Attitude is essential! Brand, Reputation and Design Management in small and medium-sized enterprises. Prof. Dr. Brigitte Wolf

Transcription

1 Attitude is essential! Brand, Reputation and Design Management in small and medium-sized enterprises Prof. Dr. Brigitte Wolf

2 Attitude is essential! Brand, Reputation and Design Management in small and medium-sized enterprises Prof. Dr. Brigitte Wolf

3 Copyright 2008 Hogeschool INHOLLAND Alle rechten voorbehouden. Niets van deze uitgave mag worden vermenigvuldigd, opgeslagen in een geautomatiseerd gegevensbestand, of openbaar gemaakt, in enige vorm of op enige wijze, hetzij elektronisch, mechanisch, door fotokopieën, opname of op enige andere manier, zonder vooraf schriftelijke toestemming van de uitgever: Hogeschool INHOLLAND. In so far as reproduction of this publication is permitted, based on art. 16b and 17 of the Dutch Copyright Act 1912, legal rights must be paid to Stichting Reprorecht, Postbus 882, 1180 AW Amstelveen. For the use of one or several parts of this publication for an anthology, a reader or other works of compilation the publisher must be contacted. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, mechanical, photocopying, recording or otherwise, without prior permission of the publisher. ISBN/EAN:

4 Publication with the speech delivered by Prof. Dr. Brigitte Wolf for her accession to the office of lector at the Centre for Applied Research in Brand, Reputation and Design Management (CBRD) at the INHOLLAND University of Applied Research in The Hague on 5 June 2008.

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6 Content 1 Introduction 7 2 The relation between design and business success Studies Tangible and intangible assets 16 3 The DNA of a company Best practice in design by small and medium-sized companies Success factors 23 4 Corporate Culture Positive experiences for employees Positive experiences for customers Positive experiences for partners Swarm intelligence a new approach to structure organizations 36 5 Design strategy 42 6 Conclusions and perspectives Research questions Activities of CBRD 49 7 Notes 52 8 Annex Annex Annex Literature 62 5

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8 1 Introduction The objective of business is to make money - the objective of design is to make the world better, more comfortable and more beautiful. This may seem like a contradiction at first sight, but actually business can profit a lot from design. In national and international markets there are good examples to prove the positive influence of design on business. Design is widely used in big and global companies, but it is not used as much in small and medium-size enterprises (SMEs). Although we find great design-pioneers in the group of SMEs that have built their international success on their design-strategy we can also find other SMEs that are rather ignoring design. Of course there is a lot in-between. The differences emerge through the different attitudes of the decision-makers. Different levels of designawareness, different engagements to quality, different ideas of man and different value systems can explain why every enterprise has a different position in the market. Small and medium-sized enterprises form the backbone of the economy. Business magazines describe their business strategy as a sustainable model. A lot of companies are family businesses, handed over from one generation to the next, whereas big companies usually have a management which is changed if not enough profit is earned. The corporate strategies of both types are based on different value systems. On one end of the scale we find the SMEs whose strategies are based on long-term thinking and social responsibility for the company, the employees and all the others that depend on the company, like suppliers, traders and the region as a whole. They cooperate in general very closely with their customers and respond directly to their problems and wishes. They place priority on customer value. Direct communication with their stake-holders helps them to develop special products and services that match their clients needs. On the other end there are the global players who are mostly dedicated to the growth of shareholder value. The satisfaction of shareholder interests is no guarantee for the satisfaction of customer interests. The interests of both parties may conflict. Therefore big companies spend a lot of money and energy on market research to explore consumer interests. In order to reduce the risk they base their design 7

