is likely to

324 ERIC SCHNEIDER

be reflected in the selling and administration item on the company’s profit and loss account, with conse- quent improvements to gross profit performance. Indirect effects may follow as a result of improved productivity in paper handling in the sales or ordering department. Better designed forms may improve the speed of information transfer or response, clearing bottlenecks and requiring less staff time down the line. Ultimately, the main contribution of such design may be longer tern or infungible. A suitably presented tender document may convey a great deal about the quality of product or service a company provides. The appro- priate weight and finish of the paper on which a brochure is printed may influence the perception of a buyer as to the values and standards of the selling company. A more effectively designed advertisement or pack might produce more sales per f spent on graphic design or illustration.

3 - Environment Environments surround and contri- bute to the organisational purpose of a corporate body, and their design may significantly affect the effective- ness of that organisation or purpose. The design of retail outlets, showrooms, warehouse spaces, offices and factory environments may affect organisational performance both as a result of physical and functional charucferistics (such as size, climatic controls, layout of spaces, etc.) and the less tangible perceptual attributes (e.g. as a result of image conveyed internally and externally by the use of certain materials and finishes, arrangements and forms).

The direct quunfifufiue benefits resulting from an appro- priate environmental design may be reflected on the balance sheet in terms of reduced maintenance costs, better depreciation or capital gains on property, or more effective use of fixed capital assets. However, other gains may be quulifufive, for example resulting from the improved communications between people and functions as a result of the appropriate planning of buildings or the existence or removal of physical barriers between groups and departments. There may also be gains in the perception of corporate image internally and externally, or in terms of improved morale as a result of the elimination of niggling problems. The design, for example, of areas for queuing in banks, post offices and supermarkets may directly affect qualitative performance measures such as levels of perceived customer satisfaction and throughput for relatively little cost on the part of the organisation.

4 - Corporate Identify Many elements affect the perception of an organisation’s identity, with the sum total design of the artefacts of the organisation - its products, vehicles, communications and environ- ments, etc. - presenting its overall visual identity. The appropriate design of names, logos and other artefacts

may serve to improve the signalling and identification of corporate activities and branding to a variety of audiences. In product and capital markets where image is increasingly acting as the differentiating factor, the appropriate management of an organisation’s or brand’s visual corporate identity is becoming increas- ingly important. Moreover, the gains from a totally coordinated programme may well exceed the sum of the individual parts.

Assessing the contribution of corporate identity design is difficult. Research into identity and name changes in the US (Argenti et al”) suggests that such name and identity design changes appear to have a meusur- able positive effect on corporate share prices. They are also likely to be reflected in the goodwill item on the balance sheet. However, because corporate identity design is frequently closely associated with issues of organisational change and corporate culture, much of its contribution is likely to be longer term, indirect and intangible. Moreover, although the incremental costs of a new one-off corporate identity programme which focuses primarily on graphics may be ascertainable, it is rarely possible to isolate and quantify the incre- mental costs of an ongoing integrated corporate identity management programme which embraces the coordinate management of all parts of a company’s visual activities. The implementation and control of high design standards by BMW for its retail and service outlets may result in construction costs a small percent- age higher than those incurred by a competitor’s uncoordinated franchises; but the effect of creating similar impact via a coordinated image and advertising campaign would cost substantially more were it to take the form of TV or promotional advertising.

Summary

The purpose of the discussion so far has been to emphasise that the primuy effects of design may be considered those that result from the effects of the four areas of product, communications, environment and corporate identity design. These effects may be both physical and perceptual. Although sometimes measur- able in terms of short term balance sheet results, the effects of design are likely to impinge on corporate performance in a much broader variety of ways. Design may affect an organisation’s performance both directly and indirectly, quantitatively and qualitatively, and in both the short and longer term.

