Page 1

MEASURABLE DESIGN


CONTENTS

ABSTRACT STRUCTURE 1 1.1 ABOUT THE PROJECT 1.2 STAKEHOLDERS 1.3 AUTHORS 1.4 METHODS 1.5 RESEARCH SETTING 1.6 WHAT IS DESIGN? 1.7 DELIMITING THE RESEARCH FIELD

2. THE INDUSTRY 2.1 DESIGN ON THE MACROECONOMIC LEVEL 2.2 DESIGN ON THE MICROECONOMIC LEVEL 2.3 SUMMARY

3. THEORY 3.1 INTERNATIONAL VIEWS ON THE TOPIC 3.2 MEASURING DESIGN 3.3 DESIGN INVESTMENTS 3.4 FACTORS AFFECTING DESIGN PROJECTS 3.5 SUMMARY

2


4. DESIGN ROI TOOL 4.1 HYPOTHESIS 4.2 DESIGN ACTIVITIES AND FOCUS AREAS 4.3 BENEFITS ACHIEVED THROUGH DESIGN 4.4 MEASURING BENEFITS 4.5 DESIGN ROI FRAMEWORK 4.6 USE OF THE TOOL 4.7 LOGIC OF THE TOOL 4.8 USE IN BUSINESS 4.9 SUMMARY

5. FURTHER DEVELOPMENT 5.1 RESULTS OBTAINED 5.2 RESEARCH QUESTIONS 5.3 DATA VALIDATION 5.4 FUTURE OF THE DESIGN ROI TOOL 5.5 POSSIBLE PARTNERS BIBLIOGRAPHY LIST OF FIGURES AND TABLES APPENDICES

3


ABSTRACT The Design ROI project was a research project conducted between September 2011 and September 2012 with the aim of developing a model and a set of metrics for measuring the return on investments in design. The project was funded by Aalto University, the Finnish Funding Agency for Technology and Innovation (Tekes) and fifteen member agencies of the Finnish Design Business Association (FDBA). The impact of investments in design has been extensively researched by international design organisations, companies using design and universities that teach design. Despite this, no generally applicable models or metrics for measuring the benefits obtainable from design have been found. The authors of this project interviewed several Finnish and international experts, supplemented their knowledge of the industry by conducting surveys of design agencies and their clients, and investigated the research question by building several prototypes for metrics. Additionally several public discussions and workshops were carried out during the project, involving important stakeholders in furthering the project and communicating some of the significant findings of the research. The Design ROI project can be said to have promoted the joint development of the industry among design agencies, and to have produced a deeper understanding of the measurability of design and what factors affect it. Additionally, the project generated plenty of interest. The companies involved in the Design ROI project have set a joint objective to extend the project further with more partners. This report presents the starting points, objectives, progress, partners, methodology and major outcomes of the Design ROI project.

4

ABOUT THE PROJECT


STRUCTURE The report is divided into five sections. The first section presents the parties to the Design ROI project, as well as the project’s objectives, methods and research setting. The second section provides a summarised account of previous research at the national, company and project levels. This indicates some of the challenges, opportunities and important questions related to applying and selling design services in Finland. The section is intended as an account of the current status of design use in Finland, and an examination of the productivity of design and why further research should be conducted on more effective application of design. The third section looks at relevant research, theories and articles in the fields of design management, accounting and measurement. This section is especially intended to support academic and scientific debate and to form a basis for possible future academic research projects. The fourth section presents the Design ROI tool, as well as the project’s hypothesis and frame of reference, and the metrics on which the tool is based. The tool has been used to model questions related to the measurement of the financial benefits of design. The fifth section suggests how the Design ROI subject should be researched in future and what opportunities there are for developing the tool.

6

ABOUT THE PROJECT


ABOUT THE PROJECT

THEORY

INDUSTRY

DESIGN ROI TOOL

FURTHER DEVELOPMENT

7


1.1

ABOUT THE PROJECT

In 2010, 17 Finnish design agencies got together and formed the Finnish Design Business Association (FDBA). The establishment of the association was supported by Design Forum Finland, an organisation which promotes Finnish design. The association’s long-term objective is to promote the societal impact of the design sector and to improve its standing both nationally and internationally. Another aim is to support and promote the collection of upto-date statistics on the sector, the measurement of the financial impact of design, and the communication of results. The Design ROI research project was initiated in autumn 2011 as a collaboration between the FDBA, Aalto University and the Finnish Funding Agency for Technology and Innovation (Tekes). The FDBA is present in the project through 15 member design agencies, representing most aspects of Finnish product, spatial, service and concept design competence. The purpose of the Design ROI project was to increase understanding of the impact of design by speaking to corporate executives about design in their own language. Figure 1 illustrates the communication between design agencies and their clients. A long-term objective of the project is to achieve lasting changes in design discourse and to improve the operating conditions of businesses in the sector. The concrete goal of the project was to create a tool that design agencies could use to explain the financial benefits of design to target groups, in both qualitative and numerical terms.

8

ABOUT THE PROJECT


Board of directors

Management Middle management Production CLIENT

DESIGN AGENCY

Figure 1 Communication between design agencies and their clients

9


1.2

STAKEHOLDERS

The Design ROI research project was made possible thanks to the shared vision regarding the significance of the subject of several private and public operators. The project’s main partners were Tekes and Aalto University. The Aalto Design Factory, operating within Aalto University, deserves special mention for allowing the Design ROI research team to work on its premises. The project’s progress was made possible by funding from the 15 participating Finnish design agencies, which were 5D, AP-Design, Buorre Creation, Creadesign, Desigence, Ed-Design, Hahmo, Helorinne & Kallio, LINK, Mozo, 6.krs, Pentagon Design, Pinto, Design Reform and S.E.O.S Design. Additionally, the project was supported by Design Forum Finland and the Finnish Design Business Association (FDBA). At the time of writing, the latter association had as its members 30 design businesses, of which the 15 aforementioned agencies were directly involved in the completion of the project. The other partners of the project were the Association for Finnish Work, which provided the team with up-to-date information on the significance of design for Finnish businesses, and the Word Design Capital Helsinki 2012 organisation, which facilitated extensive communication on the project.

10

ABOUT THE PROJECT


Main partners

Design agencies

Other partners

11


1.3

AUTHORS

The Design ROI research project involved several people from the participating businesses, the university’s research and teaching staff, and other partner organisations. The project was divided into three main phases: preparation, implementation and publication of results. Involved in project preparations were Aalto University professors Kalevi Ekman and Markku Salimäki, as well as Research Director Toni-Matti Karjalainen from the International Design Business Management (IDBM) programme, Virva Haltsonen from Pentagon Design, Antti Pitkänen from S.E.O.S Design, and Hanna Punnonen from Design Forum Finland. The progress of the project was overseen by the research team, the project management team and the design agency representatives taking part in workshops and discussions. The management team comprised Senior Project Director Professor Kalevi Ekman, Toni-Matti Karjalainen representing IDBM, Virva Haltsonen representing the design agencies, and Marko Ylikorpi representing Tekes. In addition to the official project management team, Mikko Kalhama, CEO of Design Forum, and Karoliina Salonen, Executive Director of the FDBA, took part in leading the project. These persons convened during the project to review the project’s objectives and the results obtained. The research team was in charge of carrying out the project and producing its content. The research team comprised Project Manager Antti Pitkänen and Master’s degree students from three of the schools in Aalto University. The researchers were Heidi Cheng, Kristian Keinänen, Maria Salo, Anni Harju and Jenny Jonkka. The visual design of the report was done by Maria Solovjew. The project’s academic sponsor, Professor Jaakko Aspara, took part in the scientific steering of the research.

12

ABOUT THE PROJECT


Management Team

Professor Kalevi Ekman

Senior Research Director

Toni-Matti Karjalainen

IDBM representative

Virva Haltsonen

Design agency representative 


Marko Ylikorpi

Tekes representative

Research Team

Professor Jaakko Aspara

Academic sponsor of the project

Antti Pitkänen

Project Manager

Heidi Cheng

Researcher

Kristian Keinänen

Researcher

Maria Salo

Researcher

Anni Harju

Researcher

Jenny Jonkka

Researcher

13


1.4

METHODS

Diverse methods and information sources were made use of in the Design ROI project. Additionally, the partner businesses contributed their competence and took part in creating the solution. For the sake of the research it was of primary importance to understand what had previously been written and studied on the subject in Finland and internationally. The main publications on the subject were collected together. The perspectives brought by these publications and how they related to the Design ROI research question were considered. This involved studying around 40 articles dating from 1984–2012 and some 15 other research reports from 2003–2012. It was also important to form an overall picture of the field of design in Finland. This was done by gathering information from various existing studies by public entities. Some of these were the design industry surveys carried out in 2002 and 2006 by the Designium Innovation Centre, and the report Muotoilun maisemat (“Design Landscapes”) by Design Forum Finland from 2008. Additionally, electronic questionnaires were sent to design agencies, their customers and Finnish small and medium-sized enterprises in general. The last of these was done in collaboration with the Association for Finnish Work, and a total of 1,380 responses were received. During the project, several open, themed interviews were conducted with experts in the field, such as university professors and researchers. The interviews were useful in identifying interesting points of view, adjusting the project’s focus and noting any potential problem areas. The aim was to create several versions of the Design ROI tool. Several prototypes of the tool were made and tested, and diverse user scenarios were devised. This helped the research team to analyse the tool’s possibilities and limitations, and to understand the research questions from various points of view.

14

ABOUT THE PROJECT


1.5

RESEARCH SETTING

Finnish design agencies and the members of the FDBA had a clear aim for the research, which was to find concrete tools tailored for their operating environment, with which the customer benefits and opportunities of outsourced design services could be measured. This would allow them to communicate better with their current and potential clients. How to measure investments in design is also an internal challenge that clients would like to see solved. For example, the Tekes Design 2005 programme found that companies tend not to have a separate budget for design work and investigated how that curbs the use of design. The Design ROI project also indirectly produced data and tools for companies to use internally.

The main questions that the research sought to answer:

1)

How and to what extent does investment in design influence the competitiveness of companies?

2)

How and to what degree do various design-related activities create value?

3)

How can value achieved with the aid of design be measured qualitatively and quantitatively?

4) How can the measurable value of design be communicated?

16

ABOUT THE PROJECT


“What cannot be defined, cannot be measured; what cannot be measured, cannot be managed.� -Paul Lillrank


1.6

WHAT IS DESIGN?

For the impact of design to be measured, design must first be defined as a concept. A common problem in estimating the impact of design has been the lack of established definitions in the design industry (Moultrie and Livesey, 2010; Whicher et al., 2011). One challenge in creating definitions is that design refers both to the process and to its outcome (Tether, 2004). Borja de Mozota (2003) proposes dividing the concept of design into four aspects, which are product design, packaging design, graphic design and environmental design. Besides these four activities, which aim for specific outcomes, Borja de Mozota (2006) defines four broader roles for design. Firstly, design is a method for differentation, i.e. improving competitiveness for instance through brand capital. Secondly, design is a coordinator, i.e. a resource that improves the process of developing new products. Thirdly, design promotes change, for example by creating new business opportunities. Fourthly, design is a form of good business, i.e. an initiator of increased sales, enhanced market shares or better return on investment. For the Design ROI project, design was defined very broadly, including design as a competence, a process, an activity and an outcome. The end result may in turn be a product, a service, a space or a visual image. Design activities were defined based on the services offered by design agencies.

Definition of design in the Design ROI project:

• • • •

18

Design as a competence Design as a process Design as a service Design as an outcome

ABOUT THE PROJECT


�Design is a creative activity whose aim is to establish the multi-faceted qualities of objects, processes, services, and their systems in whole life cycles.� -The International Council Societies of Industrial Design (ICSID)

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1.7

LIMITING THE RESEARCH FIELD

The research field related to evaluating the impact of design investments is very broad. Studies examining the impact of design have found links between design investment and financial performance at both the microeconomic and the macroeconomic levels (Danish Design Centre, 2003; Nyberg and Lindström, 2005). Whicher et al. (2011) propose a framework for research on the evaluation of design impact, taking into account the public and private sectors at the micro- and macroeconomic levels. The framework is shown in Figure 2.

Aspects of design research (Whicher et al., 2011):

• • • •

Return on investment in individual companies Return on investment in national industry Return on investment in design programs and policies Return on investment in economy and society

According to den Ouden (2012), the impact of design on individual organisations can be examined from the points of view of finance, psychology, sociology or ecology, in which case the subject of research would, respectively, be financial performance, values, social responsibility or environmental responsibility. In the Design ROI project, the extensive field of design research was delimited to the private sector and to the micro level, i.e. to individual businesses as defined in the framework in Figure 2. On the businessspecific level, the focus was on investigating the impact of design on the company’s financial performance. The subjects of research were projects completed for clients by member agencies of the Finnish Design Business Association.

20

ABOUT THE PROJECT


Levels of Design Evaluation MACRO LEVEL

National Industry

MICRO LEVEL

Individual Companies

2 1

PRIVATE SECTOR

National Economy/ Society

Individual Programs and policies

4 3

PUBLIC SECTOR

Figure 2 Framework for evaluating design (Whicher et al., 2011)

21


22


2. THE INDUSTRY This section of the Design ROI report summarises the research previously conducted on design on the levels of national economies, nations and businesses. The section describes some of the challenges, opportunities and important questions related to using and selling design services in Finland. Note that although the Design ROI project was delimited to the micro-level private sector, i.e. to individual businesses, it is important also to consider the other areas of the design framework in order to form a comprehensive understanding of the design industry. Additionally, broader examination of the framework offers a context for the application of design by individual businesses. This section is intended as an account of the current status of design use in Finland, and as an examination of the productivity of design and why further research should be conducted on more effective application of design.

