Design thinking

MIT has posted a great lecture by Tim Brown, the CEO of IDEO entitled “Innovation Through Design Thinking”:

Not so long ago, Tim Brown recounts, designers belonged to a “priesthood.” Given an assignment, a designer would disappear into a back room, “bring the result out under a black sheet and present it to the client.” Brown and his colleagues at IDEO, the company that brought us the first Apple Macintosh mouse, couldn’t have traveled farther from this notion.
At IDEO, a “design thinker” must not only be intensely collaborative, but “empathic, as well as have a craft to making things real in the world.” Since design flavors virtually all of our experiences, from products to services to spaces, a design thinker must explore a “landscape of innovation” that has to do with people, their needs, technology and business. Brown dips into three central “buckets” in the process of creating a new design: inspiration, ideation and implementation.
Design thinkers must set out like anthropologists or psychologists, investigating how people experience the world emotionally and cognitively. While designing a new hospital, IDEO staff stretched out on a gurney to see what the emergency room experience felt like. “You see 20 minutes of ceiling tiles,” says Brown, and realize the “most important thing is telling people what’s going on.” In a completely different venue, IDEO visited a NASCAR pit crew to come up with a more effective design for operating theaters.
After inspiration comes “building to think:” often a hundred prototypes created quickly, both to test the design and to create stakeholders in the process. Says Brown, “So many good ideas fail to make it out to market because they couldn’t navigate through the system.” IDEO counts on storytelling to develop and express its ideas, and to buy key players into the concept. Finally, IDEO relies on constantly refreshing its sources of inspiration by bringing in bold thinkers to campus, and increasingly, focusing on socially oriented design problems.

As the The Business Innovation Insider describes it:

Tim Brown of IDEO explains the relationship between design thinking and innovation. According to Brown, design is everywhere around us – on the covers of business magazines, as part of consumer experiences at companies like Nike and Apple, and increasingly mentioned by Fortune 500 executives as an important way to grow a business. For many companies, design thinking is a way to create the future.

Exactly – and if design thinking is the way that companies are going to create the future, shouldn’t our economic policy take that into account?
By the way, that is why Athena Alliance and the Congressional Economic Leadership Institute are hosting a Congressional luncheon on Design and Innovation today. A summary of the event will be posted later on the Athena website.

All about design

Want to know more about how design can make business better? Check out the UK Design Council’s website. It is full of great stories, including a design case study on how a French company, Calor, teamed up with London-based product designers to create a new steam iron – the Tefal Aquaspeed – that is running away from the competition. This case illustrated how design and innovation isn’t just about high-tech products like the iPod, but also for what we normally think of as rather mundane products.
These are perfect example of how design is not just about being “cool” but about being competitive. If we are to stay economically competitive, we need to learn from these examples of how to exploit our intangibles assets of innovation and design to help all sectors of the economy – not just so-called “high-tech”. Only by infusing these assets into our entire manufacturing base will we reverse the trade deficit and ensure a sustainable economy.

Champions of Innovation

Business Week has just released its 25 Champions Of Innovation:

Let’s welcome the Champions of Innovation. In an era when Six Sigma controls no longer guarantee competitive advantage, when outsourcing to China and India is universal, when creeping commoditization of products, services, and information hammers prices, innovation is the new currency of competition. It is the key to organic growth, the lever to widen profit margins, the Holy Grail of 21st century business.

Amen to that!. Now if we could only get our public policy in line with this new reality. For example, as BW points out:

They are different from others before them, polymath in skill (think an entire multidisciplinary team in one person), “bipolar” in thinking (using both the left and right brain in framing problems), and eclectic in education (dual math and art majors, English lit and MBA degrees).

So, where are the education programs in the current competitiveness bills to foster the next generation of these Masters of Innovation?

April trade in intangibles

This morning’s BEA trade data was not good. The overall trade deficit increased by $1.6 billion to $63.4 billion – due to a decline in export and an increase in imports. As the Wall Street Journal put it:

The U.S. trade deficit resumed rising in April after two months of rare declines, pushed higher by surging oil prices, auto imports and a flood of furniture, televisions and toys from China.

However, the data shows our intangibles trade surplus holding steady at $7.9 billion. Increased receipts (exports) of royalties were offset by a decline in exports of business services, increased imports of business services and increased payments (imports) of royalties.
This month’s trade data also includes revisions of services trade data going back to 1997. The revisions show more volatility in the monthly intangibles trade data, especially in 2003 and 2004. It also shows a slightly higher level of the balance than previously reported – with the peak being a surplus of $8.2 billion in November of 2005 rather than $7.5 billion in December 2004. But we see generally the same trend as before with a slow, relatively steady increase in both intangible imports and exports resulting in a relatively stable surplus.
Obviously, this stable surplus is good news – but not good enough to offset our huge deficit in tangible goods. Unless we address that deficit, we will not even begin to bring our international balance of payment in to a reasonable alignment.
There was also some good news in that the deficit in Advanced Technology Products declined in April after surging in March. The decline was due mainly to lower imports of information & communications, life sciences and opto-electronics, but partly offset reduced exports in aerospace.