Secondary Contribution

The contribution of design in terms of the above four areas has been well documented (e.g., by Gorb). Perhaps less well recognised has been what we term the “secondary” contribution made by design to the effective ability of an organisation to perform and

UNCHAINING THE VALUE OF DESIGN 325

latest trends in consumer lifestyles. Visually literate by profession, designers are generally considerably more sensitive to visual associative qualities than most managers. They do not necessarily have to be in-house to be useful, Larger, more formally structured organi- sations competing in aggressive environments may find independent design consultants particularly useful for introducing new perspectives, a wider range of experience, an increased tempo and accelerated change, as well as acting as interpreters between company and customers.

implement its policies and strategies. These effects tend to be indirect, are often hard to identify in quantita- tive terms, and may be closely associated with a standard setting role. They are nonetheless real, and may be of great and in some cases even greater signifi- cance than the “primary” contribution. Three main secondary contributions may be identified, namely (1) the role of individual designers, (2) the effect of a design culture and methodology, (3) the role of design as an integrative medium. In addition, design may have an important role as (4) a control standard and (5) as a marketing mechanism or substitute.

1 - Designers as Individuals Few organisations make full use of their human resources, and fewer still full use of their designers. Recognising the danger of generalisations - design professions contain “tech- nical types” as well as those who are “art orientated”, and the less creative as well as highly creative indivi- duals, etc. - it is nonetheless worth making a claim for some of the special qualities of at least some types of designer.

Lorenz” describes how designers can acts as “facili- tators, coordinators, evaluators, completers” as well as “translators, bridges and catalysts”. He points out how the background and training of product designers and architects, in particular, means that they have an unusual mix of skills including an ability to synthesise a variety of multi-disciplinary factors and influences into a coherent whole. Appropriately used, e.g. in teams and even as board members, such designers may be able to make a significant contribution, not only in their direct areas of expertise, but towards the overall culture of the organisation. For example, as “mavericks”, “gadflies” or even role models, they may be able to make significant contributions towards the imaginative marketing and entrepreneurial drive of the organisation. William Lyons at Jaguar, Steve Jobs at Apple, Eric Chapman at Lotus, Clive Sinclair and Terence Conran provide examples where the leading founder figures have combined design and entre- preneurial skills. Within larger organisations, designers such as Dieter Rams at Braun or Sotssas or Bellini at Olivetti can have a powerful effect in bringing vision and continuity to an organisation’s design strategies, setting and creating standards, acting as figureheads, and generally providing team leadership, thereby permitting the human and design resources of an organisation to act as a major source of competitive advantage over its competitors.

In Betty Edwards’r2 terms, such designers have above average capacities for using both left and right hands of the brain. The product orientation and attitudes of those particularly with an “art” inclination may make them particularly useful for sensing and predicting

The training of many designers involves a mix of both conceptual and pragmatic skills, which leaves them both creative and action orientated - generalists capable of attention to detail. Unfortunately, the larger, more formally organised hierarchical organisations rarely seem able to use such skills - the nearest their designers ever get to the board is likely to be the one that they draw at. But in a period when responsive, proactive, innovative organisational cultures and structures are increasingly important for competi- tiveness, even in such organisations appropriately skilled, manager-designers may have an increasingly important role.

2 - Design Culture & Methodology A common charac- teristic of designers which distinguishes them from most managers and chief executives is an overriding concern for artefacts. We have already suggested how those at the “art” end of the spectrum are frequently well attuned to the latest and forthcoming consumer fashions and trends, and may therefore be an impor- tant source of information linking companies to customers. Thus Marks & Spencer in designing its men’s fashion range makes use of the smaller independent clothes designer and retailer Paul Smith. Yamaha, in designing motorbikes for the UK and Europe, has used attuned industrial designers such as Seymour Powell, who are much closer to trends on the European street than the Japanese manufacturers themselves can ever be.

A design orientation may also contribute to more effective corporate performance via the introduction of a problem solving mentality and methodology to an organisation. Design methodologies, in contrast to those encouraged by classical and scientific methods of learning and research, give precedence to finding out how before finding out why. They are based on problem solving and synthesis, rather than the approach of hypotheses, tests and model construction. Aubert,13 in reference to developments in the drug and chemistry based industries (see r4*r5), points out that design as a basic methodology is not confined to those industries - such as furniture or building - primarily concerned with aesthetic issues, but may be

326 ERIC SCHNEIDER

a “kind of &at d’esprit which pervades and controls the whole innovation process”. Again, in environ- ments where survival relies on companies adopting innovative proactive cultures, the employment of appropriate designers and the development of strong flexible design cultures may be crucial both technically and culturally.