23


2.1

DESIGN ON THE MACROECONOMIC LEVEL

Design as a Part of the National Economy and Society Design can be considered to belong to the creative industry. According to the UK Department for Culture, Media and Sport (2011), the creative industries are “those industries which have their origin in individual creativity, skill and talent and which have a potential for wealth and job creation through the generation and exploitation of intellectual property.� Alanen (2004) has divided the cultural industries into four major sectors, which are art, design, mass media, and leisure/entertainment. Table 1 indicates the share of each cultural sector out of the gross domestic product between 1995 and 2002. The design sector can be subdivided further into advertising, architecture, and the activities of industrial design businesses. The table shows a clear increase in the relative share of design out of the GDP. Business in the creative industry is closely linked to almost all industrial and service sectors, especially when it comes to design, advertising, marketing communications and animation. The significance of these links will only grow as demand for product and service packages subject to copyright grows. Creative business is the source of products and services which have their basis in immaterial rights. (Ministry of Trade and Industry, 2007) The creative industry accounted for 2.6 per cent of the GDP of the European Union (EU) in 2003. In that year, the revenues of the creative industry in the EU totalled EUR 650 billion, and the industry is growing faster than the economy on average. (Commission Staff Working Document, 2009)

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THE INDUSTRY


1995 Produc-

2000 GDP

tion value

2001 GDP

Production value

Produc-

2001 GDP

tion value

Produc-

GDP

tion value

Mass media

59,6

2,4

49,7

1,8

49,3

1,8

48,7

1,9

Design

6,0

0,2

12,3

0,5

13,1

0,5

11,7

0,4

Arts

10,5

0,4

10,5

0,4

10,5

0,4

9,9

0,4

Leisure and entertainment

23,9

1,0

27,5

1,0

27,1

1,0

29,7

1,1

Total

100,0

4,0

100,0

3,7

100,0

3,7

100,0

3,8

Table 1 Share of certain cultural sectors out of the value of the entire cultural industry and of the GDP (%) (Alanen, 2004)

Country

Competition index ranking 2010

Competition index ranking 2007

Competition index ranking 2010

Competition index ranking 2007

Switzerland

1

2

1

USA

2

1

5

Singapore

3

7

11

Sweden

4

4

4

4

Denmark

5

3

6

5

Finland

6

6

7

8

Germany

7

5

3

1

Japan

8

8

2

3

Canada

9

13

23

23

Netherlands

10

10

8

11

2 7 15

Table 2 Top 10 nations in the 2010 and 2007 growth competition and creative competition indices (Immonen et al., 2011; Schwab, 2009)

25


As awareness of the economic significance of the creative industry has increased, the connections between the creative industry and national competitiveness have begun to be recognised. Clear links have been found between investments in design and the competitiveness of nations, and the economies of countries that consciously use design do well in growth competitiveness comparisons. (Nyberg and Lindström, 2005) In Designium’s Global Design Watch 2010 study, Immonen et al. (2010) examined the effect of design on competition between national economies. The starting point for this was the World Economic Forum Growth Competition Index, comprising 32 variables. The index ranks countries according to their ability to increase per-capita GDP within the next 5–10-year period. One of the central elements of the index is a global survey of corporate executives, in which decision-makers evaluate the situation of their countries by answering various questions. The Global Design Watch 2010 study created a creative competitiveness ranking based on the Growth Competition Index, taking into account the following factors: • • • • • • • • •

Corporate investments in research and development (R&D) Nature of competitiveness Placement in the value chain Innovation ability Sophistication of production processes Extent of marketing Degree of customer orientation Level of branding Originality of product design

Table 2 gives a ranking of various countries according to the 2010 growth competition and creative competitiveness indices.

26

THE INDUSTRY


Kasvukilpailukyvyn ja luovan kilpailukyvyn v채linen yhteys

Links between growth competitiveness and creative competitiveness, Top 50 GDW 2010 50

40

30

20

Design competitiveness greater than national competitiveness

10

Singapore

Switzerland USA Sweden Denmark Finland Germany Japan

Canada Hong Kong SAR

Netherlands

France Austria Belgium Korea, Rep

Australia

New Zealand

10

Taiwan, China UK Norway

Luxembourg

20

Qatar United Arab Emirates Malaysia

Chile Brunei Darusalla m

Thailand

Ireland Iceland

Saudi Arabia China

Estonia

Israel

30

Czech Republic Spain Cyprus Slovenia

Bahrain Kuwait Tunisia Oman

Puerto Rico Portugal

Barbados South Africa

Poland Slovak Republic

Jordan

40

National competitiveness greater than design competitiveness India

Italy

50

Figure 3 KUVA 2 : Kasvukilpailukyvyn ja luovan kilpailukyvyn v채linen yhteys (Schwab, 2009) Links between growth competitiveness and creative competitiveness (Schwab, 2009)

27


Figure 3 examines the connections between national competitiveness and design. It indicates a strong correlation between the two indices. In general it can therefore be said that a country’s growth competitiveness is linked to its investments in design. Design is also closely connected to innovation, which is one of the major drivers of business growth. Innovation refers, above all, to adding value through the creation of new products and services or improvements to existing ones. The ability of designers to see possibilities, take risks, seize even radical ideas and see the world broad-mindedly from diverse perspectives is a huge potential resource for innovation processes. (Nyberg and Lindström, 2005) The links between design and a country’s or company’s competitiveness has also been recognised at EU level. The European Innovation Programme was published in autumn 2010. For the first time, design played a role in EU innovation policy. According to the European Commission, design has the potential to become a central part of European innovation policy and to form a basis for an operating model that encourages community- and user-driven innovation. (Commission Staff Working Document, 2009) Design has an impact on global competitiveness. The aim of design is to generate added value for the customer and thereby to increase product sales. Often design strives to enhance the intangible properties of a product or service by improving its user experiences or desirability. Design is used to make products and services easier to understand and to give them a visual style or identity that is in line with their brand. Through these processes design affects international competitiveness, i.e. the ability of a product or business to compete in price, quality or availability with similar foreign products or businesses. (Lindström et al., 2006)

28

THE INDUSTRY


Design in Finland The choice of Helsinki as the World Design Capital for 2012 brought design closer to the everyday lives of Finns. Design is often discussed in the media and people are increasingly aware of its significance. Design is increasingly understood to be a comprehensive process, rather than just relating to the appearance of an object. (Alanen, 2009b) It has been estimated that demand for designers will grow and that while the growth of demand for operational-level design competence will slow down, the relative proportions of strategic and tactical design competence will grow (Hytönen, 2003). The services offered by design agencies have shifted from traditional product design towards less tangible concepts, and the emphasis of design applications by clients is shifting towards the strategic. (Punnonen, 2008; Pitkänen et al., 2011) The strengths of Finnish design are solid technical competence, the small size and consequent flexibility of design businesses, and the high quality of their work. Some weaknesses which have been identified lie in recognising customers’ needs, inadequate sales and marketing competence, and a lack of partnership networks between businesses in the sector. Clients and design agencies both expressed similar views in this respect. (Holopainen and Järvinen, 2006) In Statistics Finland’s classification of sectors, companies offering design services come under “Specialised design activities”. Table 3 examines businesses offering design services based on their quantity, personnel and turnover. It should be noted that companies in other sector classes may also offer design services. Additionally, a significant proportion of industrial and graphic design is carried out internally within companies by in-house designers. Therefore the following review only covers a part of the design services offered in Finland. The average turnover and personnel of design businesses are relatively low. In 2007 the average turnover was just under EUR 85,000, while the number of employees was below one. (Alanen, 2009b)

30

THE INDUSTRY


No. of companies

Permanent personnel

Turnover (EUR m)

Personnel/ company

Turnover / emplo-

Turnover / com-

yee (â‚Ź 1,000)

pany (â‚Ź1000)

Graphic design

435

306

22,9

0,7

75

53

Interior design

711

570

52

0,8

91

73

Industrial design

303

463

47,3

1,53

102

156

Total

1449

1339

122,2

0,92

91

84

Table 3 Companies in the design industry in 2007 (Alanen, 2009b)


One of the major trends in the industry is the specialisation of design agencies, which seek to look after customers’ overall needs and manage complex entities through networking. Networking may take the form of clear contractual relationships, but ideas and recommendations may also come through word of mouth, or for instance the social media. Horizontal networking also takes place, with competence that falls outside of traditional skills being outsourced on a project-by-project basis. (Alanen, 2009b) Collaborations and partnerships are sought especially in the early stages of a design process (Punnonen, 2008). The extensive networking of design agencies is probably one of the causes behind the concentration of operators in the southern districts of Helsinki, that is to say Eira, Punavuori and Ruoholahti. Geographical proximity brings many networking advantages, which are seen to outweigh the losses caused by competition in the long run. Due to the project-based nature of the design business, links to other operators in the field are essential and geographical proximity lowers transaction costs. (Alanen, 2007) Another explanation for geographical concentration is the idea that design services form a fixed part of other business services. Innovation, tacit knowledge transfers, learning and development in the design sector require close contacts with all business service sectors. The southern Helsinki area also has a higher concentration of other business service providers than the rest of Finland. (Alanen, 2007) The area is also internally specialised, with around one in eight Helsinki inhabitants (around 13 per cent) working in cultural and knowledge-intensive sectors. Helsinki came first in a comparison of creative workplaces among 13 European cities, above such cities as Amsterdam, Barcelona and Munich. (Hamilo and Mykkänen, 2012)

32

THE INDUSTRY


2.2 DESIGN ON THE MICROECONOMIC LEVEL Use of Design Services in Businesses Large companies are more likely to use design services than small ones. According to a study by Holopainen and J채rvinen in 2006, the largest companies, with revenues exceeding EUR 170 million, were the biggest users of design. In the SME sector, on the other hand, there is great potential for increased use of design. In a 2012 survey by the Association for Finnish Work (n=1,380), just over one half of respondents had invested quite a lot or a lot in design. Only 12 per cent of respondents had not invested at all in design in the previous two years. Comparisons with a survey conducted by Holopainen and J채rvinen in 2006 (n=113), with the 2002 Designium Design Industry Survey (n=165), and with a questionnaire sent by the Research Institute of the Finnish Economy to members of the Confederation of Finnish Industries in 2005 (n=222), where around one half of respondents said they had no experience of buying design services, indicate a sharp rise in the use of design services. (Figures 4-6) Companies define the concept of design broadly as comprising industrial design, design and innovation (Association for Finnish Work, 2012). Their understandings of the definition of design varied greatly; some considered the concept only to include product design, while others viewed it more broadly as incorporating graphic design, interior design, etc. (Holopainen and J채rvinen, 2006). Design is considered to play a role in enhancing competitiveness. In spite of this, it is left in the wake of other core business processes, such as quality, delivery reliability and sales. Investments in design are therefore a hidden resource for many companies. (Association for Finnish Work, 2012)

34

THE INDUSTRY


Has your company invested in design in the last two years? (n=1,380) 1 = Not at all

12%

2 = A little

32%

3 = Quite a lot

35%

4 = A lot

18%

DK = Don’t know

3% 0%

20%

40%

60%

80%

100%

Companies purchasing design services in 2006 (n=113)

47% 53%

Yes No

Figure 4 Companies’ design investments in the last two years (Association for Finnish Work, 2012)

35


Design can be managed and practised in companies at three levels: operative, tactical and strategic (Borja de Mozota, 2003). The theoretical section of the Design ROI report considers the application of design at these three levels. Quantitatively, a larger proportion of companies that use design services buy them from an external provider. Some companies, however, consider design to be such an essential element of strategy that they do not want to outsource it; in this case they usually also manage and coordinate design in-house. (Holopainen and Järvinen, 2006) One of the benefits of having in-house designers is that it raises the company’s design competence, which makes the company increasingly aware of its own needs. It also makes companies more familiar with design service providers, as the people who order design services are ones with a background in design rather than engineering or economics. (Alanen, 2009b) The customer interviews for the Design ROI project produced similar results: companies that employed designers in their personnel were more aware of their possibilities in applying design and its effects on business internally and externally. (Pitkänen et al., 2012) There are very few companies in Finland which take care of all their own design needs. However, if this classification is considered to include all those companies which use design unconsciously, then it forms the largest group of companies of all. (Alanen, 2009a) Design may also be an integral part of a company’s operating model and strategy even if it is outsourced. More and more companies are starting to use a combination of in-house and outsourced design services. In other words, there are many ways of solving a company’s design needs. (Holopainen and Järvinen, 2006)

36

THE INDUSTRY


Companies purchasing design services in 2002 (n=165)

52% 48%

Yes No

Figure 5 Companies purchasing design services in 2002 and 2006 (Holopainen and Järvinen)

Application of design in industrial companies (n=122) None

23%

Sporadic

54% 23%

Continuous

Figure 6 Application of design in industrial manufacturing companies (LindstrĂśm et al., 2006)