9 activities largely on these results. The problems of market research are well known because a high percentage of new products fail. In order to improve the relation with their customers and to foster customers loyalty big companies have now started programs on Corporate Social Responsibility (CSR) (1) to make the public believe that they care for their customers and wider society. It seems reasonable that the strategic integration of design increases business success. But we need more knowledge on how it exactly works and what the important factors are. Applied research in design is rather new and therefore all approaches to investigate the impact of design are very valuable steps towards the exploration of best practice for strategic imbedding of design into the corporate philosophy, corporate strategy, corporate culture and business strategy. As a first step to generate knowledge on these items, the Centre for Applied Research in Brand, Reputation and Design Management (CBRD) participates in the ADMIRE-project, which is financed by the European Union. The task of the CBRD is to carry out a European benchmark study on the management of design in European SMEs, respectively to figure out the hindering reasons. The ADMIREproject is an important step to generate knowledge on the design-awareness, the role of design and the way design is managed in European SMEs. Furthermore it seems important to explore the attitudes of the leaders of SMEs to obtain knowledge on their concerns and objectives. These data will be crucial for the development of design support strategies. Best practice examples as well as research studies (2) confirm the relationship between the strategic implementation of design, business success and a sustainable market position. It is reasonable to assume that the attitude of the responsible leader is essential to implement design strategically in order to generate a unique corporate culture and to increase the company s value and performance. At the same time the corporate culture usually creates the conditions to make efficient use of design and design-thinking. We can presume the reasons for the implementation of design in SMEs and how it is handled as well as the reasons why it is not implemented. Little is known about the internal reasons and processes in SMEs with regard to the initiation, steering and the management of design. 8

10 To describe my standpoint I have defined three hypotheses as a priori statement which builds a frame of reference to my further comments: 1. The value system and the attitude of the leader are responsible for the corporate culture and the sustainable success of SMEs. 2. For sustainable success it is indispensable to create positive experience for all stakeholders: the customers and the users, the employees and the managers, the researchers, technicians and designers, the suppliers and traders, the visitors, the advisers and partners. 3. Design thinking, design management and the strategic application of design into the business strategy improve the processes and the performance of SMEs. To point 1 The attitude and the value system are crucial factors driving the leader s commitment to shape the company in order to produce positive experience for all stake holders. It is the attitude that determines how the internal structures, processes and the working conditions for the employees are structured. It is the attitude that ultimately decides about the role of design in a company and how far design-thinking is integrated to develop a sustainable and unique strategic position in the market. The attitude to think ahead constantly, to be leading in the sense of quality, to produce relevant products and services, to fulfill customers needs and wishes and to deliver good quality to maintain loyal customers, requires an inspiring and motivating environment as well as skilled and motivated people to keep the attitude alive. To point 2 Everybody enjoys positive experience at the workplace as well as in their spare time, by buying and using products or by the use of all kinds of services privately or professionally. Pine & Gilmore have written a book on experience economy (3) in which they emphasize the significance of good customer experiences for business success. Positive experience counts in the BtoB business as well as in the BtoC business. The success of a company depends on the positive experience of their customers. Customers are often said not to be loyal. They change brands because they are looking for better experiences respectively for a good relation between the money they pay and the experience they get. The creation of a good customer experience requires a complete offer that integrates material as well as immaterial 9

11 experiences. Service design has become a subject of increasing importance. In order to please the paying end-user with positive experience, a chain of positive experience in the corporate process chain must be created from the initial point onwards. Positive experience of employees and partners will influence their performance and hence the positive experience for customers. To point 3 Design-thinking is an appropriate tool to create positive experience for all, through careful consideration of all the relevant influence factors and then the creation of processes, which correspond best to changing challenges and requirements. The strategic application of design-thinking as an integrating corporate activity shapes the design of material goods and environments, the design of services and experiences and the design of all corporate processes. A holistic design strategy shapes the corporate culture of a company, the strategic positioning and its authenticity (4) - it shapes the unique look and feel. The problem still remains: a great number of SMEs has no design awareness or they are skeptical whether the investments in design will pay off although they could apparently do much better with design. There are books on the market, which demonstrate how to manage design for business success and other activities like exhibitions, lectures and conferences offer relevant information. However this information is obviously not sufficient or sufficiently clear or it does not reach all SMEs. With this essay I want to point out the decisive factor for commercial operations in SMEs: the attitude of the leader! My remarks aim at identifying approaches for applied research projects to analyze the critical factors, at leading to better understanding of SMEs and at proposing solutions. Those activities are intended to initiate common development processes, which will link CBRD and SMEs closer together. My paper is a theoretical construct, which intends to describe plausible assumptions. The remarks are based on literature and best practice examples and describe a 10

