The 6th European Academy of Design Conference
“Design System Evolution” March 29-31-05
University of Arts, Bremen, Germany
The complex system of creating value through Design:
Using the Balanced Scorecard model to develop a system view of design management from a substantial and financial point of view
Brigitte Borja de Mozota
Assistant professor (HDR)
University of Paris X, Nanterre
Laboratory CEROS[1]
France
Summary
Most research in Design Management is based on the demonstration of how design creates economic value for a firm or for a country. This paper aims at going even further by analyzing design value from a systemic and dynamic point of view.
Firstly, the paper deals with the literature review of research and synthesizes how design creates “substantial” and financial value for a firm. The paper will therefore explore the missing link in financial value: shareholders’ design value.
Secondly, the paper will refer to the Balanced Scorecard model of Kaplan &Norton. This will not only provide a systemic view of a design value model and exploratory work for the issuing of the Design Manager Balanced Scorecard but also a dynamic system of relationships between the selected measures.
Key words: Balanced Scorecard, Information design, Design Management, Finance Value management, Company performance, Design management evaluation tools, and Systems’ theory.
Author contact:
Introduction
Organizing Design success and Design leadership is a key issue in creating a country’s and an organization’s international competitive edge.
Research in management value t akes into account two types of value (Hoarau & Teller 2001):
1. The substantial value of a firm is to create customer, performance and strategic value;
2. The financial value of the firm is to create shareholder’s value.
But most design value researchers solely focus on the substantial value of design.
After presenting a summary of research and literature on the substantial value of design, we shall then investigate the missing link: the financial value of design.
Designing finance will provide design managers with other variables that will give a renewed usefulness to the general design management performance model.
As a conclusion and framework for further research, we shall present a “sytemic” model that covers all these aspects of Design Management added Value by using a classic management tool: the Balanced Scorecard Model (Kaplan&Norton 1996).
1. Insights from Research: the substantial value of design
Design management research and design performance evaluation has mainly concentrated on the economic value of design (Walsh& al 1992, Cooper & Press 1995, Chung 1992).
However, a complementary research - based on companies participating in a European Design Prize competition – gave greater insights and a wider view on how managers value design beyond the economic level. Through classification of 21 manager value design variables, managers measured and classified their view of design input in company performance.
Results from this research enabled to draw a typology of design management, strategy and performance. (Borja de Mozota 2002) which, in turn, provided managers and designers with a framework for designing the substantial value of design.
This research explained the substantial value of design at three design value levels: 1. Design as customer value and brand value,
2. Design as performance and innovation value,
3. Design as strategic value.
- design creating client or customer value or brand value: Design as perception
Designers are here to provide differentiation on the market by developing original brand and product shape positioning. Design makes the product strategy and brand positioning visible and concerns brand and customer experience. In order to measure design value at this level, we use economic and financial variables such as design impact on brand image, on product margin, on profit increase, on market share and on price premium.
At this level, design is not a means but an end. It is the output of the design process (the shape) that is valued and measured using a customer satisfaction scale. Brand Evaluation models enriched by brand Aesthetics evaluation, customer perception models and customer satisfaction audits are used. (See Figure 1 as illustration)
It is also at this level that the cultural design input process is inserted. Perception value is also a cultural and social value of design. However, it is also at this level that the cognitive framework of design as art and management as rational tools collide with force. It is not so easy to build a bridge between design education and management education. A brand view of design is a safe path for building this bridge between these different cognitive frameworks.
Brand management / Decision level / Marketing / Design Process / Design objective / Design toolsCreating the brand / strategic / Stating the brand problem / Intention / Philosophy
Mission
Vision / Audit of competition
Design scanning
Brand recognition / strategic / Positioning
Expression / Narration / Idea
History
Experience
Character / Concept boards
Scenarios
Brand recognition / strategic / Brand concept
-Brand promise
-Brand values
(expressed ) / Concept / Brand values expressed through design (not all can be expressed by design )
Permanent signs of the brand (concept, style, aesthetic, ergonomic )
Design Norms / Design reference code book: product design, packaging, communication architecture
Typical brief /outside consultancy
Project application
Brand recognition / Tactical / Architecture of brands / Creation / Make the brand signs tangible into concepts, forms, ergonomic for each brand / A normative reference book for each brand
Brand image / Operational / Brand policy
Marketing mix / Building the mental image of the brand / Multi channels design projects: spaces, products, promotion, web site, video, advertising, edition packaging
Brand Evaluation / Tactical / Brand measuring tools / Quality perceived / Design audit
Brand Equity / Retroactive loop
Strategic / Brand(s) Repositioning / Actualizing the brand codes / New reference design books
Figure 1: Brand Aesthetics Modelas Design image and cultural value(Borja de Mozota 2003)
- design creating process value : Design as performance
Designers coordinate or act as integrators in New Product Development. Designers need to work simultaneously with technical, R&D data and with market and customer needs and expectations so they build consensus and act as facilitators between functions in project management. At this level, design is valued by its invisible impacts and its potential to minimize conflicts and reduce process development time.
Designers’ skills such as dialogue skills, user orientation and visualization skills, improve the NPD team success rate. Beyond the team project, these skills improve employees creative ability, challenge company routines and question the barriers of experts in various contexts. By enabling to see the problem differently but mostly through visualizing user experience, expertise barriers between functions are blurred. Process management performance ratios, such as improving user or customer orientation of the organization, measure the “added value” of design.
