The tangible and intangible impact of design activity on business page 1 Assessing the tangible and intangible impact of design investment When your business makes an investment in design it will be making a conscious decision to create something new. The end result can manifest itself in many ways depending on the focus of design activity. It might, for example, be an improved product, a revised branding strategy or improved communication material. During the design-process time will have been spent conceiving, planning and undertaking the design project, investment will have been made in implementing the design solution and a large number of stakeholders within the business will have been involved in decision making. Having made this investment in time and resources it is very useful to measure the impact that design actually has on the business. Establishing such measures will bring your organisation the following benefits. Effective design will inevitably cost money, this means that design will be competing within a business for resources alongside many other initiatives. It is therefore important to see the potential contribution of design in a way that allows ready comparison with other types of investment. It is widely accepted that you will be more likely to achieve what you measure. Individual design projects will be more likely to deliver against metrics of business performance if these have been clearly articulated to the design team at the beginning of the design process. Measuring things provides information that is essential for debriefing and therefore making improvements in the future. This is a key attribute of the learning organisation. If performance is poor the business should think about refocusing its design efforts in the future. If performance is good then principles of best practice can be harvested to help steer future projects. Having measures in place allows more effective selection of design projects, briefing of project participants and management of the design process. Why is measuring the impact of design investment such a complex task? Having established the importance of measurement it is useful to consider how an organisation can go about measuring the impact of design investment. This is a complex task because investment in design can have such a far reaching impact on an organisation. It can obviously have a direct impact on products, services, websites, environments and other physical manifestations of design activity. Equally, however, participation in design projects can have a significant influence on the processes & systems within a business, how it thinks strategically, the culture of innovation and perceptions of the company s knowledge base; all areas that are acknowledged as being of increasing importance to the modern organisation. For example, if a business uses design effectively in the creation of a new product, extra turnover and profits will be generated from subsequent sales. These effects can be quantified if the business puts the right measures in place. Equally, however, through exposure to this design activity the business may have made a radical shift in its capability for developing future products. If design has been well managed the business could have established a whole new process for developing new products, something of enormous significance in terms of future business performance.
The tangible and intangible impact of design activity on business page 2 In order to deal with this challenge this section of the briefing paper presents an impact assessment framework that will allow you to systematically review all the ways design investment might have an influence on your organisation. Principles of the impact assessment framework Because design investment can effect a business in so many ways the framework starts by putting these different forms of impact into separate categories. This allows one aspect of impact to be looked at a time and prevents important consequences of design investment from being overlooked. Listed below is a description of the four categories that are used in the framework. Tangible and Intangible effects As we have seen the impact of design investment can result in new products, new services, improved working environments and so on. All developments that can generate direct financial returns for the business. It is useful to call these effects Tangible when they are impacts that can be readily quantified in financial terms, i.e. when they are effects that contribute to the tangible assets of the company. For example, if design activity creates a new product, sales might increase and as a consequence cash flows into the business will also increase. Further examples of the way design investment can increase the tangible assets of a business are listed in table 1. Equally, however, design investment can have a far reaching impact on the business in ways that are difficult to measure directly. It is useful to call these effects Intangible when they are impacts that are difficult to quantify but nevertheless are clearly making a significant contribution to the future performance of the business, i.e. when these effects contribute to the intangible assets of the company. For example, if design activity results in improved communication of company values to employees the effect could be significant but difficult to quantify in conventional monetary terms. Further examples of the way design investment can increase the intangible assets of a business are listed in table 2. Both effects are very important. Conventional thinking suggests we should focus on the tangible assets of a business. Increasingly, however, the intangible assets are becoming the dominant factor in determining a company s value. Internal and External effects In addition to distinguishing between tangible and intangible returns it is also useful to differentiate between those that have an internal impact on business performance and those that have an external impact on business performance. Internal effects can be useful thought of as the effects of investment that result in improvements in internal efficiency or capability within the business. For example investment in a design project might require very close collaboration with the company s customer base for the first time. Information gained in working in this way could have a number of effects on the internal operations of the business. Efficiency could be improved because the information gathered from customers could be used to drive subsequent projects, this could save money in the future. The capability of the business could also have been extended. Staff in the company may well have been introduced to techniques that will allow them to confidently quiz customers on a whole variety of other topics in the future; this could make future projects more focused and more profitable in the future.
The tangible and intangible impact of design activity on business page 3 External effects can be thought as the effects of investment that result in improved cash flow into the business from the external environment. For example investment in a design project could radically alter customers perceptions of the business allowing the company to revise its pricing structure and increase cash flows into the company. These four categories of design impact are presented in table 3, which demonstrates how all four interrelate.