12 network of hypotheses leading to a number of research questions, which will be the subject of discussion for the research activities of the Centre for Applied Research in Brand, Reputation and Design Management (CBRD). Prior to the further elaboration of my hypotheses (see: chapter 3, 4 and 5) in chapter 2 I describe the relation between design and business success. In chapter 2.1 I refer to studies investigating the relation of design and business success. In chapter 2.2 I describe approaches to measure the tangible and intangible factors for economic success. Chapter 3 is dedicated to the first hypothesis and describes the importance of the attitude of the leader - the DNA of a company. He steers the business and takes the decisions. On behalf of best practice examples the success patterns of SMEs are described in chapter 3.1 and compared to the successful factors of experienced business consultants in chapter 3.2. The second hypothesis underlines the importance of positive experience for all stakeholders and refers to the corporate culture in chapter 4. Exemplary and positive experience of employees (chapter 4.1), customers (chapter 4.2) and partners (chapter 4.3) are outlined. Positive experiences are related to the organizational structures. New approaches based on swarm intelligence have generated success ful results; they are presented in chapter 4.4. The design strategy shapes the organizational structure and the corporate culture. This is outlined in chapter 5. Chapter 6 summarizes the remarks and chapter 6.1 points out the resulting perspectives for applied research at the CBRD. Chapter 6.2 describes the current activities of the CBRD fellows. 11

13 2 The relation between design and business success Successful and good design is often associated with exclusiveness, extravagance and high prices, such as represented by brands like Armani, Herman Miller or Cartier. The term design is also used in a massive way for commodities (hair design, nail design, pizza design etc.) with the intent to sanitize the public image and to ask for higher prices. Design must not be expensive. Companies like IKEA or H&M have their unique design strategies and are successful by selling big masses of products. Small and medium-sized companies are rather seldom involved in mass production; in general they create and produce special products and services and sell them to niche markets. The design awareness of SMEs covers a broad spectrum. On the one hand there are companies with an excellent corporate culture built on their design philosophy and corporate culture that are growing and acting in global markets and on the other hand there are companies on local markets which don t deal with design at all. Only few studies are available to investigate the economic success of design (5). And to my knowledge there is no study available for specific investigation of the economic success, which SMEs have achieved by design. It would be great to have a study on this issue in the future. The difficulty lies in that SMEs do not like discussing money. It will be difficult and perhaps impossible to get the desired data because they are kept secret. 2.1 Studies The relationship between the use of design competences and business success was the subject of two different research projects. One study explored a sample of Danish companies representing the total of Danish companies. (6) The other one was carried out by the British Design Council and investigated the top 100 public companies of Great Britain. (7) The Danish study was done by the National Agency for Enterprise and Housing in Denmark and investigated The Economic effects of design. The study was based 12

14 on the design ladder developed by the Danish Design Council. The design ladder provides four categories: no design design as styling design as methodological approach design as strategy (8) In the first category we find companies - mostly SMEs - that make no use of design. The second category describes companies using design as styling to make their products, catalogues, web sites etc. more attractive. Companies in the third category use design in a methodological way to design their products, product portfolio and their communication material. In the fourth category we find the companies in which design is used as strategy. Design-thinking is applied in all processes and across all departments of the company. Design shapes not only the material and immaterial products; it shapes all the processes from the first idea to the point of sale, the using process and even back to the companies recyc ling processes. The study showed that companies at a high position on the ladder which use design as strategy achieved great business success, like: higher turnover, higher export rates, higher growth rates and less staff turnover. The study showed a significant relationship between the use of design and success items. The study of the Design Council London, The Impact of Design on Stock Market Performance, analyzed the correlation between the use of design and economic success over a period of ten years from 1994 to 2003 and concluded that all companies follow the ups and downs of the stock market, but that companies with a strong design-awareness performed on a higher level and were economically in a much better position. Considering the market success of design-minded SMEs it seems plausible that economic benefits for SMEs follow a similar route. If design supports economic success, why do not all companies apply design in their companies? Big companies usually do so. Design helps them to differentiate from their competitors. However, SMEs are different and think differently. Some are very successful because of design, some use design activities partly and a large number does not make use of design at all. They have never used design and have 13

