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MEASURABLEDESIGN
2ABSTRACTSTRUCTURE		1 	 1.1 	ABOUTTHE PROJECT				 1.2 	STAKEHOLDERS				1.3 	AUTHORS						1.4 	METHODS							 1.5 	RESEARCH...
34. DESIGN ROI TOOL						 4.1 HYPOTHESIS						 4.2 DESIGN ACTIVITIES AND FOCUS AREAS			 4.3 BENEFITS ACHIEVED THROUGH DESI...
ABOUTTHE PROJECTABSTRACT4The Design ROI project was a research project conducted betweenSeptember 2011 and September 2012 ...
ABOUTTHE PROJECTSTRUCTURE6The report is divided into five sections. The first section presents theparties to the Design RO...
7THEORYABOUT THE PROJECTDESIGN ROI TOOLINDUSTRYFURTHERDEVELOPMENT
ABOUTTHE PROJECT1.1 	 ABOUTTHE PROJECT8In 2010, 17 Finnish design agencies got together and formed the Finn-ish Design Bus...
ManagementMiddlemanagementProductionBoard of directors9Figure 1 Communication between design agenciesand their clientsCLIE...
ABOUTTHE PROJECT1.2 	 STAKEHOLDERS10The Design ROI research project was made possible thanks to theshared vision regarding...
Main partnersOther partnersDesign agencies11
ABOUTTHE PROJECT1.3	 AUTHORS12The Design ROI research project involved several people from the par-ticipating businesses, ...
13Management TeamProfessor Kalevi Ekman 	 Senior Research DirectorToni-Matti Karjalainen	 IDBM representativeVirva Haltson...
ABOUTTHE PROJECT1.4 	 METHODS14Diverse methods and information sources were made use of in theDesign ROI project. Addition...
16 ABOUTTHE PROJECT1.5 	 RESEARCH SETTING16Finnish design agencies and the members of the FDBA had a clear aimfor the rese...
-Paul Lillrank“What cannot be defined,cannot be measured;what cannot be measured,cannot be managed.”
ABOUTTHE PROJECT1.6 	 WHAT IS DESIGN?18For the impact of design to be measured, design must first be definedas a concept. ...
19”Design is a creative activity whose aimis to establish the multi-faceted qualitiesof objects, processes, services, and ...
ABOUTTHE PROJECT1.7 	 LIMITING THE RESEARCH FIELD20The research field related to evaluating the impact of design invest-me...
MACROLEVELMICROLEVELPRIVATE SECTOR PUBLIC SECTORLevels of Design EvaluationIndividualCompaniesIndividualProgramsand polici...
22
232. THE INDUSTRY	This section of the Design ROI report summarises the research previ-ously conducted on design on the lev...
THE INDUSTRY2.1	 DESIGN ON THE	 MACROECONOMIC LEVEL24Design as a Part of the National Economy and SocietyDesign can be con...
1995 2000 2001 2001Produc-tion valueGDP Produc-tion valueGDP Produc-tion valueGDP Produc-tion valueGDPMass media 59,6 2,4 ...
THE INDUSTRY26As awareness of the economic significance of the creative industry hasincreased, the connections between the...
27Figure 3Links between growth competitiveness andcreative competitiveness (Schwab, 2009)KUVA 2 : Kasvukilpailukyvyn ja lu...
THE INDUSTRY28Figure 3 examines the connections between national competitivenessand design. It indicates a strong correlat...
THE INDUSTRY30Design in FinlandThe choice of Helsinki as the World Design Capital for 2012 broughtdesign closer to the eve...
No. ofcompaniesPermanentpersonnelTurnover(EUR m)Personnel/companyTurnover / emplo-yee (€ 1,000)Turnover / com-pany  (€1000...
THE INDUSTRY32One of the major trends in the industry is the specialisation of designagencies, which seek to look after cu...
THE INDUSTRY2.2 	 DESIGN ON THE	 MICROECONOMIC LEVEL34Use of Design Services in BusinessesLarge companies are more likely ...
100%3%18%35%32%12%0% 20% 40% 60% 80%DK = Don’t know4 = A lot3 = Quite a lot2 = A little1 = Not at allHas your company inve...
THE INDUSTRY36Design can be managed and practised in companies at three levels:operative, tactical and strategic (Borja de...
54%23%23%ContinuousNoneSporadicApplication of design inindustrial companies (n=122)48%52%Companies purchasing designservic...
THE INDUSTRY38A telephone interview conducted by Aku Alanen in 2009, asking aroundone hundred design-intensive companies a...
Average2003 2004 2005All 11,6 11,1 11,7By nature ofapplication:Continuous use ofdesign16,2 15,2 15,6Sporadic use ofdesign5...
THE INDUSTRY40Obstacles to Applying DesignCompanies which do not use design services state as the reason theidea that they...
7%22%47%23%0% 20% 40% 60% 80% 100%Design is notrelevant for usWe are doing wellwithout designWe haven’t foundthe right des...
THE INDUSTRY42In the Design ROI customer meetings, company representatives ex-pressed a wish to have some concrete proof t...
43Figure 9 Obstacles to the application of design bycompanies (Holopainen and Järvinen, 2006)10%10%7%0%20%14%37%63%12%5%6%...
THE INDUSTRY44MeasurementThe Design ROI customer surveys and meetings showed that companiesshare an interest in monitoring...
How will the significance of design evolve in yourcompany in the next two years? (n=1,338)45Figure 10 How will the signifi...
THE INDUSTRY46Future ProspectsResearch indicates that design is gaining status within companies. In thesurvey by the Assoc...
What will your design investmentsfocus on? (n=684)34%43%44%46%47%48%53%56%57%61%0% 20% 40% 60% 80% 100%47Figure 11 What wi...
THE INDUSTRY48Design AgenciesScope of OperationsDesign agencies tend to be fairly small, measured in terms of both turno-v...
4942%26%11%21%35%20%25%20%50%14%22%14%0%10%20%30%40%50%60%70%80%90%100%1-56 -10 11-20 over 2022%44%6.00%11%17%26%32%11% 11...
1. Func-tion notincludedin ourportfolio2. Onlydone whennecessary3.	Done insomeprojects4.	Done inmanyprojects5.	Done inmost...
0%17%40%43%60%50%53%50%60%40%40%70%80%97%17%17%40%37%23%40%40%47%40%53%63%67%73%83%0% 10% 20% 30% 50%40% 60% 70% 80% 90% 1...
THE INDUSTRY52Client StructureAccording to the Design ROI survey of design agencies, respondentssaw that the role of desig...
93%7%YesNoDoes your company possess multidisciplinarycompetence or competence not included intraditional definitions of de...
THE INDUSTRY2.3 	 SUMMARY54The design sector can be examined from the points of view of the na-tional economy, the society...
55Design is considered to play a role in enhancing competitiveness. Inspite of this, it is left in the wake of other core ...
56
573. THEORY	The theoretical section of the Design ROI report comprises a re-view of the most relevant research, theories a...
THEORY3.1 	 INTERNATIONAL VIEWS ON THE TOPIC58Several international studies have been conducted aiming to determinethe val...
Name Year Publisher/authors DescriptionThe Design Effec-tiveness IndustryReport2010 BNO -Associationof DutchDesignersAn em...
THEORY60The study by the UK Design Council (2007) found that the turnoverof “design alert businesses” grew by an average o...
61The Red Dot Institute has developed a method using the Red Dot de-sign competition for calculating companies’ design val...
THEORY62Levels of Design MaturityThe design competence of companies can be measured in various ways.The Danish Design Cent...
63The DDC (2003) study proved that there were links between companies’placement on the Design Ladder and their financial p...
THEORY64Design can be managed and applied at three organisational levels:operative, tactical and strategic (Joziasse, 2000...
THEORY3.2	 MEASURING DESIGN66A comprehensive evaluation of design is the sum of many factors. It re-quires intuition, quan...
“Design may enhanceperformance but unless there aremetrics to gauge that benefit, thedifference it makes depends onconject...
THEORYChallenges in Measuring Design68Although design has been found to generate value for companies, its im-pact should b...
“There is typically a time lag betweenthe industrial design efforts duringproduct development and the reali-zation of the ...
THEORY3.3	 DESIGN INVESTMENTS70For the return on investment (ROI) in design to be calculated, two ques-tions must first be...
ROI (%)=GainInvestmentx100
THEORY72Intangible capital comprises project and process competence, whichincreases the efficiency of R&D activities and i...
73The net present value (NPV) method is used to evaluate whether thebenefits obtained from a planned project will exceed i...
THEORY74example estimates of the benefits obtained through investments intopersonnel health and safety or working conditio...
NPV = -C0+ + +…+C11+rC2(1+r)2CT(1+r)TCo = alkuinvestointiC = kassavirtar = laskentakorkokantaT = investoinnin pitoaika (vu...
THEORY3.4 	 FACTORS AFFECTING	 DESIGN PROJECTS76The success and results of outsourced design projects are affectedby many ...
Company-specific factors Project-specific factors Other factorsIndustry Initial investment of resource allocation Collabor...
THEORY78Candi et al. (2010) examined the factors affecting design efficiency andfound that the freedom of the designer to ...
THEORY3.5	SUMMARY80The use of design has been found to have a positive impact on a com-pany’s financial performance, but t...
81strategy. The higher a company is found on the Design Ladder, the moreeffectively and comprehensively it uses design.In ...
82
834. DESIGN ROI TOOL	This section reviews the hypothesis of the Design ROI study and theframework created as part of the r...
DESIGN ROI TOOL4.1	HYPOTHESIS84Existing research has found that design has a positive impact on com-panies’ financial perf...
OBJECT OF DESIGN DESIGN BENEFITS EFFECTS ON CASH FLOWPRODUCT BRANDSERVICE SPACESTRATEGICTACTICALOPERATIVEFASTERCASH FLOWGR...
DESIGN ROI TOOL4.2 	 DESIGN ACTIVITIES AND FIELDS86At the start of the Design ROI project, design was defined based on the...
Design activitiesProduct designGraphic designExhibition designVisual identity designProduct developmentService designEnvir...
DESIGN ROI TOOL88Another way to define design is through the objects of design. Borja deMozota (2003) proposes dividing th...
Investment goodsConsumer goodsCorporate levelProduct levelSales pointPromotional spaceSpace within the companySpecific ser...
DESIGN ROI TOOL4.3 	 BENEFITS ACHIEVED THROUGH DESIGN90The benefits obtained through design are mentioned in several stud-...
Design benefitsBrand strengthening	 1 2 3 5 6 7 11 12Access to new markets 2 6 7 8 9Creation of new markets 2 8Expandabili...
DESIGN ROI TOOL4.4 	 MEASURING BENEFITS92The benefits achieved through design can be measured using qualita-tive and quant...
€%%Qualitative Quantitative Financial93
STRATEGIC LEVELMEASURABLE BENEFIT QUALITATIVE METRICSBrand strengthening Customer feedback/satisfaction surveySurvey on gr...
MONETARY INDICATORS OTHER QUANTITATIVE METRICSGrowth in sales (volume of EUR)Change in stock priceChange in marketing cost...
OPERATIVE LEVELMEASURABLE BENEFIT QUALITATIVE METRICSUser satisfactionAestheticsDesirabilityUsabilityEco-friendlinessLife ...