37


A telephone interview conducted by Aku Alanen in 2009, asking around one hundred design-intensive companies about the organisation of their design activities, showed that in the twenty-first century companies had increased their intake of in-house design employees. Almost one half of respondents had recruited more in-house designers, and they operated in many sectors, from the technology industry to textile and clothing manufacture. The number of designers had fallen in only a handful of companies. (Alanen, 2009a) Of the companies that responded to a questionnaire sent by the Research Institute of the Finnish Economy to members of the Confederation of Finnish Industries in 2005 (n=222), around 30 per cent employed one or more in-house designers. The more intensive and continuous the use of design in a company, the more likely it is to have its own designers (Lindström et al., 2006). Despite this, designers make up a very small percentage of the personnel of clients, with graduates of design degrees working in very few places besides design agencies. (Holopainen and Järvinen, 2006) The industrial manufacturing companies that made use of design services spent an average 11.7 per cent of their research and development (R&D) expenditure on design in 2005. The proportion varied widely between companies and between sectors, as shown in Table 4. Design investments were low among industrial companies overall, only making up 0.3 per cent of turnover in 2005. Meanwhile R&D expenditure was around 2 per cent of turnover. (Lindström et al., 2006) The Design ROI customer surveys and meetings indicate that most companies do not have a separate design budget. Design investments come out of the R&D and marketing budget or the overall budget. (Pitkänen et al., 2012)

38

THE INDUSTRY


Average 2003

2004

2005

11,6

11,1

11,7

Continuous use of design

16,2

15,2

15,6

Sporadic use of design

5,0

5,6

6,6

Large

6,4

6,4

6,4

SME

15,2

14,3

15,2

Forestry, publishing

4,5

5,5

8,5

Chemical

6,5

6,5

9,1

Metallurgy

17,4

16,1

21,1

Machinery

9,3

8,9

8,4

Electrical and electronics

2,1

2,2

2,4

Textiles & furniture*

19,8

20,0

18,9

Food and drink

15,8

16,0

12,7

Other manufacture

28,3

19,0

22,4

All By nature of application:

Company size:

By industry:

Table 4 Design expenditures as a share of the company’s R&D expenditure (%) (LindstrÜm et al., 2006)

*Industrial textiles, clothing, leather, footwear and furniture

39


Obstacles to Applying Design Companies which do not use design services state as the reason the idea that they do fine without it (Association for Finnish Work, 2012). They also say that it is not relevant for their industry. Figures 7–9 show some of the obstacles to applying design in companies. The responses indicate that most clients still view design narrowly as comprising product design or visual appearance enhancement. The understanding of design as a comprehensive function with benefits for business has not yet completely taken hold, even though it appears to be spreading. (Holopainen and Järvinen, 2006) Another problem mentioned as an obstacle to applying design was insufficient knowledge of the opportunities offered by design (Holopainen and Järvinen, 2006). Companies which lack experience and competence in the field of design – especially SMEs, low-tech businesses and companies located in less densely populated areas – do not know who to turn to in design matters. Additionally, the small size of design agencies can make it difficult for them to market themselves and make their services known. (Commission Staff Working Document, 2009) It would be important to collect quantitative and qualitative data on design projects in order to spread awareness of the opportunities for using design in business through concrete case studies. The Design ROI project began collecting data on the design sector for the Design ROI database. The aim is to develop the database to be used as a tool in measuring design and in communicating its value. Although it appears that design is playing an increasingly strategic role in companies, the connection between design and financial benefits is still unclear and difficult to prove to customers. Design agencies which responded to the Design ROI survey said that many potential clients felt that design services were too expensive and their benefits too vague. Additionally, clients did not feel that design brought added value to business or that it was significant overall. Another obstacle to the purchase of design services was that it could not be justified to management. (Pitkänen et al., 2011)

40

THE INDUSTRY


Why has your company not invested in design in the last two years? (n=578) Design is not relevant for us

23%

We are doing well without design

47%

We haven’t found the right designers

22%

We don’t believe in working with external designers

7%

0%

20%

40%

60%

80%

100%

Figure 7 Why has your company not invested in design in the last two years? (Association for Finnish Work, 2012)

Why is design not relevant to your company? (n=174) Design is not relevant for our industry We cannot see any benefit brought by design

59% 9%

Design does not support our other functions Design is only for expensive products

13% 3% 25%

Other (please specify)

0%

20%

40%

60%

80%

100%

Figure 8 Why is design not relevant to your company? (n=174) (Association for Finnish Work, 2012)

41


In the Design ROI customer meetings, company representatives expressed a wish to have some concrete proof to produce in internal sales (Pitkänen et al., 2012). When a company’s management assesses investments based on financial figures, it is not enough to provide just qualitative proof of design investments. For quantitative data to be collected on design projects, the projects must have clear business targets that can be monitored in the longer term. The Design ROI tool was built to support the setting and tracking of such targets.

42

THE INDUSTRY


*) Not included in 2002 survey

2006, n=78 2002, n=86

Obstacles to applying design 50% 63%

Not part of/ relevant for the industry

2%

Standard product (does not need design)

37%

Unaware of the opportunities of design

21% 14%

High cost/ small returns

15% 20%

Lacking resources/processes for the application of design*

8% 0%

Conservatism

6% 7%

Lack of time

Other

0%

5% 10% 12% 10% 20%

40%

60%

80%

100%

Figure 9 Obstacles to the application of design by companies (Holopainen and J채rvinen, 2006)

43


Measurement The Design ROI customer surveys and meetings showed that companies share an interest in monitoring the profitability of their operations. The respondents mentioned a wide range of performance metrics, ranging from key performance indicators (KPIs) to sales and profit figures, systems such as Excel and SAP, and gut feelings. The same methods were used for evaluating R&D and marketing projects. Monitoring the profitability of design projects was less common. Excel and gut feelings were the most popular follow-up methods in design projects. Respondents also mentioned visitor numbers and design competitions as metrics. Many felt that profitability could be monitored more systematically in relation to design projects and communication projects in general. All respondents were interested in tracking the effects of design in projects. They expressed particular needs for a tool that would help clients to: • • • •

compare design projects with similar projects in other companies plan design projects evaluate design projects once they had finished sell design projects internally (Pitkänen et al., 2012)

The research indicated that evaluation and tracking of design projects in the longer term were often lacking. This topic should be studied further, for instance by comparing it with measurements of the profitability of R&D and marketing projects. The measurement of design projects must be integrated into other business measurement practices in order to become successfully established as a practice. Separate metrics must be defined for design benefits in order for the fulfilment of targets to be systematically tracked. The benefits and metrics related to design are examined in the theoretical section of the Design ROI report.

44

THE INDUSTRY


How will the significance of design evolve in your company in the next two years? (n=1,338)

Reduce a lot

1%

Reduce somewhat

2%

Stay the same

47%

Increase somewhat

39%

Increase a lot

12%

0%

20%

40%

60%

80%

100%

Figure 10 How will the significance of design evolve in your company in the next two years? (Association for Finnish Work, 2012)

45


Future Prospects Research indicates that design is gaining status within companies. In the survey by the Association for Finnish Work (n=1,338), more than half of the respondents stated that the importance of design would increase in the next two years (Figure 10). (Association for Finnish Work, 2012) Those interviewed for the Muotoilun maisemat 2008 survey predicted that the increase in applications of design would become evident especially in the form of recruitment of in-house designers. This reflects the respondents’ view that design competence should be held within the company if it is to be applied at the strategic level. (Punnonen, 2008) The use of design services is most likely to increase among the companies that have used them before (Lindström et al., 2006). The challenge lies in convincing the companies with no experience of applying design of the business benefits of design. According to the survey by the Association for Finnish Work, the main objects of design investments in the next few years will be individual companies’ brands, companies’ visual identities and the ideation of future products (Figure 11). (Association for Finnish Work, 2012) The level of internationalisation appears to affect the estimated future design investments of companies. According the design-related survey by the Research Institute of the Finnish Economy, companies with international operations were more likely to increase their design investments in the next five years than those operating mostly domestically. As a company expands internationally, it needs design especially for image development, strengthening product appeal and increasing differentiation from the competition. (Lindström et al., 2006)

46

THE INDUSTRY


What will your design investments focus on? (n=684)

Strengthening/building the company brand

61%

Website

57%

Product ideation, drafting, conceptualisation

56%

Strengthening the company’s image

53%

Visual image of a product

48%

Appearance of a product

47%

Quality of a product or service

46%

Creating a product family

44%

Usability of a product or service

43%

Adaptation of a product or service for different segments

34% 0%

20%

40%

60%

80%

100%

Figure 11 What will your design investments focus on? Ten most commonly chosen options. (Association for Finnish Work, 2012)

47


Design Agencies Scope of Operations Design agencies tend to be fairly small, measured in terms of both turnover and personnel. In the Design ROI survey of design businesses (n=14), 64 per cent of the respondent design agencies had turnovers below EUR 500,000 in 2010 (Figure 12). On the other hand, nearly one third of respondents had turnovers exceeding EUR 1 million and operated on an international scale. The highest turnovers were just below EUR 2 million. (Pitk채nen et al., 2011) Figure 13 shows the numbers of permanent personnel at design agencies. More than half of the companies that responded to the survey had fewer than 10 employees in 2010. Only 14 per cent had more than 20 employees in 2010, up to a maximum of 22. Of the respondents, 28 per cent had more than one office.

48

THE INDUSTRY


100%

80%

*) Muotoilun maisemat 2008

60%

Turnover of design agencies

2006 * n =18 2007 * n=19 2010 n=14

44%

40%

36% 29% 26%

32%

22%

21%21%

20%

17%

14% 11%11%

11% 6.00% 0%

0% 0 - 300 000

300 000600 000

600 0001000 000

1 - 1,5 m€

over 1,5m€

Figure 12 Turnover of design agencies (Pitkänen et al., 2011; Punnonen, 2008)

100% 90% 80% 70% 60% 50% 40%

2006 * n =19

Permanent personnel employed by design agencies

2007 * n=20 2010 n=14

50% 42% 35% 26%

30%

20%

20%

14%

10%

25% 22% 11%

21%20% 14%

0% 1-56

-10

11-20

over 20

Figure 13 Permanent personnel employed by design agencies (Pitkänen et al., 2011; Punnonen, 2008)

49


Service Selection The trend among design agencies is to offer services that transcend the traditional boundaries of the design sector. Many of the most commonly used design services are now intangible (Figure 14). Compared with the Design Industry Survey from 2006, the Design ROI survey of design agencies had concept design and strategic design (Table 5) as new additions to the most commonly provided services. Although the latter survey had significantly fewer responses, the results do indicate a shift towards the intangible. (Pitkänen et al., 2011) In the 2006 Design Industry Survey (n=30), around 40 per cent of design agencies said they carried out strategic design. However, in a survey of clients, only a marginal fraction said they bought strategic design services. (Holopainen and Järvinen, 2006) This conflict in results may be due to the difficulty of understanding design terminology, which was also evident in the results of the Design ROI survey. In this survey, design agencies were asked to provide a closer description of their operations. This demonstrated that the agencies’ functions could be wide in scope and partly overlapping. It is difficult to draw clear lines between functions. (Pitkänen et al., 2011)

1. Function not included in our portfolio

2. Only done when necessary

3. Done in some projects

4. Done in many projects

5. Done in most projects

Average

1.Consept design

0

0

2

2

11

4,6

2. Product design

1

0

2

2

10

4,33

3. Product development

1

0

2

2

10

4,33

4. Graphic design

1

0

2

6

6

4,07

5. Strategic design

1

1

2

4

7

4

Table 5 Activities practiced by the design agencies (Pitkänen et al., 2011)

50

THE INDUSTRY


Demand for comprehensive solutions is growing in the design sector, and customers are also interested in services not specified in the design agencies’ service palettes. In fact, multidisciplinary competence that falls outside of the traditional definitions of product design is more a rule than an exception at design agencies (Figure 15). The most common non-design areas of competence held by design agencies came within business administration, engineering, law and humanities. (Pitkänen et al., 2011) Product design

83%

2002, n=30

73% 80%

Product development

67% 70%

Graphic design Technical design

53%

40%

Exhibition design

40%

Model construction

*) Not included in 2002 survey

63%

40%

Brand design

60%

47% 50%

Package design

40%

Interior design

40%

Concept design

53% 50%

23%

60%

Interface design

37% 43%

Strategic design

40% 40% 17% 17%

Communication design Usability studies*

2006, n =30

97%

0% 0%

17%

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Figure 14 Functions carried out by the design agency (Holopainen and Järvinen, 2006)

51


Client Structure According to the Design ROI survey of design agencies, respondents saw that the role of design has become more strategic in those companies which apply design, and that qualitative development has taken place in the related projects. More room is given to the designer’s views and agencies are involved in projects at an earlier stage. (Pitkänen et al., 2011) The 2006 Design Industry Survey produced results along the same lines: design agencies joined customer projects at the initial planning or conceptualisation stage (Holopainen and Järvinen, 2006). The role of design has become less tangible and the task of agencies is increasingly often to transfer competence to their clients through diverse forms of research, consulting and training (Pitkänen et al., 2011). The client structures of the design agencies support the increase in comprehensive design services. The respondents to the Design ROI survey of design agencies mostly had long-term or continuous customer relationships. This is positive in terms of the scope of projects, because in long-term partnerships projects have a tendency to expand and deepen, evolving in a more strategic direction. (Pitkänen et al., 2011)

Future Prospects The respondents to the Design ROI survey of design agencies expected the operations of design agencies to focus increasingly on intangible services in coming years (Figure 16). Almost all respondents identified concept design as an area of future development. Most respondents also mentioned strategic design and service design as areas of development. (Pitkänen et al., 2011)

52

THE INDUSTRY


Does your company possess multidisciplinary competence or competence not included in traditional definitions of design? (n=15) 7% Yes No

93%

Figure 15 Does your company possess multidisciplinary competence or competence not included in traditional definitions of design?