Recognition of the role and interplay of the design and management processes may also be useful for managers. Parallels between the two have been noted by commentators such as Mintzbergi6 and Foster.17 Both recognise that management decision-making and the formulation of corporate strategy may be an incre- mental, iterative, evolving, learning, forming process - more comparable to the process of the craftsman than of the grand scale planner - which recognises the importance of patterns of the past in managing the relationships between the present and the future. Both design and management exist in a context. At their best, both may be creative problem solving processes which seek to achieve optimum results subject to prac- tical constraints. Conversely, as Mintzberg reminds us, design is a management process and often one in which the chase of innovation is continually in battle with the “imperatives of administration”.

3 -An lnfegrufive Medium Increasingly, companies are recognising the need for closer integration and better communications internally between their composite parts and sub-cultures, particularly where competitive markets are requiring fast responsiveness. In at least two ways design may act as an integrative medium of some consequence within an organisation.

First, design and design projects provide a common area of purpose and the involvement of a wide variety of personnel and functions for their successful comple- tion. Design - the overall planning process for artefacts - thereby provides a medium, a continuous thread, which, with appropriate organisational plan- ning, may link the various functions and levels in the hierarchy - production, marketing, engineering, finance and strategic planners, etc. - around a common goal.

Second, design may help companies develop behaviour and action patterns of greafer consisfency. Designers, as part of their training, understanding the notions of “fit” and of the consistency which is critical for making their designs more effective. This typically involves choosing, arranging or designing elements which are compatible and appropriate to the central “concept” or “theme” and general objectives of the design plan. We would all recognise the inconsistency of a yellow door panel on a car that is otherwise painted metallic grey. The designer sensitivities, however, may extend

to understanding more subtle nuances, such as the shape of a car headlamp, the use of metallic or wooden dashboard trim, or even the clunk of the car door, to the overall image or message that the car is conveying. Particularly when goodwill is accounting for such large portions of a company’s market valuation (see Rown- tree takeover), it is vital that organisations understand the need to “develop a group leadership that will act as if it were a single person obsessed with the brand”” ’ m order to ensure consistent and unique personalities for its products. Increasingly, differen- tiation and quality will be in the attention to detail.

4 - A Control Tool A fourth contribution of design relates to its standard setting role. The presence of “designed“ artefacts and environments sets a standard of expectations for customers, for staff and for compe- titors. In this respect it may even work with a ratchet effect - whereby once established such standards are likely to be relatively easy to maintain. Ford in the US with its new range of cars has set a standard of final product with which it is presently difficult for other US manufacturers to compete, which customers now expect, and by which designers at Ford can set their expectations and evaluate the quality of their future designs.

5 - A Marketing Substitute Finally, an orientation towards design, relative quality and innovation may save money on more conventional forms of marketing. Evidence from the PIMS database” shows that companies which offer poor value in their products (compared with their competitors) tend to lose share, and do so despite spending much more on marketing than companies which do not.

Design and Service Organisafions

Although our examples have focused on manufactur- ing examples, design is equally, if not more important, in the service sector, precisely because of the lack of a tangible product. The consumer’s perception of a service will often be based on perceptions of the physical manifestations associated with that service - the design of the environment, of the artefacts asso- ciated with the service, of the information which communicates it, etc. These make the service tangible, and act, in effect, as the design of the service itself as design is used to emphasis benefits, to create branding and confidence, and to provide a memorable physical association. The restaurant customer is affected by the ambiance of the environment, the manner and dress of the waiter, the touch of the tablecloth, the type of plates and cutlery as well as the taste and appearance of the food. The passenger new to an airline judges its service in advance by the nature of the advertise- ments, the feel of ticket, the manner and appearance of the person at the check-in desk.