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
Paper:Design roi: measurable design
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Paper:Design roi: measurable design

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Via Stefan Moritz

The Design ROI project was a research project conducted between September 2011 and September 2012 with the aim of developing a model and a set of metrics for measuring the return on investments in design. The project was funded by Aalto University, the Finnish Funding Agency for Technology and Innovation (Tekes) and fifteen member agen­cies of the Finnish Design Business Association (FDBA).
The impact of investments in design has been extensively researched by international design organisations, companies using design and universities that teach design. Despite this, no generally applicable models or metrics for measuring the benefits obtainable from design have been found.
The authors of this project interviewed several Finnish and internation­al experts, supplemented their knowledge of the industry by conduct­ing surveys of design agencies and their clients, and investigated the research question by building several prototypes for metrics. Addition­ally several public discussions and workshops were carried out during the project, involving important stakeholders in furthering the project and communicating some of the significant findings of the research.
The Design ROI project can be said to have promoted the joint develop­ment of the industry among design agencies, and to have produced a deeper understanding of the measurability of design and what factors affect it. Additionally, the project generated plenty of interest. The com­panies involved in the Design ROI project have set a joint objective to extend the project further with more partners.
This report presents the starting points, objectives, progress, partners, methodology and major outcomes of the Design ROI project.

Transcript of "Paper:Design roi: measurable design"

  1. 1. MEASURABLEDESIGN
  2. 2. 2ABSTRACTSTRUCTURE 1 1.1 ABOUTTHE PROJECT 1.2 STAKEHOLDERS 1.3 AUTHORS 1.4 METHODS 1.5 RESEARCH SETTING 1.6 WHAT IS DESIGN? 1.7 DELIMITING THE RESEARCH FIELD 2. THE INDUSTRY 2.1 DESIGN ON THE MACROECONOMIC LEVEL 2.2 DESIGN ON THE MICROECONOMIC LEVEL 2.3 SUMMARY 3. THEORY 3.1 INTERNATIONAL VIEWS ON THE TOPIC 3.2 MEASURING DESIGN 3.3 DESIGN INVESTMENTS 3.4 FACTORS AFFECTING DESIGN PROJECTS 3.5 SUMMARY CONTENTS
  3. 3. 34. DESIGN ROI TOOL 4.1 HYPOTHESIS 4.2 DESIGN ACTIVITIES AND FOCUS AREAS 4.3 BENEFITS ACHIEVED THROUGH DESIGN 4.4 MEASURING BENEFITS 4.5 DESIGN ROI FRAMEWORK 4.6 USE OF THE TOOL 4.7 LOGIC OF THE TOOL 4.8 USE IN BUSINESS 4.9 SUMMARY5. FURTHER DEVELOPMENT 5.1 RESULTS OBTAINED 5.2 RESEARCH QUESTIONS 5.3 DATA VALIDATION 5.4 FUTURE OF THE DESIGN ROI TOOL 5.5 POSSIBLE PARTNERS BIBLIOGRAPHY LIST OF FIGURES AND TABLES APPENDICES
  4. 4. ABOUTTHE PROJECTABSTRACT4The Design ROI project was a research project conducted betweenSeptember 2011 and September 2012 with the aim of developing amodel and a set of metrics for measuring the return on investments indesign. The project was funded by Aalto University, the Finnish FundingAgency for Technology and Innovation (Tekes) and fifteen member agen-cies of the Finnish Design Business Association (FDBA).The impact of investments in design has been extensively researchedby international design organisations, companies using design anduniversities that teach design. Despite this, no generally applicablemodels or metrics for measuring the benefits obtainable from designhave been found.The authors of this project interviewed several Finnish and internation-al experts, supplemented their knowledge of the industry by conduct-ing surveys of design agencies and their clients, and investigated theresearch question by building several prototypes for metrics. Addition-ally several public discussions and workshops were carried out duringthe project, involving important stakeholders in furthering the projectand communicating some of the significant findings of the research.The Design ROI project can be said to have promoted the joint develop-ment of the industry among design agencies, and to have produced adeeper understanding of the measurability of design and what factorsaffect it. Additionally, the project generated plenty of interest. The com-panies involved in the Design ROI project have set a joint objective toextend the project further with more partners.This report presents the starting points, objectives, progress, partners,methodology and major outcomes of the Design ROI project.
  5. 5. ABOUTTHE PROJECTSTRUCTURE6The report is divided into five sections. The first section presents theparties to the Design ROI project, as well as the project’s objectives,methods and research setting.The second section provides a summarised account of previousresearch at the national, company and project levels. This indicatessome of the challenges, opportunities and important questions relatedto applying and selling design services in Finland. The section is intend-ed as an account of the current status of design use in Finland, and anexamination of the productivity of design and why further researchshould be conducted on more effective application of design.The third section looks at relevant research, theories and articles in thefields of design management, accounting and measurement. This sec-tion is especially intended to support academic and scientific debateand to form a basis for possible future academic research projects.The fourth section presents the Design ROI tool, as well as the pro-ject’s hypothesis and frame of reference, and the metrics on which thetool is based. The tool has been used to model questions related to themeasurement of the financial benefits of design.The fifth section suggests how the Design ROI subject shouldbe researched in future and what opportunities there are for developingthe tool.
  6. 6. 7THEORYABOUT THE PROJECTDESIGN ROI TOOLINDUSTRYFURTHERDEVELOPMENT
  7. 7. ABOUTTHE PROJECT1.1 ABOUTTHE PROJECT8In 2010, 17 Finnish design agencies got together and formed the Finn-ish Design Business Association (FDBA). The establishment of the as-sociation was supported by Design Forum Finland, an organisation whichpromotes Finnish design.The association’s long-term objective is to promote the societal impactof the design sector and to improve its standing both nationally and in-ternationally. Another aim is to support and promote the collection of up-to-date statistics on the sector, the measurement of the financial impactof design, and the communication of results.The Design ROI research project was initiated in autumn 2011 as a col-laboration between the FDBA, Aalto University and the Finnish FundingAgency forTechnology and Innovation (Tekes). The FDBA is present in theproject through 15 member design agencies, representing most aspectsof Finnish product, spatial, service and concept design competence.The purpose of the Design ROI project was to increase understanding ofthe impact of design by speaking to corporate executives about designin their own language. Figure 1 illustrates the communication betweendesign agencies and their clients. A long-term objective of the projectis to achieve lasting changes in design discourse and to improve the op-erating conditions of businesses in the sector. The concrete goal of theproject was to create a tool that design agencies could use to explainthe financial benefits of design to target groups, in both qualitative andnumerical terms.
  8. 8. ManagementMiddlemanagementProductionBoard of directors9Figure 1 Communication between design agenciesand their clientsCLIENT DESIGN AGENCY
  9. 9. ABOUTTHE PROJECT1.2 STAKEHOLDERS10The Design ROI research project was made possible thanks to theshared vision regarding the significance of the subject of several privateand public operators.The project’s main partners were Tekes and Aalto University. The AaltoDesign Factory, operating within Aalto University, deserves special men-tion for allowing the Design ROI research team to work on its premises.The project’s progress was made possible by funding from the 15 par-ticipating Finnish design agencies, which were 5D, AP-Design, BuorreCreation, Creadesign, Desigence, Ed-Design, Hahmo, Helorinne & Kallio,LINK, Mozo, 6.krs, Pentagon Design, Pinto, Design Reform and S.E.O.SDesign.Additionally, the project was supported by Design Forum Finland and theFinnish Design Business Association (FDBA). At the time of writing, thelatter association had as its members 30 design businesses, of whichthe 15 aforementioned agencies were directly involved in the comple-tion of the project.The other partners of the project were the Association for Finnish Work,which provided the team with up-to-date information on the significanceof design for Finnish businesses, and the Word Design Capital Helsinki2012 organisation, which facilitated extensive communication on theproject.
  10. 10. Main partnersOther partnersDesign agencies11
  11. 11. ABOUTTHE PROJECT1.3 AUTHORS12The Design ROI research project involved several people from the par-ticipating businesses, the university’s research and teaching staff, andother partner organisations. The project was divided into three mainphases: preparation, implementation and publication of results.Involved in project preparations were Aalto University professors KaleviEkman and Markku Salimäki, as well as Research Director Toni-MattiKarjalainen from the International Design Business Management (IDBM)programme, Virva Haltsonen from Pentagon Design, Antti Pitkänen fromS.E.O.S Design, and Hanna Punnonen from Design Forum Finland.The progress of the project was overseen by the research team, the pro-ject management team and the design agency representatives takingpart in workshops and discussions. The management team comprisedSenior Project Director Professor Kalevi Ekman, Toni-Matti Karjalainenrepresenting IDBM, Virva Haltsonen representing the design agencies,and Marko Ylikorpi representing Tekes. In addition to the official projectmanagement team, Mikko Kalhama, CEO of Design Forum, and KaroliinaSalonen, Executive Director of the FDBA, took part in leading the pro-ject. These persons convened during the project to review the project’sobjectives and the results obtained.The research team was in charge of carrying out the project and pro-ducing its content. The research team comprised Project Manager AnttiPitkänen and Master’s degree students from three of the schools inAalto University. The researchers were Heidi Cheng, Kristian Keinänen,Maria Salo, Anni Harju and Jenny Jonkka. The visual design of the reportwas done by Maria Solovjew. The project’s academic sponsor, ProfessorJaakko Aspara, took part in the scientific steering of the research.
  12. 12. 13Management TeamProfessor Kalevi Ekman Senior Research DirectorToni-Matti Karjalainen IDBM representativeVirva Haltsonen Design agency representative 
Marko Ylikorpi Tekes representativeResearch TeamProfessor Jaakko Aspara Academic sponsor of the projectAntti Pitkänen Project ManagerHeidi Cheng ResearcherKristian Keinänen ResearcherMaria Salo ResearcherAnni Harju ResearcherJenny Jonkka Researcher
  13. 13. ABOUTTHE PROJECT1.4 METHODS14Diverse methods and information sources were made use of in theDesign ROI project. Additionally, the partner businesses contributedtheir competence and took part in creating the solution.For the sake of the research it was of primary importance to understandwhat had previously been written and studied on the subject in Finlandand internationally. The main publications on the subject were collectedtogether. The perspectives brought by these publications and how theyrelated to the Design ROI research question were considered. This in-volved studying around 40 articles dating from 1984–2012 and some15 other research reports from 2003–2012.It was also important to form an overall picture of the field of designin Finland. This was done by gathering information from various exist-ing studies by public entities. Some of these were the design industrysurveys carried out in 2002 and 2006 by the Designium InnovationCentre, and the report Muotoilun maisemat (“Design Landscapes”) byDesign Forum Finland from 2008. Additionally, electronic question-naires were sent to design agencies, their customers and Finnish smalland medium-sized enterprises in general. The last of these was done incollaboration with the Association for Finnish Work, and a total of 1,380responses were received.During the project, several open, themed interviews were conducted withexperts in the field, such as university professors and researchers. Theinterviews were useful in identifying interesting points of view, adjustingthe project’s focus and noting any potential problem areas.The aim was to create several versions of the Design ROI tool. Severalprototypes of the tool were made and tested, and diverse user scenarioswere devised. This helped the research team to analyse the tool’s pos-sibilities and limitations, and to understand the research questions fromvarious points of view.
