Growth by design: it takes design to turn good ideas into hard cash

Everyone wants to invest in innovation, but it takes design to turn good ideas into hard cash

Picture a quiet home in downtown Toronto's Annex neighbourhood. It resembles the others in the row–three-storey red-brick Victorians–but this one is slightly different. The house is clad in grey plaster. Dark windows and doors align perfectly to the walls. The overall effect is of a sleek minimalist box.

This is the live/work studio of internationally renowned Canadian designer Andrew Jones. A compact man whose wide smile belies his careful manner, Jones answers the door dressed in grey and black clothing as sleek as his surroundings. Here, he creates stylish yet practical industrial products for export-led, design-driven furniture manufacturers, including Scarborough, Ont.-based Keilhauer Industries Ltd. and Gloster Furniture Ltd. of Bristol, England.

Jones's house is an aesthete's dream; his life, on the surface, a fabulous whirl of international trade shows in London, Milan and New York, interspersed with exhibit openings in which his products are treated as art. But what has this glamorous world got to do with business? Why do industrial designers like Jones exist, commercially speaking, and what is the value they offer?

Roger Martin, dean of the University of Toronto's Rotman School of Management, argues that using design services effectively is critical to developing and maintaining a competitive edge in today's product-saturated markets. And it turns out companies that invest in design have an interesting tendency to outperform their competitors. Proof? The British Design Council conducted a 10-year study on 166 design-led companies in the United Kingdom. The research analyzed stock-market performance for these outfits relative to other publicly listed corporations for the period from 1994 to 2003. The key finding: a group of 63 organizations identified as effective users of design outperformed the FTSE 100 index over the full period by 200%. (Participants in the study were selected because they had been nominated for and won design-related awards.)

Back on this continent, the Boston Consulting Group recently published its second global survey on innovation–and how companies turn new ideas into economic returns. A total of 940 senior executives from 68 countries participated. Among other questions, the survey asked them to list the most innovative companies in 2005. Overall, 74% of execs worldwide said they plan to increase their spending on innovation. Many identified innovation as key to spurring organic (non-acquisition-related) growth. However, 50% expressed dissatisfaction in their company's ability to generate returns on innovation investments.

The missing link? Companies need to commercialize their ideas more effectively. And one of the key elements of this, says BCG senior vice-president Jim Andrew, is effective use of design.

Real-world examples of design's ability to help power growth abound; the most compelling is the Apple iPod. The iPod is credited with increasing value in the Apple brand by 23.7% in just one year, according to BusinessWeek. Not surprisingly, international execs voted Apple the most innovative company of 2005, based in part on its ability to turn ideas into sales.

So where does design come in? Consider this: the iPod was not a new idea. In 1999, engineers at Compaq developed the PJB-100, a personal music player featuring a small hard-disk drive, which stored a vast amount of digital music. It took Jonathan Ive's team of industrial designers working for Apple to transform the technology into a consumer product.

The businesses defined as among the Top 20 most innovative in the BCG survey include Starbucks, which rebranded the cup of coffee into a gourmet lifestyle choice (and priced it accordingly) and Proctor & Gamble, whose water-free Swiffer mop generated a new category of “quick-clean products” worth an estimated US$800 million annually. All these companies are investing in design services. None of the Top 20 are Canadian.

Why? BCG vice-president Tom King says it has more to do with survey bias than Canadian backwardness. A 2004 report by DIAC, the Design Industry Advisory Committee for Ontario, speculates it is because Canadian businesses are unsure of design's value–many see it as an extra.

Not all Canadian firms have missed the boat, however. Take 25-year-old manufacturer Keilhauer. In the mid-1990s, Keilhauer invested $2 million in the Tom chair, designed by Tom Deacon. An easy-to-configure task chair in a tech aesthetic, Tom could be adapted to executive, middle-management or cubicle use. Introduced in 1997, Tom's impact was immediate: in the following year, CEO Mike Keilhauer says, “our business grew 100%. It was the right chair at the right time.” He won't specify sales, but the company confirms that 200,000 units have since been shipped, at price points that range from $800 to $3,200. Keilhauer describes the payback from Tom as “fantastic.”

A recent Keilhauer offering, Andrew Jones's Olo side chair, shows how incorporating designers' input early can save manufacturing costs while expanding potential markets. For the basic chair, Jones limited himself to two materials, keeping production costs low; the base and shell are attached with only four screws, reducing labour costs. At the same time, Jones developed the product for a range of price points and markets.

Designers can also suggest new ways to maximize industrial capacity. Vancouver-based designer Omer Arbel offers an interesting example. Arbel was recently a finalist for best newcomer at the 100% Design show in London, at which he exhibited a new super-thin concrete chair. It was produced by Lafarge, a giant multinational that supplies concrete for dams and bridges. Working with Lafarge on another project, Arbel noticed the company's tooling and manufacturing facilities were not being used to maximum capacity. He suggested Lafarge produce his chair; possible applications could include parks and street furniture. Arbel exhibited the chair at 100% Design and is now negotiating with distributors.

Other design-led Canadian companies include Toronto-headquartered Umbra; the classic example is its curvy Garbo trash can. Designed by Karim Rashid, Garbo has shipped seven million units since being introduced in 1995. (For more, see “Karim Inc.,” page 132.) Another design-led company is Toronto-based Teknion Corp.

Teknion vice-president Frank Delfino says investment in industrial, interior and graphic design are key elements in his company's strategy of engineering growth through widening and repositioning its product offerings. According to Delfino, Teknion's growth took off when it adopted “concurrent product development”–working in concert with designers to identify niches and bring products to market faster. The company went from annual sales of $200 million in the mid-1990s to $900 million in 2000.

As DIAC chair Arlene Gould says, design's ability to add value to businesses runs across sectors, from interiors to cities. Gary Hewson, president of the Association of Registered Interior Designers of Ontario, estimates the total economic impact of interior design services in Canada at $10 billion to $12 billion in 2005. One company that has risen to the top of this game is Toronto-based firm Yabu Pushelberg; its portfolio ranges from Tiffany in New York to Bay Street's favourite restaurant, Bymark. (For more, see “Interior Vision,” page 139.)

City officials and urban planners are also looking to designers and architects to boost economic growth. As one way of attracting knowledge workers and building a city's international profile, Toronto, Montreal and Vancouver are now investing heavily in everything from museum extensions to waterfront redevelopment. (For an investigation, turn to “Pretty Cities,” page 144.)

Is design a sound investment, or a wasteful frill? Apple's Steve Jobs and Proctor & Gamble's A. G. Lafley are on the bandwagon. And one need look no further than the cashier lineup at Ikea to see how smart design can help power sales. The next time you are trying to balance spending on innovation with return on investment, consider design; it could add an attractive growth curve to the equation.