What Is The Real Value Of Design

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Whirlpool Apple FordHerman-Miller IBM IntuNewell-RubbermaidNike Procter & GambleStarbucks StarwoodSteelcase Coca-ColaWalt Disney WhirlpoolDesign-ConsciousCompanies: Apple FordHerman-Miller IBM IntuNewell-RubbermaidNike Procter & GambleStarbucks StarwoodSteelcase Coca-ColaWalt Disney WhirlpoolApple Ford HermanMiller IBM Intuit NewelRubbermaid Nike Procte& Gamble StarbucksStarwood SteelcaseFeature What is the Real Value of Design?By Jeneanne Rae30 DMI Winter 2013There is growing evidence to suggest thatdesign-centric companies outperform theirpeers. Motiv Strategies and DMI exploresome of the reasons why.

dntuitledaolrdntuitledaolewellocterFeature What is the Real Value of Design?Notes1. “Design Delivers for Business:A Summary of Evidence fromthe Design Council’s DesignLeadership Programme”(online at www.designcouncil.org.uk/publications).2. Platt, Marjorie B., Hertenstein,Julie H., and Brown, David R.“Valuing Design: EnhancingCorporate Performance ThroughDesign Effectiveness.” DesignManagement Review, vol. 12, no. 3(Summer 2001).3. Jeneanne Rae, “6 Keys for TurningYour Company into a DesignPowerhouse,” Fast Company’sCo.Design blog (fastcodesign.com), April 2012.What Is the RealValue of Design?Skeptics always want toknow why they should investin design.Even today, when thebusiness landscape is teemingwith success stories thatcelebrate design as a powerfulstrategic tool, the answerto this question is not well understood by theaverage businessperson—and understandably so.After all, design is notoriously difficult to define,tough to measure, hard to isolate as a function,and tricky to manage, making it challenging formany non-designers to comprehend.Over the years, many organizations haveattempted to tackle this issue, eager to make ahard case that will make design-unconsciousmanagers take notice. In 2005, the UK’s DesignCouncil discovered that every 1 spent on designled to more than 20 in increased revenue, 4increased profit and 5 in increased exports.1An even earlier study, by Julie Hertensteinand Marjorie Platt, examined 51 firms in fourindustries, using 12 different measures offinancial performance across five years, andconcluded that firms rated as having good designwere stronger on virtually all measures.2Several years ago, Motiv Strategies beganconducting studies on companies that wereconsciously using design as an integral partof their business strategy. While tracking thefinancial performance of these design-centriccompanies, we found they outperformed the S&P500 by a significant margin.3 It quickly becameclear that there is a correlation between investingin design and extraordinary stock performance.Seeing this work, DMI president MichaelWestcott asked us to revisit the creation of adesign-centric index that could be used to trackhow design-centric companies perform relativeto the S&P 500 over time. Partnering with DMIon this effort, we devised a portfolio of 14 publiclytraded US companies that made the cut forinclusion (see sidebar). The results supportedour previous findings. While the S&P grew75 percent from 2003 to 2013, our Design-CentricIndex grew an astonishing 299 percent.The fact remains that although these resultsshow a powerful return on investing in design,the index does little to explain the how of thisphenomenon. This article seeks to explain thevarious ways design can add significant value tolarge and small enterprises alike.Design-driven valueThe diverse companies comprising the DMIDesign-Centric Index all understand the powerof design, how to use it as a tool, and how toscale it in a way that will drive success for theirbusinesses. So what is the value that broaddeployment of design principles and methodsbrings to these companies? The following areeight ways in which design is helping thesecompanies win big.DMI Winter 2013 31

