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What Is the Real Value of Design

There is growing evidence to suggest that design-centric companies outperform their peers. Motiv Strategies and DMI explore some of the reasons why.

WHIrlPool APPlE ForD fEATURE what is the reaL vaLUe OF desiGn? HErMAN-MIllEr IBM INTuIT By Jeneanne rae There is growing evidence to suggest that design-centric companies outperform their peers. Motiv Strategies and DMI explore NEWEll-ruBBErMAID some of the reasons why. NIKE ProCTEr & gAMBlE STArBuCKS STArWooD STEElCASE CoCA-ColA WAlT DISNEY WHIrlPool DESIgN-CoNSCIouS CoMPANIES: APPlE ForD HErMAN-MIllEr IBM INTuIT NEWEll-ruBBErMAID NIKE ProCTEr & gAMBlE STArBuCKS STArWooD STEElCASE CoCA-ColA WAlT DISNEY WHIrlPool APPlE ForD HErMAN- MIllEr IBM INTuIT NEWEll- ruBBErMAID NIKE ProCTEr & gAMBlE STArBuCKS 30 DMI Winter 2013 STArWooD STEElCASE CoCA-ColA WAlT DISNEY

WHIrlPool APPlE ForD HErMAN-MIllEr IBM INTuIT fEATURE what is the reaL vaLUe OF desiGn? Notes 1. “design delivers for Business: 2. Platt, Marjorie B., hertenstein, 3. Jeneanne rae, “6 Keys for turning a summary of evidence from Julie h., and Brown, david r. your Company into a design NEWEll-ruBBErMAID the design Council’s design “valuing design: enhancing Powerhouse,” Fast Company’s Leadership Programme” Corporate Performance through Co.Design blog (fastcodesign. (online at design effectiveness.” Design com), april 2012. uk/publications). Management Review, vol. 12, no. 3 NIKE ProCTEr & gAMBlE (summer 2001). STArBuCKS STArWooD STEElCASE CoCA-ColA What Is the real WAlT DISNEY WHIrlPool Value of Design? DESIgN-CoNSCIouS CoMPANIES: APPlE ForD KEPTICS ALWAyS WANT TO companies, we found they outperformed the S&P 3 HErMAN-MIllEr IBM INTuIT know why they should invest 500 by a significant margin. It quickly became in design. clear that there is a correlation between investing Even today, when the in design and extraordinary stock performance. NEWEll-ruBBErMAID business landscape is teeming Seeing this work, DMI president Michael with success stories that Westcott asked us to revisit the creation of a Scelebrate design as a powerful design-centric index that could be used to track strategic tool, the answer how design-centric companies perform relative NIKE ProCTEr & gAMBlE to this question is not well understood by the to the S&P 500 over time. Partnering with DMI average businessperson—and understandably so. on this effort, we devised a portfolio of 14 publicly After all, design is notoriously difficult to define, traded US companies that made the cut for STArBuCKS STArWooD tough to measure, hard to isolate as a function, inclusion (see sidebar). The results supported and tricky to manage, making it challenging for our previous findings. While the S&P grew many non-designers to comprehend. 75 percent from 2003 to 2013, our Design-Centric STEElCASE CoCA-ColA Over the years, many organizations have Index grew an astonishing 299 percent. attempted to tackle this issue, eager to make a The fact remains that although these results hard case that will make design-unconscious show a powerful return on investing in design, WAlT DISNEY WHIrlPool managers take notice. In 2005, the UK’s Design the index does little to explain the how of this Council discovered that every £1 spent on design phenomenon. This article seeks to explain the led to more than £20 in increased revenue, £4 various ways design can add significant value to 1 APPlE ForD HErMAN- increased profit and £5 in increased exports. large and small enterprises alike. An even earlier study, by Julie Hertenstein and Marjorie Platt, examined 51 firms in four Design-driven value industries, using 12 different measures of The diverse companies comprising the DMI MIllEr IBM INTuIT NEWEll- financial performance across five years, and Design-Centric Index all understand the power concluded that firms rated as having good design of design, how to use it as a tool, and how to 2 scale it in a way that will drive success for their were stronger on virtually all measures. ruBBErMAID NIKE ProCTEr Several years ago, Motiv Strategies began businesses. So what is the value that broad conducting studies on companies that were deployment of design principles and methods consciously using design as an integral part brings to these companies? The following are & gAMBlE STArBuCKS of their business strategy. While tracking the eight ways in which design is helping these financial performance of these design-centric companies win big. STArWooD STEElCASE DMI Winter 2013 31 CoCA-ColA WAlT DISNEY