What aspect of service will you focus on developing in the next three years? (n=15)

Concept design

93%

Strategic design

67%

Service design

53%

Product design

47% 30%

Visual identity design

0%

20%

40%

60%

80% 100%

Figure 16 What aspect of service will you focus on developing in the next three years? (n=15) (Pitk채nen et al., 2011)

53


2.3 SUMMARY The design sector can be examined from the points of view of the national economy, the society as a whole or individual companies. In terms of the national economy, design can be seen as a part of the creative industry. The creative industry accounted for 2.6 per cent of the GDP of the EU in 2003. In that year, the revenues if the creative industry in the EU totalled EUR 650 billion, and the industry is growing faster than the general economy on average. Design also affects national competitiveness. Clear links have been found between investments in design and the competitiveness of nations, and the economies of countries that consciously use design do well in the growth competition index. Design is also closely connected to innovation, which is one of the major drivers of business growth. The design sector has a long history and cultural heritage in Finland. Design is increasingly understood to be a comprehensive process, rather than just relating to the appearance of an object. The strengths of Finnish design are solid technical competence, the small size and consequent flexibility of design businesses, and the high quality of their work. Design is strengthening its position in Finnish business. The use of design services will increase in the near future, especially thanks to the recruitment of in-house designers. Design is generally applied more in large organisations than small ones; the largest companies, with revenues exceeding EUR 170 million, are the biggest users of design. Companies that employ designers in their personnel are more aware of their possibilities for using design and its effects on business internally and externally than companies which do not possess in-house design competence.

54

THE INDUSTRY


Design is considered to play a role in enhancing competitiveness. In spite of this, it is left in the wake of other core business processes, such as quality, delivery reliability and sales. That other functions are prioritised above design is evident from the fact that companies lack design projects and are unlikely to track the profitability of design projects. Business profitability is generally measured using KPIs, sales and profit figures, systems such as Excel and SAP or simply gut feelings. The profitability of design projects, however, is monitored unsystematically or not at all by most companies. Few companies have a specific budget for design; design investments come out of the R&D and marketing budget or the overall budget. The role of design among clients is shifting towards the strategic, while the services offered by design agencies are focusing increasingly on intangible services such as service design and strategic design. As demand for comprehensive design solution grows, more design agencies are adding multidisciplinary competence beyond traditional design services to their portfolios. Many clients find design terminology opaque and do not always have a clear understanding of what design services actually comprehend. The various functions of design agencies may be extensive and somewhat overlapping, which makes it difficult to draw lines between functions. Obstacles to the use of design services are a lack of knowledge by companies of the opportunities offered by design, and the vagueness of benefits obtained through design. A database of design projects would help companies obtain knowledge of how they could make use of design in their operations and who to turn to in related matters.

55


56


3. THEORY The theoretical section of the Design ROI report comprises a review of the most relevant research, theories and articles. They are viewed from the perspectives of design management, accounting and measurement. This section is especially intended to support academic and scientific debate and to form a basis for possible future academic research projects.

57


3.1

INTERNATIONAL VIEWS ON THE TOPIC

Several international studies have been conducted aiming to determine the value of design, and they have found design to have a positive impact on financial performance in terms of sales growth, product exports and market value (cf. e.g. Nyberg and Lindström, 2005). A summary of the main research results is given in Table 6. The topic has been researched by several design associations, including the Association of Dutch Designers (BNO), the Swedish Industrial Design Foundation (SVID), the UK Design Council, the Danish Design Center (DDC) and the Research Institute of the Finnish Economy. The Red Dot Institute (2010) has developed its own model for calculating the design value of companies, while Petersen (2007) from the Center for Design Research at Stanford University has examined the impact of the IDEA Award on companies’ share prices. The study by the Dutch BNO (2010) investigated factors affecting the efficiency of design, such as the freedom given to the designer to consider ideas coming from outside the design project, the limitation of customer participation and the innovativeness of the project. The study found that investments in design and the involvement of designers in product development improve a product’s chances of success, and that the involvement of designers in a company’s visual identity design improves the image projected by the company. Together, these factors have a positive impact on the company’s financial performance. The study was conducted in the form of telephone interviews with directors from 163 Dutch companies. A similar study by the Swedish SVID (2008) found that companies that had continuously invested in design had over 50 per cent higher productivity than companies that had not invested in design.

58

THEORY


Table 6 International research on the links between design application and financial performance Name

Year

Publisher/authors

Description

The Design Effectiveness Industry Report

2010

BNO -Association of Dutch Designers

An emphasis on experience and functionality design leads to better product performance, especially if the designers are given the freedom to consider ideas coming from outside the project, the design work is innovative and client participation is limited.

Design Value – A Strategy for Business Success

2010

Red dot edition, Zec, P. and Jacob, B.

Method using the Red Dot Award for calculating companies’ design value. The method allows for comparisons between companies in a certain sector with regard to design quality. Design has been found to be a crucial driver of value for many companies.

Svenska Företag om design

2008

SVID-Swedish Industrial Design Foundation

The difference in productivity between companies that had invested in design and those that had not invested in design at all was over 50%.

The Value of Design Factfinder report

2007

British Design Council

The turnover of design alert businesses grew by an average of GBP 225 per GBP 100 invested, and their share price performance was around 200% higher than that of the general stock market index.

The idea award as a design quality metric

2007

Stanford University, Center for Design Research, Petersen, S.

The IDEA Award and investor expectations correlate in terms of the success of awardwinning companies in the stock market. Within a five-year period (2000–2005), the share price of companies that had received the award exceeded that of companies in the S&P 500 index by an average of EUR 6.50 per year.

Financial effects of design

2005

Research Institute of the Finnish Economy

Companies that had invested most heavily in design did better in sales growth, product export shares and market value than competitors that had invested less.

The Economic Effects of Design

2003

DDC - Danish Design Centre

Companies investing in design enjoyed 22% higher turnover growth than non-investing companies, and 40% higher if the investments were continuously higher.

59


The study by the UK Design Council (2007) found that the turnover of “design alert businesses” grew by an average of GBP 225 for each GBP 100 invested in design. The research was based on two separate surveys: the Design Council National Survey of Firms 2005 and Added Value Research 2007. The former investigated companies’ attitudes towards design and how they made use of design in their operations. The survey’s particular aim was to calculate the tangible effects of design on business. The latter survey looked at how and why companies add value to their core portfolio. Both surveys were conducted by telephone and the sample sizes were 1,500 and 503 companies, respectively. The study by the Research Institute of the Finnish Economy (2005) used quantitative methods to examine the impact of design on the success of national economies and individual companies. The section on individual companies investigated whether companies that had invested heavily in design had enjoyed better sales growth and higher export shares in their production than others. The study also looked for links between companies’ market values and design investments. The study found that companies that had invested in design did better in sales growth, product export shares and market value than competitors that had invested less. The study was carried out by a panel of experts using key figures provided by companies. The research by the DDC in Denmark (2003) detected a 22 per cent higher growth in turnover among companies that had invested in design, compared to those which had not invested in design at all. It also found growth of up to 40 per cent when the investments were consistently higher. The study concerned the quantity of design investments by Danish companies, as well as their turnover, job provision and share of exports out of turnover. The companies’ level of design application was evaluated using the Design Ladder model. The study was conducted by telephone interview and the sample size was 1,000 companies.

60

THEORY


The Red Dot Institute has developed a method using the Red Dot design competition for calculating companies’ design value. In their study they observed design-intensive businesses and sectors in connection with the Red Dot Award. The sector-specific ranking of companies’ design competitiveness can also be used for determining their design quality, which allows companies to be compared in selected industries. The method can be used for calculating the “design revenue” of each market segment and product category based on design investment and operating profit. This design revenue is then multiplied by a weighting factor derived from the company’s design continuity and strengths, and added to a design capital figure, which takes into account factors such as patents. The results of the design award are used as a basis for continuous analysis of design strength and design continuity. For example, the consumer electronics company Loewen, which won 33 Red Dot awards between 2000 and 2009, had a design value of 157 million in 2008, representing a growth of 49 per cent over the previous year. (Zec and Jacob, 2010) Petersen (2007) investigated the links between the IDEA Award and investors’ expectations and found them to correlate in terms of the success on the stock market of award-winning companies. Within a five-year period (2000–2005), the share price of companies that had received the award exceeded that of companies in the S&P 500 index by an average of 6.5 per cent per year. Despite all the abovementioned research, no previously existing generally applicable models or metrics were found by the Design ROI research team. Design has such extensive and often indirect long-term effects on business operations that it has not been possible to identify completely applicable metrics. The industry does not have nationally or internationally established practices for measuring the impact of design investment.

61


Levels of Design Maturity The design competence of companies can be measured in various ways. The Danish Design Centre (DDC) developed the Design Ladder (Figure 17) for evaluating the “design maturity” of companies. The model was applied for example in the studies The Economic Effects of Design (2003) and Design Creates Value (2007), whose results concerning companies’ design maturity levels in 2003 and 2007 are shown as percentages in Figure 17. The Design Ladder classifies companies according to four levels of design maturity based on their attitudes towards design: no design, design as styling, design as process and design as strategy. The higher a company places on the Design Ladder, the greater the strategic significance of design is in the company. (Whicher et al., 2011)

Danish Design Ladder % of companies in 2003 % of companies in 2007

15% 21%

35% 45%

13% 17%

36% NO DESIGN 15%

STYLING

PROCESS

STRATEGY

Stage 4: Design as strategy Design forms a part of the company’s strategy

Step 3: Design as process Design is a part of product development and other processes

Stage 2: Design as styling Design is used for improving the appearance of products

Stage 1: No design Design plays no role in product or service development

Figure 17 Danish Design Ladder (The Economic Effects of Design, 2003; Design Creates Value, 2007)

62

THEORY


The DDC (2003) study proved that there were links between companies’ placement on the Design Ladder and their financial performance. Companies on levels three and four enjoyed more favourable developments in turnover, export shares and employment over five years than those on levels one and two. The greatest differences lay in the share of exports out of turnover. Design Ladder, or the four levels of design maturity: (The Economic Effects of Design, 2003) Stage 1: No design Design is a negligible part of product or service development, and any design activities fall to professional groups other than designers. Design decisions are based on the personal operational or aesthetic opinions of those who are involved. The views of end users are hardly present or non-existent. Stage 2: Design as styling Design is seen solely as relating to the final physical form of a product, for example as style, appearance or ergonomics. It can be the work of a designer, but is often contributed to by other employees. Stage 3: Design as process Design is a method that is integrated early on into the development process. The production focuses on the end user and makes use of contributions from a range of specialists. Stage 4: Design as strategy Design forms a part of the continuous renewal of the company’s operating model by furthering innovation. The design process is integrated into the company’s targets and it plays a major role at each stage of development.

63


Design can be managed and applied at three organisational levels: operative, tactical and strategic (Joziasse, 2000; Borja de Mozota, 2003). For lasting connections to be created between design management and corporate strategy, design should have an influence at each of these levels (Joziasse, 2000). Below is a brief description of the role of design at the three levels. At the strategic level, design brings competitive advantages and determines the direction of business operations (Joziasse, 2000). The design strategy helps to integrate design into all functions of the company. The duties of design management include visualising the business strategy, collecting market data and comparing design performance with the company’s performance. (Borja de Mozota, 2003) At the tactical level, design can be used for identifying new business opportunities and generating unique product concepts (Joziasse, 2000). Design management acts as a link between functions and coordinates the design strategy in line with marketing, innovation and communication functions. Other duties of design managers are to evaluate and improve the design process and to estimate the return on design investments. (Borja de Mozota, 2003) If the company also makes use of design at other organisational levels, the duty of operative design management is to implement the design strategy at the project level. Design management should also coordinate outsourced design projects and assess the functioning of design, marketing and branding. (Borja de Mozota, 2003) If the company only uses design at the operative level, it is only applied in product development at the later stages of the process and collaboration with other business processes, such as marketing, is limited or non-existent. Coordination of design activities is then also minimal. (Koostra, 2009)

64

THEORY


3.2

MEASURING DESIGN

A comprehensive evaluation of design is the sum of many factors. It requires intuition, quantitative and qualitative research and a combination of all of these. Quantitative measurement is particularly important for results to be comparable and understandable for all parties. (Lockwood and Walton, 2008) Measurements help in comprehending data that can otherwise be difficult to interpret. By making measurements, companies can follow the progress of an initiative, assess its results and compare them with the set targets. The object of measurement can be an action or the result of the action. (Salorinne and Laamanen, 1994) Requirements for measurement (Patterson, 1993):

1. 2. 3. 4.

