SCHOOL OF MANAGEMENT WORKING PAPER SERIES 01-12 IS GOOD DESIGN REALLY GOOD BUSINESS? ISSN 1179-3023 (online) ISBN 978-0-475 12401-2 Stephen Cummings, Margaret Petty, Ben Walker School of Management Victoria University of Wellington PO Box 600 Wellington 6140 New Zealand Email: [email protected] Tel: + 64 4 463 6931 Fax: + 64 4 463 5084 For more information about the School of Management Working Paper Series: www.victoria.ac.nz/som 2 Working Paper Series __________________________ ABSTRACT „Good design‟ is increasingly regarded as a vital one-size-fits-all solution to the strategic challenges of 21st century business. In the last decade many studies have promoted the importance of good design in improving firms‟ attractiveness to the market and profitability, and enhancing industry productivity and economic development. In concert with this push, „design thinking‟ has become the „next big thing‟ in business. However, there is little hard evidence to support claims that good design is necessarily good business, with partial analysis or anecdotal reference to particular companies generally employed instead to buttress such claims. This paper contrasts the share prices of firms that have won highly regarded design awards with average share price movements in NZ, Australia, the United States and the UK. Contrary to earlier research, we found that winning design awards does not lead to above average performance in NZ, Australia or the UK. However, there was some positive effect in the US where the market listings are more internationally diverse. As a result, we raise questions about the assumption that good design is good business, and outline the implications for theory building and practice. Keywords Design, corporate performance, design thinking, awards Is Good Design Really Good Business 3 _____________________________________ INTRODUCTION Design has become the next big thing in business. In the decade since 2000 a number of studies from a range of countries have argued that good design is good for business. In 2001 a study of Dutch firms found that integrating a design focus into new product development projects had a significantly positive influence on an organization‟s turnover, export sales and profit (Gemser & Leenders, 2001). A further study published in 2001 argued that corporate performance more generally could be greatly enhanced through better design (Hertenstein, et al., 2001). In 2002, a British study found that half of actual export sales made by winners of the UK‟s „Queen‟s Award for Exports‟ could be attributed to their investment in design (Whyte, Salter, Gann and Davies, 2003). In the same year, a survey of 33 European SMEs claimed that design creates a competitive advantage (Mozota, 2002). In 2003, the Danish Agency for Enterprise and Housing conducted a wide-ranging survey of Danish companies and found that companies where design was seen to be a core strategic issue performed better on a range of economic measures (Kretzschmar, 2003). The „design focused‟ group‟s growth in gross revenues across a period of five years, for example, was 22% higher than the average of all companies. A Swedish study published in 2004 found that companies with the „design maturity‟ enjoyed very strong growth (Teknikforetagen & SVID, 2004). And 2005 was a big year in this regard in the United Kingdom, with large studies published by the Department of Trade & Industry (DTI) and the independent „Cox review of Creativity in Business‟ funded by HM Government outlining what they saw to be links between design, business success and economic growth (Cox, 2005; DTI, 2005). Further studies carried out by the UK Design Council in the same year claimed that rapidly growing companies attached greater weight to creative design than the average growth companies. They also argued that a much lower percentage of design-intensive firms than the average (just 21 per cent) were driven to compete primarily on price (Bilton and Cummings, 2010). Taking things a step further have been those who have argued that not only is good design good for a business, but thinking like a designer is good for those charged with developing an organization‟s strategy. Perhaps the most influential book on strategy over past years has been Roger Martin‟s 2009 book „Design of business: why design thinking is the next competitive advantage does exactly this.