Intangibles trade-Mar06.gif

Note: we define trade in intangibles as the sum of “royalties and license fees” and “other private services”. The BEA/Census Bureau definitions of those categories are as follows:

Royalties and License Fees – Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term “royalties” generally refers to payments for the utilization of copyrights or trademarks, and the term “license fees” generally refers to payments for the use of patents or industrial processes.

Other Private Services – Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term “affiliated” refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise’s voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.

How much leisure in the I-Cubed Economy

Just because work is moving from the tangible/physical to the intangible/information doesn’t necessarily mean that our leisure time is increasing. In fact, while average work hours have declined by traditional measures, leisure has not increased — as the blog
New Economist: Long-run trends in working time and leisure points out:

Over the past century there has been a large decline in average hours worked in what are today’s advanced industrialised countries. Two recent papers have looked at the issue. The first, and best known, is the new NBER working paper by Valerie A. Ramey and Neville Francis: A Century of Work and Leisure. The paper found that much of the decline in US working hours has been offset by more in education:

Has leisure increased over the last century? Standard measures of hours worked suggest that it has. In this paper, we develop a comprehensive measure of non-leisure hours that includes market work, home production, commuting and schooling for the last 105 years. We also present empirical and theoretical arguments for a definition of “per capita” that encompasses the entire population.
The new measures reveal a number of interesting 20th Century trends. First, 70 percent of the decline in hours worked has been offset by an increase in hours spent in school. Second, contrary to conventional wisdom, average hours spent in home production are actually slightly higher now than they were in the early part of the 20th Century. Finally, leisure per capita is approximately the same now as it was in 1900.

So, leisure remains the same. On-the-job work declines but education – which is key input to those on-the-job – makes up for much of that decline. And we do more household work — which tracks with the occupational changes over the past 100 years, where household servants were one of largest occupation categories in 1900.
That sounds about right. Although, I wonder about the trend some see toward mixing categories, especially where leisure and work activities blend. Creative and information jobs, I would think, are especially prone to that blending. So, maybe we need a new definitions and measures of leisure and work in the I-Cubed Economy — just as we need new definitions and measures of a lot of things.

National Design Award 2006

Design isn’t just about looking pretty or cool. For some, it is also about social responsibility. On Monday, the Smithsonian’s Cooper-Hewitt National Design Museum announced that Nike will be given a corporate achievement National Design Award for more than just cool underscores that point. But it may not be sending the right message regarding the role of design in corporate competitive strategy.
According to the Cooper-Hewitt:

The National Design Awards were conceived in 1997 by the Smithsonian’s Cooper-Hewitt, National Design Museum to honor the best in American design. First launched at the White House in 2000 as an official project of the White House Millennium Council, the annual Awards program celebrates design in various disciplines as a vital humanistic tool in shaping the world, and seeks to increase national awareness of design by educating the public and promoting excellence, innovation, and lasting achievement.

This year’s award, as the Washington Post puts it, Cooper-Hewitt Honors Nike For Just Doing It Right:

Jury spokesman Roger Mandle, president of the Rhode Island School of Design, says the panel was impressed with how Nike has moved beyond the taint of overseas sweatshop scandals.
“Corporate philosophy was a major issue for us,” Mandle said by phone this week. “Beyond the extraordinary design quality and thinking on product development, it was their responsibility in manufacturing and attention to human resource issues.”
. . .
“The jury is reflecting the state of design concerns today,” Mandle said. “They are looking at the broader perspective. It’s not just about cool design — it’s the overall responsibility of the designer or company.”

This is not the first time that the corporate achievement National Design Award was given for broader goals. Last Oct, it was Patagonia, who was cited for its social consciousness as well
Cooper Hewitt: National Design Awards 2005

The 2005 Corporate Achievement Award is presented to Patagonia, a sports apparel company based in Ventura, CA, whose commitment to innovation, design, and performance is matched by its devotion to environmental and social causes. Founded in 1973, the company creates high-quality outdoor sportswear for mountaineering, skiing, and extreme sports, with a focus on functionality. Patagonia works with manufacturers to develop new fabrics such as Capilene and H2No Strom which meet athletes’ strict performance demands, and also implements numerous environmental initiatives, including producing clothes out of soda bottles, recycling scraps even before they hit the cutting room floor, and harnessing wind for fuel.

Not everyone is happy with how the awards are going. Last October, when the 2005 awards were announced, Business Week’s design guru Bruce Nussbaum posted the following on his blog: The National Design Awards are a failure.