  14. 14. 16 ABOUTTHE PROJECT1.5 RESEARCH SETTING16Finnish design agencies and the members of the FDBA had a clear aimfor the research, which was to find concrete tools tailored for their oper-ating environment, with which the customer benefits and opportunitiesof outsourced design services could be measured. This would allow themto communicate better with their current and potential clients.How to measure investments in design is also an internal challenge thatclients would like to see solved. For example, the Tekes Design 2005programme found that companies tend not to have a separate budgetfor design work and investigated how that curbs the use of design. TheDesign ROI project also indirectly produced data and tools for compa-nies to use internally.The main questions that the research sought to answer:1) How and to what extent does investment in design influence the competitiveness of companies?2) How and to what degree do various design-related activities create value?3) How can value achieved with the aid of design be measured qualitatively and quantitatively?4) How can the measurable value of design be communicated?
  15. 15. -Paul Lillrank“What cannot be defined,cannot be measured;what cannot be measured,cannot be managed.”
  16. 16. ABOUTTHE PROJECT1.6 WHAT IS DESIGN?18For the impact of design to be measured, design must first be definedas a concept. A common problem in estimating the impact of design hasbeen the lack of established definitions in the design industry (Moultrieand Livesey, 2010; Whicher et al., 2011). One challenge in creatingdefinitions is that design refers both to the process and to its outcome(Tether, 2004).Borja de Mozota (2003) proposes dividing the concept of design intofour aspects, which are product design, packaging design, graphic designand environmental design. Besides these four activities, which aim forspecific outcomes, Borja de Mozota (2006) defines four broader rolesfor design. Firstly, design is a method for differentation, i.e. improvingcompetitiveness for instance through brand capital. Secondly, designis a coordinator, i.e. a resource that improves the process of developingnew products. Thirdly, design promotes change, for example by creatingnew business opportunities. Fourthly, design is a form of good business,i.e. an initiator of increased sales, enhanced market shares or better re-turn on investment.For the Design ROI project, design was defined very broadly, includingdesign as a competence, a process, an activity and an outcome. Theend result may in turn be a product, a service, a space or a visual image.Design activities were defined based on the services offered by designagencies.Definition of design in the Design ROI project:• Design as a competence• Design as a process• Design as a service• Design as an outcome
  17. 17. 19”Design is a creative activity whose aimis to establish the multi-faceted qualitiesof objects, processes, services, and theirsystems in whole life cycles.”-The International Council Societies of Industrial Design (ICSID)
  18. 18. ABOUTTHE PROJECT1.7 LIMITING THE RESEARCH FIELD20The research field related to evaluating the impact of design invest-ments is very broad. Studies examining the impact of design have foundlinks between design investment and financial performance at both themicroeconomic and the macroeconomic levels (Danish Design Centre,2003; Nyberg and Lindström, 2005). Whicher et al. (2011) propose aframework for research on the evaluation of design impact, taking intoaccount the public and private sectors at the micro- and macroeconomiclevels. The framework is shown in Figure 2.Aspects of design research (Whicher et al., 2011):• Return on investment in individual companies• Return on investment in national industry• Return on investment in design programs and policies• Return on investment in economy and societyAccording to den Ouden (2012), the impact of design on individualorganisations can be examined from the points of view of finance,psychology, sociology or ecology, in which case the subject of researchwould, respectively, be financial performance, values, social responsibil-ity or environmental responsibility.In the Design ROI project, the extensive field of design research wasdelimited to the private sector and to the micro level, i.e. to individualbusinesses as defined in the framework in Figure 2. On the business-specific level, the focus was on investigating the impact of design on thecompany’s financial performance. The subjects of research were pro-jects completed for clients by member agencies of the Finnish DesignBusiness Association.
  19. 19. MACROLEVELMICROLEVELPRIVATE SECTOR PUBLIC SECTORLevels of Design EvaluationIndividualCompaniesIndividualProgramsand policiesNationalIndustryNationalEconomy/Society214321Figure 2 Framework for evaluating design (Whicher et al., 2011)
  20. 20. 22
  21. 21. 232. THE INDUSTRY This section of the Design ROI report summarises the research previ-ously conducted on design on the levels of national economies, nationsand businesses. The section describes some of the challenges, oppor-tunities and important questions related to using and selling designservices in Finland. Note that although the Design ROI project was de-limited to the micro-level private sector, i.e. to individual businesses, itis important also to consider the other areas of the design frameworkin order to form a comprehensive understanding of the design industry.Additionally, broader examination of the framework offers a contextfor the application of design by individual businesses. This section isintended as an account of the current status of design use in Finland,and as an examination of the productivity of design and why furtherresearch should be conducted on more effective application of design.
  22. 22. THE INDUSTRY2.1 DESIGN ON THE MACROECONOMIC LEVEL24Design as a Part of the National Economy and SocietyDesign can be considered to belong to the creative industry. Accordingto the UK Department for Culture, Media and Sport (2011), the crea-tive industries are “those industries which have their origin in individualcreativity, skill and talent and which have a potential for wealth and jobcreation through the generation and exploitation of intellectual property.”Alanen (2004) has divided the cultural industries into four major sec-tors, which are art, design, mass media, and leisure/entertainment. Table1 indicates the share of each cultural sector out of the gross domesticproduct between 1995 and 2002. The design sector can be subdividedfurther into advertising, architecture, and the activities of industrial de-sign businesses. The table shows a clear increase in the relative share ofdesign out of the GDP.Business in the creative industry is closely linked to almost all industrialand service sectors, especially when it comes to design, advertising,marketing communications and animation. The significance of theselinks will only grow as demand for product and service packages subjectto copyright grows. Creative business is the source of products and ser-vices which have their basis in immaterial rights. (Ministry of Trade andIndustry, 2007)The creative industry accounted for 2.6 per cent of the GDP of theEuropean Union (EU) in 2003. In that year, the revenues of the creativeindustry in the EU totalled EUR 650 billion, and the industry is growingfaster than the economy on average. (Commission Staff Working Docu-ment, 2009)
  23. 23. 1995 2000 2001 2001Produc-tion valueGDP Produc-tion valueGDP Produc-tion valueGDP Produc-tion valueGDPMass media 59,6 2,4 49,7 1,8 49,3 1,8 48,7 1,9Design 6,0 0,2 12,3 0,5 13,1 0,5 11,7 0,4Arts 10,5 0,4 10,5 0,4 10,5 0,4 9,9 0,4Leisure andentertainment23,9 1,0 27,5 1,0 27,1 1,0 29,7 1,1Total 100,0 4,0 100,0 3,7 100,0 3,7 100,0 3,8Country Competition indexranking 2010Competition indexranking 2007Competition indexranking 2010Competition indexranking 2007Switzerland 1 2 1 2USA 2 1 5 7Singapore 3 7 11 15Sweden 4 4 4 4Denmark 5 3 6 5Finland 6 6 7 8Germany 7 5 3 1Japan 8 8 2 3Canada 9 13 23 23Netherlands 10 10 8 1125Table 1 Share of certain cultural sectors out of the valueof the entire cultural industry and of the GDP (%) (Alanen, 2004)Table 2 Top 10 nations in the 2010 and 2007 growth competition andcreative competition indices (Immonen et al., 2011; Schwab, 2009)
  24. 24. THE INDUSTRY26As awareness of the economic significance of the creative industry hasincreased, the connections between the creative industry and nationalcompetitiveness have begun to be recognised. Clear links have beenfound between investments in design and the competitiveness of na-tions, and the economies of countries that consciously use design dowell in growth competitiveness comparisons. (Nyberg and Lindström,2005)In Designium’s Global Design Watch 2010 study, Immonen et al. (2010)examined the effect of design on competition between national econo-mies. The starting point for this was the World Economic Forum GrowthCompetition Index, comprising 32 variables. The index ranks countriesaccording to their ability to increase per-capita GDP within the next5–10-year period. One of the central elements of the index is a globalsurvey of corporate executives, in which decision-makers evaluate thesituation of their countries by answering various questions. The GlobalDesign Watch 2010 study created a creative competitiveness rankingbased on the Growth Competition Index, taking into account the follow-ing factors:• Corporate investments in research and development (R&D)• Nature of competitiveness• Placement in the value chain• Innovation ability• Sophistication of production processes• Extent of marketing• Degree of customer orientation• Level of branding• Originality of product designTable 2 gives a ranking of various countries according to the 2010growth competition and creative competitiveness indices.
