Design thinking as business strategy - New Zealand success stories

by Rebecca Macfie / 04 June, 2011
Adopting a “design thinking” business strategy has led to better business, bigger markets and increased sales for some Kiwi companies. Could this be the key to New Zealand’s economic future?
Henry Ford is said to have once remarked, “If I’d asked my customers what they wanted, they’d have said ‘a faster horse’.” The problem with customers, he seemed to be implying, is that they are conservative, constrained by the familiar and not given to visionary insights about the products they use.

Rick Wells, director of Lower Hutt-based FormwayDesign, offers a similar observation. “The customer is never truly innovative. They are normally very conservative.”

If FormwayDesign had formed a focus group and asked people what they wanted in a new work chair, they’re unlikely to have asked for one that bends when you lean over the back of it to talk to a colleague, or that reclines like a lounger while you ponder a difficult problem, or that supports you while you slouch sideways.

But FormwayDesign’s newest chair, which has generated $60 million in international sales since it was launched less than two years ago, does all the above. It’s the product not just of fancy engineering and high-tech materials but of what has become known as “design thinking” – a business strategy that, in Wells’s view, is the key to New Zealand’s economic future.

“If we don’t create highly differentiated products, how do we get real margins and get off the burning platform? New Zealand can never be a low-cost producer, so we have to create something unique.”

Design thinking is about using intensive observation – of customers and potential customers, work and social patterns, and global trends – to uncover latent needs, and applying teamwork, experimentation and expertise to figure out ways to meet them. It goes against the popular idea that clever innovation is usually the product of backroom inventors or singular genius, but is instead a creative approach to problem-solving that businesses can learn to master as a source of commercial advantage.

According to its advocates, it’s nothing less than a transformational business philosophy – a powerful fusion of art, anthropology, engineering and marketing. The guru of design thinking, Tim Brown* of international design consultancy Ideo, argues it’s about pulling design out of the studio and “unleashing its disruptive, game-changing potential”. Rather than seeing design as something bolted on as the final phase in the development of a new product to tart it up or prettify the packaging – a mere link in the production chain – Brown sees it as “the hub of a wheel”.

Design thinking is credited as the engine behind Apple’s stream of ground-breaking products, from the iMac to the iPad, and the inspiration for companies ranging from Procter & Gamble to GE. It’s being embraced by the Chinese as a way of promoting innovation and reducing reliance on low-cost manufacturing. And over the past six years dozens of New Zealand companies have become captivated by the potential of design thinking to boost their export prowess and improve their bottom lines, helped along by a Government-funded programme called Better by Design.

But FormwayDesign has been at it for almost two decades. Originally a small-scale manufacturer of steel furniture, it began building its design expertise from the 1980s, developing flexible, manoeuvrable workstations that won inter­national acclaim. Nine years ago it unveiled the “Life” chair, the product of three years of research that began with the simple realisation that sitting still at work is bad for you.

A prototype of the Life chair was audaciously pitched to top US furniture company Knoll, which loved it and took on the licence to manufacture and sell it internationally. At last count it had generated $500 million in sales, and was the highest-selling product in Knoll’s history.

In 2006, FormwayDesign sold the licence to pay out an investor, the Greenstone Fund. But when it went back to Knoll with a proposal to work together on a new design, the American firm didn’t hesitate. The end result – dubbed the “Be” chair in New Zealand and “Generation” in the US – has had rave reviews from publications such as Time Style, Wired and Fast Company and, like its predecessor the Life chair, won a gold award at the prestigious NeoCon furniture trade show in Chicago.

Its development is an instructive example of how design thinking can produce innovative high-end products. Design director Mark Pennington says the project didn’t begin with the assumption that a new chair would be produced. “It started with an active premise of dynamism and natural movement. It’s looking at what people do in a chair and how they behave.”

As with all FormwayDesign’s projects, the first stage in the Be chair’s development was the “discovery” phase, which took about a third of the total development time. Researchers went into workplaces and did hundreds of hours of observation, filming and interviewing. That was transcribed, distilled down to one-liners and put up on display walls, to which anyone could stick a Post-it note with an idea or comment. Experts – including an international specialist in workplace reform – were brought in to offer insights into the changing patterns of the modern workplace.