fEATURE what is the reaL vaLUe OF desiGn? 1 The wow faCToR DMI DESIgN-VAluE INDEX Great design helps make products and Selection Criteria services more aesthetically pleasing, more the dMi design value index by Motiv is value-weighted according to market compelling to use, and more relevant in a world capitalization data from the close of business on the last trading day of June and december in the years 2003 through June 2013. that seems to change at an ever-increasing what constitutes good design can be viewed as highly subjective; therefore, pace. this is one reason the world is currently the selection criteria developed for inclusion in our index focus on the following: in love with tesla Motors, which has given us 1) PUBLICLy TRADED IN ThE US fOR 10+ yEARS drop-dead gorgeous cars that help save the Only public companies were eligible for selection to ensure access to planet and get 200 miles on one charge. Or financial data surrounding share prices and stock performance. The 10-year think about how much of the public has been timeframe was to select for companies that have maintained a consistent, completely enamored with Apple products long-term focus on design. over the course of their introductions over the 2) SCALE Of DESIGN ORGANIZATION AND DEPLOyMENT IS AN INTEGRATED fUNCTION AND ORGANIZATIONAL last decade. CATALyST fOR ChANGE the wow factor can also draw consumers the strategic use of design is employed in the organization, both within into supporting certain companies over time. business units and as a centrally managed function with a high degree of influence with its senior leadership team. the use of design can have in the 1990s, for example, discount retailer outsized influences on a company’s bottom line that multiply as it is target faced increasing competition from assimilated into the organization and its culture. similar stores such as Wal-Mart and K-Mart 3) GROWTh IN DESIGN-RELATED INVESTMENTS and realized it faced three options: AND INfLUENCE hAVE INCREASED OVER TIME “to specialize, to become the low-cost design has been well resourced through talent acquisition, appropriate facilities, competitive technologies, and the application of design research producer, or to differentiate,” remembers as a tool, among other investments. design cannot be expected to thrive Gerald Storch, target’s vice chairman at the when proper resourcing is neglected. time. the first choice would have crippled 4) DESIGN IS EMBEDDED WIThIN ThE future growth; the second was already a ORGANIZATIONAL STRUCTURE battleground. So, the company decided to go It is well understood where and how design fits within the organization. While there are several precedents set for successful operating models that can be used, with the third: differentiate through design. the common theme is that design is clearly built into the structure and processes that decision led to target’s domination of of the organization (org charts, process maps, raCi charts, and so forth). the mass merchandising market as tar-zhay, 5) DESIGN LEADERShIP IS PRESENT the mass purveyor of stylish yet affordable AT SENIOR AND DIVISIONAL LEVELS goods. it didn’t miss the mark—thanks to its design is given a seat at the table with an experienced executive or executive-level head of design who can interface with senior leadership. typically, design ethos, which can be found in everything this head of design has 15 to 20 years of experience managing design-related from its product offerings to its store layouts functions (strategy, organizational development, budgets, talent management, to its commitment to innovation. indeed, and so forth) that drive the company forward with design goals. companies like Apple and target have raised the 6) ThERE IS A SENIOR-LEVEL COMMITMENT TO DESIGN’S bar so high in their use of design that the public is USE AS AN INNOVATION RESOURCE AND INTEGRATIVE fORCE fOR POSITIVE ChANGE more aware than ever of what good design looks a corporation’s commitment to design shows up in many ways, including like and what design-led companies are capable the level of interaction the design executives and function have with other parts of producing. there is no doubt that this factor is of the organization, and in how the CeO and other leadership team members represent the importance of design in their day-to-day work and public relations showing up in company growth trajectories, as efforts as well as the extent to which the organization participates and wins design well as in their stock market results. awards, sponsors contests, fosters university affiliations, or other design-related activities such as encouraging its designers to speak publicly about their work. 32 DMI Winter 2013