  25. 25. 27Figure 3Links between growth competitiveness andcreative competitiveness (Schwab, 2009)KUVA 2 : Kasvukilpailukyvyn ja luovan kilpailukyvyn välinen yhteys (Schwab, 2009)USASwitzerlandDenmarkSwedenGermanyFinlandSingaporeJapanUKNetherlandsKorea, RepHong Kong SARCanadaTaiwan, ChinaAustriaNorwayIcelandFranceAustraliaBelgiumItalyIndiaChinaEstoniaIrelandLuxembourgChilePuerto RicoSloveniaNew ZealandIsrael50 40 30 20 101020304050National competitivenessgreater than design competitivenessDesign competitivenessgreater than national competitivenessQatarUnited Arab EmiratesMalaysiaSaudi ArabiaCzech RepublicBrunei DarusallamSpainCyprusThailandBahrainKuwaitTunisiaOmanPortugalBarbadosSouth AfricaPolandSlovak RepublicJordanGDW 2010Kasvukilpailukyvyn ja luovankilpailukyvyn välinen yhteysLinks between growth competitivenessand creative competitiveness, Top 50
  26. 26. THE INDUSTRY28Figure 3 examines the connections between national competitivenessand design. It indicates a strong correlation between the two indices. Ingeneral it can therefore be said that a country’s growth competitivenessis linked to its investments in design.Design is also closely connected to innovation, which is one of the majordrivers of business growth. Innovation refers, above all, to adding valuethrough the creation of new products and services or improvementsto existing ones. The ability of designers to see possibilities, take risks,seize even radical ideas and see the world broad-mindedly from diverseperspectives is a huge potential resource for innovation processes. (Ny-berg and Lindström, 2005)The links between design and a country’s or company’s competitive-ness has also been recognised at EU level. The European InnovationProgramme was published in autumn 2010. For the first time, designplayed a role in EU innovation policy. According to the European Com-mission, design has the potential to become a central part of Europeaninnovation policy and to form a basis for an operating model that encour-ages community- and user-driven innovation. (Commission Staff WorkingDocument, 2009)Design has an impact on global competitiveness. The aim of designis to generate added value for the customer and thereby to increaseproduct sales. Often design strives to enhance the intangible prop-erties of a product or service by improving its user experiences ordesirability. Design is used to make products and services easier to un-derstand and to give them a visual style or identity that is in line with theirbrand. Through these processes design affects international competi-tiveness, i.e. the ability of a product or business to compete in price, qual-ity or availability with similar foreign products or businesses. (Lindströmet al., 2006)
  27. 27. THE INDUSTRY30Design in FinlandThe choice of Helsinki as the World Design Capital for 2012 broughtdesign closer to the everyday lives of Finns. Design is often discussed inthe media and people are increasingly aware of its significance. Design isincreasingly understood to be a comprehensive process, rather than justrelating to the appearance of an object. (Alanen, 2009b)It has been estimated that demand for designers will grow and that whilethe growth of demand for operational-level design competence will slowdown, the relative proportions of strategic and tactical design compe-tence will grow (Hytönen, 2003). The services offered by design agen-cies have shifted from traditional product design towards less tangibleconcepts, and the emphasis of design applications by clients is shiftingtowards the strategic. (Punnonen, 2008; Pitkänen et al., 2011)The strengths of Finnish design are solid technical competence, thesmall size and consequent flexibility of design businesses, and the highquality of their work. Some weaknesses which have been identified liein recognising customers’ needs, inadequate sales and marketing com-petence, and a lack of partnership networks between businesses in thesector. Clients and design agencies both expressed similar views in thisrespect. (Holopainen and Järvinen, 2006)In Statistics Finland’s classification of sectors, companies offering de-sign services come under “Specialised design activities”. Table 3 exam-ines businesses offering design services based on their quantity, per-sonnel and turnover. It should be noted that companies in other sectorclasses may also offer design services. Additionally, a significant propor-tion of industrial and graphic design is carried out internally within com-panies by in-house designers. Therefore the following review only coversa part of the design services offered in Finland.The average turnover and personnel of design businesses are relativelylow. In 2007 the average turnover was just under EUR 85,000, while thenumber of employees was below one. (Alanen, 2009b)
  28. 28. No. ofcompaniesPermanentpersonnelTurnover(EUR m)Personnel/companyTurnover / emplo-yee (€ 1,000)Turnover / com-pany (€1000)Graphicdesign435 306 22,9 0,7 75 53Interiordesign711 570 52 0,8 91 73Industrialdesign303 463 47,3 1,53 102 156Total 1449 1339 122,2 0,92 91 84Table 3 Companies in the design industry in 2007 (Alanen, 2009b)
  29. 29. THE INDUSTRY32One of the major trends in the industry is the specialisation of designagencies, which seek to look after customers’ overall needs and man-age complex entities through networking. Networking may take theform of clear contractual relationships, but ideas and recommendationsmay also come through word of mouth, or for instance the social media.Horizontal networking also takes place, with competence that falls out-side of traditional skills being outsourced on a project-by-project basis.(Alanen, 2009b) Collaborations and partnerships are sought especiallyin the early stages of a design process (Punnonen, 2008).The extensive networking of design agencies is probably one of thecauses behind the concentration of operators in the southern districtsof Helsinki, that is to say Eira, Punavuori and Ruoholahti. Geographicalproximity brings many networking advantages, which are seen to out-weigh the losses caused by competition in the long run. Due to the pro-ject-based nature of the design business, links to other operators in thefield are essential and geographical proximity lowers transaction costs.(Alanen, 2007)Another explanation for geographical concentration is the idea that de-sign services form a fixed part of other business services. Innovation,tacit knowledge transfers, learning and development in the design sectorrequire close contacts with all business service sectors. The southernHelsinki area also has a higher concentration of other business serviceproviders than the rest of Finland. (Alanen, 2007) The area is also inter-nally specialised, with around one in eight Helsinki inhabitants (around 13per cent) working in cultural and knowledge-intensive sectors. Helsinkicame first in a comparison of creative workplaces among 13 Europeancities, above such cities as Amsterdam, Barcelona and Munich. (Hamiloand Mykkänen, 2012)
  30. 30. THE INDUSTRY2.2 DESIGN ON THE MICROECONOMIC LEVEL34Use of Design Services in BusinessesLarge companies are more likely to use design services than small ones.According to a study by Holopainen and Järvinen in 2006, the largestcompanies, with revenues exceeding EUR 170 million, were the big-gest users of design. In the SME sector, on the other hand, there is greatpotential for increased use of design.In a 2012 survey by the Association for Finnish Work (n=1,380), justover one half of respondents had invested quite a lot or a lot in design.Only 12 per cent of respondents had not invested at all in design in theprevious two years. Comparisons with a survey conducted by Holopainenand Järvinen in 2006 (n=113), with the 2002 Designium Design Indus-try Survey (n=165), and with a questionnaire sent by the Research Insti-tute of the Finnish Economy to members of the Confederation of FinnishIndustries in 2005 (n=222), where around one half of respondents saidthey had no experience of buying design services, indicate a sharp rise inthe use of design services. (Figures 4-6)Companies define the concept of design broadly as comprising industrialdesign, design and innovation (Association for Finnish Work, 2012). Theirunderstandings of the definition of design varied greatly; some consid-ered the concept only to include product design, while others viewed itmore broadly as incorporating graphic design, interior design, etc. (Ho-lopainen and Järvinen, 2006). Design is considered to play a role in en-hancing competitiveness. In spite of this, it is left in the wake of othercore business processes, such as quality, delivery reliability and sales.Investments in design are therefore a hidden resource for many compa-nies. (Association for Finnish Work, 2012)
  31. 31. 100%3%18%35%32%12%0% 20% 40% 60% 80%DK = Don’t know4 = A lot3 = Quite a lot2 = A little1 = Not at allHas your company invested in designin the last two years? (n=1,380)Companies purchasing design servicesin 2006 (n=113)YesNo53%47%35Figure 4 Companies’ design investments in the last two years(Association for Finnish Work, 2012)
  32. 32. THE INDUSTRY36Design can be managed and practised in companies at three levels:operative, tactical and strategic (Borja de Mozota, 2003). The theoreti-cal section of the Design ROI report considers the application of designat these three levels. Quantitatively, a larger proportion of companiesthat use design services buy them from an external provider. Somecompanies, however, consider design to be such an essential element ofstrategy that they do not want to outsource it; in this case they usuallyalso manage and coordinate design in-house. (Holopainen and Järvinen,2006)One of the benefits of having in-house designers is that it raises the com-pany’s design competence, which makes the company increasingly awareof its own needs. It also makes companies more familiar with design ser-vice providers, as the people who order design services are ones witha background in design rather than engineering or economics. (Alanen,2009b) The customer interviews for the Design ROI project producedsimilar results: companies that employed designers in their personnelwere more aware of their possibilities in applying design and its effectson business internally and externally. (Pitkänen et al., 2012)There are very few companies in Finland which take care of all their owndesign needs. However, if this classification is considered to include allthose companies which use design unconsciously, then it forms the larg-est group of companies of all. (Alanen, 2009a) Design may also be anintegral part of a company’s operating model and strategy even if it isoutsourced. More and more companies are starting to use a combina-tion of in-house and outsourced design services. In other words, thereare many ways of solving a company’s design needs. (Holopainen andJärvinen, 2006)
  33. 33. 54%23%23%ContinuousNoneSporadicApplication of design inindustrial companies (n=122)48%52%Companies purchasing designservices in 2002 (n=165)37Figure 6 Application of design in industrial manufacturing companies(Lindström et al., 2006)YesNoFigure 5 Companies purchasing design services in 2002 and 2006(Holopainen and Järvinen)
  34. 34. THE INDUSTRY38A telephone interview conducted by Aku Alanen in 2009, asking aroundone hundred design-intensive companies about the organisation of theirdesign activities, showed that in the twenty-first century companies hadincreased their intake of in-house design employees. Almost one halfof respondents had recruited more in-house designers, and they oper-ated in many sectors, from the technology industry to textile and cloth-ing manufacture. The number of designers had fallen in only a handfulof companies. (Alanen, 2009a) Of the companies that responded to aquestionnaire sent by the Research Institute of the Finnish Economy tomembers of the Confederation of Finnish Industries in 2005 (n=222),around 30 per cent employed one or more in-house designers. The moreintensive and continuous the use of design in a company, the more likelyit is to have its own designers (Lindström et al., 2006). Despite this, de-signers make up a very small percentage of the personnel of clients, withgraduates of design degrees working in very few places besides designagencies. (Holopainen and Järvinen, 2006)The industrial manufacturing companies that made use of design ser-vices spent an average 11.7 per cent of their research and development(R&D) expenditure on design in 2005. The proportion varied widely be-tween companies and between sectors, as shown in Table 4.Design investments were low among industrial companies overall, onlymaking up 0.3 per cent of turnover in 2005. Meanwhile R&D expenditurewas around 2 per cent of turnover. (Lindström et al., 2006)The Design ROI customer surveys and meetings indicate that most com-panies do not have a separate design budget. Design investments comeout of the R&D and marketing budget or the overall budget. (Pitkänen etal., 2012)
  35. 35. Average2003 2004 2005All 11,6 11,1 11,7By nature ofapplication:Continuous use ofdesign16,2 15,2 15,6Sporadic use ofdesign5,0 5,6 6,6Company size:Large 6,4 6,4 6,4SME 15,2 14,3 15,2By industry:Forestry,publishing4,5 5,5 8,5Chemical 6,5 6,5 9,1Metallurgy 17,4 16,1 21,1Machinery 9,3 8,9 8,4Electrical andelectronics2,1 2,2 2,4Textiles & furniture* 19,8 20,0 18,9Food and drink 15,8 16,0 12,7Other manufacture 28,3 19,0 22,439Table 4 Design expenditures as a share of the company’s R&D expenditure (%)(Lindström et al., 2006)*Industrial textiles, clothing, leather, footwear and furniture
  36. 36. THE INDUSTRY40Obstacles to Applying DesignCompanies which do not use design services state as the reason theidea that they do fine without it (Association for Finnish Work, 2012).They also say that it is not relevant for their industry. Figures 7–9 showsome of the obstacles to applying design in companies. The responsesindicate that most clients still view design narrowly as comprising prod-uct design or visual appearance enhancement. The understanding ofdesign as a comprehensive function with benefits for business has notyet completely taken hold, even though it appears to be spreading. (Hol-opainen and Järvinen, 2006)Another problem mentioned as an obstacle to applying design was in-sufficient knowledge of the opportunities offered by design (Holopainenand Järvinen, 2006). Companies which lack experience and competencein the field of design – especially SMEs, low-tech businesses and com-panies located in less densely populated areas – do not know who toturn to in design matters. Additionally, the small size of design agenciescan make it difficult for them to market themselves and make their ser-vices known. (Commission Staff Working Document, 2009) It would beimportant to collect quantitative and qualitative data on design projectsin order to spread awareness of the opportunities for using design inbusiness through concrete case studies. The Design ROI project begancollecting data on the design sector for the Design ROI database. Theaim is to develop the database to be used as a tool in measuring designand in communicating its value.Although it appears that design is playing an increasingly strategic rolein companies, the connection between design and financial benefits isstill unclear and difficult to prove to customers. Design agencies whichresponded to the Design ROI survey said that many potential clients feltthat design services were too expensive and their benefits too vague.Additionally, clients did not feel that design brought added value to busi-ness or that it was significant overall. Another obstacle to the purchaseof design services was that it could not be justified to management. (Pit-känen et al., 2011)
  37. 37. 7%22%47%23%0% 20% 40% 60% 80% 100%Design is notrelevant for usWe are doing wellwithout designWe haven’t foundthe right designersWe don’t believe in workingwith external designersDesign is not relevantfor our industryWe cannot see any benefitbrought by designDesign does not supportour other functionsDesign is only forexpensive productsOther (please specify)41Figure 7 Why has your company not invested in design in the last two years?(Association for Finnish Work, 2012)Figure 8 Why is design not relevant to your company? (n=174)(Association for Finnish Work, 2012)Why has your company not investedin design in the last two years? (n=578)25%3%13%9%59%0% 20% 40% 60% 80% 100%Why is design not relevant to your company? (n=174)
  38. 38. THE INDUSTRY42In the Design ROI customer meetings, company representatives ex-pressed a wish to have some concrete proof to produce in internal sales(Pitkänen et al., 2012). When a company’s management assesses invest-ments based on financial figures, it is not enough to provide just qualita-tive proof of design investments. For quantitative data to be collectedon design projects, the projects must have clear business targets thatcan be monitored in the longer term. The Design ROI tool was built tosupport the setting and tracking of such targets.