One of the key findings was that work is becoming more collaborative and that people spend very little time in an ergonomically “correct” upright position. Instead, they’re just as likely to be straddling backwards in their chair, swinging around on it, kneeling on it or wheeling it around to talk to others.

That led to a design brief for a chair that lets you sit how you want.

Next came the “design” phase, including the hunt for suitable materials that not only had the flexibility and durability to do the job, but could be reused and recycled at the end of the chair’s life. Lots of quick, cheap mock-ups were lashed together to help communicate concepts within the project team, refine ideas and eliminate those that weren’t going to work. Bioengineering experts and people of all shapes and sizes were brought in to trial rough prototypes.

Eventually, a “looks like, works like” model was put together and unveiled to Knoll, then the final “delivery” phase of the project – including detailed engineering design and tooling for mass manufacturing – began.

Pennington says FormwayDesign invested “millions” in the Be chair before the finished product saw the light of day, but there’s no shortcutting the process if the company is to come up with designs that are internationally competitive. “It’s about digging deep. Good products are all about how people relate to them, and the better you understand people the better the solutions. It’s not enough to make products that are just okay, they have to be designed to be world leading.”

On the strength of the Be chair and a pipeline of other projects, Pennington says revenue from designing and licensing ­new products is expected to double in the ­next five years. In an economy that’s struggling to shrug off recession and is burdened ­by debt and natural disasters, that’s cheering news. Even better, other companies that have adopted design as a business strategy express similar con­fidence.

When the Better by Design (BBD) programme began as part of the Labour Government’s Growth and Innovation Framework in 2005 – inspired in part by the likes of FormwayDesign and merino clothing company Icebreaker – the target was to get at least 50 existing businesses internationally competitive through design, generating an additional $500 million in annual export earnings. A 2010 review of BBD, which is run by New Zealand Trade & Enterprise (NZTE) under the leadership of a private-sector advisory board that includes FormwayDesign’s Wells and Icebreaker’s Jeremy Moon, concluded the best-performing 20 companies on the programme had boosted their export revenue by more than $300 million.

The programme takes companies through a detailed audit of products, systems and branding, then follows up with mentoring and advice aimed at integrating design throughout their operations. NZTE design director Judith Thompson says Better by Design is “not a path to instant riches”, and it’s hard to know how well a company would have done without the programme, which has an annual budget of $3.3 million. “But there are companies for whom it is making a huge difference.”

Bruce Moller, chief executive of Howard Wright Cares, a New Plymouth manufacturer of hospital beds, believes the development of a design-centred philosophy has helped transform his company’s fortunes. When it joined up to BBD it was profitable, but was focused on customising beds on request from hospitals, rather than developing products based on its own insights into the needs of hospital staff and patients.

“Everyone felt we were working really hard for a modest result. We weren’t really regarded as a leader in our field.” Wellington design consultancy Equip did an audit of the company and came up with a series of recommendations. The two most important were that staff needed to spend more time in hospitals, and that it should develop a coherent “design language” that would provide a benchmark for the products it wanted to develop.
“We came up with ‘simple, smart and human’,” says Moller. “That meant they had to be very practical, they had to be elegant and they had to be intuitive. A goal for us is that anyone can come up to our product and use it without reference to a manual.”

The first new project after joining BBD was an intensive-care bed, the M8. Moller’s team spend hours watching doctors, nurses, orderlies, cleaners and patients. “If you really want to know what someone’s job is like, you go and do it. We couldn’t quite do that, but we got as close as you can get,” says Moller.

As at Formway, the observations were put up on boards as “living briefs” to which anyone was able to add their ideas. A key goal was to come up with a design that enabled doctors to take x-rays and use C-arm image intensifiers without having to move the patient off the bed. And Moller says they also wanted a bed that looked unintimidating and simple: “You see so many ICU beds that look like Battlestar Galactica. There’s already so much else going on in ICU; we wanted to take the clutter out of the environment.”