fEATURE what is the reaL vaLUe OF desiGn? Great design helps make products and services more aesthetically pleasing, more compelling to use, and more relevant in a world that seems to change at an ever-increasing pace. fIGURE 1 A $10,000 investment in our design index of diverse design-centric companies would have yielded returns 228% higher than the same investment in the S&P over the same amount of time. $45,000 DesIgn ConCIous DmI DesIgn-CenTRIC InDex CompanIes: $40,000 $39,922.89 Apple D.InDex CoCA-ColA $35,000 Ford HermAn-mIller IBm $30,000 % IntUIt 228 newell-rUBBermAId $25,000 nIke proCter & GAmBle $20,000 $17,522.15 StArBUCkS s&p InDex StArwood $15,000 SteelCASe tArGet $10,000 wAlt dISney wHIrlpool $5,000 07 07 10 10 11 11 12 12 13 13 03 03 04 04 05 05 06 06 ’ ’ 08 08 09 09 ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ ’ C ’ ’ ’ ’ C C C C C C C C e C C e e e e Jun e e Jun e e Jun D e e Jun D Jun D Jun D Jun D D Jun D D Jun D Jun D Jun D fIGURE 2 DesIgn InDex CompaReD To s&p InDex The companies comprising our design index outperformed full peRIoD Bull maRkeT BeaR maRkeT CuRRenT peRIoD the S&P over a 10-year period (10/09/02 – (10/09/07 – (03/05/09 – encompassing a bull market 10/08/07) 03/05/09) pResenT) (October 9, 2002-October 8, Design-Centric Index 2007), a bear market % % % % (October 9, 2007-March 5, aBsoluTe +299 +112 –28 +222 2009), and the current period peRfoRmanCe S&P Index (March 5, 2009-present). +75% +67% –37% +99% DesIgn- CenTRIC InDex % % % % peRfoRmanCe +224 +45 +9 +123 RelaTIve To s&p DMI Winter 2013 33

fEATURE what is the reaL vaLUe OF desiGn? Notes By employing such design tools as empathy, 4. scott Cedrowski, “nike’s new Marketing Mojo,” CNN Money, creativity, and rationality, we are able to February 13, 2012. reframe problems in ways that forge new pathways toward innovative solutions. 2 BRanD expRessIon People today want to connect with brands as extensions of themselves. We see them, hear them, and interact with them in more ways than ever before. Some of the most valuable work designers can perform lies in the interpretation of a company’s brand elements and how customers connect with them. “Connecting used to be, ‘Here’s some product, and here’s some advertising. We hope you like it,’” says nike CeO Mark Parker. “Connecting today is a dialogue.” And nike has put its money where its mouth is. its spending on tV and print advertising has dropped about 40 percent in the past three years at the same time that its sales have increased to more than $25 billion—more than 30 percent bigger than closest rival Adidas. How? Nike is going straight to where the customer is—the digital world. nike has carefully crafted a multichannel digital presence that not only fosters open communication with customers, but also encourages those customers to connect with each other. in 2010, the company launched nike Digital Sport, a new division in charge of developing devices and technologies that help users track their personal statistics in whatever sport they pursue. By deepening relationships with (and among) its customers, nike enables customers to amplify its signature Just do it attitude. The result? Before, Nike could count its biggest brand audience as the 200 million people who tune in to the Super 4 Bowl. now, across all its sites and social media communities, it can hit that figure any day. nike continues to communicate the aspirational, active, can-do spirit that its customers crave across its product lines, and promotes it with platforms designed to amplify that energy. 3 solvIng unmeT useR neeDs Design research emphasizes the use of He kicked off Design for Delight, a design- empathy—an instrument for encountering the thinking-based internal program intended to world as others might. the importance of this tool help intuit development teams better understand cannot be overstated. After all, no matter whether customers’ frustrations and desires so that one designs products, services, or processes, intuit could design solutions to meet them. this consciously keeping the end users in mind helps deep customer understanding eventually led to to reveal inspiration for category-killing products, the development of Snaptax, a mobile app that as well as lower the risk of failure. Further, being allows users to complete their taxes in 10 minutes the first to find and develop solutions to latent or less. Within three weeks of its launch, the app needs, which one can uncover by studying saw more than 350,000 downloads and remains what people do, think, and feel provides the wildly popular on the iOS App Store and the opportunity for first-mover advantage, provided Google Play Store. the company can commercialize and scale the identifying and capitalizing on the discovery insight uncovered. of unmet needs leads to the perception of market in 2007, intuit founder Scott Cook decided leadership. if a company can do this on a systemic that his company wasn’t innovating fast enough. basis, that perception will become reality. 34 DMI Winter 2013