Relevance: The metric must provide clear information focussed on factors important to the task at hand Completeness: The set of metrics together makes visible all important factors with balanced emphasis Timeliness: Metrics on any business activity must be sufficiently real-time to enable decisions that relate to the actual current state of the business at hand Elegance: If the metric set is designed with elegance, it will achieve a maximum level of insight with minimum amount of data

The number of metrics used should be restricted to a reasonable amount, so that essential data is not lost among masses of other data. It is important for metrics to take into account the context in which they are used; otherwise measurements may lead only to partial optimisation, which makes them more detrimental than beneficial. Metrics should also be easy to interpret and the data extracted from them should be shown to all those whose actions affect the measurement results. In this way, metrics can be used to promote positive development in people’s actions. (Salorinne and Laamanen, 1994)

66

THEORY


“Design may enhance performance but unless there are metrics to gauge that benefit, the difference it makes depends on conjecture and faith.� -Lockwood and Walton (2008)


Challenges in Measuring Design Although design has been found to generate value for companies, its impact should be more specifically measurable in order for design management to be possible (Borja de Mozota, 2006). There are challenges in measuring design, however. One of the major challenges that has been identified is the lack of generally accepted definitions in the design industry (Whicher et al., 2011; Moultier and Livesey, 2010). Secondly, there is usually a long delay between the time of design investment and the resulting benefit. For example, the benefits of investments in design at the product development stage are not seen until the product is launched on the market, by which time the benefits may no longer be linked to the design investment in people’s minds. Another problem is that design is often seen as an expense rather than an investment, which means that its effects are not tracked at all. (Hertenstein et al., 2005) Design is usually present in several corporate functions, including product development, marketing and general corporate communications, which makes it difficult to define and manage (LindstrÜm et al., 2006). Therefore the third challenge lies in how to isolate the contributions of design out of other functions (Whicher et al., 2011). The Design ROI project also identified other challenges in measurement, such as the wide scope of the effects of design. When measuring the impact of design projects it should be considered to what extent for instance the costs of production should be taken into account. Another challenge may lie in the availability of information, especially in the case of outsourced design projects, in which the design agency may not know about investments and costs related to other parts of the project.

68

THEORY


“There is typically a time lag between the industrial design efforts during product development and the realization of the results of those efforts when the product has entered the market. In financial terms, the returns lag the investment.� -Hertenstein, Platt and Veryzer (2005)


3.3

DESIGN INVESTMENTS

For the return on investment (ROI) in design to be calculated, two questions must first be answered. Firstly, what are the design activities in which a company can invest? And secondly, what effects on return can the design activities have? (Aspara, 2012) Design activities may relate to a product, service, space or brand. A closer description of design activities can be found in section 4.2. Investments in design activities have two types of effects: there are direct impacts on cash flow, and indirect impacts on intangible capital, which may contribute to higher returns from other investments. (Aspara, 2012) The effects of investments on cash flow and intangible capital are divided into four categories in the Design ROI project (adapted from Shrivastava et al., 1999):

• • • •

Greater cash flow Less costs Faster cash flow Accumulation of intangible capital

Greater cash flow can be achieved by increasing sales or enlarging the sales margin thanks to greater product or service competitiveness. Costs can be lowered for example by simplifying the production process or changing product materials. Faster cash flow can be produced for example by shortening development times.

70

THEORY


ROI (%)=

Gain Investment

x100


Intangible capital comprises project and process competence, which increases the efficiency of R&D activities and investments, as well as brand value, which refers to consumer attitudes, trust and satisfaction towards the company’s products or services. It especially increases the efficiency of marketing and sales promotion investments. (Aspara, 2012) Financial analysis can be used in two ways when making design investment decisions: for making decisions concerning the continuity of a project (go/no-go) and for supporting operative design and development decisions. In go/no-go decisions the critical question is whether it is worth starting to develop a new product, continuing with the development of a concept, or producing a developed product. (Ulrich and Eppinger, 2008) An example of operative design decision-making could be whether it is worth paying EUR 50,000 to an external design agency for them to design a product, if that will speed up the development process by two months. The following accountancy problems must also be solved when making investment calculations (Artto et al., 1990): -

Scope: which income and expense items should be included in the calculations?

-

Measurement: how and to what level of accuracy should income and expenses be calculated?

-

Valuation: how should income and expenses be valued?

-

Allocation: how should income and expenses be allocated to the objects of the calculation and in time (spread over a certain period)?

Next we will examine the net present value method, which can be applied to evaluating design investments. The method is most suitable for product and service design projects.

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The net present value (NPV) method is used to evaluate whether the benefits obtained from a planned project will exceed its costs. The NPV is calculated by carrying out a project-specific cash flow analysis. In calculating the profitability of an investment we want to know what the current monetary value would be of the future return on the investment. The discount method is used to calculate the present value of future income, applying a certain time period and a specific discount rate or yield requirement. (Kinnunen et al., 2004) The NPV method takes into account all the cash flows arising from the investment by discounting them to their value at the time of calculation. The cash flows typically taken into account in developing a new product are development costs, deployment costs, marketing and support function costs, production costs and income from sales. The annual running income and expenses or, correspondingly, their annual difference or the net profit, are multiplied by the discount rate for each year. The annual present values obtained are added together and any residual value (also discounted) is added to that. The initial cost of the investment is deducted from the sum total, giving the NPV of the investment. If the NPV is positive, the investment is profitable. This information can be used in making go/no-go decisions. (Kinnunen et al., 2004) Sensitivity analyses are used to assess the sensitivity of the outcomes of a project to changes in the initial variables. For example, the method can be used to evaluate the extent of the change in NPV if development costs should rise by 20 per cent. There are both internal and external factors affecting the value of a project. Internal factors are those which the project team has the ability to influence, such as development costs, development times and production costs. External factors are those which are beyond the project team’s control, such as the competition, sales quantities and sales prices. (Ulrich and Eppinger, 2008) It is worth noting that investment decisions are also affected by qualitative factors that cannot be included in calculations. These could be for

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example estimates of the benefits obtained through investments into personnel health and safety or working conditions. These benefits might include higher work motivation, whose financial impact cannot be predicted. (Kinnunen et al., 2004) The NPV method was used in the first prototype of the Design ROI tool as one of the ways of calculating ROI in design. In the tool, the effects of qualitative factors on the design project were also estimated by determining suitable metrics which may be used for tracking qualitative benefits during and after the project.

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THEORY


NPV = -C0+

C

1

1+r

+

C

2

(1+r)

2

Co = alkuinvestointi C = kassavirta C0 = initial investment rC = cash = laskentakorkokanta flow rate / the opportunity of capital Tr = discount = investoinnin pitoaikacost (vuosia) T = length of investment (years)

+‌+

C

T

(1+r)

T


3.4 FACTORS AFFECTING DESIGN PROJECTS The success and results of outsourced design projects are affected by many factors. Below are descriptions of some company-specific, project-specific and other factors affecting outcomes. The factors are shown in Table 7. Companies that continuously apply design in their processes, whether they carry out R&D or not, have been found to experience a development in sales which is more favourable by a statistically significant degree than companies that do not apply design in the long term. Design possessing a high and strong status in the organisation has also been found to influence growth in sales. In other words, design must be applied continuously and strategically in order to have a favourable effect on sales. Additionally, the research intensity of companies has been found to correlate to active design use when measured by growth in sales. (Lindstrรถm et al., 2006) The competence of the representatives of the client and the design agency who are involved in a design project is likely to have an effect on project outcomes (Gemser and Leenders, 2001). In light of existing research, design management is seen to play a particularly significant role in the impact of the project. For example, Chiva and Alegre (2009) found that simple monetary investment into design does not lead to financial gain; good design management is also needed. The application of design is not guaranteed by itself to increase sales, either, so management must pay attention to the pricing of the product or service in order for the desired return on investment to be achieved (Hertenstein et al., 2005).

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THEORY


Company-specific factors

Project-specific factors

Other factors

Industry

Initial investment of resource allocation

Collaboration between design agency and client

Size

Market share of product or service

Design agency’s competence

Design management

Correct product pricing

Innovativeness of design

Design and other competence

New product/service or update of existing one

Design maturity

Level of design use (operative/tactical/ strategic)

Research intensity

Designer’s freedom End-user participation Table 7 Factors affecting design projects


Candi et al. (2010) examined the factors affecting design efficiency and found that the freedom of the designer to consider ideas coming from outside the project had a positive impact on project outcomes. It is also noteworthy that excessive participation by the end user in the project had a negative impact. Design should also be functionally and experientially innovative in order for the project to enhance financial performance. One factor affecting design projects is the functioning of the relationship between the design agency and the client. The representatives of the two parties may not understand each other’s jargon, which may lead to misunderstandings. Another problem may be the rejection even of good ideas if they did not originate in the right place. Good communication throughout the project is crucial for success. The size of the design investment and the market share of the product or service affect the targets that can be set for the project’s financial performance. In the Design ROI project it was assumed that the level of design application in the project – i.e. whether it is operative, tactical or strategic – affects the benefits obtained from the project. For example, in an operative-level project, the benefits may be improvements in product usability and aesthetics, whereas in a strategic-level the benefits may be strengthening of the brand and access to a new market. It was also assumed for the project that the sector and size of the company, as well as whether the project relates to a completely new product or service or to updating an existing one, are significant in terms of the outcomes of an outsourced design project. The impacts of these factors (sector, company size and novelty of product or service) should be investigated further.

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3.5 SUMMARY The use of design has been found to have a positive impact on a company’s financial performance, but the underlying process remains unclear and no generally applicable models or metrics for calculating the impact of design have been developed. Impact should be measurable, however, in order for design to be efficiently managed. By making measurements, companies could follow the progress of an initiative, assess its results and compare them with the set targets. Some of the challenges in calculating the impact of design investments are the lack of generally accepted definitions in the design industry, the fact that design is seen as an expense rather than an investment, the difficulty in isolating the contributions of design out of those of other functions, and the multiform nature of design, which may refer to a competence, a process or an end result. The Design ROI project approached the subject by determining the objects of design investments, the benefits that can be obtained from the investments and the ways in which these benefits can be measured using financial metrics. The researchers also looked at various factors internal and external to the company which may affect the success and outcomes of a design project. Factors affecting the success of outsourced design projects include the size of the investment, the communication between the various parties, and the competence of the design agency. Two factors that are crucial for the successful application of design are the client’s own design competence and the organisational level at which design is applied. In the Design ROI project, the level of design application was evaluated using the Danish Design Centre’s Design Ladder model, in which companies are classified according to their design maturity as being on one of four levels: no design, design as styling, design as process and design as

80

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strategy. The higher a company is found on the Design Ladder, the more effectively and comprehensively it uses design. In calculating design ROI it must be known what design activities are available for the company to invest in, and what effects on returns these activities can have. Activities were divided into four categories based on the object of the design project: product, service, space and brand. The effects on return on a design investment were defined as being either direct or indirect. Direct effects are changes in the company’s cash flows, taking the form of greater cash flows, less costs or faster cash flows. Indirect effects relate to increasing the company’s intangible capital, which enhances returns from other investments. Financial analysis can be used in two ways when making design investment decisions: for making decisions concerning the continuity of a project and for supporting operative design and development decisions. The Design ROI tool prototype makes use of methods including the net present value method in calculating the impact of design investments.

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4. DESIGN ROI TOOL This section reviews the hypothesis of the Design ROI study and the framework created as part of the research, comprising the levels and objects of design use, as well as the design activities, benefits and metrics. The framework formed the basis for the Design ROI tool together with measurement theory, investment accounting and the interviews conducted as part of the research. In this section we will also discuss the potential functions and logic of the tool prototype developed in the Design ROI project.

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4.1 HYPOTHESIS Existing research has found that design has a positive impact on companies’ financial performance, but the process by which this happens has not been fully identified (e.g. Hertenstein et al., 2005). The hypothesis for the study (Figure 18) was derived from this. The assumption was that by defining the benefits of design, the effects of design on cash flows can be examined. The researchers assumed that design activities related to four objects (product, service, space, brand) produce certain benefits on the operative, tactical and strategic levels of the company in question. The benefits can be linked to the company’s cash flow and intangible capital. By defining the benefits aimed for and the design activities that can be used, we can define what is to be measured. The activities are chosen based on the object of design and the other conditions of the project. The objects of design will determine the nature of the project in the tool, while the benefits of design will function as the targets set for the design project. In terms of the applicability of the tool it is important that the main objectives of the project are known already at the start, so that their fulfilment can be monitored during and after the project. Metrics can be used for tracking the meeting of targets and the project’s impact on cash flows.

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DESIGN ROI TOOL


OBJECT OF DESIGN

PRODUCT

BRAND

DESIGN BENEFITS

STRATEGIC

EFFECTS ON CASH FLOW

FASTER CASH FLOW

GREATER CASH FLOW

LESS COSTS

ACCUMULATION OF CAPITAL

TACTICAL SERVICE

SPACE OPERATIVE

Figure 18 The hypothesis of the Design ROI research: design benefits can be achieved by using design, and these benefits have impact on company’s cash flow and intangible capital.

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4.2 DESIGN ACTIVITIES AND FIELDS At the start of the Design ROI project, design was defined based on the services, i.e. design activities, offered by design agencies. Lists of design activities were gathered based on the agencies’ websites and a questionnaire sent to design agencies, where the Design Industry Survey (Holopainen and Järvinen, 2006) was used as a source. The result was a list of activities, which is presented in Table 8. An unambiguous definition of the content of design could not be found. Design activities varied greatly in terms of their level, and some activities were overlapping. The service selections of industrial design agencies are undergoing a blurring of the boundaries between the different aspects of design, which leads to the blending of various operators’ roles and the partial overlapping of services (Punnonen, 2008). More information on the survey sent to design agencies can be found in section 2.2.