UNCHAINING THE VALUE OF DESIGN 327

In the past design has been considered by managers and business analysts as an activity primarily associ- ated with product. Design has rarely been perceived as a broad ranging strategic weapon - a tool or resource to be used in a variety of ways in achieving corporate objectives. The absence in the past of suitable strategic frameworks may be partly to blame.

Measuring the Contribution

Thus, design can contribute to corporate performance in a variety of ways. One major problem, however, relates to the issue of valuing this contribution.

We have already discussed in some depth the need to distinguish both the direct and indirect effects of design, the quantifiable and the qualitative, the short term and the long, the physical and the perceptual, as well as those aspects which actually result in improved performance of the product and those which only serve to signaz 2o that there is improved performance.

This means that whilst some of the contribution of design may be reflected on the balance sheet - i.e. in short term, direct, quantitative measurable gains - managers should avoid thinking in these terms alone when assessing the worth of design. Current account- ing practices omit consideration of many of the key factors which are critical to the success of a vigorous company competing in the global markets of the 1980s - e.g. quality of output, nature of the manufacturing technology, workforce management policies, new product development lead times, sourcing scope, etc. - many of which are affected by design and design decisions. Many of the important “secondary” contri- butions of design and designers are not easily quantified or accounted for. Moreover, an undue concentration on the balance sheet effects of design is likely to further encourage the emphasis on short term horizons and performance measures that has been one of the major obstacles to major investment by the UK in high quality up-to-date products and manufacturing processes. Attempts to focus only on the direct effects of design means ignoring the “knock-on” effects and linkages which may be much more subtle, but which may also be a major source of competitive advantage. The design of new refrigerated delivery lorries may significantly affect the purchaser’s costs of storage, loading, transportation, fuel, replacement, etc., as well as promoting his corporate image, etc. - all of which combined may provide substantial competitive advan- tage relative to a competitor in excess of the direct cost of the vehicle.

For these reasons a broad and longer term perspective of the contribution of design to corporate performance is required.

(c) Design Strategies

Given the breadth of the potential design contribution there has been surprisingly little attempt to integrate it into corporate strategies and strategic frameworks.

Traditional Frameworks

Traditionally, the product has been the focus of corporate strategy, and a vast number of conceptual frameworks have been developed to assist with the formulation of product strategies. Some of the better known have included: (a) Hofer & Schendel’s product differentiation/buying process matrix, (b) the newness to company/newness to market matrix, and (c) product and market life cycles. The various company position/ industry attractiveness screens and growth share matrices also fall into this category, to the extent that they may be equally applicable for considering product as well as business unit portfolios.

Such frameworks provide a useful base for considering various aspects of product design. The product differentiation/product buying matrix, for example, reflects how the ability to differentiate (by design) depends on the nature of the product and the buying process. Consumers will be less willing to pay price premiums for commodity products such as cement or bulk chemicals, which are bought primarily for economic needs, than for haute couture dresses where buyer’s needs are primarily psychological and where pricing tends to be on the basis of perceived value and what the market will bear, and where, hence, there is more scope for product differentiation. The newness to company/newness to market matrix highlights the risks involved in new product development, and emphasises how products with incremental improve- ments to existing lines generally involve less risk than those which are new to both market and company. Product and market life cycle concepts emphasise how different strategies may be required as products and markets evolve over time and according to the nature of the products (e.g. fashion good, fad, style, etc.). Similarly, growth share matrices and product company/ industry attractiveness screens remind us of the need to think in terms of product ranges and portfolios, and to consider the financial and other implications of how these might develop over time.