The tangible and intangible impact of design activity on business page 4 Table 1 Examples of the way design investment can increase the tangible assets of a business Enhancing cash flows The levels of cash flow entering the business and overall profitability help determine the tangible value of the business. Design investment can help enhance cash flows in several ways: 1. Generating higher revenues Design investment can help generate higher premiums for product and services Design investment can help generate higher sales volumes in existing markets Design investment can help businesses find new markets for existing products, services and facilities 2. Lowering costs Design investment can help reduce product and service costs Design investment can help reduce other costs within the business, for example sales and support 3. Lowering working and fixed capital Design investment can help in reducing capital costs through the formation of new supply chain arrangements and other ways of integrating operations to reduce capital requirements Accelerating cash flows The faster the receipt of cash flows and profits the greater the tangible value of the business will become Design investment can help accelerate future cash flows in several ways: 1. Faster response to new product and services Design investment can help build effective brands and understanding of company values promoting early market acceptance of new products and services 2. Faster time to market delivery Design investment can help reduce the time to market for new products and services Reducing volatility in cash flows Reducing the vulnerability of future cash flows is key in turbulent business environments Design investment can help reduce the vulnerability of future cash flows in several ways: 1. Enhancing customer loyalty Design investment can help build customer satisfaction and levels of repeat purchase 2. Increasing customer switching costs Design investment can help build mechanisms to maintain customer buy-in to products and services
The tangible and intangible impact of design activity on business page 5 Table 2 Systems & processes Examples of the way design investment can increase the intangible assets of a business Design investment can help improve business processes and systems in many ways By working through the process of actually designing a new product, working environment, service or other manifestation of design new understanding will emerge within the business about planning and managing processes Design can help in the effective communication of processes and systems to company staff and customers Values & Culture Design investment can help develop a common set of values and a culture of innovation within a business Establishing a clear understanding of business values amongst staff and customers is key to business success, design investment can help in identifying and developing values Design investment also helps ensure company values are communicated clearly throughout all manifestations of the business. The process of designing can help introduce staff to a process of divergent / convergent thinking that can be used as a useful process of innovation in all business areas Strategic vision Design investment can help in the visualisation of future business opportunities Design thinking can help encourage a longer term view of business operations Design can help in the visualisation of future business possibilities enhancing strategic decision making. Organisational relationships Design investment can help build new organisational relationships The process of design requires many forms of multidisciplinary working and can help break down organisational barriers and hierarchies Effective design will help in the process of communication, a key part in building external relationships with stakeholders Knowledge & IPR Design investment can help build the IPR and knowledge base of the business By recording design activities the knowledge base of the business will be enhanced Well focused design activity can help build new forms of IPR for the business in terms of patents, design rights, trademarks and brand
The tangible and intangible impact of design activity on business page 6 Table 3 The design impact assessment framework Tangible These are the effects of investment that can be readily quantified in financial terms if the right metrics are in place. Intangible These are the effects of investment that are difficult to quantify but nevertheless can make a significant contribution to the future performance of the business. Tangible-Internal For example: Reduction in absenteeism resulting from improvements to the working environment (measured by calculating the cost of absenteeism before and after design investment has been made) Intangible-Internal For example: Improvement in company culture (Through design activity company staff may have been involved in activities such as brainstorming, learning valuable skills that can be used when working on future projects) Internal These are the effects of investment that result in improvements in internal efficiency & capability of the business. Tangible-External For example: Increase in cash-flow resulting from sales of a new product (measured by establishing the cash-flow associated with the product before and after design activity took place) Intangible-External For example: Improvement in understanding of company brand values (Through design activity the brand values of the business may have been made more explicit to customers, this will encourage customers to use the brand again in future) External These are the effects of investment that result in improved cash flow into the business from the external environment. Using the design impact assessment framework Having introduced the impact assessment framework it is useful to consider how it can be used to drive decision-making within your business. As with most business tools the concepts presented in the framework can be adopted into the thinking processes of your organisation for use at different times during project activity and at different levels of thoroughness. At the most simple level the framework can become a mental thinking aid for the time pressurised business executive. When confronted with the challenge of assessing the impact of design activity the simple framework can be sketched out as 2x2 matrix and potential impacts can be listed against each category heading. When more in depth analysis is needed the framework can be used as the focus for a team based discussion between key individuals involved in design decision-making. A useful protocol for using the table in this way is outlined in the following pages.