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Design activities Product design Graphic design Exhibition design Visual identity design Product development Service design Environmental/interior design Concept design Package design Clothing and textile design Strategic design Technical design Communication design Interface design Model construction Usability studies Design research Table 8 Design activities based on services offered by design agencies


Another way to define design is through the objects of design. Borja de Mozota (2003) proposes dividing the concept of design into four aspects, which are product design, packaging design, graphic design and environmental design. Environmental design comprises the design of office and production facilities, as well as commercial spaces and exhibitions. Graphic design, on the other hand, includes the design of products’ visual images, user interfaces, websites and companies’ visual identities. The Design ROI project subdivided design activities into four categories, adapting Borja de Mozota (2003): product, service, space and brand. Each category has its own subcategories, which are listed in Figure 19. Each category may contain several design activities from the prior listing (Table 8), according to the project’s needs. This subdivision simplified and clarified the concept of design. One change made to Borja de Mozota’s (2003) classification was the inclusion of service design as a category. Meanwhile, packaging design was merged into product and brand design. When Borja de Mozota (2003) conducted her research, service design was not a very well-known concept. These days, however, it is seen as an essential part of the design industry (Punnonen, 2008), and therefore it was justified in taking its place as one of the four main categories. At this point, digital design has been merged into brand and service design.

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DESIGN ROI TOOL


Investment goods Consumer goods

Specific services Services as part of a product

Corporate level Product level

Sales point Promotional space Space within the company

Figure 19 Objects of design and their subcategories

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4.3 BENEFITS ACHIEVED THROUGH DESIGN The benefits obtained through design are mentioned in several studies (e.g. Gemser and Leenders, 2001; Hertenstein et al., 2005), but their links with financial performance have not unambiguously been determined. The links were investigated by first mapping all the benefits that had been proven to be achievable from design in existing research, extracting them for example from articles in the Design Management Journal and the Journal of Product Innovation Management and from the Design ROI workshops. A list of the sources used can be found in Appendix 2. The benefits of design are listed in Table 9. These design benefits are used in the Design ROI tool as measurable targets that can be set for design projects, meaning that they act as links between the use of design services and their financial impact. The benefits were linked to corporate performance metrics such as changes in cash flow. The customer meetings in the Design ROI project indicated that the list of benefits helped companies to understand the wide scope of effects that a design project can have and how these are reflected in the company’s business. The list in Table 9 is not exhausted and should still be tested in practice in genuine design projects. For the purposes of the Design ROI project, design benefit was defined as the positive impact of a design activity which generates shareholder value on the company’s operative, tactical or strategic levels. Some of the benefits, such as usability, are clearly linkable to design, whereas others, such as improvements in occupational well-being, are more contentious. Most benefits are achieved in collaboration with experts from other fields, so the direct impact of design on an end result is difficult to isolate entirely from other contributions. Other factors affecting the definition and measurement of benefits are discussed in section 3.4.

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DESIGN ROI TOOL


Design benefits Brand strengthening

1

2

3

5

6

Access to new markets

2

6

7

8

9

Creation of new markets

2

8

Expandability, repeatability

12

Innovation

1

2

6

8

10

Learning

2

8

Increased process efficiency

2

4

7

12

Shortened time to market

1

2

7

12

Differentiation

1

2

3

4

5

User satisfaction

2

3

7

Aesthetics

2

3

4

8

9

Desirability

2

3

7

Usability

2

3

4

7

8

Eco-friendliness

1

7

8

9

Life cycle optimisation

3

6

12

Structural optimisation Scalability/standardisation Material choices

3

4

7

8

9

Production process optimisation Shortened production times Cheaper production process

2

3

4

6

8

More efficient logistics

12

Faster/easier installation/deployment

4

Increased efficiency of internal communications

2

6

7

8

12

Increased efficiency of external communications

2

3

5

6

9

Improved occupational well-being

7

12

Increased occupational health and safety

7

12

7

11

12

6

9

12

12

9

12

11

Table 9 Design benefits. Each benefit is linked to a reference in the bibliography (Appendix 2)

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4.4 MEASURING BENEFITS The benefits achieved through design can be measured using qualitative and quantitative metrics. The Design ROI study defined some sample metrics from which companies can choose the most suitable, based for example on the project or on their sector. Quantitative metrics were subdivided into financial and non-financial (e.g. ones based on time or numerical quantity) metrics. The sample metrics are shown in Table 10. Financial metrics were subdivided in relation to cash flow and intangible capital, as follows (adapted from Shrivastava et al., 1999):

• • • •

Greater cash flow Less costs Faster cash flow Accumulation of intangible capital

The qualitative and other quantitative metrics act as indirect metrics that can be linked to these four financial metrics. For example, increases in customer satisfaction lead to greater cash flows. The finished Design ROI tool will strive to link all design benefits to these four financial metrics.

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DESIGN ROI TOOL


Qualitative

%

â‚Ź

Quantitative

Financial

93


Table 10 Sample metrics STRATEGIC LEVEL MEASURABLE BENEFIT

Brand strengthening

QUALITATIVE METRICS Customer feedback/satisfaction survey Survey on growth of product/brand valuation Dealer feedback

Access to new markets

Creation of new markets

Expandability/repeatability Innovation TACTICAL LEVEL MEASURABLE BENEFIT

Learning

QUALITATIVE METRICS Employee self-evaluations

Increased process efficiency

Shortened time to market

Differentiation

94

Customer feedback/satisfaction survey Survey on growth of product/brand valuation

DESIGN ROI TOOL


MONETARY INDICATORS Growth in sales (volume of EUR) Change in stock price Change in marketing costs

OTHER QUANTITATIVE METRICS Media visibility (e.g. mentions) Mentions and “likes” in social media

Change in market share (%) No. of new products on the market No. of new customers

No. of new innovations No. of new patents/IPRs No. of new customers Change in marketing costs

Change in no. of standard features No. of new patents/IPRs Share of new products/services out of turnover

FINANCIAL INDICATORS

OTHER QUANTITATIVE METRICS No. of mistakes made at work

Staying on project budget

Change in product development times Time to market No. of new innovations No. of new patents/IPRs No. of new products on the market No. of newly developed products Staying on project schedule Time to market Break-even time

Sales development (€) Product-specific margin Change in marketing costs

Sales development (volume) Change in market share %

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OPERATIVE LEVEL MEASURABLE BENEFIT

QUALITATIVE METRICS

User satisfaction

Customer feedback/satisfaction survey

Aesthetics

Customer feedback/satisfaction survey

Desirability

Customer feedback/satisfaction survey

Usability

Eco-friendliness

Life cycle optimisation More efficient logistics Faster/easier installation/deployment Increased efficiency of internal communications

Increased efficiency of external communications

Customer feedback/satisfaction survey

Improved occupational well-being

Customer feedback/satisfaction survey (e.g. performance reviews, surveys)

Increased occupational health and safety Structural optimisation

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DESIGN ROI TOOL


MONETARY INDICATORS

OTHER QUANTITATIVE METRICS No. of customer service contacts Mentions and “likes� in social media

Product-specific margin

No. of design awards No. of new customers

Sales development (EUR) Product-specific margin

Sales development (volume) No. of new customers No. of sales channels No. of customer service contacts No. of new customers Time spent on learning/training No. of website visits/registrations No. of ecolabels No. of recyclable parts Qty. of eco-friendly materials Carbon footprint of product/service

Product-specific margin Margin for additional/upgrade services or parts

Relevant change in product life cycle

Change in logistics costs Change in material costs

No. of items damaged in transport Change in efficiency of distribution channels Time spent on installation/deployment No. of tools used for installation/deployment Extent of training required for installation/deployment

No. of new products on the market No. of project-related emails No. of misunderstandings No. of conflicts Sales development (EUR)

Sales development (qty.) No. of customer service contacts No. of website visits/registrations

Change in sickness absence costs

No. of absences from work

Change in sickness absence costs

No. of occupational accidents No. of repetitive strain injuries No. of absences from work

Product-specific margin

Time spent on changes to the product

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4.5 DESIGN ROI FRAMEWORK In the framework for the Design ROI project, design benefits were classified based on the organisational level (operative, tactical, strategic), as design can be applied at each of these (Joziasse, 2000; Borja de Mozota, 2003). The benefits were placed in a matrix according to their level, based on the research team’s views (Table 10). Some of the benefits could go under more than one organisational level, depending on the company’s business model. Another assumption was that the benefits obtained from a design project vary depending on the level at which design is applied and the object to which it refers. The viability of this classification should be tested in practice using existing design projects. The Design Ladder model described in section 3.1 was combined with the aforementioned organisational levels so that the levels of design maturity correspond to the organisation’s operative, tactical and strategic levels (Figure 20). The model was used for evaluating the design competence and design application of design agencies’ clients, and for investigating the links between these and the benefits achieved through the projects. This resulted in a framework for the Design ROI study, in which the application of design to different objects can be examined at three organisational levels (Figure 21). The benefits of design vary depending on the level and object of application and they can be measured using various qualitative, quantitative and financial metrics. In other words, the model can be used to find out for example what benefits a service design project implemented at the strategic level can bring to a company, and what metrics can be used for tracking the fulfilment of the benefits.

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DESIGN ROI TOOL


Stage 3: Design as strategy Design forms a part of the company’s strategy

STRATEGY

PROCESS

STYLING

0

Step 2: Design as process Design is a part of product development and other processes

Stage 1: Design as styling Design is used for improving the appearance of products

Stage 0: No design Design plays no role in product or service development

Figure 20 Design Ladder for evaluating design maturity at various organisational levels (adapted from Borja De Mozota, 2003; The Economic Effects of Design, 2003; Design Creates Value, 2007)

STRATEGIC

TACTICAL

OPERATIVE

Figure 21 Design object and level of use

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4.6 USE OF THE TOOL Design is considered to play a role in creating competitiveness. In spite of this, it is left in the wake of other core business processes, such as quality, delivery reliability and sales. That other functions are prioritised above design is evident from the fact that companies are unlikely to track the profitability of design projects. The profitability of design projects is monitored unsystematically or not at all by most companies. Few companies have a specific budget for design; design investments come out of the R&D and marketing budget or the overall budget. Some of the challenges in calculating the impact of design investments are the lack of generally accepted definitions in the design industry, the fact that that design is seen as an expense rather than an investment, the difficulty in isolating the contributions of design out of those of other functions, and the multiform nature of design, which may refer to a competence, a process or an end result. The Design ROI tool is built to help clients and design agencies avoid the aforementioned uncertainties related to design projects and to achieve better results in their negotiations, project management and follow-ups. The tool can be used as an aid for operative, tactical and strategic work by organisations of various sizes. It is a tool for communicating the corporate and design strategies, and for conducting tracking during the project and post-project analysis. For the success of the design project it is important that the representatives of the design agency and the client have a shared understanding of the content and objectives of the project at hand. Optimally, increasing shared understanding will eliminate the possibility of unrealistic expectations and assumptions related to the project, speed up decision-making and communication, and increase mutual trust. (H책kansson and Ford, 2002)

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DESIGN ROI TOOL


4.7

LOGIC OF THE TOOL

The structure and functioning of the Design ROI tool prototype are based on the Design ROI framework, measurement theory, investment accounting and the customer interviews conducted during the project. The aims of the prototype were to model the measurement of design benefits in practice, as well as the data needed for the measurement and the factors affecting the measurement. The Design ROI tool helps users to understand the possible financial results and other benefits of a design project. It allows for the effects of a planned design project to be predicted by comparing the starting data of the project to a database of former design projects. With the tool, the fulfilment of the objectives set for the project can be monitored during and after the project. Before the design project: The tool helps in setting objectives for the project. These can be financial or qualitative. Once the benefits have been decided on, metrics for tracking their fulfilment can be chosen. During the design project: The tool makes it possible to follow the progress of the project based on the entered data. The data, the desired benefits and the metrics can still be specified during the project. After the design project: The outcomes of the design project can be compared to the desired benefits and to the predicted return on investment. The results can also be compared with similar projects by other companies and with former projects.

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DESIGN ROI TOOL


Design ROI tool

CASE-SPECIFIC INFORMATION

Background calculation

Forecast

Database

Monitoring

Figure 22 Operating logic of the Design ROI tool

Stages of use of the tool The operating logic of the tool is shown in Figure 22. Below is a description of the five stages of the tool. Stage 1: Initial data The user enters initial information specific to the company and the project, including the benefits that are sought and information on investments and schedules.

Stage 2: Background calculation The tool makes an estimate of the results of the project compared with the average results of completed projects in the database. The tool also provides a list of possible factors contributing to the results.

Stage 3: Forecast A forecast of minimum and maximum results is drawn up for a period chosen by the client. The user can select the most suitable metrics for tracking the fulfilment of the benefits from the alternatives suggested by the tool, or define them separately. Stage 4: Monitoring Evaluation of the success of the project with the aid of financial metrics and comparisons of benefits with set goals. Stage 5: Database The results are recorded in the tool’s database, improving the accuracy of future forecasts.

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Stage 1: Initial data It is important to define the company- and project-specific data carefully, because the forecast given by the tool is based on project information retrieved from the database based on the parameters given. Below is a review of the initial data needed for forecasting. The classification of sectors corresponds to that used by Statistics Finland. The list includes the top sector categories. It is important to determine the company’s level of design competence for the forecast, because this has been found to affect the outcome of design projects. The target market defines whether the client operates on a b-to-b or b-to-c basis. The degree of novelty of the object of design – i.e. whether the project relates to a whole new product or service or to updating an existing one – determines which financial key figures will be requested. The usage context refers to whether the object of design is meant for internal or external use. The object of design can be a physical or digital product, service, space or brand, each of which can be subdivided further into specific items. The benefits achievable from the project depend on the object. Targets are set for the project based on the sought design benefits. The chosen benefits can be given the weighting 1, 0.6, 0.3 or 0. A list of benefits is provided to give an indication of the scope of effects of design, and thereby to reveal some of the links between design and financial performance. If the sought-after design benefits are achieved, clients can concretely see the results of the project and their possible financial and intangible effects on the company.