Feature What is the Real Value of Design?1 THE WOW FACTORDMI Design-Value IndexGreat design helps make products andservices more aesthetically pleasing, morecompelling to use, and more relevant in a worldthat seems to change at an ever-increasingpace. This is one reason the world is currentlyin love with Tesla Motors, which has given usdrop-dead gorgeous cars that help save theplanet and get 200 miles on one charge. Orthink about how much of the public has beencompletely enamored with Apple productsover the course of their introductions over thelast decade.The wow factor can also draw consumersinto supporting certain companies over time.In the 1990s, for example, discount retailerTarget faced increasing competition fromsimilar stores such as Wal-Mart and K-Martand realized it faced three options:“to specialize, to become the low-costproducer, or to differentiate,” remembersGerald Storch, Target’s vice chairman at thetime. The first choice would have crippledfuture growth; the second was already abattleground. So, the company decided to gowith the third: differentiate through design.That decision led to Target’s domination ofthe mass merchandising market as Tar-zhay,the mass purveyor of stylish yet affordablegoods. It didn’t miss the mark—thanks to itsdesign ethos, which can be found in everythingfrom its product offerings to its store layoutsto its commitment to innovation. Indeed,companies like Apple and Target have raised thebar so high in their use of design that the public ismore aware than ever of what good design lookslike and what design-led companies are capableof producing. There is no doubt that this factor isshowing up in company growth trajectories, aswell as in their stock market results.Selection Criteria32 DMI Winter 2013The DMI Design Value Index by Motiv is value-weighted according to marketcapitalization data from the close of business on the last trading day of Juneand December in the years 2003 through June 2013.What constitutes good design can be viewed as highly subjective; therefore,the selection criteria developed for inclusion in our index focus on the following:1) Publicly traded in the US for 10 yearsOnly public companies were eligible for selection to ensure access tofinancial data surrounding share prices and stock performance. The 10-yeartimeframe was to select for companies that have maintained a consistent,long-term focus on design.2) Scale of design organization and deploymentis an integrated function and organizationalcatalyst for changeThe strategic use of design is employed in the organization, both withinbusiness units and as a centrally managed function with a high degreeof influence with its senior leadership team. The use of design can haveoutsized influences on a company’s bottom line that multiply as it isassimilated into the organization and its culture.3) Growth in design-related investmentsand influence have increased over timeDesign has been well resourced through talent acquisition, appropriatefacilities, competitive technologies, and the application of design researchas a tool, among other investments. Design cannot be expected to thrivewhen proper resourcing is neglected.4) Design is embedded within theorganizational structureIt is well understood where and how design fits within the organization. Whilethere are several precedents set for successful operating models that can be used,the common theme is that design is clearly built into the structure and processesof the organization (org charts, process maps, RACI charts, and so forth).5) Design leadership is presentat senior and divisional levelsDesign is given a seat at the table with an experienced executive orexecutive-level head of design who can interface with senior leadership. Typically,this head of design has 15 to 20 years of experience managing design-relatedfunctions (strategy, organizational development, budgets, talent management,and so forth) that drive the company forward with design goals.6) There is a senior-level commitment to design’suse as an innovation resource and integrativeforce for positive changeA corporation’s commitment to design shows up in many ways, includingthe level of interaction the design executives and function have with other partsof the organization, and in how the CEO and other leadership team membersrepresent the importance of design in their day-to-day work and public relationsefforts as well as the extent to which the organization participates and wins designawards, sponsors contests, fosters university affiliations, or other design-relatedactivities such as encouraging its designers to speak publicly about their work.