Most innovation models in management science are either process/product-oriented. Designers give another view of the process by acting as user representatives and therefore provide a new approach, the User Oriented Design approach (table 2), to innovation management.
In their last book, the company, Philips (Arts & Marzano 2003) believes that there have been three phases in the changing economic and cultural framework:
- 1950 -1970 the consumption manufacturing phase is product driven and design is based on material and hardware issues,
-1980 -2000 the experience phase is market and brand driven so design is based on emotions and aesthetics,
-2005 + the transformation phase is partner and people driven so design is based on life software contents tools, co -creative and active deep customization enabling growth and nurturing diversity.
“It is in this future “people driven framework” that Ambient Intelligence comes into its own. It is about creating tools that can be customized by the individual, an intimate technology that evolves through its constant relationship with the user. Growth depends on upgrading the software not discarding the product. “This is a vision of a socially relevant and meaningful people-oriented technology.
Traditional Approach / User-Centered Design· Technology driven
· Component focus
· Limited Multidisciplinary cooperation
· Focus on internals architecture
· No specialization in user experience
· Some competitive focus
· Development prior to user validation
· Product defect view of quality
· Limited focus on user measurement
· Focus on current customers / · User Driven
· Solutions focus
· Multidisciplinary team work
· Focus on externals design
· Specialization in user experience
· Focus on competition
· Develop user validated designs only
· User view of quality
· Prime focus on user measurement
· Focus on current and future customers
Adapted from Vredenburg, Isensee, and Righi (2002, p. 2)
Figure 2: User-Centered Design as an example of design performance value
This is also useful for upgrading customer services and is shared by most marketing researchers who investigate the new era towards knowledge marketing or how to make our customer more intelligent. Design in this present “people driven” economic framework changes its target. Designing cognition becomes the key issue in the emerging user oriented innovation model.
-design creating strategic value: Design as vision
Designers are valued at this level as facilitators for strategy formulation and transformations. They improve the company’s ability to adapt to change and to adopt an ongoing learning process. This added value is measured internally by managing design as a core –competency that builds on a unique strategic system, managing design skills and introducing and mixing advanced design and prospective design skills in the firm strategic vision.
Design creating substantial value
Design is an economic competence that creates value by its action on the principal functions of the value chain / Design is a managerial competence that creates value by its action on the support functions and on the co-ordination between functions in the value chain / Design is a resource and a competence that creates value by its action on the understanding of the company environment and by its skills it helps adapt to growth and learningDesign as a shape, output, and form / Design as a process / Design as a core competency
Branding
Marketing
Production
Corporate Communications /
Technology management
Human resources management
Innovation & Idea management
User orientation /
Prospective
Knowledge management
Generating a vision
Strategy
Designing customer value / Designing internal value / Designing learning value
PERCEPTION VALUE / PERFORMANCE VALUE / STRATEGIC VALUE
Figure 3: The substantial value of Design (Borja de Mozota 2002)
2. The Missing Link in Design and Company Performance is to Create Shareholder Value
Design is “good business” because it has an impact on sales, profit, brand image and brand equity, ever since the 1990’s, especially through the Design Innovation group research in Great Britain.
But a missing and fundamental field for the development of design is the improvement of corporate assets. This target is precisely one of the main concerns of modern finance. Information holds a major stake in finance. The value of the company is based on the investor’s perception of reasonably expected future flows; or expressed differently, with the brought up-to-date sum of the future cash flows produced by the activity.
Thus it means that the financial value depends mostly on the forecasts carried out inside the organization, but also in the way in which these forecasts are communicated to the observers outside the company. The problems caused by this information which leads to many theoretical developments, is called, informational asymmetry[2].
This concept is present in multiple studies and is illustrated, for example, in the theory of signal or in the agency theory[3]. Stake of power and the diffusion of information can be as of ass much importance as its mode of calculation. The more it is adapted to its user- the present or potential investor –the more its use is optimal. If information is adapted to the receiver’s mode of perception and if the receiver can use it as soon as he/she needs to, the value is quickly and correctly represented. The design of this information must thus take part in this valorization scheme; it becomes "creator of value" to be strictly accurate if it allows a better comprehension and a fast diffusion of information.
This valorization is not only absolute, but is also relative: comparison is the major risk component, even in the heart of the calculation of the value. If the way in which the information is designed makes it possible to positively differentiate information from a company compared to all the others, it takes part in the arbitration carried out by the markets and then allows the creation of added value. As in other fields of management, the formal question of strong dimension of competition is brought up by the idea of designing financial information. This dimension has a strong foothold in the context of the financial market[4] value context.
On the whole, the design methodology seems to highly contribute to the financial logic and financial communication policy. It makes it possible for investors to place the needs and desires in information of the user at the core of their communication system. It induces a voluntary approach: the communication of financial data is not simply the response to a legal requirement; it must also send messages more suitable to recipient needs. This “design logic” can then involve a general change of attitude in the finance community within the organization. The models of reference which they currently use can be questioned. It is necessary to also adapt the design of this information in relation to financial information users’ expectations and needs.
Without this responsiveness, the perception of the organization exacerbates results in a value loss. For example, the growing concern for the measurement of risk in the banking profession because of the regulation (Basle II) can be translated in terms of design of financial information. All bank partners, in their quest for financing, must express their information according to a total risk to which it is wise to conform. The methodology of information design can be employed again here in order to control the investor’s reaction.
Consequently this section on designing finance is a framework for further research with associate assumptions.
Question 1: Can designers help to valorize the finance function in an organization?