104

DESIGN ROI TOOL


105


Stage 2: Background calculation The investment calculation stage of the Design ROI tool forecasts the minimum and maximum results of the project based on the data given by the user. The forecast includes possible changes in margin, turnover, operating profit and market share. The forecast is partly based on average figures from comparison data retrieved from the tool’s design project database. Only data on projects with similar initial data is collected. The scenarios for returns on different investments are based on the net present value (NPV) method, which is described in further detail in section 3.3. The method is particularly suitable for calculating returns on investments in product and service design projects. It should be noted that the tool prototype uses very simple calculation models, and that the background calculation is not yet functional. A large quantity of data on completed projects would be needed for forecasts based on past data to work.

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107


Stage 3: Forecast At the forecast stage, users can either select the most suitable metrics for the chosen design benefits from a list provided by the tool, or define them individually. There is more information on sample metrics in section 4.4. For each metric, the user sets the current level and the desired target level. The forecast also indicates the links between the chosen benefits and the company’s cash flows and intangible capital, as follows:

• • • •

Greater cash flow Less costs Faster cash flow Accumulation of intangible capital

The impact of the design project on figures such as turnover is shown as a descriptor. The descriptor can be used to predict how turnover would develop without the project and with the minimum and maximum return forecasts. The turnover without the project figure indicates the cost of abandoning the project, while the minimum return indicates the least favourable result. The tools’ ROI forecast acts as an indicative figure which may help in decision-making related to the project. In addition to giving numerical results, the forecast lists typical benefits achieved from earlier, similar projects, and some of the factors which may contribute to the project’s outcomes. These factors were described above in section 3.4. The forecast allows the company in question to assess the possible outcomes of the project quantitatively and qualitatively. Based on the forecast, the user may return to the start and adjust the initial data.

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DESIGN ROI TOOL


109


Stage 4: Monitoring At the monitoring stage, the user enters the benefits fulfilled during the project and their levels in order to compare them to the targets. The user can then assess the success of the project based on financial key figures such as net sales, operating profit or return on investment. If the targets were not met, the user can make a guess as to the reason. This information is stored in the database, which will take them into account in future project forecasts.

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111


Stage 5: Database The forecasts given by the tool are based on the outcomes of former projects with similar initial data. The consistent collection of information on the sector and on projects is therefore critical for the development of the tool: the more data can be found in the database, the more accurate the tool’s predictions. Forecasts are based on the averages of projects with similar initial data. Therefore it is important that new data be entered continuously as the design project progresses. During the Design ROI project, data was collected on clients using design services and on the design projects they had completed using surveys and face-to-face meetings. The aim is to gather this data into the database that will operate as part of the logic behind the tool. The sector and project data gathered into the database was also used to test and validate the research team’s conclusions and choices and to fine-tune the tool’s functions to users’ needs.

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4.8

USE IN BUSINESS

The most likely users of the Design ROI tool are design agencies, as well as start-ups and small and medium-sized enterprises. For design agencies the tool offers an opportunity to communicate the benefits of design more clearly. For SMEs, which often lack a comprehensive understanding of the applications of design, the tool is an aid for recognising the possible benefits of design and their effects on the company’s financial performance. The aforementioned would be the two main user groups of the tool. Additionally, the tool would benefit government organisations that want to recommend the use of design services, such as business incubators, small business centres and associations for design promotion. Research institutions could also benefit from the information provided by the tool when seeking models for expressing the value of design processes. Based on our interviews, it seems that the Design ROI tool would not be easy to link to large corporations’ systems. Companies that already apply design and R&D tracking systems would not necessarily find the tool useful. Large corporations often have employees who specialise in design management, as well as knowledge of their opportunities for utilising design. One of the earnings models usable in commercialising the Design ROI tool would be developing the tool into a software program and licensing it to third parties in the business sector. The tool would probably assist many parties in increasing the effectiveness of design use, and its use may also reveal new potential uses, for example in the field of education. .

114

DESIGN ROI TOOL


4.9 SUMMARY The structure and functioning of the Design ROI tool prototype were based on the Design ROI framework, measurement theory, investment accounting and the customer interviews conducted during the project. This resulted in a framework for the Design ROI study, in which the application of design to different objects can be examined at three organisational levels: operative, tactical and strategic. The benefits of design vary depending on the level and object of application and they can be measured using various qualitative, quantitative and financial indicators. In other words, the model can be used to find out for example what benefits a service design project implemented at the strategic level can bring to a company, and what indicators can be used for tracking the fulfilment of the benefits. The Design ROI tool operates through five stages, which are initial data entry, background calculations, forecasting, monitoring and database maintenance. For forecasts to be accurate, the functionality of the tool should be improved based on data recorded on completed design projects. From the point of view of applicability of the tool, therefore, it is important to ensure the participation of companies and their willingness to share significant outcomes and figures related to projects. The tool must be designed for the correct target group, taking into account their needs and offering the most important functionality for their business.

116

DESIGN ROI TOOL


BENEFITS OF DESIGN

FOCUS OF DESIGN

CASH-FLOW EFFECTS

Figure 23 Design ROI framework

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5. FURTHER DEVELOPMENT This Design ROI report is a summary of the information gathered and solutions developed during the research project. From the point of view of the sector it would be advisable to continue the work on benefits brought by design. The Further Development section lists possible development areas and essential questions to consider.

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5.1

RESULTS OBTAINED

During the Design ROI project, the topic of research has attracted plenty of attention, which makes it rational to continue the project in various ways. The project achieved many direct and indirect results and advantages. The indirect results include several speeches and presentations prepared and given by the research team during the project. Their aim was to increase awareness and familiarise listeners with the Design ROI topic. For the Nordic design management seminar Nordcode, the research team prepared the Framing the Question paper and presentation, intended for an academic audience. Additionally Design ROI was present at events of the Association for Finnish Work, and at the Design Roadshow by Design Forum Finland in Helsinki. Plenty of contacts and invitations to other events were received. The direct benefits brought by the project include extensive discussions with various operators in the design field, both at workshops and in online forums built for the project. These discussions brought up many shared visions as to how the industry should be developed. Some of the most concrete results of the project are its review of the current state of the design industry, its scrutiny of the most important academic publications related to productivity, and, based on these, the first version of the Design ROI tool. These materials are intended for use by the FDBA in its communications and to apply for further funding for the Design ROI project. The topic of Design ROI is very extensive and multifaceted, as well as being of importance to society, so its systematic research and development are very important. Below are some suggestions for further research related to the project’s outcomes.

120

FURTHER DEVELOPMENT


5.2

RESEARCH QUESTIONS

Clear links have been identified between design investment and countries’ growth competitiveness, and national economies which make use of design place well in the growth competition index. Future research should make use of more quantitative research data related to national economies and individual companies. Below are some of the questions to be researched on the topic, which arose during the project. It wold be important to create consistent definitions of the concepts in the design industry, in order for it to be possible to measure the effects of design use. This would help in creating generally applicable metrics for the comparison of effects. Companies often see design as an expense rather than an investment. It would be interesting to examine why that is and what design competes with when investment decisions are being made. Further research should also be conducted on how the contributions of design could be separated out from the benefits brought by other corporate functions. Another interesting topic of research would be the existing project measurement practices in small and medium-sized businesses. They are probably affected at least by the size and sector of the business, but they should be examined in more detail to see which of them could be used in measuring design benefits. Finally, we propose further research related to the links between the levels of design application, the object of design and the benefits obtained. The variation of benefits should be examined at all organisational levels to see whether the level of design application affects the benefits obtained. Other factors affecting project outcomes, such as the business sector or size or the novelty of the product or service under development, and their links to the benefits obtained should also be researched in further detail.

122

FURTHER DEVELOPMENT


Further Questions to be Researched

How could the results obtained through the application of design be collected and utilised at the societal level? What are the commonly agreed terms and concepts in the design industry? How could the contribution of design be isolated from other corporate functions? What, if any, is the connection between the level of design application, the design object and the benefits obtained? What factors affect the benefits obtained through the application of design? What does design compete with when investment decisions are being made? What are the existing project metrics used by small and medium-sized businesses?

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5.3 DATA VALIDATION For the future development of the Design ROI tool it is crucial to have sufficient project-specific data in the the database, in order for the choices in the tool’s current logic to be validated. Validation of the benefits brought by design is particularly important, because their degree of empirical testing has been low and because the tool’s forecasts are based on the data in the database. The more data is entered in the database, the more accurate the tool’s predictions will be. One of the further development aims of collecting data on the sector and on projects is to turn the database into a system whose maintenance can be automated and, in future, integrated into the Design ROI tool. The challenges in data collection lie in motivating and engaging businesses in recording and sharing information. Collaboration with various bodies, such as the Finnish Design Management Association (FDMA), the Association for Finnish Work and the Confederation of Finnish Industries could be an opportunity to involve a larger group of businesses, including ones which are as yet unaware of the effects of design on business. Project-specific data in the database would help to educate businesses on the various uses of design and its many effects on business. This would develop the businesses’ design competence and give them information on design terminology and the design process. A more detailed description of the data to be included in the database is found in Appendix 3.

124

FURTHER DEVELOPMENT


Links to be Validated a)

The connection between the object of design and the benefits obtained

b)

The impact of sought-for and achieved benefits on cash flow

c)

The effects of the project’s starting parameters on the benefits obtained

d)

The effects of the project’s starting parameters on changes in cash flow

e)

The effect of the level of application of design on the project’s outcomes

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5.4 FUTURE OF THE DESIGN ROI TOOL Based on the examination of the design industry, the academic review and the modelling of the tool carried out in this project, it is justifiable to say that a workable tool for drawing attention to the financial benefits brought by design is possible to develop. The tool would help design agencies and their clients to have a shared understanding of the objectives of design projects. The tool created in this project is an initial prototype, which can work as an aid in better understanding the factors affecting measurements of design benefits. For the further development of the tool it would be important to validate its logic, to develop the methods used in its calculations, to increase the quantity of data in the database and to develop a workable application. One alternative could be to develop the tool together with software developers. They could help in considering the most suitable technological platforms and their compatibility with existing systems. If the tool would better suit a lighter program, such as an online application, it could be created for example in a product development project. Several suitable commercial providers are probably available. However, it should be noted that the development of the tool is still on a very experimental level, so it could be carried out for example as part of a university’s software development course. At this point it is clear that the outcomes of the project can be used in the development of practical applications, for instance in product development or other similar functions. The protection and copyrighting of the content developed in the Design ROI project should be considered before results are extensively published.

126

FURTHER DEVELOPMENT


“What I cannot build, I cannot understand.” -Richard Freynman


5.5 POSSIBLE PARTNERS The topic of Design ROI still contains much that should be researched and developed further. For the success of further research it would be important for possible extensions of the project to be carried out as a partnership between several parties. One possibility would be to initiate partnerships with international organisations and to survey similar research projects that they may have carried out. Possible partners could be the Danish Design Center (DDC), the The Association of Dutch Designers (BNO), the Swedish Industrial Design Foundation (SVID), the Finnish Design Business Association (FDBA) and the umbrella organisations of the Bureau of European Design Associations (BEDA) or the International Council of Societies of Industrial Design (ICSID), which granted Helsinki its WDC status. Partnerships could also be initiated with Finnish design award organisations, such as those behind the Fennia Prize (Design Forum Finland and Fennia Group). The financial performance of companies which have placed well in the competition and other participating companies could be compared. The aim would be to build a joint evaluation method that would motivate potential clients to use design services, and to gather more information to back up the Design ROI theory. For the collection of industry-specific data on design, collaborations should be initiated with Finnish organisations in the industry and with the authorities. Possible partners include Statistics Finland, the Ministry of Employment and the Economy, the Finnish Innovation Fund (Sitra), the Federation of Finnish Technology Industries, the Association for Finnish Work and Ornamo. It would also be important to start up an academic research programme related to the Design ROI topic. This should involve research at various levels, from master’s dissertations to doctoral theses. There has not been enough research in Finnish on the financial impacts of design.

128

FURTHER DEVELOPMENT


FDMA SVID DDC DBA

BEDA

BNO


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Hytönen, J. 2003 Muotoilun tulevaisuuden tunnistaminen. Ennakointiselvitys muotoilualan koulutuksesta. Taideteollinen korkeakoulu. Designium. Immonen, H., Nieminen, E. ja Järvinen, J. 2011. Global Design Watch 2010. Design Policy and Promotion Programmes in Selected Countries and Regions. Available:  http://www.seeproject.org/docs/Global%20Design%20Watch%20-%20 2010.pdf [Retrieved 17.9.2012] Joziasse, F. 2000. Corporate Strategy: Bringing Design Management into the Fold. Design Management Journal. Vol. 11. No. 4. s. 36-41. Kauppa- ja teollisuusministeriö 2007, Luovien alojen yrittäjyyden kehittämisstrategia 2015, KTM Julkaisuja 10/2007. Available: www.tem.fi/files/19795/Luovat_alat.pdf [Retrieved 26.9.2012] Kinnunen, J., Laitinen E., Laitinen, T., Leppiniemi, J. ja Puttonen, V. 2004. Mitä on yrityksen taloushallinto? Otavan Kirjapaino. Keuruu Koostra, G. 2009. The Incorporation of Design management in Today’s Business Practices. An Analysis of Design Management Practices in Europe. DME Survey. Inholland University of Applied Sciences. Rotterdam. Netherlands. Lindström, M., Nyberg, M. ja Ylä-Anttila, P. 2006. Ei vain muodon vuoksi – Muotoilu on kilpailuetu. Elinkeinoelämän Tutkimuslaitos ETLA. Lockwood, T. ja Walton, T. (edit.) 2008. Building Design Strategy: Using Design to Achieve Key Business Objectives. Allworth Press. New York. USA. Moultrie, J. ja Livesey, F. 2010. Design Scoreboard: Development of an Approach to Comparing International Design Capabilities. In T. Inn’s, Designing for the 21st Century: Volume 2: Interdisciplinary Methods and Findings, Gower Publishing Ltd. London England. s. 25-38. Nyberg, M. ja Lindström, M. 2005. Muotoilun taloudelliset vaikutukset. Elinkeinoelämän Tutkimuslaitos ETLA. Keskusteluaiheita. No. 982. Patterson, M. 1993. Accelerating innovation. Improving the process of product development. Van Nostrand Reinhold. New York. Petersen, S. 2007. The Idea Award as a Design Quality Metric: Part B, Predicting Investor Valuation. Proceedings of the 16th International Conference on Engineering Design (ICED07). Pitkänen, A., Cheng, H., Keinänen, K., Salo, M., Harju, A., Jonkka, J., 2011. Design ROI -kysely muotoilutoimistoille.