Feature What is the Real Value of Design?Great design helps make products and servicesmore aesthetically pleasing, more compellingto use, and more relevant in a world that seemsto change at an ever-increasing pace.Figure 1A 10,000 investment in our design index of diverse design-centric companies would haveyielded returns 228% higher than the same investment in the S&P over the same amount of time. 45,000DMI Design-Centric Index 40,000 39,922.89D.Index 35,000 30,000228% 25,000 20,000 17,522.15S&P Index 15,000 10,000Design BMIntuitNewell-RubbermaidNikeProcter & GambleStarbucksStarwoodSteelcaseTargetWalt DisneyWhirlpooLFigure 2The companies comprisingour design index outperformedthe S&P over a 10-year periodencompassing a bull market(October 9, 2002-October 8,2007), a bear market(October 9, 2007-March 5,2009), and the current period(March 5, 2009-present).DEC ’13Jun ’13DEC ’12Jun ’12DEC ’11Jun ’11DEC ’10Jun ’10DEC ’09Jun ’09DEC ’08Jun ’08DEC ’07Jun ’07DEC ’06Jun ’06DEC ’05Jun ’05DEC ’04Jun ’04DEC ’03Jun ’03 5,000Design Index compared to S&P IndexFull PeriodBull Market(10/09/02 –10/08/07)Bear Market(10/09/07 –03/05/09)Current Period(03/05/09 –Present)Design-Centric IndexAbsolutePerformanceDesignCentric IndexPerformancerelative to S&P 112%–28% 222% 75% 67%–37% 99% 224% 45% 9% 123% 299%S&P IndexDMI Winter 2013 33

Feature What is the Real Value of Design?By employing such design tools as empathy,creativity, and rationality, we are able toreframe problems in ways that forge newpathways toward innovative solutions.Notes4. Scott Cedrowski, “Nike’s NewMarketing Mojo,” CNN Money,February 13, 2012.2 BRAND EXPRESSIONPeople today want to connect with brands as extensions of themselves. We see them, hearthem, and interact with them in more ways than ever before. Some of the most valuable workdesigners can perform lies in the interpretation of a company’s brand elements and howcustomers connect with them.“Connecting used to be, ‘Here’s some product, and here’s some advertising. We hopeyou like it,’” says Nike CEO Mark Parker. “Connecting today is a dialogue.” And Nike has putits money where its mouth is. Its spending on TV and print advertising has dropped about40 percent in the past three years at the same time that its sales have increased to morethan 25 billion—more than 30 percent bigger than closest rival Adidas. How? Nike is goingstraight to where the customer is—the digital world.Nike has carefully crafted a multichannel digital presence that not only fosters opencommunication with customers, but also encourages those customers to connect witheach other. In 2010, the company launched Nike Digital Sport, a new division in chargeof developing devices and technologies that help users track their personal statistics inwhatever sport they pursue. By deepening relationships with (and among) its customers,Nike enables customers to amplify its signature Just do it attitude. The result? Before, Nikecould count its biggest brand audience as the 200 million people who tune in to the SuperBowl. Now, across all its sites and social media communities, it can hit that figure any day.4Nike continues to communicate the aspirational, active, can-do spirit that its customers craveacross its product lines, and promotes it with platforms designed to amplify that energy.3 Solving unmet user needsDesign research emphasizes the use ofempathy—an instrument for encountering theworld as others might. The importance of this toolcannot be overstated. After all, no matter whetherone designs products, services, or processes,consciously keeping the end users in mind helpsto reveal inspiration for category-killing products,as well as lower the risk of failure. Further, beingthe first to find and develop solutions to latentneeds, which one can uncover by studyingwhat people do, think, and feel provides theopportunity for first-mover advantage, providedthe company can commercialize and scale theinsight uncovered.In 2007, Intuit founder Scott Cook decidedthat his company wasn’t innovating fast enough.34 DMI Winter 2013He kicked off Design for Delight, a designthinking-based internal program intended tohelp Intuit development teams better understandcustomers’ frustrations and desires so thatIntuit could design solutions to meet them. Thisdeep customer understanding eventually led tothe development of SnapTax, a mobile app thatallows users to complete their taxes in 10 minutesor less. Within three weeks of its launch, the appsaw more than 350,000 downloads and remainswildly popular on the iOS App Store and theGoogle Play Store.Identifying and capitalizing on the discoveryof unmet needs leads to the perception of marketleadership. If a company can do this on a systemicbasis, that perception will become reality.