Cooper-Hewitt just announced the winners of its Sixth Annual National Design Awards and it’s really time to say out loud what so many design and innovation professionals have been saying for so long–the contest doesn’t work. The winners are all wonderful designers who have done excellent work. But they are obvious choices. Most appear to be recipients of life-time achievement awards, which is really what the National Design Awards has mostly become.
What is wrong. I think design has quickly evolved far from the original conceit of the awards program. Just giving attention to great designers is really beside the point today. The great struggle for respect in society and in the corporate world is over. Design has won. It doesn’t have to sell itself. It does have to prove itself, however. Design has to create better methodologies, better processes and better results for the people who use it. And design contests have to reward this ongoing effort, not simply recognize those in the past who have achieved greatness.

[One disturbing indicator of all this is the announcement garnered almost zero press coverage. The Post– which actually published its story days before the announcement – was only newspaper to pick up on the announcement (at least according to my Google news search).]
I would go one step further. I’m not sure that giving a design achievement to companies for their social responsibility sends the right message. Companies should be rewarded for social responsibility – both with awards and where it really matters: in the marketplace. But I worry that equating design with social responsibility takes away from both activities. Either it says design is all about social responsibility — which is a very limiting message and cheapens the role of design in company strategy and operations. Or is it is about the design community patting itself on the back for being such good people — which cheapens the importance of environmental and social responsibility.
In all fairness, the award to Nike is not just about being a responsible company. It would never have even been considered if it was not for its ongoing commitment to design and innovation as a core strategic principle. But the design award should be to companies for those criteria – not some other criteria however laudable.
I would rather have my friends over at the Calvert Group’s Socially Responsible Investing section tell me how a company is doing on that criteria. After all, they are the experts. The design jury at the Cooper-Hewitt is not.
[Interestingly, all of the companies that are designated as Calvert Leaders are also innovative and design-intensive: Applied Materials, Colgate-Palmolive, Dell, Intel, Microsoft, Procter & Gamble, and Texas Instruments.]
As Roger Martin, of the Rotman School of Business at Toronto, keeps reminding us, we need to embed design in to corporate activity, not just added it on to the traditional firm. Nike may very well be an example of a company that does that. Its history of innovation and design excellence are proof that it is doing something right – and therefore deserves recognition such as with the National Design Award.
But the Award should be given for embedding the design process into the company – not of other factors. After all, isn’t one element of good design its clean focus, without all the extras?

Marketing an intangible capability

One of the difficulties of understanding the Intangible Economy is that even the description of intangibles is rather (pardon the pun) intangible. Intangibles run from worker skills and know-how and informal relationships that feed creativity and new ideas to formal intellectual property and brand names. The term is often used narrowly only to describe these latter “hard” intangibles, which are often also categorized (along with software) as intangible goods. The former set of intangibles – worker know-how, relationships, tacit knowledge – is some times referred to as intangible competencies. (See the Athena Alliance paper Reporting Intangibles: Lessons from the US Experience for a more in-depth discussion.)
Intangibles are used both internally in a company (as part of the production process) and marketed externally. The business model for marketing/selling intangible goods outside the company is well known: licensing, royalties, etc. Marketing intangible competencies is another matter – especially if that intangible was developed for internal use (e.g. a better production process) rather than specifically as an external product (e.g. a specific set of skills to sell to a client).
It can be done, however. Steven Pearlstein’s column in this morning’s Washington Post has a perfect example – “GE’s Wealth of Free Advice”. As Pearlstein relates, GE has been giving away free consulting services on its legendary Six Sigma process, especially to companies who borrow money from their financing arm:

For the $15 million that Six Sigma costs a year, GE Commercial Finance buys a ton of customer loyalty and sets itself apart in what is otherwise a commodity-service business. Perhaps even more important, the program increases the odds that the mid-size firms to which GE is lending money will not only stay in business long enough to pay back the loans, but will be more likely to grow in the future — as will their need for capital. “We know instinctively that the benefits to us are substantial,” said Sharon Garavel, who heads up the program. “Our customers have told us that they intend to give us a larger share of their business.” By her reckoning, it has already generated 350,000 hours of free consulting services to more than 3,000 customers since 2002, saving them collectively more than $1.2 billion.
In fact, under chief executive Jeffrey Immelt, who started offering Six Sigma assistance to customers when he ran GE’s medical equipment division, all of General Electric’s units have an “At the Customer, for the Customer” program. It is a brilliant example of how a company has taken an internal skill — in this case, change management and continuous improvement, for which it is world-renowned — and turned it into a marketable product.

Exactly – turning an internal intangible competency into an external intangible good. But with a very important twist: it is not marketed as a separate product, like licensing out a non-core technology. This model links the intangible directly back to the core product. In other words, GE Commercial Capital is not going into the Six Sigma consulting business. They are using this intangible asset to enhance its core business of lending money.
Smart – very smart.