It took two and a half years to develop the M8, and the development cost was far higher than any previous bed developed by Howard Wright. “But the opportunity for success is far greater,” says Moller. “You have to back yourself that the work you are doing will translate into success.”

So far, so good. The state of Western Australia has chosen Howard Wright Cares as the sole supplier for ICU beds for its hospitals, and the company is investigating export markets further afield. Moller says a suite of new hospital products is in the design pipeline and he’s optimistic of a “nice result”.

Revenue has doubled in the past five years and the target is to double it again in the next five. But Moller says even more rewarding than the financial payback is the spill-over effect of embracing empathy as a tool of product development.

“When you are considering being in other people’s shoes, that migrates through into the thinking of the company and that’s where the real strength comes from. You start to build a really nice environment for people to be in, and that’s the unheralded benefit.”

For some companies, design thinking is as much about branding – the way a company communicates about its product to customers – as the product itself. Phil&Teds, the Wellington-based designer of baby and toddler buggies, was already doing well selling its three-wheeled inline buggy (designed to take up to two children, from babies to five-year-olds) when it joined BBD in 2005. Marketing leader Richard Shirtcliffe says it had retail sales of about $30 million and a strong niche with new parents.

But the BBD audit exposed it as a “one-trick pony” in terms of its product range, and “in terms of our branding, we basically sucked”. It ramped up its expertise in both marketing and product design, developed a funky, offbeat brand “story” that associated its products with dynamic, active parenting, and it quadrupled its product range.

Six years on, sales have risen to $150 million (helped by the purchase of the Mountain Buggy company from its receivers in 2009), and its international market has grown from seven countries to 52.

“Design to us equals intellectual property, and intellectual property equals revenue. Because if you have unique intellectual property and it’s relevant to a consumer set, you’re going to make money out of it. That sounds a little mercenary but it’s the reality,” says Shirtcliffe.

Phil&Teds’ success hasn’t translated into hundreds of factory jobs for New Zealanders, however. Although design and marketing is done in Wellington, manufacturing is done in China. “The reality is that New Zealand is not good at large-scale mass manufacturing,” says Shirtcliffe. “But Kiwis are very good at thinking outside the box, and we are very good at sales in the world. We cut through a lot of the cultural crap that you meet when you go and sell in the US and Europe because we are sort of smiley and open. And so if we can bolt that sales capability onto that wonderful thinking that we do … then that’s quite a heady mix. Off that we can build businesses that make a global impact, and build GDP that will keep this country wonderful.”

NZTE chief executive Peter Chrisp shares that view, and is convinced design thinking – and the BBD programme – is a vital lever of economic development. “Better by Design came from the whole idea that the economy needed to develop from its commodity base. The commodities are a crucial part of the economy, but it’s about the ‘and’. The ‘and’ is those high-value food and beverage companies, high-value manufacturers and products that command a greater margin and that are not linked into the primary part of the economy.”

And although prices for traditional agricultural commodities are booming, he argues the need to develop more high-margin export-focused companies remains as urgent as ever.

“It’s really a capacity question. You might get some more water in Canterbury, and that might give us another big tick up in the dairy industry. But apart from that you’re just swapping land uses between forestry and dairying and other forms of agriculture. We will get a 2% productivity gain in commodity industries, which is good, but of itself is not enough.”

Chrisp counts Better by Design as one of NZTE’s three most important economic development schemes, along with Lean Business (a waste elimination programme) and Beachheads (which connects exporters to networks and expertise in overseas markets). He’s so convinced of its merits he has joined his own agency up to the programme to ensure it’s as effective as possible in the way it works with businesses. “We’re eating our own pudding.”

In the end, believes Bruce Moller, companies and organisations won’t have a choice about whether to put design at the centre of their strategy. “In time it will be a process where, if you’re not doing it, the question will be asked, ‘Have you been asleep for the last 10 years?’ You have to keep forging ahead and looking to improve and develop your organisation … I think eventually people won’t necessarily pay more for it. It will become an expectation.”


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