Feature What is the Real Value of Design?5. Matt Kranz, “Disney Profits Flat,But Theme Parks Shine,” USAToday, Aug. 6, 2013.4Developing bettercustomer experiencesIn every relationship we have with providers of goodsand services in our society, there is an inherent endto-end experience. When designers get involved increating experiences, they use techniques involvingempathy to uncover and optimize for both functionaland emotional customer needs. Different types ofdesigners (interaction, brand, package, product, service,graphic, and so on) contribute at various stages of theprocess to, in the best cases, build a seamless, branded,and differentiated experience. By definition, this workconnects various parts of the company that in manycases had not previously even met. This is a criticalbyproduct of the top design-driven companies and akey value-added secret that best-practice companiesin the Design-Value Index share.Disney is one company that has built a successfulbusiness ecosystem around delighting customers.In particular, its park and resorts unit—whichincludes iconic attractions Disneyland and DisneyWorld—has gained attention by pioneering the field ofexperience design. Disney’s Imagineers, the creativeforce responsible for creating and developing itsentertainment venues, include illustrators, architects,engineers, choreographers, lighting designers, showwriters, graphic designers, and many more who aretasked with “making the magic.” Every aspect of acustomer’s visit is thoughtfully designed to delight.Cast members (employees) are even trained on how totreat guests (customers) to the smallest details—forexample, how to smile and to wave. The intangibleelements of the experience haven’t been ignored, either:The ambient sounds along walking paths and the scentof cookies that wafts through the park help immersevisitors in a fantasyland determined to deliver on itspromise of being “the happiest place on earth.”Its investments seem to be paying off. The park andresorts division has posted the fastest revenue growth ofany of the company’s five business units in the past year.55 Rethinking strategyRecently, design thinking has become popularwith organizations that face murky, complexissues that are hard to solve using traditionalbusiness best practices. By employing suchdesign tools as empathy, creativity, andrationality, organizations are able to reframeproblems in ways that forge new pathwaystoward innovative solutions. In other words,designers don’t create solutions until theyhave determined the root issue, and even then,they pause first to consider the whole range ofpotential solutions.IBM is working design thinking into itspractices to build a new way of creatingsolutions for its customers. In addition toheavily recruiting designers and designexperts, the technology giant recentlylaunched an initiative to send product teamsto Designcamp, a one-week design-thinkingtraining camp at a brand-new studio in Austin,Texas, that was built for this purpose. Productmanagers, developers, and designers learndesign-thinking techniques and put their newskills to use developing solutions for mobile,social, cloud, security, and big data.What’s so big about design thinking is thatit allows all comers to tap the right/creativeside of their brains to think in new ways, createnew connections, derive new insights, andcreate innovative solutions. With creativitya lost commodity in many business settingsthese days, this practice builds that muscle.DMI Winter 2013 35