  39. 39. 43Figure 9 Obstacles to the application of design bycompanies (Holopainen and Järvinen, 2006)10%10%7%0%20%14%37%63%12%5%6%8%15%21%2%50%0% 20% 40% 60% 80% 100%Obstacles to applying design2006, n=782002, n=86*) Not includedin 2002 surveyNot part of/relevant for the industryStandard product(does not need design)Unaware ofthe opportunities of designHigh cost/small returnsLacking resources/processesfor the application of design*ConservatismLack of timeOther
  40. 40. THE INDUSTRY44MeasurementThe Design ROI customer surveys and meetings showed that companiesshare an interest in monitoring the profitability of their operations. Therespondents mentioned a wide range of performance metrics, rangingfrom key performance indicators (KPIs) to sales and profit figures, sys-tems such as Excel and SAP, and gut feelings. The same methods wereused for evaluating R&D and marketing projects.Monitoring the profitability of design projects was less common. Exceland gut feelings were the most popular follow-up methods in design pro-jects. Respondents also mentioned visitor numbers and design compe-titions as metrics. Many felt that profitability could be monitored moresystematically in relation to design projects and communication projectsin general. All respondents were interested in tracking the effects of de-sign in projects. They expressed particular needs for a tool that wouldhelp clients to:• compare design projects with similar projects in other companies• plan design projects• evaluate design projects once they had finished• sell design projects internally (Pitkänen et al., 2012)The research indicated that evaluation and tracking of design projects inthe longer term were often lacking. This topic should be studied further,for instance by comparing it with measurements of the profitability ofR&D and marketing projects. The measurement of design projects mustbe integrated into other business measurement practices in order to be-come successfully established as a practice.Separate metrics must be defined for design benefits in order for the ful-filment of targets to be systematically tracked. The benefits and metricsrelated to design are examined in the theoretical section of the DesignROI report.
  41. 41. How will the significance of design evolve in yourcompany in the next two years? (n=1,338)45Figure 10 How will the significance of design evolve in yourcompany in the next two years? (Association for Finnish Work, 2012)12%39%47%2%1%0% 20% 40% 60% 80% 100%Reduce a lotReduce somewhatStay the sameIncrease somewhatIncrease a lot
  42. 42. THE INDUSTRY46Future ProspectsResearch indicates that design is gaining status within companies. In thesurvey by the Association for Finnish Work (n=1,338), more than half ofthe respondents stated that the importance of design would increasein the next two years (Figure 10). (Association for Finnish Work, 2012)Those interviewed for the Muotoilun maisemat 2008 survey predictedthat the increase in applications of design would become evident es-pecially in the form of recruitment of in-house designers. This reflectsthe respondents’ view that design competence should be held within thecompany if it is to be applied at the strategic level. (Punnonen, 2008)The use of design services is most likely to increase among the compa-nies that have used them before (Lindström et al., 2006). The challengelies in convincing the companies with no experience of applying design ofthe business benefits of design.According to the survey by the Association for Finnish Work, the mainobjects of design investments in the next few years will be individualcompanies’ brands, companies’ visual identities and the ideation offuture products (Figure 11). (Association for Finnish Work, 2012)The level of internationalisation appears to affect the estimated futuredesign investments of companies. According the design-related surveyby the Research Institute of the Finnish Economy, companies with in-ternational operations were more likely to increase their design invest-ments in the next five years than those operating mostly domestically. Asa company expands internationally, it needs design especially for imagedevelopment, strengthening product appeal and increasing differentia-tion from the competition. (Lindström et al., 2006)
  43. 43. What will your design investmentsfocus on? (n=684)34%43%44%46%47%48%53%56%57%61%0% 20% 40% 60% 80% 100%47Figure 11 What will your design investments focus on? Ten most commonlychosen options. (Association for Finnish Work, 2012)Strengthening/buildingthe company brandWebsiteProduct ideation, drafting,conceptualisationStrengthening the company’s imageVisual image of a productAppearance of a productQuality of a product or serviceCreating a product familyUsability of a product or serviceAdaptation of a product or service fordifferent segments
  44. 44. THE INDUSTRY48Design AgenciesScope of OperationsDesign agencies tend to be fairly small, measured in terms of both turno-ver and personnel. In the Design ROI survey of design businesses (n=14),64 per cent of the respondent design agencies had turnovers belowEUR 500,000 in 2010 (Figure 12). On the other hand, nearly one thirdof respondents had turnovers exceeding EUR 1 million and operatedon an international scale. The highest turnovers were just below EUR 2million. (Pitkänen et al., 2011)Figure 13 shows the numbers of permanent personnel at design agen-cies. More than half of the companies that responded to the survey hadfewer than 10 employees in 2010. Only 14 per cent had more than 20employees in 2010, up to a maximum of 22. Of the respondents, 28 percent had more than one office.
  45. 45. 4942%26%11%21%35%20%25%20%50%14%22%14%0%10%20%30%40%50%60%70%80%90%100%1-56 -10 11-20 over 2022%44%6.00%11%17%26%32%11% 11%21%29%36%0%14%21%0%20%40%60%80%100%0 - 300 000 300 000-600 000600 000-1000 0001 - 1,5 m€ over 1,5m€Turnover of design agencies 2006 * n =182007 * n=192010 n=14Figure 12 Turnover of design agencies (Pitkänen et al., 2011; Punnonen, 2008)Permanent personnel employedby design agencies2006 * n =192007 * n=202010 n=14Figure 13 Permanent personnel employed by design agencies(Pitkänen et al., 2011; Punnonen, 2008)*) Muotoilunmaisemat 2008
  46. 46. 1. Func-tion notincludedin ourportfolio2. Onlydone whennecessary3. Done insomeprojects4. Done inmanyprojects5. Done inmostprojectsAverage1.Consept design 0 0 2 2 11 4,62. Product design 1 0 2 2 10 4,333. Product development 1 0 2 2 10 4,334. Graphic design 1 0 2 6 6 4,075. Strategic design 1 1 2 4 7 4THE INDUSTRY50Service SelectionThe trend among design agencies is to offer services that transcend thetraditional boundaries of the design sector. Many of the most common-ly used design services are now intangible (Figure 14). Compared withthe Design Industry Survey from 2006, the Design ROI survey of de-sign agencies had concept design and strategic design (Table 5) as newadditions to the most commonly provided services. Although the lattersurvey had significantly fewer responses, the results do indicate a shifttowards the intangible. (Pitkänen et al., 2011)In the 2006 Design Industry Survey (n=30), around 40 per cent of de-sign agencies said they carried out strategic design. However, in a sur-vey of clients, only a marginal fraction said they bought strategic designservices. (Holopainen and Järvinen, 2006) This conflict in results maybe due to the difficulty of understanding design terminology, which wasalso evident in the results of the Design ROI survey. In this survey, designagencies were asked to provide a closer description of their operations.This demonstrated that the agencies’ functions could be wide in scopeand partly overlapping. It is difficult to draw clear lines between func-tions. (Pitkänen et al., 2011)Table 5 Activities practiced by the design agencies(Pitkänen et al., 2011)
  47. 47. 0%17%40%43%60%50%53%50%60%40%40%70%80%97%17%17%40%37%23%40%40%47%40%53%63%67%73%83%0% 10% 20% 30% 50%40% 60% 70% 80% 90% 100%2006, n =302002, n=3051Figure 14 Functions carried out by the design agency (Holopainen and Järvinen, 2006)Demand for comprehensive solutions is growing in the design sector,and customers are also interested in services not specified in the designagencies’ service palettes. In fact, multidisciplinary competence thatfalls outside of the traditional definitions of product design is more a rulethan an exception at design agencies (Figure 15). The most commonnon-design areas of competence held by design agencies came withinbusiness administration, engineering, law and humanities. (Pitkänen etal., 2011)Product designProduct developmentGraphic designTechnical designBrand designExhibition designModel constructionUsability studies*Communication designStrategic designInterface designConcept designInterior designPackage design*) Not includedin 2002 survey
  48. 48. THE INDUSTRY52Client StructureAccording to the Design ROI survey of design agencies, respondentssaw that the role of design has become more strategic in those com-panies which apply design, and that qualitative development has takenplace in the related projects. More room is given to the designer’s viewsand agencies are involved in projects at an earlier stage. (Pitkänen et al.,2011) The 2006 Design Industry Survey produced results along thesame lines: design agencies joined customer projects at the initial plan-ning or conceptualisation stage (Holopainen and Järvinen, 2006). Therole of design has become less tangible and the task of agencies is in-creasingly often to transfer competence to their clients through diverseforms of research, consulting and training (Pitkänen et al., 2011).The client structures of the design agencies support the increase incomprehensive design services. The respondents to the Design ROI sur-vey of design agencies mostly had long-term or continuous customer re-lationships. This is positive in terms of the scope of projects, because inlong-term partnerships projects have a tendency to expand and deepen,evolving in a more strategic direction. (Pitkänen et al., 2011)Future ProspectsThe respondents to the Design ROI survey of design agencies expectedthe operations of design agencies to focus increasingly on intangibleservices in coming years (Figure 16). Almost all respondents identifiedconcept design as an area of future development. Most respondentsalso mentioned strategic design and service design as areas of develop-ment. (Pitkänen et al., 2011)
  49. 49. 93%7%YesNoDoes your company possess multidisciplinarycompetence or competence not included intraditional definitions of design? (n=15)What aspect of service will you focus ondeveloping in the next three years? (n=15)30%47%53%67%93%0% 20% 40% 60% 80% 100%53Figure 15 Does your company possess multidisciplinary competence orcompetence not included in traditional definitions of design?Figure 16 What aspect of service will you focus on developing in thenext three years? (n=15) (Pitkänen et al., 2011)Concept designStrategic designService designProduct designVisual identity design
  50. 50. THE INDUSTRY2.3 SUMMARY54The design sector can be examined from the points of view of the na-tional economy, the society as a whole or individual companies. In termsof the national economy, design can be seen as a part of the creativeindustry. The creative industry accounted for 2.6 per cent of the GDP ofthe EU in 2003. In that year, the revenues if the creative industry in theEU totalled EUR 650 billion, and the industry is growing faster than thegeneral economy on average.Design also affects national competitiveness. Clear links have beenfound between investments in design and the competitiveness of na-tions, and the economies of countries that consciously use design dowell in the growth competition index. Design is also closely connected toinnovation, which is one of the major drivers of business growth.The design sector has a long history and cultural heritage in Finland. De-sign is increasingly understood to be a comprehensive process, ratherthan just relating to the appearance of an object. The strengths of Finn-ish design are solid technical competence, the small size and conse-quent flexibility of design businesses, and the high quality of their work.Design is strengthening its position in Finnish business. The use of de-sign services will increase in the near future, especially thanks to therecruitment of in-house designers. Design is generally applied more inlarge organisations than small ones; the largest companies, with reve-nues exceeding EUR 170 million, are the biggest users of design. Com-panies that employ designers in their personnel are more aware of theirpossibilities for using design and its effects on business internally andexternally than companies which do not possess in-house design com-petence.