‟ 4 Working Paper Series __________________________ Martin‟s breakthrough idea may not be that new, a 1984 article by Kotler and Rath titled “Design: A powerful but neglected strategic tool” outlined a similar agenda, as have Black and Baker (1987), Bruce and Bessant (2002) and Bolland & Callopy (2004) since. But hot on the heels of the general interest piqued by Martin‟s work have come a number of best sellers, such as „Change by design: how design thinking can transform organizations and inspire innovation‟ (Brown, 2009); „A fine line: how design strategies are shaping the future of business‟ (Esslinger, 2009); and „The designful company: how to build a culture of nonstop innovation‟ (Neumeier, 2009). A number of conferences have recently been established with the purpose of advancing the design mantra in business, and many existing business conferences have taken a design approach to be their overarching theme (e.g., the European Group for Organization Studies conference theme for 2012 is “Design!?”). And design thinking is also now coming to be seen as an inspiration for re-inventing the way we teach management (Dunne & Martin, 2006; Starkey & Tempest, 2009). While there have been pockets of interest in the application of design to business for many years, it is fair to say that over the last 5 years, these small swells have now become a very large wave. But, taking a step back from the pedestal that design has now been placed upon in business, perhaps the item that appeared to be the most compelling piece of evidence that good design pays in the past decade, was a graph published in 2005 by the UK Design Council. The Council produced a stock market index of firms that had won highly regarded design awards over the past decade and then plotted the share prices of that group of firms against the FTSE all-share index, the FTSE 100 and a portfolio of companies from emerging economies. It is reproduced here as figure 1. A significant separation occurs in the late 1990s where companies with design at the heart of their strategy start to streak ahead of the norm. In the 10 years to 2004 the 61 companies in what came to be called the “design index” rose by 263%, compared to the FTSE 100‟s 57%. Using the winning of highly regarded design awards as a proxy for good design and share price as a proxy for business performance, the argument was made that perhaps the best way to outperform the norm and the only way to compete with the factor advantages enjoyed by rising companies from emerging economies, was to engage superior design or design thinking (Bilton & Cummings, 2010). Despite the inspiring and compelling message conveyed by the Design Council‟s graph and the assumption that is increasingly becoming an unquestioned convention in business circles that Is Good Design Really Good Business 5 _____________________________________ good design is a good strategy, the Council has not repeated the study. And nobody else, to our knowledge, has sought to do this or something similar either. Figure 1. Good design = good strategy1 In this paper we set out to test the accuracy of the assumptions described above, and whether we can generalize from them, and to think further about the value of design for business by replicating the Council‟s study across four different countries: New Zealand, Australia, the United States and the United Kingdom. METHOD In order to achieve this paper‟s aims, we had to think about how, exactly, we could objectively operationalize national design indices in a manner relatable to that developed by the UK Design Council. This was not straightforward as the UK Design Council had not only included winners of a range of design awards but a number of other listed companies that were identified as design- leaders by a panel of experts appointed by the Design Council. Not only was this therefore not a completely objective index, it was difficult to replicate in other countries. Consequently, we 6 Working Paper Series __________________________ went back to the original idea behind the Council‟s design index – to create a list of companies that demonstrated their design prowess by winning reputable design competitions. Perhaps the most reputable international design awards are the iF awards (MP ref?). However, while using winners of these awards over the past decade yield a reasonable sample for a US index, it did not in the other three countries under investigation. In these cases we had to rely on using local awards to create a large enough sample for an index (the specific awards used for each national index are outlined in their respective sections of the paper). We included all companies who had won an award in the decade surveyed, even though this meant using share price data from before when the award was won, taking the view that a reputable award was retrospective in the sense that it would likely come after a long period of work by the company concerned to turn its intent toward design excellence into fruition. In the case of the UK we created an additional index by using the same sample (minus those companies that were no longer operating or listed) as that used by the UK Design Council examining those companies‟ performance through to 2010. For each of our five design indices (New Zealand, Australia, United States, United Kingdom and UK Design Council Extended), the historical share price data (period beginning 1 Jan 2001 to 1 Jan 2010) for each of company in the Design Index of interest was then collected using a combination of Yahoo and Google Finance in three monthly intervals for the NZ and Australian Design Indices, and in monthly intervals for the US and UK (new software and more advanced online services for these two markets meant that we were able to collect more regular data for the US and UK Design Indices).