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Pitkänen, A., Cheng, H., Keinänen, K., Salo, M., Harju, A., Jonkka, J., 2012. Design ROI -kysely asiakasyrityksille. Punnonen, H. (toim.). 2008. Muotoilun maisemat 2008 – näkökulmana muotoilutoimistot ja muotoilua hyödyntävät yritykset. Design Forum Finland. Salorinne, S. ja Laamanen, K. 1993. Tuotekehityksen mittaaminen. Tekninen tiedotus 1/94. Metalliteollisuuden Keskusliitto. Schwab, K., (toim.) 2009. The Global Competitiveness Report 2009-2010. World Economic Forum. Geneva, Switzerland. Srivastava, R., Shervani, T. ja Fahey, L. 1999. Marketing, Business Processes, and Shareholder Value: An Organizationally Embedded View of Marketing Activities and the Discipline of Marketing. Journal of Marketing. Vol. 63. Special Issue. s. 168-179. Suomalaisen Työn Liitto, 2012. Tutkimus suomalaisesta designista - Mitä design merkitsee yrityksille. Swedish Industrial Design Foundation (SVID) 2008. Design för bättre affärer. Available: http://www.svid.se/upload/For_foretag/Undersokningar/Design_for_battre_affarer.pdf [Retrieved 1.2.2012] Swedish Industrial Design Foundation (SVID) 2008. Svenska företag om design Available: http://www.svid.se/upload/For_foretag/Undersokningar/Svenska_foretag_om_ design_2008.pdf [Retrieved 1.2.2012] Teknikföretagen, 2011. Industrial Design Pays Off. Available: http://www.teknikforetagen.se./home/Published/News/Industrial-design-paysoff/ [Retrieved 27.8.2012] Tether, B. 2004. The Role of Design in Business Performance. DTI Think Piece. ESRC Centre for Research on Innovation and Competition (CRIC). University of Manchester. Ulrich, K. ja Eppinger, S. 2008. Product design and development. Neljäs painos. McGraw-Hill Companies. New York. Whicher, A., Raulik-Murphy G. ja Cawood G. 2011. Evaluating Design: Understanding the Return on Investment. Design Management Review. Vol. 22. No. 2. s. 44-52. Zec, P. ja Jacob, B. 2010. Design Value: A Strategy for Business Success. red dot GmbH & Co. KG.

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LIST OF FIGURES AND TABLES FIGURES: Figure 1 Communication between design agencies and their clients Figure 2 Framework for evaluating design Figure 3 Links between growth competitiveness and creative competitiveness Figure 4

Corporate design investments in the last two years

Figure 5 Companies purchasing design services in 2006 and 2002 Figure 6 Application of design in industrial manufacturing companies Figure 7 Why hasn’t your company invested in design in the last two years? Figure 8 Why is design not relevant to your company? Figure 9 Obstacles to the application of design by companies Figure 10 How will the significance of design evolve in your company

in the next two years?

Figure 11 What will your design investments focus on?

(Ten most commonly chosen options)

Figure 12 Permanent personnel employed by design agencies Figure 13 Turnover of design agencies Figure 14 Functions carried out by the design agency Figure 15 Does your company possess multidisciplinary competence or competence

not included in traditional definitions of design?

Figure 16 What aspect of service will you focus on developing in the next three years? Figure 17 Design Ladder model Figure 18 Hypothesis of the Design ROI project: design produces benefits which affect

the company’s cash flow and accumulation of intangible capital

Figure 19 Objects of design and their subcategories Figure 20 Design Ladder for evaluating design maturity at various organisational levels Figure 21 The Design ROI Framework Figure 22 Operating logic of the Design ROI tool Figure 23 The Design ROI Framework

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TABLES: Table 1

Share of certain cultural sectors out of the value of the entire

cultural industry and of the GDP (%)

Table 2

Top 10 nations in the 2010 and 2007 growth competition and

creative competition indices

Table 3

Companies in the design industry in 2007

Table 4

Design expenses as a share of the company’s R&D expenditure (%)

Table 5

Functions carried out by design agencies

Table 6

International research on the links between design application and

financial performance

Table 7

Factors affecting design projects

Table 8

Design activities based on services offered by design agencies

Table 9

Benefits achieved through design

Table 10 Sample metrics

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APPENDICES Appendix 1: Main Sources of Industry-Specific Design ROI Information Main Sources of Industry-Specific Design ROI Information This appendix gives a brief account of the main research and reports used for the review of the design industry. The project team strived to create a comprehensive picture of the Finnish design field by collecting data from extensive studies such as industry surveys by the Association for Finnish Work, the Research Institute of the Finnish Economy and Designium. Additionally, the source materials include qualitative studies with smaller sample sizes, such as Muotoilun maisemat 2008 and interviews and surveys carried out by the Design ROI team. It should be noted that the latter interviews and surveys were delimited to member companies of the FDBA and their clients, so the sample size was limited.

136


Name

Year

Tekijät

Design ROI

2012

Julkaisija

Kuvaus

Pitkänen, A.,

The aim of the surveys and meetings was to

customer

Cheng, H.,

examine the setting and fulfilment of objec-

survey and

Harju, A.,

tives for design projects, to validate the lo-

meetings

Jonkka, J.,

gic of the Design ROI tool and to investigate

Keinänen, K.,

the tracking of design project profitability in

Salo, M.

large companies. Thirteen responses were received to the online questionnaire. Seven face-to-face meetings were conducted.

Design ROI -kysely

2011

muotoilutoimistoille

Pitkänen, A.,

A survey of members of the FDBA exa-

Cheng, H.,

mined the companies’ scope of business,

Harju, A.,

services offered, assignments, customer

Jonkka, J.,

structures and future expectations. The

Keinänen, K.,

survey took the form of an online question-

Salo, M.

naire. Responses from 15 design agencies formed the data for the research

Design

2006

Industry

Edit. Holopainen

Tekes

M., Järvinen J.

This two-part survey was a continuation of the Industrial Design Survey conducted

Survey 2006

in 2002. The first part looked at the application of design in companies and the obstacles to application. The second part examined the operations, service selections, earnings principles and future prospects of design agencies. The survey took the form of an online questionnaire. There were 113 responses.

Muotoilun

Design

The survey concerned industrial design bu-

maisemat

2008

Edit. Punnonen, H.

Forum

sinesses and their clients. It reviewed the

(“Design

Finland

business development of design agencies

Landscape”) 2008

and the application of design by clients. Materials were collected through 34 faceto-face interviews, of which 20 were with design agencies and 14 with their clients.

Tutkimus suoma-

Association

The purpose of the study was to investiga-

laisesta designista

2012

for Finnish

te what design means for companies, what

- Mitä design mer-

Work

design investments are made as part of

kitsee yritykselle

business operations, and the future pros-

(Survey on Finnish

pects of design from the clients’ points of

Design; What

view. The survey took the form of an online

Design Means to

questionnaire. Around 1,380 responses

Companies)

were received.

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Appendix 2: Bibliography for the Design Benefits Listing Bibliography for the Design Benefits Listing (Table 9) 1 Borja de Mozota, B. 2006. “The Four Powers of Design: A Value Model in Design Management”. Design Management Review. Vol. 17 No. 2. pp. 44-53 2 Borja de Mozota, B. 2002. “Design and Competitive Edge: A Model for Design Management Excellence in European SME’s”. Design Management Journal. Vol. 2. No. 1. pp. 88-104 3 Gemser, G. and Leenders, M. 2001. “How integrating industrial design in the product development process impacts on company performance”. Journal of Product Innovation Management. Vol. 18. No. 1. pp. 28-38 4 Hertenstein, J., Platt, M. and Veryzer, R. 2005. “The Impact of Industrial Design Effectiveness on Corporate Financial Performance”. Journal of Product Innovation Management. Vol. 22. No. 2. pp. 3-21 5 Koostra, G. and Vink, J. 2007. “Measuring the Future Brand Effect of Graphic Design”. Design Management Review. Vol. 18. No. 4. pp. 81-89 6 Lindström, M., Nyberg, M. and Ylä-Anttila, P. 2006. Ei vain muodon vuoksi – Muotoilu on kilpailuetu. Research Institute of the Finnish Economy (ETLA). 7 Lockwood, T. 2007. “Design Value: A Framework for Measurement”. Design Management Review. Vol. 18. No. 4. pp. 90-97 8 Nyberg, M. and Lindström, M. 2005. “Muotoilun taloudelliset vaikutukset”. Research Institute of the Finnish Economy (ETLA). Keskusteluaiheita No. 982

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9 Salimäki, M. 1996. Suomalaisen design-teollisuuden kansainvälinen kilpailukyky – Strateginen ryhmätutkimus designaloilta. Licentiate Thesis. Helsinki School of Economics and Business Administration. Helsinki 10 von Stamm, B. 2004. “Innovation – What’s Design Got to Do with It?” Design Management Review. Vol. 15. No. 1. pp. 11-19 11 Wallace, R. 2001. “Proving Our Value: Measuring Package Design’s Return on Investment”. Design Management Journal. Vol. 12. No. 3. pp. 20-27 12 Workshop organised by the Design ROI project for members of the Finnish Design Business Association. 20 January 2012, Espoo.

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Appendix 3: Data to be Included in the Database The following data will be collected from companies for the database: Basic company data (sector, turnover, number of employees) This sort of basic data will help to form a general idea of the extent of operation and the operating environment. These factors also affect the application of design in the company and help to explain certain design investments. The section also asks about mechanisms for tracking business profitability on a general level. The aim is to link the assessment of design project success to existing measurement practices to make project planning and monitoring easier. Use of design services by the company The design intensity of the company may affect the outcomes of the design project. This section asks for the proportion of design investments out of the R&D and marketing budget. Another topic of interest is which budget design investments come from. The role of design in the company is examined using the Design Ladder. Project-specific data Project-specific data forms the core of the database. The most ideal project for analysis ended at least one year and at most three years ago. With this sort of time period, it is possible to indicate some of the concrete outcomes of the project, while information on the starting points and implementation of the project is still readily available. A brief freeform description of the project is provided. The duration, object (product, service, space or image), degree of novelty and end user of the design project are defined. Comprehensive starting data on the design project can be built out of these details. Additionally the user should enter an estimate of the significance of the design project for business and the significance of design for the outcomes of the project.

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Tracking of project results It is important that the database include numerical as well as qualitative data. For different design projects to be comparable, their outcomes must be in some way commensurate. The database will include figures related to expenses and income, based on the degree of novelty and object of the design project. If the design object is completely new, the data centres around new revenues contributed by the object and the operating profit of the new business operations. If the design project relates to updating an existing object, the data relates to sales of the product or service, the sales margin and the expense types before and after the project. In the case of image or concept design projects, the requested data relates to turnover and operating profit before and after the project. In all cases, the respondent is asked to estimate the contribution of design to the changes in income and expenses.

Objectives and outcomes of the project For the success of a project to be evaluated, the initial objectives of the project must be known. In the database, the objectives and outcomes of projects are presented in the form of a listing of potential design benefits. The list of benefits can be found in the section of the Design ROI report which concerns the tool. The list is not exhaustive and users may add to it in the database. The database and the Design ROI tool were developed so that they can be integrated. Use of the Design ROI tool automatically stores data in the database. The aim is that when tracking data is entered in the Design ROI tool, it is also stored in the database, increasing the quantity of data and the intelligence of the tool.

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Design ROI Project Report © Design ROI Research Project 2012 Editor: Antti Pitkänen Layout design: Maria Solovjew Layout design: Design Forum Finland Authors: Heidi Cheng, Kristian Keinänen, Maria Salo Translation: Nouveau Publication and translation was funded by the Arts Promotion Centre Finland

142


Design ROI Research Project The Design ROI project was a research project conducted between September 2011 and September 2012 with the aim of developing a model and a set of metrics for measuring the return on investments in design. The project was funded by Aalto University, the Finnish Funding Agency for Technology and Innovation (Tekes) and fifteen member agencies of the Finnish Design Business Association (FDBA). DROI – Measurable Design is a summary of the information gathered, the main findings and the solutions developed during the research project. 143

Design ROI - Measurable Design  

The Design ROI project was a research project conducted between September 2011 and September 2012 with the aim of developing a model and a s...

Design ROI - Measurable Design  

The Design ROI project was a research project conducted between September 2011 and September 2012 with the aim of developing a model and a s...

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