  51. 51. 55Design is considered to play a role in enhancing competitiveness. Inspite of this, it is left in the wake of other core business processes, suchas quality, delivery reliability and sales. That other functions are priori-tised above design is evident from the fact that companies lack designprojects and are unlikely to track the profitability of design projects.Business profitability is generally measured using KPIs, sales and prof-it figures, systems such as Excel and SAP or simply gut feelings. Theprofitability of design projects, however, is monitored unsystematically ornot at all by most companies. Few companies have a specific budget fordesign; design investments come out of the R&D and marketing budgetor the overall budget.The role of design among clients is shifting towards the strategic, whilethe services offered by design agencies are focusing increasingly onintangible services such as service design and strategic design. As de-mand for comprehensive design solution grows, more design agenciesare adding multidisciplinary competence beyond traditional design ser-vices to their portfolios.Many clients find design terminology opaque and do not always have aclear understanding of what design services actually comprehend. Thevarious functions of design agencies may be extensive and somewhatoverlapping, which makes it difficult to draw lines between functions.Obstacles to the use of design services are a lack of knowledge by com-panies of the opportunities offered by design, and the vagueness of ben-efits obtained through design. A database of design projects would helpcompanies obtain knowledge of how they could make use of design intheir operations and who to turn to in related matters.
  52. 52. 56
  53. 53. 573. THEORY The theoretical section of the Design ROI report comprises a re-view of the most relevant research, theories and articles. They areviewed from the perspectives of design management, accountingand measurement. This section is especially intended to supportacademic and scientific debate and to form a basis for possible fu-ture academic research projects.
  54. 54. THEORY3.1 INTERNATIONAL VIEWS ON THE TOPIC58Several international studies have been conducted aiming to determinethe value of design, and they have found design to have a positive impacton financial performance in terms of sales growth, product exports andmarket value (cf. e.g. Nyberg and Lindström, 2005). A summary of themain research results is given in Table 6.The topic has been researched by several design associations, includ-ing the Association of Dutch Designers (BNO), the Swedish IndustrialDesign Foundation (SVID), the UK Design Council, the Danish DesignCenter (DDC) and the Research Institute of the Finnish Economy. TheRed Dot Institute (2010) has developed its own model for calculatingthe design value of companies, while Petersen (2007) from the Centerfor Design Research at Stanford University has examined the impact ofthe IDEA Award on companies’ share prices.The study by the Dutch BNO (2010) investigated factors affectingthe efficiency of design, such as the freedom given to the designer toconsider ideas coming from outside the design project, the limitationof customer participation and the innovativeness of the project. Thestudy found that investments in design and the involvement of design-ers in product development improve a product’s chances of success, andthat the involvement of designers in a company’s visual identity designimproves the image projected by the company. Together, these factorshave a positive impact on the company’s financial performance. Thestudy was conducted in the form of telephone interviews with directorsfrom 163 Dutch companies.A similar study by the Swedish SVID (2008) found that companies thathad continuously invested in design had over 50 per cent higher produc-tivity than companies that had not invested in design.
  55. 55. Name Year Publisher/authors DescriptionThe Design Effec-tiveness IndustryReport2010 BNO -Associationof DutchDesignersAn emphasis on experience and functiona-lity design leads to better product perfor-mance, especially if the designers are giventhe freedom to consider ideas coming fromoutside the project, the design work is in-novative and client participation is limited.Design Value –A Strategy forBusinessSuccess2010 Red dot edition,Zec, P. andJacob, B.Method using the Red Dot Award for calcu-lating companies’ design value. The methodallows for comparisons between compa-nies in a certain sector with regard to de-sign quality. Design has been found to be acrucial driver of value for many companies.Svenska Företagom design2008 S V I D - Swe d i s hIndustrial DesignFoundationThe difference in productivity betweencompanies that had invested in design andthose that had not invested in design at allwas over 50%.The Value ofDesignFactfinder report2007 BritishDesign CouncilThe turnover of design alert businessesgrew by an average of GBP 225 per GBP100 invested, and their share price perfor-mance was around 200% higher than thatof the general stock market index.The idea awardas a designquality metric2007 Stanford Univer-sity, Center forDesign Research,Petersen, S.The IDEA Award and investor expectationscorrelate in terms of the success of award-winning companies in the stock market.Within a five-year period (2000–2005), theshare price of companies that had receivedthe award exceeded that of companies inthe S&P 500 index by an average of EUR6.50 per year.Financial effectsof design2005 ResearchInstitute of theFinnish EconomyCompanies that had invested most heavilyin design did better in sales growth, pro-duct export shares and market value thancompetitors that had invested less.The EconomicEffects of Design2003 DDC - DanishDesign CentreCompanies investing in design enjoyed22% higher turnover growth than non-in-vesting companies, and 40% higher if theinvestments were continuously higher.59Table 6 International research on the links between designapplication and financial performance
  56. 56. THEORY60The study by the UK Design Council (2007) found that the turnoverof “design alert businesses” grew by an average of GBP 225 for eachGBP 100 invested in design. The research was based on two separatesurveys: the Design Council National Survey of Firms 2005 and AddedValue Research 2007. The former investigated companies’ attitudes to-wards design and how they made use of design in their operations. Thesurvey’s particular aim was to calculate the tangible effects of design onbusiness. The latter survey looked at how and why companies add valueto their core portfolio. Both surveys were conducted by telephone andthe sample sizes were 1,500 and 503 companies, respectively.The study by the Research Institute of the Finnish Economy (2005) usedquantitative methods to examine the impact of design on the success ofnational economies and individual companies. The section on individualcompanies investigated whether companies that had invested heavilyin design had enjoyed better sales growth and higher export shares intheir production than others. The study also looked for links betweencompanies’ market values and design investments. The study found thatcompanies that had invested in design did better in sales growth, prod-uct export shares and market value than competitors that had investedless. The study was carried out by a panel of experts using key figuresprovided by companies.The research by the DDC in Denmark (2003) detected a 22 per centhigher growth in turnover among companies that had invested in de-sign, compared to those which had not invested in design at all. It alsofound growth of up to 40 per cent when the investments were consist-ently higher. The study concerned the quantity of design investments byDanish companies, as well as their turnover, job provision and share ofexports out of turnover. The companies’ level of design application wasevaluated using the Design Ladder model. The study was conducted bytelephone interview and the sample size was 1,000 companies.
  57. 57. 61The Red Dot Institute has developed a method using the Red Dot de-sign competition for calculating companies’ design value. In their studythey observed design-intensive businesses and sectors in connectionwith the Red Dot Award. The sector-specific ranking of companies’ de-sign competitiveness can also be used for determining their design qual-ity, which allows companies to be compared in selected industries. Themethod can be used for calculating the “design revenue” of each marketsegment and product category based on design investment and operat-ing profit. This design revenue is then multiplied by a weighting factor de-rived from the company’s design continuity and strengths, and added toa design capital figure, which takes into account factors such as patents.The results of the design award are used as a basis for continuous analy-sis of design strength and design continuity. For example, the consumerelectronics company Loewen, which won 33 Red Dot awards between2000 and 2009, had a design value of 157 million in 2008, represent-ing a growth of 49 per cent over the previous year. (Zec and Jacob, 2010)Petersen (2007) investigated the links between the IDEA Award and in-vestors’ expectations and found them to correlate in terms of the suc-cess on the stock market of award-winning companies. Within a five-yearperiod (2000–2005), the share price of companies that had received theaward exceeded that of companies in the S&P 500 index by an averageof 6.5 per cent per year.Despite all the abovementioned research, no previously existing gener-ally applicable models or metrics were found by the Design ROI researchteam. Design has such extensive and often indirect long-term effects onbusiness operations that it has not been possible to identify completelyapplicable metrics. The industry does not have nationally or internation-ally established practices for measuring the impact of design investment.
  58. 58. THEORY62Levels of Design MaturityThe design competence of companies can be measured in various ways.The Danish Design Centre (DDC) developed the Design Ladder (Figure17) for evaluating the “design maturity” of companies. The model was ap-plied for example in the studies The Economic Effects of Design (2003)and Design Creates Value (2007), whose results concerning companies’design maturity levels in 2003 and 2007 are shown as percentages inFigure 17. The Design Ladder classifies companies according to fourlevels of design maturity based on their attitudes towards design: no de-sign, design as styling, design as process and design as strategy. Thehigher a company places on the Design Ladder, the greater the strategicsignificance of design is in the company. (Whicher et al., 2011)Figure 17 Danish Design Ladder(The Economic Effects of Design, 2003; Design Creates Value, 2007)36%15%13%17%35%45%15%21%% of companies in 2003% of companies in 2007Stage 1: No designDesign plays no role in product or service developmentStage 2: Design as stylingDesign is used for improvingthe appearance of productsStep 3: Design as processDesign is a part of product developmentand other processesStage 4: Design as strategyDesign forms a part of thecompany’s strategySTRATEGYPROCESSSTYLINGNO DESIGNDanish Design Ladder
  59. 59. 63The DDC (2003) study proved that there were links between companies’placement on the Design Ladder and their financial performance. Com-panies on levels three and four enjoyed more favourable developmentsin turnover, export shares and employment over five years than those onlevels one and two. The greatest differences lay in the share of exportsout of turnover.Design Ladder, or the four levels of design maturity:(The Economic Effects of Design, 2003)Stage 1: No designDesign is a negligible part of product or service development, and anydesign activities fall to professional groups other than designers. Designdecisions are based on the personal operational or aesthetic opinionsof those who are involved. The views of end users are hardly present ornon-existent.Stage 2: Design as stylingDesign is seen solely as relating to the final physical form of a product,for example as style, appearance or ergonomics. It can be the work of adesigner, but is often contributed to by other employees.Stage 3: Design as processDesign is a method that is integrated early on into the development pro-cess. The production focuses on the end user and makes use of contri-butions from a range of specialists.Stage 4: Design as strategyDesign forms a part of the continuous renewal of the company’s oper-ating model by furthering innovation. The design process is integratedinto the company’s targets and it plays a major role at each stage ofdevelopment.