Despite their insights, such frameworks do not provide a suitable overall aid for the design manager/director who wishes to develop a broad strategic approach to the use of a company’s (limited) design resources - who wishes to compile a design strategy which balances an appropriate commitment of resources to

32X ERIC SCHNEIDER _-_ - _._- - -... .-.- ~~

FIRM INFRASTRUCTURE

HUMAN RESOURCES UANAGEMENT

TECHNOLOGY DEVELOPMENT

PROCUREMENT

INBOUND OPERATIONS OUTBOUND MARKETING 6 SERVICE LOGISTICS LOGISTICS

\ SALES

Figure 2 Examples of How Design Considerations May Affect Value Chain of a HiFi Manufacturer (based on original value chain diagrams by M. E. Porter: Competitive Advantage)

product design, corporate identity, environment and graphics. They do not permit an overall strategic view of design as an integral part of broader corporate strategies which need to be seen in dynamic terms relative to competitors and purchasers, and in the context of a more open view of the boundaries of the firm.

It is not sufficient for managers simply to be convinced that design is a good thing. Design, if it is to be used effectively, must be seen as an activity or set of acti- vities which is integrated into the organisation’s strategies and planning. A framework is needed whereby managers can assess how to use their design resources in the context of such strategies (e.g. cost leadership, differentiation, or focus), given the parti- cular market and customer needs. That framework needs to be sufficiently flexible to deal with the subtlety of interrelationships, the direct and indirect effects of design, and with the issue of assessing and evaluating design requirements. Moreover, if design is to be seriously considered by businesses and integrated into their strategic plans, design considerations should be able to be integrated into a more general framework for strategic analysis.

Value Chain

One alternative analytical framework which may be of use in this situation is the value chain and the asso- ciated set of analytical tools developed by Porter.2*

There is insufficient space here to carry out more than a summary examination of how the value chain might be used to develop a more strategic approach to design. However, even before we do that, it may be worthwhile to focus on some more basic issues. By a strategic approach to design, for example, we mean an approach that uses design towards the achievement of sustainable competitive advantage. This means that, although design considerations may be important in cost leadership strategies, they are likely to be of particular importance as a part of corporate strategies based on differentiation and focus. Particularly in markets where entry barriers (e.g. patents) may be circumvented and new technologies easily developed, companies cannot rely on technology alone to sustain competitive advantage; the appropriate design of products, image and branding with continuous incre- mental improvements which add value to the customer will be required. It should also be emphasised that

UNCHAINING THE VALUE OF DESIGN 329

INFRASTRUCTURE

HUMAN

TECHNOLOGY

PROCUREMENT

Figure 3 Examples of How Design Considerations May Affect Value Chain of a HiFi Consumer (based on original value chain diagrams by M.E. Porter: Competitive Advantage)

even cost leadership strategies assume a parity or proximity of performance in terms of product quality or differentiation, just as differentiation strategies assume that the products offered are more or less competitive in cost terms.

Two further points are worth stressing. First, the ability to implement a particular strategy depends on having a congruence or fit of organisational structure, proce- dures, systems, people and culture, etc. - attempting to implement a strategy involving radical or innovative design will not work unless the culture and organisa- tional systems are there to support this. Second, strategies need to be maintained against erosion. This has particular relevance for design, which cannot be perceived as a one-off event, but rather must be seen as a continuous process.

The value chain presents a means of analysing firms as a series of interrelated activities which are disaggre- gated according to their relative strategic importance. Dividing the firm into “the discrete activities (it) performs in designing, producing, marketing and distributing the product”, the value chain recognises the importance of interplay between the various internal elements within the firm, and how value

might be added by the linkages with activities outside the strict legal barriers of the organisation - between upstream (supplier) and downstream (channel) activi- ties, as well as between the firm, its competitors and its users.

In principle, analysis of the value chain should permit an understanding of where design (in its broadest sense) may contribute to competitive advantage (since this will vary from one firm to the next), and hence where it may be most beneficial to focus the main thrust of design energies and investment.

Restaurant Examples The restaurant example illustrates how food establishments in different sectors may use design in quite different ways to gain competitive advantage. MacDonalds consistently uses design to satisfy the needs and aspirations of its customers who want fast, convenient food in a clean environment. Investment in worldwide coordinated identity, adver- tising and marketing campaigns continually promotes and reinforces the ideology and values of the food chain. Investment in standardised designs for the kitchen/production facilities for branches supports this emphasis on the cleanliness and the consistency of product, and speed of production. With minimal

330 ERIC SCHNEIDER

differences between outlets, design of the interiors permit some local individuality whilst providing ample queuing and eating spaces, and seating which is suffi- ciently lacking in comfort to encourage guests to eat and move on.

