Tuesday, June 21, 2005
how much do shareholders care about good design?
The top concern of CEOs today is "shareholder value", in other words, stock price. Shareholder value has become an increasing obsession over the past decade, to the point where it nearly squeezes out all other concerns. I am not alone in finding this development troubling, but that is the way things currently are.
The value of design research to corporate earnings would seem straightforward. Design research can boost sales by making products or services more attractive to customers, and can reduce costs by making products work better, so customer service costs are less. Design research, which includes needfinding, conceptual exploration, and usability, would seem to fit in well with key corporate concerns such as quality, customer service and innovation. Unfortunately, it can be difficult to isolate the contribution of these factors to quarterly profits -- the bellweather of stock price. It takes companies several quarters of sustained effort to build credibility with their products. But in the short term, they need to hit cost targets, which can fluctuate considerably (just think about energy prices), and met demand forecasts as well, which are subject to economic conditions and product and price competition from rivals. Even a company celebrated for its design like Apple can be punished in the stock market if they have to scale back expectations of sales. Sales can fall for many reasons unrelated to design, but if design is seen as an expense, it is a tempting cost-cutting target to boost short term profitability.
It may be that institutional investors, who could care less about design, hold the keys to how design research will develop within companies in the future. Design research needs to accommodate itself to the short-term trading mentality of institutional investors. The first need is not to get too big. Institutional investors, takeover artists and other financial hawks will never see design research as anything other than a cost. So design research needs to be kept nimble and stealthy to avoid attention from the balance sheet readers. Companies enjoying good times don't have to worry about outside interference, but every company sooner or later encounters a bumpy batch. When that happens, a big design staff will look costly.
The other need for design research is to deliver results quickly. Design cycles are collapsing, which is a good thing. The contribution of design research is more immediate than in the past, reflecting the rise of iterative prototyping in both digital and physical design. Design research can have an impact sooner, and doesn't need to rely on the "patience" of investors.
Some people may wonder if institutional investors can learn that design is good for business. I have my doubts. The UK Design Council last year published a report purporting to show that winning design awards was good for the share price of companies. While the report was interesting for recognizing the importance that stock prices have on design, the report did little to prove that design is good for share price. The only reasonable conclusion of the report is that financially successful companies tend to enter design competitions more often than unsuccessful ones. Companies are not successful because they win design awards, they are successful for a multitude of reasons, design being but one.
The irony is: the more successful design research becomes in helping companies deliver better products and services, the more humble it will need to become, because City bankers and Wall Street analysts, who think they know everything, will have to rethink how they look at balance sheets.
The value of design research to corporate earnings would seem straightforward. Design research can boost sales by making products or services more attractive to customers, and can reduce costs by making products work better, so customer service costs are less. Design research, which includes needfinding, conceptual exploration, and usability, would seem to fit in well with key corporate concerns such as quality, customer service and innovation. Unfortunately, it can be difficult to isolate the contribution of these factors to quarterly profits -- the bellweather of stock price. It takes companies several quarters of sustained effort to build credibility with their products. But in the short term, they need to hit cost targets, which can fluctuate considerably (just think about energy prices), and met demand forecasts as well, which are subject to economic conditions and product and price competition from rivals. Even a company celebrated for its design like Apple can be punished in the stock market if they have to scale back expectations of sales. Sales can fall for many reasons unrelated to design, but if design is seen as an expense, it is a tempting cost-cutting target to boost short term profitability.
It may be that institutional investors, who could care less about design, hold the keys to how design research will develop within companies in the future. Design research needs to accommodate itself to the short-term trading mentality of institutional investors. The first need is not to get too big. Institutional investors, takeover artists and other financial hawks will never see design research as anything other than a cost. So design research needs to be kept nimble and stealthy to avoid attention from the balance sheet readers. Companies enjoying good times don't have to worry about outside interference, but every company sooner or later encounters a bumpy batch. When that happens, a big design staff will look costly.
The other need for design research is to deliver results quickly. Design cycles are collapsing, which is a good thing. The contribution of design research is more immediate than in the past, reflecting the rise of iterative prototyping in both digital and physical design. Design research can have an impact sooner, and doesn't need to rely on the "patience" of investors.
Some people may wonder if institutional investors can learn that design is good for business. I have my doubts. The UK Design Council last year published a report purporting to show that winning design awards was good for the share price of companies. While the report was interesting for recognizing the importance that stock prices have on design, the report did little to prove that design is good for share price. The only reasonable conclusion of the report is that financially successful companies tend to enter design competitions more often than unsuccessful ones. Companies are not successful because they win design awards, they are successful for a multitude of reasons, design being but one.
The irony is: the more successful design research becomes in helping companies deliver better products and services, the more humble it will need to become, because City bankers and Wall Street analysts, who think they know everything, will have to rethink how they look at balance sheets.
Link to this article. posted by Michael Andrews @ 4:02 PM 
