There are two design value indexes that demonstrate how listed businesses have outperformed the market through the use of design.
The UK Design Council developed the Design Index which measures the relationship between the effective use of design and share price performance. Its key finding is that the share prices of design-aware companies out-perform the FTSE 100 and FTSE All Share indices by more than 200 per cent. A full copy of the report can be downloaded here.
The Design Business Council is conducting similar research with ASX100 organisations.
This research will use the Michael E Porter Value Chain as a means to examine discrete activities within a business.
A value chain is a set of activities that a business implements to create value for its customers. Porter proposed a general-purpose value chain that companies can use to examine all of their activities, and see how they’re connected. The way in which value chain activities are performed determines costs and affects profits and can help understand the sources of value for an business.
Elements in Porter’s Value Chain
Rather than looking at departments or accounting cost centres, Porter’s Value Chain focuses on systems, and how inputs are changed into the outputs purchased by consumers. Using this viewpoint, Porter described a chain of nine activities common to all businesses, and he divided them into primary and support activities. The Design Business Council has added R&D to the activities to develop the Design Value Chain.
Primary activities relate directly to the physical creation, sale, maintenance and support of a product or service. They consist of the following:
- Inbound logistics – These are all the processes related to receiving, storing, and distributing inputs internally. Supplier relationships are a key factor in creating value here. Design can be used to assist in the planning of inbound logistics, for example in analysing product movement, recording systems and graphic interfaces. Supplier communications can be greatly enhanced by design.
- Operations – These are the transformation activities that change inputs into outputs to be sold to customers. Here, your operational systems create value. Design can be used to map out operational processes and explain them to management and the workers. Design can be used in the design of processes and machinery used in operations.
- Outbound logistics – These activities deliver your product or service to your customer. These are things like collection, storage and distribution systems. They may be internal or external to your business. Design can be used here to plan out processes and represent them graphically for management and workers. The branding of delivery vehicles as mobile billboards is a good use of design.
- Marketing & sales – These are the processes you use to persuade clients to purchase from you instead of your competitors. The benefits you offer, and how well you communicate them, are sources of value. Design has a major part to play in this area from research, devising campaigns through to execution and effectiveness measurement.
- Service – These are the activities related to maintaining the value of your product or service to your customers, once it’s been purchased. Design and design thinking is used to do customer journey maps, analyse service issues and devise campaigns to resolve service issues.
These activities support the primary functions above. In our diagram the support activities can play a role in multiple primary activities. For example, procurement supports operations with certain activities, but it also supports marketing and sales with other activities.
- Infrastructure – These are a company’s support systems and the functions that allow it to maintain daily operations. Accounting, legal, administrative, and general management are examples of infrastructure that businesses can use to their advantage. Design is used with the introduction of design thinking to help managers deal with issues. The design of compliance reports such as Annual Reports is a major use of design to improve readability and legibility. Design is also used by management to help explain processes and issues to workers.
- R&D – This area has been added by the Design Business Council because of its unique place in creating products and services that add value for a business. Design plays a part; from the initial thoughts about new products or services through prototyping, user testing and the final form.
- Human resources – This is how well a company recruits, hires, trains, motivates, rewards, and retains its workers. People are a significant source of value, so businesses can create a clear advantage with good HR practices. Design is used here in all aspects from the hiring of staff through the induction program and to ongoing communications. The effectiveness of training can be increased through the use of design.
- Technology – These activities relate to managing and processing information, as well as protecting a company’s knowledge base. Minimising information technology costs, staying current with technological advances, and maintaining technical excellence are sources of value creation. Examples of design use would be in interface design, app development, web development and user experience evaluation.
- Procurement – This is what the business does to get the resources it needs to operate. This includes finding vendors and negotiating best prices. Design is being used in the supplier communication channel to develop stronger relations. Some businesses are working with suppliers to design better products and services that improve quality and reduce cost.
Companies use these primary and support activities as “building blocks” to create a valuable product or service.
THE DESIGN LADDER
The Design Ladder was developed by the Danish Design Centre in 2001 as a model for illustrating the variation of design use in businesses.
The Design Ladder is based on the premise that there is a positive link between the use of design methods and the businesses overall business success.
To explain how design use can be measured we have adapted the design ladder to five steps as shown below:
The five steps of the design ladder
STEP 1: Delivers design as a commodity that meets specifications. At level 1, you consider design to be just part of the procurement process. The design service meets basic specifications and is a transactional service. There’s little sense of a client/designer relationship at this level. Design is purchased as a commodity based on price and/or availability.
STEP 2: Delivers design styling solution . At the second level, you are satisfied with ‘good design’ but not asking for ‘effective’ design. Your focus is on design as styling and your judgement will be largely aesthetic. You give a basic brief to the designers and will expect a response that stays within the brief.
STEP 3: Delivers design and consultancy. Level 3 relationships are often based on you requiring design customisation or specialised design services. You are seeking designers who can add value to your product or service. You expect the designer to extend your brief and demonstrate value-add.
STEP 4: Uses design to solve business issues . At this level, you see the connection between design and the success of your business. For example, you may have worked with a designer in a design thinking workshop to find solutions to complex problems, or used design to help analyse and meet the needs of major clients . You accept design as offering a strategic advantage for your products or services.
STEP 5: Integrates design throughout the whole business . At level 5, design has truly become part of your competitive advantage through integration in all of the 10 activities in your business. You work closely with designers to solve pressing organisational issues. You are seeking a design consultant rather than a designer.