15 survived; they think design is too expensive and they need to spend their money on other priorities. Another frequently heard argument is: my father did not need design, my grandfather did not need design, why should I? Design is simply seen as a waste of money. Other companies are unsure if the money they might invest in design will gain a return. In other cases it is a lack of knowledge and awareness, the companies do not know how design can support their business. There are also companies, which do not know how to find the right designer and how to deal with designers. And there may also be companies that have had bad experiences with a designer. Considering the results of the Danish and the British study it seems short-sighted not to use design. Design-thinking on a strategic level could help SMEs to improve and to specialize their performance and to strengthen their positioning in the market. That is quite an interesting point as they can usually not compete in the price battle. Tom Lockwood, president of the Design Management Institute, has pointed out the necessity to measure the effect of design. We can find lots of examples that have proved that design can enhance the performance of a company. As an example of how design can generate business success Tom Lockwood compared Apple and Dell. The annual reports of both companies show that Apple and Dell earned about the same net income in But Apple used only half of the turnover. (9) It is clear that design is the reason for Apple s success strategy, alongside with technology, user-friendliness and easy handling. To be able to explain more precisely how design influences success, a deeper analysis is required and appropriate measurement tools need to be developed. This is a big challenge for the future. Lockwood has taken a first step and developed a qualitative framework of 10 categories to measure design efficiency. (10) Further research would be helpful, because business people decide on budgets and they want to know how investments in design pay off. The development of metrics to measure the effectiveness of design activities in detail is an important step and will deliver arguments that convince deciders to invest in design strategies. I do not want to create the impression that applying design is the golden recipe for SMEs to be successful. Like any other activity, design can be carried out well or badly. When design is done badly the success fails to appear. That is a big fear of 14

16 SMEs. A survey realized in the winter term 2006/07 at the Köln International School of Design (KISD) in cooperation with Michael Soendermann, journalist of economy concludes that there is a lack of knowledge and understanding on both sides - SMEs and designers - which might be the reason for unsuccessful co-operations. Miscommunication and misunderstanding are the result and the reason for failure. This problem is quite well-known and will be a research subject at CBRD. Recently, Joris Funcke has been preparing a research plan called bridging the gap. The research intent of fellow Joris Funcke is to focus on the gap between SMEs and design. The results are expected to deliver information on the attitude of the leaders and the designers. Better understanding of both sides will help to find a way to improve the cooperation and finally the performance of SMEs. (11) To apply design successfully a company must have a clear attitude as to its values and objectives and as to how design can contribute to a successful realization of the business objectives. Furthermore the designer needs to understand how the company ticks and what is the special situation. For good cooperation between a small or medium-sized company and a designer, mutual understanding, trust and sympathy are required as well as sharing the same values. Convincing non-design users of the advantages of design is quite a challenge. An interesting approach to support SMEs to solve their problems with design competence is a program developed by the Design Center Paraná located in Curitiba, Brazil. Every year the design center visits a number of small companies and asks about their problems and the challenges they are facing. To solve their problems the companies are offered to participate in a program which includes seminars, exchange of experiences and cooperation with designers. This program intends to support the SMEs in their climb up the design ladder. The program does usually not enable SMEs to jump from the no design level to the highest level on the design ladder. It is more likely that they jump to level two or level three. However the results are convincing. The companies improve their business. And it is most probable that the program and the lessons learned change the attitude of the participants in a way to make them climb up the design ladder even further. Every year an exhibition and a catalogue document the final results. In this project SMEs experience that design helps them to improve their position in the market and that 15

17 even for small companies the investment in design pays off. (12) This example underlines the importance of the attitude of the presidents or directors who were approached to participate in the program, because they decide on investments and they have the responsibility. Every year there are companies that refuse to participate. But there are always a remarkable number of companies which benefit from the program. The necessity to build a bridge between SMEs and design is widely discussed. This is one initiative to handle the problem. The knowledge or, even better, the experience that design competences strengthen the market position will probably facilitate the strategic integration of design into the business strategy. Nevertheless, concrete economic benefits of design thinking are still difficult to measure. One approach is the measurement of the brand value (see: chapter 2.2). This is an annual activity, carried out by different institutions. 2.2 Tangible and intangible assets To score well in the hearts and minds of customers a company has to deliver goods and services of consistent high quality and to take care of the changing demands and desires of their customers. In highly developed and industrialized economies it is becoming more difficult to differentiate products and services by their tangible assets. The level of technological development is balanced and seldom leads to market advantages. Other characteristics are crucial to gain the favor of the customers. The importance of intangible assets is constantly growing and influences the economic value of a company. Success as such can be evaluated through tangible and intangible assets, respectively hard and soft criteria. Measuring the hard facts is a common procedure. But the results cannot identify exactly the influence of certain design activities. The countable figures build only one part of the value of a company. Invisible qualities are becoming more and more important for the economic value of a company. An intent to measure the invisible assets is related to the brand value as a soft factor. In many companies the brand value represents the major part of their overall value. The intangible assets like reliability and trust strongly influence the reputation and the image of the company and the loyalty of customers. 16