fEATURE what is the reaL vaLUe OF desiGn? 5. Matt Kranz, “Disney Profits Flat, But theme Parks shine,” USA Today, aug. 6, 2013. 4 DevelopIng BeTTeR 5 ReThInkIng sTRaTegy CusTomeR expeRIenCes recently, design thinking has become popular in every relationship we have with providers of goods with organizations that face murky, complex and services in our society, there is an inherent end- issues that are hard to solve using traditional to-end experience. When designers get involved in business best practices. By employing such creating experiences, they use techniques involving design tools as empathy, creativity, and empathy to uncover and optimize for both functional rationality, organizations are able to reframe and emotional customer needs. Different types of problems in ways that forge new pathways designers (interaction, brand, package, product, service, toward innovative solutions. in other words, graphic, and so on) contribute at various stages of the designers don’t create solutions until they process to, in the best cases, build a seamless, branded, have determined the root issue, and even then, and differentiated experience. By definition, this work they pause first to consider the whole range of connects various parts of the company that in many potential solutions. cases had not previously even met. this is a critical iBM is working design thinking into its byproduct of the top design-driven companies and a practices to build a new way of creating key value-added secret that best-practice companies solutions for its customers. in addition to in the Design-Value index share. heavily recruiting designers and design Disney is one company that has built a successful experts, the technology giant recently business ecosystem around delighting customers. launched an initiative to send product teams in particular, its park and resorts unit—which to Designcamp, a one-week design-thinking includes iconic attractions Disneyland and Disney training camp at a brand-new studio in Austin, World—has gained attention by pioneering the field of texas, that was built for this purpose. Product experience design. Disney’s imagineers, the creative managers, developers, and designers learn force responsible for creating and developing its design-thinking techniques and put their new entertainment venues, include illustrators, architects, skills to use developing solutions for mobile, engineers, choreographers, lighting designers, show social, cloud, security, and big data. writers, graphic designers, and many more who are What’s so big about design thinking is that tasked with “making the magic.” every aspect of a it allows all comers to tap the right/creative customer’s visit is thoughtfully designed to delight. side of their brains to think in new ways, create Cast members (employees) are even trained on how to new connections, derive new insights, and treat guests (customers) to the smallest details—for create innovative solutions. With creativity example, how to smile and to wave. the intangible a lost commodity in many business settings elements of the experience haven’t been ignored, either: these days, this practice builds that muscle. the ambient sounds along walking paths and the scent of cookies that wafts through the park help immerse visitors in a fantasyland determined to deliver on its promise of being “the happiest place on earth.” its investments seem to be paying off. the park and resorts division has posted the fastest revenue growth of 5 any of the company’s five business units in the past year. DMI Winter 2013 35

