Design as Economic Strategy

Design Management Review, Fall 2004 by Walton, Thomas

No issue of the Review passes without numerous references to design as a business strategy. These pages continually address and illustrate the many ways design serves corporate objectives, from communication and marketing to innovation and product development. This quarter we explore beyond this boundary. We examine design's value to the community as a tool for regional and national economic development and as an asset for competing in the global marketplace. It's a fascinating journey, one that moves from a bank "store" in Oregon to the lives of entrepreneurs in the slums of India. Most significantly, it is a journey that unambiguously confirms design as a powerful business advantage and a powerful economic asset, as well.

Design and corporate success

This is the traditional story-here told by Ray Davis, CEO of Umpqua Bank in Portland, Oregon, in a conversation with Steve McCallion, creative director at Ziba Design, the project leader from the Portland consultancy hired by the bank to renew its distinctive design and community strategy. Founded in Canyonsville, Oregon, in 1953, to help lumberjacks cash their pay checks, Umpqua has always had deep local roots. But so did a lot of competitors. When Davis came on board in 1994, he worked with the board and staff to distinguish the bank by offering unparalleled service and accessibility. In 1996, Umpqua led the way in designing its branches as "stores." The open, friendly environment and service was an immediate hit. By mid 1996, the bank had moved from third to first place as ranked by commercial deposits. By 2004, it had expanded dramatically with 15 acquisitions and currently commands 43 percent of the commercial market. As Umpqua has expanded, however, it has painstakingly maintained its culture and unique brand. A recent expression of these critical staff and customer relationships is the store in Portland's Pearl District. It offers a computer café, relaxed seating areas, a wall covered with images of local heroes, and a chocolate or two as people enter. It has also embedded itself in the community as a venue for art shows, yoga classes, and book clubs. Above all, it offers one-on-one service in an era when other banks are promoting ATMs and on-line transactions. Budgeted to attract $15 million in deposits during the first year, it more than doubled that amount and clearly demonstrates the contribution design can make to business success-success that, in this situation, fosters community development, as well as corporate profits.

This scenario-where design is an asset used to leverage organizational outcomes-is reiterated in each quarter's Review. The focus can be on environmental, product, or information design. It can address such themes as branding, innovation, or the development process. The constant is that design makes a difference, one that can be identified and managed. Importantly, reporting on a research study commissioned by the Design Council in London, deputy chief executive Harry Rich links this difference to the bottom line. Specifically, this analysis compared the UK stock-market performance of a portfolio of companies that were active and effective (award-winning) users of design with broader market indices. The study period was from December 1993 to December 2003. The conclusions leave no doubt about the positive impact of design. The 63 companies identified as the most effective users of design outperformed the FTSE 100 Index by 200 percent over the full period and beat their peer stocks in both bull and bear markets. The portfolio of companies with an emerging design capability also outperformed the FTSE indices at all stages in the cycle. Overall, the investigation is an impressive confirmation of decades of anecdotal and intuitive evidence. It does not mean that design, in every instance, is a sure bet, but it does verify the merits of a consistent, long-term investment in design.

Breaking into the global marketplace: Design as national policy

What is intriguing is that several countries have explicitly recognized design's potential by crafting policies and programs that amplify the good results that accrue to individual corporations. In our keynote article, Dong-Sung Cho, professor of strategy, international business and management design at Seoul National University, describes how South Korea has made design a crucial component in the nation's economic planning and competitive positioning. In the decades following the war (1960 to 1997), the fundamental mandate was to boost exports. Huge conglomerates were formed that, with economies of scale, could manufacture quality products at low prices. These goods were not innovative or market leaders, but they sold well and the Korean economy thrived. In 1997, a financial crisis precipitated a major shift in priorities. Design evolved as a competitive priority and has remained a central element in sustaining the country's ever-increasing standard of living. Cho identifies four stages in this "design revolution." Design Connection is about developing competence in this discipline. It is what is happening in Korea now. Design Expansion is about developing innovative, consumer-driven products that appeal to all the senses. Several Korean companies are beginning to explore this possibility. Design Application is where innovative, high-quality design becomes ubiquitous, touching all layers and levels of society. The last stage, Design Integration, is when consumers become the designers, and all reap the benefits of an extraordinary quality of life. Whether Cho's scenario is right or wrong may not matter. Korea-as a nation-has a design strategy, an approach it is convinced will strengthen its economy and international competitiveness. Above all, it is taking concrete steps to transform this vision into a reality. Cho highlights many of these activities, including supporting design technology, expanding design education, promoting design, and making design accessible. The message is that, as a matter of national policy in Korea, design and growth go hand-in-hand.