18 The evaluation of brands is carried out only for the big companies. Comparable evaluations for SMEs are not published. It is very probable that banks have developed their own tools to measure the intangible assets of a company in order to decide on financial support. It would be very interesting to know more about the evaluation procedures for SMEs, which are used by banks and to compare their criteria. These data are supposedly top secret. Hard facts can be measured precisely expressed in quantitative figures. The economic success is measured for example: economically: factors to measure are: annual turn over, profit before and after tax, profit margin on one unit (product or service), investments, reserves, capital, shares, liquidity, volume of orders etc. numerically: production, quantity of sales, quantity of innovations, quantity of patents or petty patents, quantity of awards and honors, quantity of complaints, quantity of traders, quantity of customers, quantity of orders, market shares, number of employees etc. in time: length of development, time to market, the time a product or service stays in the market, time until a product is replaced, etc. Figures like these need to be measured to control the productivity and the efficiency of a company doing its business. These data are measured in all types of companies - small and big ones. The measured data are compared with the calculated and expected sales figures. If the expectations are met or even topped, the project is a success. If not, the reasons for the failure have to be investigated and appropriate measures have to be taken. Contrary to public companies small and medium-sized companies need not publish their business data and furthermore they do not like to do so. They don t want their competitors to know details on their business. Efficiency is necessary but not sufficient for sustainable business success says Michael Porter; a unique strategic positioning is indispensable for sustainable success. (13) This is especially true for SMEs as they usually cannot compete on the price with large scale production. They have the advantage of more flexibility and that they are able to respond to special requests of their customers. Specialization is a strategy to strengthen the reputation. 17

19 One approach for considering intangible assets is measuring the brand value. The percentage of the brand value in the overall value of a company is rising high because in industrialized countries the brand value makes the difference. The brand values often represent the major part of a company s total value. According to the report of brand-finance, Swiss companies for example show the highest value on intangible assets. Their brand value represents on an average 75% of the overall value. (14) A well-known method to evaluate the brand value was developed by Interbrand. (15) The Interbrand methodology is based on evaluation criteria like brand earnings, role of brand (influence on customers decision at point of purchase) and brand strength (brand ability to secure on-going customer demand). The results are published in the magazines Business week and Focus. The reputation of SMEs is rather based on their specialties and their innovation skills. Recently a competition between the most innovative SMEs was initiated in Germany. In a multilevel procedure the 100 top-innovators were selected. This seems to be a valuable tool to promote the strength and the innovative power of the SMEs. (16) An interesting subject for research would be to investigate the relation between design and innovation. In general it is assumed that design thinking supports innovation. Although SMEs will never jump into the brand ratings, they create strong brands and are desired objects of purchase for big companies to brush up their reputation. The values and the strength of the purchased SMEs are very often watered down after the merger. One example is the German company Braun. After it had been bought by global company Gillette the unique product design was changed to mainstream mass production. The destruction process of strong brands belonging to small and medium-sized companies by a take-over by global companies would be another interesting subject for applied research in order to find out where, when and why the values of the SMEs disappear. Mergers and the following change processes are usually dominated by the bigger partner and aim at increasing efficiency and share-holder value. The buy-out of an SME intended by Coca Cola just failed. Coca Cola is the No. 1 in the rankings of the world top brands (17) and wanted to buy the emerging 18

20 competitor Bionade. Bionade is a soft drink developed by a small German brewery, which was close to bankruptcy. After years of experimenting the company finally managed to produce a soft drink with the same technological procedure they used to produce beer. The soft drink is produced only with natural ingredients and without sugar. First it was only sold to health resorts and fitness studios. About 10 years ago Bionade became the favorite drink of the admen in Hamburg and developed into a so-called scene drink. The wellness movement supported the success. The production grew very fast and in the year 2006 the company sold 73 billion bottles. Coca Cola was not amused by the success of the healthy competitor, which presented the market with a soft drink that corresponded perfectly to the wellness movement in society. Coca Cola wanted to buy Bionade. The owner of the company refused and is instead eager to beat Coca Cola. (18) In all kinds of branches we find companies starting out in a garage, a car booth or in a students department that grow big within a couple of years and become successful global players, like Nike, Microsoft and Amazon to name just a few. It is worthwhile to take a closer look at the driving forces behind success and the role of design. (see: chapter 3) 19