  60. 60. THEORY64Design can be managed and applied at three organisational levels:operative, tactical and strategic (Joziasse, 2000; Borja de Mozota,2003). For lasting connections to be created between design manage-ment and corporate strategy, design should have an influence at each ofthese levels (Joziasse, 2000). Below is a brief description of the role ofdesign at the three levels.At the strategic level, design brings competitive advantages and deter-mines the direction of business operations (Joziasse, 2000). The designstrategy helps to integrate design into all functions of the company. Theduties of design management include visualising the business strategy,collecting market data and comparing design performance with thecompany’s performance. (Borja de Mozota, 2003)At the tactical level, design can be used for identifying new businessopportunities and generating unique product concepts (Joziasse, 2000).Design management acts as a link between functions and coordinatesthe design strategy in line with marketing, innovation and communicationfunctions. Other duties of design managers are to evaluate and improvethe design process and to estimate the return on design investments.(Borja de Mozota, 2003)If the company also makes use of design at other organisational levels,the duty of operative design management is to implement the designstrategy at the project level. Design management should also coordinateoutsourced design projects and assess the functioning of design, mar-keting and branding. (Borja de Mozota, 2003) If the company only usesdesign at the operative level, it is only applied in product developmentat the later stages of the process and collaboration with other businessprocesses, such as marketing, is limited or non-existent. Coordination ofdesign activities is then also minimal. (Koostra, 2009)
  61. 61. THEORY3.2 MEASURING DESIGN66A comprehensive evaluation of design is the sum of many factors. It re-quires intuition, quantitative and qualitative research and a combinationof all of these. Quantitative measurement is particularly important forresults to be comparable and understandable for all parties. (Lockwoodand Walton, 2008)Measurements help in comprehending data that can otherwise be dif-ficult to interpret. By making measurements, companies can follow theprogress of an initiative, assess its results and compare them with theset targets. The object of measurement can be an action or the result ofthe action. (Salorinne and Laamanen, 1994)Requirements for measurement (Patterson, 1993):The number of metrics used should be restricted to a reasonableamount, so that essential data is not lost among masses of other data.It is important for metrics to take into account the context in which theyare used; otherwise measurements may lead only to partial optimisation,which makes them more detrimental than beneficial. Metrics should alsobe easy to interpret and the data extracted from them should be shownto all those whose actions affect the measurement results. In this way,metrics can be used to promote positive development in people’s ac-tions. (Salorinne and Laamanen, 1994)1. Relevance: The metric must provide clear information focussed on factors important to the task at hand2. Completeness: The set of metrics together makes visible all important factors with balanced emphasis3. Timeliness: Metrics on any business activity must be sufficiently real-time to enable decisions that relate to the actual current state of the business at hand4. Elegance: If the metric set is designed with elegance, it will achieve a maximum level of insight with minimum amount of data
  62. 62. “Design may enhanceperformance but unless there aremetrics to gauge that benefit, thedifference it makes depends onconjecture and faith.”-Lockwood and Walton (2008)
  63. 63. THEORYChallenges in Measuring Design68Although design has been found to generate value for companies, its im-pact should be more specifically measurable in order for design manage-ment to be possible (Borja de Mozota, 2006). There are challenges inmeasuring design, however. One of the major challenges that has beenidentified is the lack of generally accepted definitions in the design in-dustry (Whicher et al., 2011; Moultier and Livesey, 2010).Secondly, there is usually a long delay between the time of design invest-ment and the resulting benefit. For example, the benefits of investmentsin design at the product development stage are not seen until the prod-uct is launched on the market, by which time the benefits may no longerbe linked to the design investment in people’s minds. Another problem isthat design is often seen as an expense rather than an investment, whichmeans that its effects are not tracked at all. (Hertenstein et al., 2005)Design is usually present in several corporate functions, including prod-uct development, marketing and general corporate communications,which makes it difficult to define and manage (Lindström et al., 2006).Therefore the third challenge lies in how to isolate the contributions ofdesign out of other functions (Whicher et al., 2011).The Design ROI project also identified other challenges in measurement,such as the wide scope of the effects of design. When measuring theimpact of design projects it should be considered to what extent for in-stance the costs of production should be taken into account. Anotherchallenge may lie in the availability of information, especially in the caseof outsourced design projects, in which the design agency may not knowabout investments and costs related to other parts of the project.
  64. 64. “There is typically a time lag betweenthe industrial design efforts duringproduct development and the reali-zation of the results of those effortswhen the product has entered themarket. In financial terms, the returnslag the investment.”-Hertenstein, Platt and Veryzer (2005)
  65. 65. THEORY3.3 DESIGN INVESTMENTS70For the return on investment (ROI) in design to be calculated, two ques-tions must first be answered. Firstly, what are the design activities inwhich a company can invest? And secondly, what effects on return canthe design activities have? (Aspara, 2012) Design activities may relateto a product, service, space or brand. A closer description of designactivities can be found in section 4.2.Investments in design activities have two types of effects: there aredirect impacts on cash flow, and indirect impacts on intangible capital,which may contribute to higher returns from other investments. (Aspara,2012)The effects of investments on cash flow and intangible capital are di-vided into four categories in the Design ROI project (adapted from Shriv-astava et al., 1999):• Greater cash flow• Less costs• Faster cash flow• Accumulation of intangible capitalGreater cash flow can be achieved by increasing sales or enlarging thesales margin thanks to greater product or service competitiveness.Costs can be lowered for example by simplifying the production processor changing product materials. Faster cash flow can be produced for ex-ample by shortening development times.
  66. 66. ROI (%)=GainInvestmentx100
  67. 67. THEORY72Intangible capital comprises project and process competence, whichincreases the efficiency of R&D activities and investments, as well asbrand value, which refers to consumer attitudes, trust and satisfactiontowards the company’s products or services. It especially increases theefficiency of marketing and sales promotion investments. (Aspara, 2012)Financial analysis can be used in two ways when making design invest-ment decisions: for making decisions concerning the continuity of a pro-ject (go/no-go) and for supporting operative design and development de-cisions. In go/no-go decisions the critical question is whether it is worthstarting to develop a new product, continuing with the development of aconcept, or producing a developed product. (Ulrich and Eppinger, 2008)An example of operative design decision-making could be whether itis worth paying EUR 50,000 to an external design agency for them todesign a product, if that will speed up the development process by twomonths.The following accountancy problems must also be solved when makinginvestment calculations (Artto et al., 1990):- Scope: which income and expense items should be included in the calculations?- Measurement: how and to what level of accuracy should income and expenses be calculated?- Valuation: how should income and expenses be valued?- Allocation: how should income and expenses be allocated to the objects of the calculation and in time (spread over a certain period)?Next we will examine the net present value method, which can be appliedto evaluating design investments. The method is most suitable for prod-uct and service design projects.
  68. 68. 73The net present value (NPV) method is used to evaluate whether thebenefits obtained from a planned project will exceed its costs. The NPVis calculated by carrying out a project-specific cash flow analysis. In cal-culating the profitability of an investment we want to know what the cur-rent monetary value would be of the future return on the investment. Thediscount method is used to calculate the present value of future income,applying a certain time period and a specific discount rate or yield re-quirement. (Kinnunen et al., 2004)The NPV method takes into account all the cash flows arising from theinvestment by discounting them to their value at the time of calculation.The cash flows typically taken into account in developing a new productare development costs, deployment costs, marketing and support func-tion costs, production costs and income from sales. The annual runningincome and expenses or, correspondingly, their annual difference or thenet profit, are multiplied by the discount rate for each year. The annualpresent values obtained are added together and any residual value (alsodiscounted) is added to that. The initial cost of the investment is de-ducted from the sum total, giving the NPV of the investment. If the NPVis positive, the investment is profitable. This information can be used inmaking go/no-go decisions. (Kinnunen et al., 2004)Sensitivity analyses are used to assess the sensitivity of the outcomesof a project to changes in the initial variables. For example, the methodcan be used to evaluate the extent of the change in NPV if developmentcosts should rise by 20 per cent. There are both internal and externalfactors affecting the value of a project. Internal factors are those whichthe project team has the ability to influence, such as development costs,development times and production costs. External factors are thosewhich are beyond the project team’s control, such as the competition,sales quantities and sales prices. (Ulrich and Eppinger, 2008)It is worth noting that investment decisions are also affected by qualita-tive factors that cannot be included in calculations. These could be for
  69. 69. THEORY74example estimates of the benefits obtained through investments intopersonnel health and safety or working conditions. These benefits mightinclude higher work motivation, whose financial impact cannot be pre-dicted. (Kinnunen et al., 2004)The NPV method was used in the first prototype of the Design ROI toolas one of the ways of calculating ROI in design. In the tool, the effects ofqualitative factors on the design project were also estimated by deter-mining suitable metrics which may be used for tracking qualitative ben-efits during and after the project.
  70. 70. NPV = -C0+ + +…+C11+rC2(1+r)2CT(1+r)TCo = alkuinvestointiC = kassavirtar = laskentakorkokantaT = investoinnin pitoaika (vuosia)C0 = initial investmentC = cash flowr = discount rate / the opportunity cost of capitalT = length of investment (years)
  71. 71. THEORY3.4 FACTORS AFFECTING DESIGN PROJECTS76The success and results of outsourced design projects are affectedby many factors. Below are descriptions of some company-specific,project-specific and other factors affecting outcomes. The factors areshown in Table 7.Companies that continuously apply design in their processes, whetherthey carry out R&D or not, have been found to experience a developmentin sales which is more favourable by a statistically significant degreethan companies that do not apply design in the long term. Design pos-sessing a high and strong status in the organisation has also been foundto influence growth in sales. In other words, design must be applied con-tinuously and strategically in order to have a favourable effect on sales.Additionally, the research intensity of companies has been found to cor-relate to active design use when measured by growth in sales. (Lindströmet al., 2006)The competence of the representatives of the client and the designagency who are involved in a design project is likely to have an effecton project outcomes (Gemser and Leenders, 2001). In light of existingresearch, design management is seen to play a particularly significantrole in the impact of the project. For example, Chiva and Alegre (2009)found that simple monetary investment into design does not lead tofinancial gain; good design management is also needed. The applica-tion of design is not guaranteed by itself to increase sales, either, somanagement must pay attention to the pricing of the product or servicein order for the desired return on investment to be achieved (Hertensteinet al., 2005).
  72. 72. Company-specific factors Project-specific factors Other factorsIndustry Initial investment of resource allocation Collaboration between designagency and clientSize Market share of product or service Design agency’s competenceDesign management Correct product pricing Innovativeness of designDesign and othercompetenceNew product/service or update ofexisting oneDesign maturity Level of design use (operative/tactical/strategic)Research intensity Designer’s freedomEnd-user participationTable 7 Factors affecting design projects
  73. 73. THEORY78Candi et al. (2010) examined the factors affecting design efficiency andfound that the freedom of the designer to consider ideas coming fromoutside the project had a positive impact on project outcomes. It is alsonoteworthy that excessive participation by the end user in the projecthad a negative impact. Design should also be functionally and experien-tially innovative in order for the project to enhance financial performance.One factor affecting design projects is the functioning of the relationshipbetween the design agency and the client. The representatives of thetwo parties may not understand each other’s jargon, which may lead tomisunderstandings. Another problem may be the rejection even of goodideas if they did not originate in the right place. Good communicationthroughout the project is crucial for success.The size of the design investment and the market share of the productor service affect the targets that can be set for the project’s financialperformance. In the Design ROI project it was assumed that the level ofdesign application in the project – i.e. whether it is operative, tactical orstrategic – affects the benefits obtained from the project. For example,in an operative-level project, the benefits may be improvements in prod-uct usability and aesthetics, whereas in a strategic-level the benefitsmay be strengthening of the brand and access to a new market.It was also assumed for the project that the sector and size of the com-pany, as well as whether the project relates to a completely new productor service or to updating an existing one, are significant in terms of theoutcomes of an outsourced design project. The impacts of these fac-tors (sector, company size and novelty of product or service) should beinvestigated further.