Contrast this with the design of a one-off up-market restaurant, where design investment is likely to focus on differentiating the product from other restaurants at the same time as making the guests feel comfortable. Here the investment is likely to focus on the dining area, on the presentation of the food, and on exclusive- ness. The design of the kitchens will have lower priority, and the resources instead will go into restaurant decor, with the emphasis being on items such as menus, individual table settings and food layouts.

Hifi Industry Examples Other examples follow in the hifi industry. It may be surmised that buyers of Bang and Olufsen equipment are likely to be visually discerning customers who are not hifi buffs, but who wish to buy style, prestige, high quality sound and coordinated equipment with the minimum of technical decision-making. Design strategies at Bang and Oh&en are therefore likely to prioritise an investment in image and styling and in the development of a functionally and stylistically coordinated range of domestic equipment (which thereby ties customers in). Emphasis is also likely to be found on devices, such as all-purpose remote controls, which enhance coordination between the various pieces to emphasise the integration of the package, and hence customer convenience. Hence, the first page in the 1988439 Bang & Olufsen brochure features a full page photograph of that remote control coordinating device - the Beolink 1000. Moreover, Bang & Olufsen have recog- nised that customers will touch, feel and come into direct contact with this hand-held remote control more frequently than any other aspect of the hardware and have designed it accordingly. Solid, cool, slim, sensuous, stylish, easy to use, comprehensive and expensively finished, it embraces all Bang and Olufsen’s values.

Contrast this with the design strategies of an equally design conscious firm like Linn, whose motto is “simply better”‘l and where emphasis is on ultimate levels of sound and construction quality at any given price. In recognition of the buying pattern of such hifi buff customers who tend not to buy all parts of a system from a single manufacturer, Linn focuses on products which are designed to work with equipment manufactured by others. Emphasis is on technology and state-of-the-art performance, and promotion takes into account the relatively small size of the company and the importance of sound quality. There is little advertising; promotion and selling is based on

choosing selective outlets which offer fine listening facilities, whilst the design of the products, packaging and graphics reassures the customer of engineering quality to match the sound. In support of its aim to provide the best quality at the price, Linn has had to find ways to save costs and to make the most effective use of scarce skilled labour. It has also had to recognise the implications of its position - e.g. that rapidly developing technologies and market trends may mean that its product line will be radically different in 5 years, and the issue of how to maintain control over such quality. Linn’s factory, designed by Richard Rogers and featuring flexible single station build and close coupled automatic delivery systems, is aimed at combining flexibility, quality and minimum cost production. Work and production patterns throughout have been designed with the same objectives. There is no formal distinction to be found between managers and workers, and individuals are responsible for the assembly testing and packaging and signing of the whole product. Attention to detail is evident in the performance and aesthetic design of the products, in their packaging, in the instruction booklet, and so forth. As for the remote control device for Linn ampli- fiers, it does not have the same central attention focused on it as at Bang & Olufsen, but it is still built with the same degree of quality as the rest of Linn’s products and, as might be expected, it has a range of unmarked buttons to allow for future flexibility.

Summary

The point, of course, is not that design is automatically a good thing, but that design needs to be handled strategically in a manner that is congruent with market conditions, existing corporate strategies, and with consumer needs. For Amstrad taking a position of cost leadership in the computer market, product design may be directed to achieving the lowest cost assembly using less than state-of-the-art technology. Functional packaging may be consistent with the need to achieve low cost, high volume sales, with distribution via large numbers of High Street outlets. Contrast this with the design policies of Apple, who may be perceived, with their Macintosh computers, to be following a differen- tiation policy, in which design is used to create a strong corporate identity, where the theme of clean, simple, well-designed user friendliness permeates everything from products to packaging, to communications, to environments. Strong brand and corporate identity, integrated product range design, integrated software, simple graphics and so forth, all present a consistent and total image in return for which Apple is able to extract a substantial premium from its customers.