Feature What is the Real Value of Design?Good design is the difference betweena complex, frustrating interaction anda delightful experience.76Hardware/software/service integrationGood design is the difference between acomplex, frustrating interaction and a delightfulexperience. It could be your car dashboard, yourdigital camera, or an app on your smart phone.Well-designed interactions can save us time,make us more productive, and even provideemotional support in practically everything wedo. Think about this the next time you easilywithdraw money from an ATM or, conversely,close a website in frustration because it is toohard to navigate. Clearly, customers are flockingto companies that have gained a reputation forwell-crafted interactions.Coca-Cola has mastered designinginteractions that reinvent the way customersconnect with its products, most recentlyevidenced by its recreation of the fountain drinkmachine. Marketed as “the refreshing new wayto express yourself,” the Freestyle, a touchscreensoda fountain, allows users to customize theirbeverages by dispensing different flavor optionsalong with their selected Coca-Cola product.The revolutionary machine allows for morethan 100 drinks, a far cry from the standard8-option fountain soda machine it is quicklyreplacing across the country. The company evenrolled out an app designed specifically to helpcustomers locate nearby Freestyle machinesand share favorite drink combinations, amongother activities. Not only that, but each machinemaintains a data connection to Coca-Colaheadquarters and uploads information abouteach drink dispensed and all supplies used inreal time, which creates critical conduits forgenerating customer insights.36 DMI Winter 2013Market expansion throughpersona developmentand user understandingWith their special ability to understand and interpret peopleand cultures, designers are well suited to help their companiesassimilate what is required to capture the hearts and minds ofnew types of customers, sometimes in new parts of the world.Being in touch with both existing and potential customershas been an exceptionally successful tactic for Aloft,Starwood’s newest hotel concept. Despite a tough market forthe hospitality industry, Aloft has opened 75 locations in justover four years and plans to open more than 30 more within thenext few years, thanks in large part to thorough understandingof its target customers.Conceived as an interactive, trendy hotel for pluggedin young travelers, Aloft is designed to evoke an energeticatmosphere that encourages guests to socialize, rather thanimmediately retiring to their rooms. Its super-modern styleand pioneering initiatives in music and technology havegenerated significant press—and business. The franchise’sexplosive growth since opening its first location in 2008 helpedto fuel Starwood’s 54 percent climb in stock prices emergingfrom the recession. Simply by using intimate customerknowledge, Starwood was able to identify and fill an unmetdesire in younger travelers for a hotel experience akin to itsW Hotels line, as well as broaden the entry point to its brand,making it possible to engage a wider variety of customers andcultivate longer-term loyalty.In our recent recessionary environment, it is remarkablefor a company to exhibit the leadership to develop and investso heavily in an entire new category. Armed with the confidenceof knowing its new customer so well, one can see it would beless of a stretch for management to think boldly and take bigrisks in search of big returns.AppNikeStarbucksCoca-CoApple ForNeweGambleSteelcase

Feature What is the Real Value of Design?Jeneanne Rae is the founderand CEO of Motiv Strategies, aninnovation strategy firm. For morethan 20 years, she has served asa consultant to dozens of globalcorporations, including Procter& Gamble, Johnson & Johnson,Microsoft, Pepsi, and AIG. Herexpertise includes innovation,design integration, customerexperience, and growth strategy.In addition to writing articlesfor publications such as DesignManagement Review, InnovationManagement, and Fast Company,Rae has written extensively forBloomberg BusinessWeek andwas named one of its Magnificent8 Cost reductionDesign can also make great strides to helpget the cost out of manufactured goodsthrough rethinking the ways and meansproducts come together. Procter & Gamble,best known for its household brands such asTide and Pampers, has recently developeda process to develop plastics that arethinner, cheaper, and more environmentallyfriendly than the industry standard. Itis estimated that this new technologycould save the company up to 1B a year.Companies that harness design to curbcosts can thus double design’s financialimpacts by managing the bottom line whilesimultaneously growing the top line.Seven Gurus of Innovation inits cover story on the creativecorporation. She was later hailedas one of BusinessWeek’s Leadersof the Year for her ground-breakingwork in service innovation. She hasalso served as an adjunct professorteaching new product and servicesdevelopment at the graduate levelthrough Georgetown University’sMcDonough School of Businessfor 10 years. She holds a BS incommerce from the Universityof Virginia and an MBA fromHarvard Business School.Best-practice innovators use designThe categories above suggest eight of the manyways design can be used as a strategic business toolto increase sales and market share, as well as buildwider margins and drive customer delight. But thislist is not by any means exhaustive. Although therole of design within organizations can be difficultto define, it is clear that giving design a seat at thetable adds significant value that helps differentiateand elevate companies beyond the norm and helpsto deliver tangible business results.AcknowledgmentsSpecial thanks to Joy Thomas, Senior Strategist at Motiv Strategies,who provided the analytical support to develop the DMI Index,in addition to case study research and other thought leadershipfor this article.We also appreciate the support of Michael Westcott, DMI president,who provided inspiration, guidance, and other key contributions tothis work.Apple Ford Herman-MilleIBM Intuit Newell-RubbeNike Procter & Gamblecks Starwood Steelcase-Cola Walt Disney Whirlpord Herman-Miller IBM Intewell-Rubbermaid Nike PrGamble Starbucks Starwoodcase Coca-Cola Walt DisneyDMI Winter 2013 37

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