  74. 74. THEORY3.5 SUMMARY80The use of design has been found to have a positive impact on a com-pany’s financial performance, but the underlying process remains unclearand no generally applicable models or metrics for calculating the impactof design have been developed. Impact should be measurable, however,in order for design to be efficiently managed. By making measurements,companies could follow the progress of an initiative, assess its resultsand compare them with the set targets.Some of the challenges in calculating the impact of design investmentsare the lack of generally accepted definitions in the design industry, thefact that design is seen as an expense rather than an investment, thedifficulty in isolating the contributions of design out of those of otherfunctions, and the multiform nature of design, which may refer to a com-petence, a process or an end result.The Design ROI project approached the subject by determining theobjects of design investments, the benefits that can be obtained fromthe investments and the ways in which these benefits can be measuredusing financial metrics. The researchers also looked at various factorsinternal and external to the company which may affect the success andoutcomes of a design project.Factors affecting the success of outsourced design projects include thesize of the investment, the communication between the various parties,and the competence of the design agency. Two factors that are crucialfor the successful application of design are the client’s own design com-petence and the organisational level at which design is applied. In theDesign ROI project, the level of design application was evaluated usingthe Danish Design Centre’s Design Ladder model, in which companiesare classified according to their design maturity as being on one of fourlevels: no design, design as styling, design as process and design as
  75. 75. 81strategy. The higher a company is found on the Design Ladder, the moreeffectively and comprehensively it uses design.In calculating design ROI it must be known what design activities areavailable for the company to invest in, and what effects on returns theseactivities can have. Activities were divided into four categories based onthe object of the design project: product, service, space and brand. Theeffects on return on a design investment were defined as being eitherdirect or indirect. Direct effects are changes in the company’s cash flows,taking the form of greater cash flows, less costs or faster cash flows.Indirect effects relate to increasing the company’s intangible capital,which enhances returns from other investments.Financial analysis can be used in two ways when making design invest-ment decisions: for making decisions concerning the continuity of aproject and for supporting operative design and development decisions.The Design ROI tool prototype makes use of methods including the netpresent value method in calculating the impact of design investments.
  76. 76. 82
  77. 77. 834. DESIGN ROI TOOL This section reviews the hypothesis of the Design ROI study and theframework created as part of the research, comprising the levels andobjects of design use, as well as the design activities, benefits andmetrics. The framework formed the basis for the Design ROI tooltogether with measurement theory, investment accounting and theinterviews conducted as part of the research. In this section we willalso discuss the potential functions and logic of the tool prototypedeveloped in the Design ROI project.
  78. 78. DESIGN ROI TOOL4.1 HYPOTHESIS84Existing research has found that design has a positive impact on com-panies’ financial performance, but the process by which this happens hasnot been fully identified (e.g. Hertenstein et al., 2005). The hypothesis forthe study (Figure 18) was derived from this. The assumption was that bydefining the benefits of design, the effects of design on cash flows canbe examined. The researchers assumed that design activities related tofour objects (product, service, space, brand) produce certain benefits onthe operative, tactical and strategic levels of the company in question.The benefits can be linked to the company’s cash flow and intangiblecapital.By defining the benefits aimed for and the design activities that can beused, we can define what is to be measured. The activities are chosenbased on the object of design and the other conditions of the project.The objects of design will determine the nature of the project in the tool,while the benefits of design will function as the targets set for the designproject. In terms of the applicability of the tool it is important that themain objectives of the project are known already at the start, so thattheir fulfilment can be monitored during and after the project. Metricscan be used for tracking the meeting of targets and the project’s impacton cash flows.
  79. 79. OBJECT OF DESIGN DESIGN BENEFITS EFFECTS ON CASH FLOWPRODUCT BRANDSERVICE SPACESTRATEGICTACTICALOPERATIVEFASTERCASH FLOWGREATERCASH FLOWLESSCOSTSACCUMU-LATION OFCAPITAL85Figure 18 The hypothesis of the Design ROI research:design benefits can be achieved by using design, and these benefitshave impact on company’s cash flow and intangible capital.
  80. 80. DESIGN ROI TOOL4.2 DESIGN ACTIVITIES AND FIELDS86At the start of the Design ROI project, design was defined based on theservices, i.e. design activities, offered by design agencies. Lists of designactivities were gathered based on the agencies’ websites and a ques-tionnaire sent to design agencies, where the Design Industry Survey(Holopainen and Järvinen, 2006) was used as a source. The result was alist of activities, which is presented in Table 8.An unambiguous definition of the content of design could not be found.Design activities varied greatly in terms of their level, and some activitieswere overlapping. The service selections of industrial design agenciesare undergoing a blurring of the boundaries between the different as-pects of design, which leads to the blending of various operators’ rolesand the partial overlapping of services (Punnonen, 2008). More informa-tion on the survey sent to design agencies can be found in section 2.2.
  81. 81. Design activitiesProduct designGraphic designExhibition designVisual identity designProduct developmentService designEnvironmental/interior designConcept designPackage designClothing and textile designStrategic designTechnical designCommunication designInterface designModel constructionUsability studiesDesign researchTable 8 Design activities based on servicesoffered by design agencies
  82. 82. DESIGN ROI TOOL88Another way to define design is through the objects of design. Borja deMozota (2003) proposes dividing the concept of design into four as-pects, which are product design, packaging design, graphic design andenvironmental design. Environmental design comprises the design of of-fice and production facilities, as well as commercial spaces and exhibi-tions. Graphic design, on the other hand, includes the design of products’visual images, user interfaces, websites and companies’ visual identities.The Design ROI project subdivided design activities into four categories,adapting Borja de Mozota (2003): product, service, space and brand.Each category has its own subcategories, which are listed in Figure 19.Each category may contain several design activities from the prior listing(Table 8), according to the project’s needs. This subdivision simplified andclarified the concept of design. One change made to Borja de Mozota’s(2003) classification was the inclusion of service design as a category.Meanwhile, packaging design was merged into product and brand design.When Borja de Mozota (2003) conducted her research, service designwas not a very well-known concept. These days, however, it is seen asan essential part of the design industry (Punnonen, 2008), and thereforeit was justified in taking its place as one of the four main categories. Atthis point, digital design has been merged into brand and service design.
  83. 83. Investment goodsConsumer goodsCorporate levelProduct levelSales pointPromotional spaceSpace within the companySpecific servicesServices as partof a product89Figure 19 Objects of design and their subcategories
  84. 84. DESIGN ROI TOOL4.3 BENEFITS ACHIEVED THROUGH DESIGN90The benefits obtained through design are mentioned in several stud-ies (e.g. Gemser and Leenders, 2001; Hertenstein et al., 2005), buttheir links with financial performance have not unambiguously been de-termined. The links were investigated by first mapping all the benefitsthat had been proven to be achievable from design in existing research,extracting them for example from articles in the Design ManagementJournal and the Journal of Product Innovation Management and from theDesign ROI workshops. A list of the sources used can be found in Appen-dix 2. The benefits of design are listed in Table 9.These design benefits are used in the Design ROI tool as measurabletargets that can be set for design projects, meaning that they act as linksbetween the use of design services and their financial impact. The ben-efits were linked to corporate performance metrics such as changes incash flow. The customer meetings in the Design ROI project indicatedthat the list of benefits helped companies to understand the wide scopeof effects that a design project can have and how these are reflected inthe company’s business. The list in Table 9 is not exhausted and shouldstill be tested in practice in genuine design projects.For the purposes of the Design ROI project, design benefit was definedas the positive impact of a design activity which generates shareholdervalue on the company’s operative, tactical or strategic levels. Some ofthe benefits, such as usability, are clearly linkable to design, whereasothers, such as improvements in occupational well-being, are more con-tentious. Most benefits are achieved in collaboration with experts fromother fields, so the direct impact of design on an end result is difficultto isolate entirely from other contributions. Other factors affecting thedefinition and measurement of benefits are discussed in section 3.4.
  85. 85. Design benefitsBrand strengthening 1 2 3 5 6 7 11 12Access to new markets 2 6 7 8 9Creation of new markets 2 8Expandability, repeatability 12Innovation 1 2 6 8 10Learning 2 8Increased process efficiency 2 4 7 12Shortened time to market 1 2 7 12Differentiation 1 2 3 4 5 6 9 12User satisfaction 2 3 7Aesthetics 2 3 4 8 9Desirability 2 3 7Usability 2 3 4 7 8 12Eco-friendliness 1 7 8 9Life cycle optimisation 3 6 12Structural optimisationScalability/standardisationMaterial choices3 4 7 8 9Production process optimisationShortened production timesCheaper production process2 3 4 6 8 9 12More efficient logistics 12Faster/easier installation/deployment 4Increased efficiency of internal commu-nications2 6 7 8 12Increased efficiency of externalcommunications2 3 5 6 9 11Improved occupational well-being 7 12Increased occupational health andsafety7 1291Table 9 Design benefits. Each benefit is linked to a referencein the bibliography (Appendix 2)
  86. 86. DESIGN ROI TOOL4.4 MEASURING BENEFITS92The benefits achieved through design can be measured using qualita-tive and quantitative metrics. The Design ROI study defined some sam-ple metrics from which companies can choose the most suitable, basedfor example on the project or on their sector. Quantitative metrics weresubdivided into financial and non-financial (e.g. ones based on time ornumerical quantity) metrics. The sample metrics are shown in Table 10.Financial metrics were subdivided in relation to cash flow and intangiblecapital, as follows (adapted from Shrivastava et al., 1999):• Greater cash flow• Less costs• Faster cash flow• Accumulation of intangible capital The qualitative and other quantitative metrics act as indirect metricsthat can be linked to these four financial metrics. For example, increasesin customer satisfaction lead to greater cash flows. The finished DesignROI tool will strive to link all design benefits to these four financial met-rics.
  87. 87. €%%Qualitative Quantitative Financial93
  88. 88. STRATEGIC LEVELMEASURABLE BENEFIT QUALITATIVE METRICSBrand strengthening Customer feedback/satisfaction surveySurvey on growth of product/brand valuationDealer feedbackAccess to new marketsCreation of new marketsExpandability/repeatabilityInnovationTACTICAL LEVELMEASURABLE BENEFIT QUALITATIVE METRICSEmployee self-evaluationsLearningIncreased process efficiencyShortened time to marketDifferentiationCustomer feedback/satisfaction surveySurvey on growth of product/brand valuationDESIGN ROI TOOL94Table 10 Sample metrics
  89. 89. MONETARY INDICATORS OTHER QUANTITATIVE METRICSGrowth in sales (volume of EUR)Change in stock priceChange in marketing costsMedia visibility (e.g. mentions)Mentions and “likes” in social mediaChange in market share (%)No. of new products on the marketNo. of new customersNo. of new innovationsNo. of new patents/IPRsNo. of new customersChange in no. of standard featuresNo. of new patents/IPRsShare of new products/services outof turnoverChange in marketing costsFINANCIAL INDICATORS OTHER QUANTITATIVE METRICSNo. of mistakes made at workChange in product development timesTime to marketNo. of new innovationsNo. of new patents/IPRsNo. of new products on the marketNo. of newly developed productsStaying on project budgetStaying on project scheduleTime to marketBreak-even timeSales development (€)Product-specific marginChange in marketing costsSales development (volume)Change in market share %95
  90. 90. OPERATIVE LEVELMEASURABLE BENEFIT QUALITATIVE METRICSUser satisfactionAestheticsDesirabilityUsabilityEco-friendlinessLife cycle optimisationMore efficient logisticsFaster/easierinstallation/deploymentIncreased efficiency ofinternal communicationsIncreased efficiency ofexternal communicationsImproved occupational well-beingIncreased occupationalhealth and safetyStructural optimisationCustomer feedback/satisfaction surveyCustomer feedback/satisfaction surveyCustomer feedback/satisfaction surveyCustomer feedback/satisfaction surveyCustomer feedback/satisfaction survey(e.g. performance reviews, surveys)DESIGN ROI TOOL96

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