In principle, the value chain should enable managers to consider design policies in relation to competitors and the needs of consumers. Analysis of the value

chains of the various players may be used to indicate where sources of competitive advantage lie in terms of costs to be saved or value added, where linkages exist, as well as the nature of the direct and indirect effects on design.

In practice, however, it has to be recognised that quantifying the contribution remains difficult. Whilst it may be feasible to ascertain the extent that design controls costs, it is considerably more difficult to pinpoint where precisely the gains are added which are reflected in terms of premium chargeable. Assess- ment of the opportunity costs of not investing in design in a particular area, given the nature of competitor behaviour or customer needs, may be one way around the problem.

Despite such problems, the overall framework remains useful as a means of considering how and where to use design as a resource, and how to fit it into broader corporate strategies. In particular, it should assist managers to understand how best to use their design resources in the context of their own existing strengths and weaknesses, given those of their competitors, and in the light of the needs of their customers.

Conclusion

The purpose of this paper has been to attempt to clarify the mystery which often seems to surround design and its contribution to corporate performance. We have seen that the contribution of design may be broad ranging, with effects both of a direct and less direct nature, some of which may be quantified, others of which are less quantifiable. We have emphasised that, to be effective, design must be considered consistently as part of broader corporate strategies, and have tried to present frameworks for thinking about design in this manner. Unfortunately, not all aspects of this will be measurable, yet as Ford has found in the US, design can be a key strategic weapon precisely because of its visual and tactile aspects. It is surprising that it has taken so long for managers to discover it.

References

1. Beryl McAlhone, British Design Consultancy, Design Council, 1987.

UNCHAINING THE VALUE OF DESIGN 331

2. Fairhead, J., Design for Corporate Culture: HOW to build a design and innovation culture, National Economic Development Office, 1988.

3. Gorb, P., Design and Organisational Outcomes, in Langdon Design Policy 4, p 91, Design Council, 1986.

4. Gorb, I’., Dumas, A., Silent Design: An Interim Report of Research into the Organisational Place of Design in Industry, London Business School Discus- sion Paper, General Series GS-20-86, December 1986.

5. Schott, K. & Pick, P., The Effect of Price and Non- Price Factors on UK Export Performance and lmport Penetration, University College, London, Discussion Paper No 25.

6. Rothwell, P., Gardiner, I’., Schott, K. and Pick, P., Design and the Economy: The Role of Design and Innovation in the Prosperity of Industrial Companies, Design Council, 1983.

7. Ibid, p 9. 9. Johnson, G. & Scholes, K., Exploring Corporate

Strategy, Prentice Hall International 1984, p 90. 10. Argenti, P.A., Hansen, R.G. and Neslin, S.A., The

Name Game: How Corporate Name Changes Affect Stock Price, The Amos Tuck School of Business Administration.

11. Lorenz, C., The Design Dimension: Product Strategy and the Challenge of Global Marketing, Basil Blackwell, 1986.

12. Edwards, B., Drawing on the Right Side of the Brain, Penguin.

13. Aubert, J.E., The Approach of Design and Concepts of Innovation Policy, in Langdon, R. and Rothwell, R., Design and Innovation, Frances Pinter, 1985.

14. The Drug Industry Moves from Discovery to Design, The Economist, 7 January 1984, pp 71-74.

15. Zempelin, G., Design as a Management Tool for Innovation; Gorb, P. and Schneider, E., Design Talks, Design Council, 1988.

16. Mintzberg, H., Crafting Strategy, Harvard Business Review, July-August 1987.

17. Foster, J., Designing Strategies: Strategies for Design. 18. King, S., New Breed for the Brand, Campaign,

16 September 1988, 13. 19. Luchs, R., Successful Businesses Compete on

Quality - Not Costs, Long Range Planning, Vol. 19, No. 1, pp 12-17, 1986.

20. Porter, M.E., Competitive Advantage, Free Press, 1985.

21. Caulkin, S., Britain’s Best Factories, Management Today, September 1988.