The tangible and intangible impact of design activity on business page 7 Step 1 Team Briefing When using any tool as the basis for team discussion it is useful to start by briefing the team on why the activity is important and how the tool itself works. The introductory notes provided with the impact assessment framework can act as a useful guide for this purpose. Having briefed the team with information on how the assessment framework works the team then needs to be focused on the one or more design projects that are to be examined using the framework. The project needs to be described as fully as possible so that participants can think through what the impact of this level of design investment might have on the business. Because the framework is based on generic headings it will support analysis of all types of design projects. Step 2 Identifying internal and external impacts The team needs to work in a free thinking manner to identify potential impacts of the design investment in question, the principles of brainstorming can usefully be applied to this activity, i.e. all suggestions being welcomed. To facilitate this process it is useful to record impacts on post-it notes as they are identified. A large sheet of paper can then be divided into columns one headed internal the other external. The post-it notes can then be positioned under the relevant column. Figures 1 demonstrates what this information might look like for a design project that involves the refurbishment of the office-working environment for a business. In this example a majority of the impacts of investment are internal because they effect the internal efficiency of the business and its future capability rather than effecting how the business is perceived externally. Step 3 Identifying metrics Having identified internal and external impacts attention can now be turned to establishing ways of measuring the magnitude of these effects (by identifying metrics). The same question needs to be asked for each potential impact: How can this be measured from a financial perspective? Again the team can look at each impact in turn and record potential metrics on the post-it note. At this point the large mapping sheet can be divide into two rows one labelled tangible the other intangible. Each of the post-it notes can be positioned in the appropriate row depending on whether an appropriate metric has been identified for the impact in question. This completes the analysis and presents the impact information in the format suggested in the assessment framework. Figures 2 demonstrates what this information might look like for the office working environment example. Some of the potential project impacts can be readily converted into financial measures. This does not mean that the company is actually measuring these attributes of performance but with the implementation of new forms of monitoring measurements could be made. The figure also shows how many of the impacts are difficult to translate into a financial measure they can potentially be measured through mechanisms such as attitudinal surveys, but the results are unquantifiable in financial terms. These two forms of impact have been sorted according to whether they are tangible or intangible.
The tangible and intangible impact of design activity on business page 8 Step 4 Using the results The results of this mapping exercise can be to inform decision making in many different ways. The information might be used when the business is at the planning stage and is comparing one design investment against another. In this situation the total impact of one investment could be compared against another by examining completed impact charts for each project. In this way the selection team would be able to compare both tangible and intangible benefits for different projects. The information can be used when formulating the design brief for the design team. If the potential impact of design investment has been made explicit to the design team by including the expected business impacts as part of the brief then there will be an increased likelihood of these impacts being achieved. Finally the framework forms a useful checklist for reviewing projects during the design process to ensure targets are being achieved and once the project has actually been concluded during the project post mortem period. The exercise also brings other benefits. Firstly, it is a very useful way of actually establishing what is and is not being measured within your organisation in terms of business performance. Inevitably it will be difficult to measure many of the impacts identified in the analysis simply because appropriate measurement systems are not in place. The effort required in setting up measurement systems needs to be weighed up against the increase in efficiency that measurement might bring. Secondly, it can be used as a way of recording project information. If an impact assessment was prepared for every design project using the framework, very quickly the business would build a useful knowledge bank describing design investment returns.
The tangible and intangible impact of design activity on business page 9 Fig 1: Design impact assessment framework Identifying internal & external impacts Design Project Description: INTERNAL Redesign of internal office working environment EXTERNAL More staff pride in the work place better attention to quality Employees more aware of company values Customers more aware of company values Reduction in staff absenteeism Reduction in staff turnover Opportunity to sublet office space to external users Change in the culture of the workplace greater sharing of ideas. More efficient use of space Greater willingness to change other attributes of working a change culture
The tangible and intangible impact of design activity on business page 10 Fig 2: Design impact assessment framework Identifying metrics Design Project Description: INTERNAL Redesign of internal office working environment EXTERNAL T A N G I B L E Reduction in staff absenteeism Analysis of absenteeism /year More efficient use of space Analysis of space cost per employee year Reduction in staff turnover Analysis of recruitment costs /year Opportunity to sublet office space to external users Rental income /year I N T A N G I B L Change in the culture of the workplace eg sharing of ideas. Survey of new ideas per staff member (non-financial) More staff pride in the work place attention to quality Survey of attitudes Survey of quality (non-financial) Employees more aware of company values Survey of attitudes (non-financial) Greater willingness to change other attributes of working a change culture Survey of attitudes (non financial) Customers more aware of company values Survey of attitudes (non-financial)