fEATURE what is the reaL vaLUe OF desiGn? Good design is the difference between a complex, frustrating interaction and a delightful experience. maRkeT expansIon ThRough 7 peRsona DevelopmenT anD useR unDeRsTanDIng 6 haRDwaRe/sofTwaRe/ With their special ability to understand and interpret people seRvICe InTegRaTIon and cultures, designers are well suited to help their companies assimilate what is required to capture the hearts and minds of Good design is the difference between a new types of customers, sometimes in new parts of the world. complex, frustrating interaction and a delightful Being in touch with both existing and potential customers experience. it could be your car dashboard, your has been an exceptionally successful tactic for Aloft, digital camera, or an app on your smart phone. Starwood’s newest hotel concept. Despite a tough market for Well-designed interactions can save us time, the hospitality industry, Aloft has opened 75 locations in just make us more productive, and even provide over four years and plans to open more than 30 more within the emotional support in practically everything we next few years, thanks in large part to thorough understanding do. think about this the next time you easily of its target customers. withdraw money from an AtM or, conversely, Conceived as an interactive, trendy hotel for plugged- close a website in frustration because it is too in young travelers, Aloft is designed to evoke an energetic hard to navigate. Clearly, customers are flocking atmosphere that encourages guests to socialize, rather than to companies that have gained a reputation for immediately retiring to their rooms. its super-modern style well-crafted interactions. and pioneering initiatives in music and technology have Coca-Cola has mastered designing generated significant press—and business. the franchise’s interactions that reinvent the way customers explosive growth since opening its first location in 2008 helped connect with its products, most recently to fuel Starwood’s 54 percent climb in stock prices emerging APPlE ForD HErMAN-MIllEr evidenced by its recreation of the fountain drink from the recession. Simply by using intimate customer machine. Marketed as “the refreshing new way knowledge, Starwood was able to identify and fill an unmet to express yourself,” the Freestyle, a touchscreen desire in younger travelers for a hotel experience akin to its IBM INTuIT NEWEll-ruBBErMAID soda fountain, allows users to customize their W Hotels line, as well as broaden the entry point to its brand, beverages by dispensing different flavor options making it possible to engage a wider variety of customers and along with their selected Coca-Cola product. cultivate longer-term loyalty. NIKE ProCTEr & gAMBlE the revolutionary machine allows for more in our recent recessionary environment, it is remarkable than 100 drinks, a far cry from the standard for a company to exhibit the leadership to develop and invest 8-option fountain soda machine it is quickly so heavily in an entire new category. Armed with the confidence STArBuCKS STArWooD STEElCASE replacing across the country. the company even of knowing its new customer so well, one can see it would be rolled out an app designed specifically to help less of a stretch for management to think boldly and take big customers locate nearby Freestyle machines risks in search of big returns. CoCA-ColA WAlT DISNEY WHIrlPool and share favorite drink combinations, among other activities. not only that, but each machine maintains a data connection to Coca-Cola APPlE ForD HErMAN-MIllEr IBM INTuIT headquarters and uploads information about each drink dispensed and all supplies used in real time, which creates critical conduits for NEWEll-ruBBErMAID NIKE ProCTEr & generating customer insights. 36 DMI Winter 2013 gAMBlE STArBuCKS STArWooD STEElCASE CoCA-ColA WAlT DISNEY APPlE ForD HEr

fEATURE what is the reaL vaLUe OF desiGn? Jeneanne Rae is the founder design integration, customer Seven Gurus of Innovation in through Georgetown University’s and CEO of Motiv Strategies, an experience, and growth strategy. its cover story on the creative McDonough School of Business innovation strategy firm. For more In addition to writing articles corporation. She was later hailed for 10 years. She holds a BS in than 20 years, she has served as for publications such as Design as one of BusinessWeek’s Leaders commerce from the University a consultant to dozens of global Management Review, Innovation of the Year for her ground-breaking of Virginia and an MBA from corporations, including Procter Management, and Fast Company, work in service innovation. She has Harvard Business School. & Gamble, Johnson & Johnson, Rae has written extensively for also served as an adjunct professor Microsoft, Pepsi, and AIG. Her Bloomberg BusinessWeek and teaching new product and services expertise includes innovation, was named one of its Magnificent development at the graduate level 8 CosT ReDuCTIon Best-practice innovators use design The categories above suggest eight of the many Design can also make great strides to help ways design can be used as a strategic business tool get the cost out of manufactured goods to increase sales and market share, as well as build through rethinking the ways and means wider margins and drive customer delight. But this products come together. Procter & Gamble, list is not by any means exhaustive. Although the best known for its household brands such as role of design within organizations can be difficult tide and Pampers, has recently developed to define, it is clear that giving design a seat at the a process to develop plastics that are table adds significant value that helps differentiate thinner, cheaper, and more environmentally and elevate companies beyond the norm and helps friendly than the industry standard. it to deliver tangible business results. is estimated that this new technology Acknowledgments could save the company up to $1B a year. Special thanks to Joy Thomas, Senior Strategist at Motiv Strategies, Companies that harness design to curb who provided the analytical support to develop the DMI Index, costs can thus double design’s financial in addition to case study research and other thought leadership for this article. impacts by managing the bottom line while We also appreciate the support of Michael Westcott, DMI president, simultaneously growing the top line. who provided inspiration, guidance, and other key contributions to this work. APPlE ForD HErMAN-MIllEr IBM INTuIT NEWEll-ruBBErMAID NIKE ProCTEr & gAMBlE STArBuCKS STArWooD STEElCASE CoCA-ColA WAlT DISNEY WHIrlPool APPlE ForD HErMAN-MIllEr IBM INTuIT NEWEll-ruBBErMAID NIKE ProCTEr & DMI Winter 2013 37 gAMBlE STArBuCKS STArWooD STEElCASE CoCA-ColA WAlT DISNEY APPlE ForD HEr