Designing, then, is a basic activity. It comes to grips with the very essence of a problem and proceeds to develop a solution organically, from the inside out, as opposed to “styling,” which concerns itself largely with the distinctive mode of presentation or with the externals of a given solution. The design activity is based upon an understanding of the intrinsic principle of a given problem and its solution.
De Pree believed that designers think in a fundamentally different way from salespeople or manufacturers. But he hinted that protecting and exalting his designers could be trying at times. “Like it or not” he said, “designers are important; indeed, vitally essential for the success of a business enterprise.” That “like it or not” is the tip-off that De Pree was speaking as someone who had had his share of conflicts with his indispensable but demanding designers.
The design-friendly culture that the De Prees championed never did take hold across the American corporate landscape. In that 1965 speech, De Pree offered this scathing assessment: “American industrial programs of planned obsolescence have set up an industrial complex geared to producing waste, and a society trained to accept it.” His vision of an industrial landscape littered with drab, uninspiring products foreshadowed the consumer-apocalypse wasteland depicted in Pixar’s Wall-E.
The De Pree design model worked for Herman Miller, thanks to the commitment of the De Pree family. But I am not sure it is the optimal model for other companies. The top managers of the design-thinking organizations of today and tomorrow do not merely place themselves between designers and line managers. They help line managers become design thinkers. They are pioneering the management discipline of business design.
That was the Herman Miller culture, handed down from managerial generation to generation and reflected in its processes. The sales function was responsible for providing feedback on users to inform the designers at the outset of their design process. But after that, the designers design and the salespeople sell. The salespeople don’t opine on design, nor does any other function.
The Aeron chair went on to become the most successful chair in the history of the office furniture business and won numerous design awards and a place in the permanent collection of the Museum of Modern Art in New York. Ironically, the chair that users said didn’t look like a chair became the iconic representation of a modern chair, which every new ergonomic chair had to resemble. The logical leaps that Stumpf and Chadwick made were validated, as were the structure, processes, and culture of Herman Miller.
Making a Home for Design Thinking
Design-thinking organizations remain a small minority in the corporate world, and on the whole, they are relatively small themselves (not Herman Miller, however, which was approaching $1 billion in revenues at the time of the Aeron launch). Generally, the larger the company, the less likely it will be receptive to design thinking. The pressure from stakeholders who value reliability over validity is hard to resist. Bankers want to see budget projections and proof that they will be met, boards reject initiatives that can’t be proved from prior experience, and shareholders—egged on by equity analysts—demand that the company meet its profit guidance every quarter without fail. The incentives to favor reliability are omnipresent, while the rewards of seeking validity seem distant and uncertain.
But is reliability all that shareholders, analysts, and boards of directors really want? Not if they want a vibrant, growing company. A vibrant, growing company makes discoveries that help it get into new businesses or markets, or help it stay ahead of competitors; it continually reinvents itself. But the rewards for those validity-oriented actions are not immediate; they come only after the world recognizes the positive outcomes. Some validity-driven initiatives will succeed, but many others will fail, to the dismay of stakeholders anchored to the values of consistency and predictability.
With the punishment for lack of reliability so swift and severe, and with the rewards for adhering to validity so distant and speculative, companies have compelling reasons to slide toward more reliability and less validity. In the short run, rewards flow to companies that run, hone, and refine the same heuristic or algorithm rather than seek to move knowledge through the knowledge funnel. In the long run, though, reliability-focused companies grow stagnant and fall prey to new competitors, despite the benefits of incumbency.
In 1928, the Dow Jones Industrial Average was fixed at thirty companies for the first time. Of those original thirty companies, only three remain in the composite. Of the original Fortune 100 companies, published in 1955, only eleven are still on the list. In fact, on both original lists, most of the companies either no longer exist or have become part of other companies. For a particularly stark example, think of the U.S. airline industry. The incumbent airlines—American, Delta, United, Northwest, and Continental—were so busy benchmarking against one another and honing the existing model that an upstart airline was able to reconfigure the industry by reimagining the entire flying experience. It cast aside the hub-and-spoke route system in favor of point-to-point direct flights and wooed travel-battered fliers with low prices, direct booking, and friendly staff. That upstart was Southwest Airlines, and today it flies more passengers per year than any other American airline. Before the recession hit in the first quarter of 2009, it had reported seventy consecutive profitable quarters, more than seventeen years of positive performance. The legacy airlines have not fared as well, to say the least.
The bias toward reliability infects even corporate R&D departments, which you might think would be havens for design thinkers. But in cultures where status and rewards flow to reliability’s champions and the exploration of mysteries is frowned on, R&D departments tilt toward the “D” part of their mandate and skimp on the “R.” The great coup of P&G’s Connect + Develop initiative was to exploit that natural inclination in order to beef up its design-thinking capacity. Connect + Develop aggressively sought outside research and fed it into P&G’s finely honed development machine, which had the capacity to handle far more research than P&G alone could supply.
While P&G was adding capacity in validity-oriented pursuits, it continued to invest in reliability to achieve and sustain scale. Validity-focused companies, such as design firms, rarely achieve substantial size. The largest industrial design firms in America—IDEO, Design Continuum, and Ziba Design—all command $100 million or less in annual revenue, three orders of magnitude smaller than the largest American industrial firms. Few large companies have managed—or even attempted—to balance sufficient predictability and stability to support growth with sufficient creation of new knowledge to stimulate growth. Those that do will be the enduring organizations of the future. And as they grow, they will have to think carefully about ways to reinforce design thinking in their own structures and processes. Without careful attention to its organizational structures over time, even the most design-friendly organization will find itself tilting back toward reliability.
To create an environment that balances reliability and validity, that both drives across the stages of the knowledge funnel and hones and refines within stages, a business needs to think differently about three elements of its organization: its structures, its processes, and its cultural norms.
A Project-Oriented Structure
In the main, companies organize work around permanent jobs and ongoing tasks. “Vice president of marketing” denotes a permanent position with a set of ongoing tasks, such as managing the annual advertising plan, setting marketing budgets, coordinating with sales, and reporting quarterly on share trends to the CEO. This definition of work is entirely suited to a company devoted to running heuristics and algorithms. The work never comes to a terminus. Hotshot corporate lawyers learn and run a particular heuristic for their entire careers. Employees in the accounts payable department come to work every day and run a work-flow algorithm whose essential elements have not changed in fifty years—except that now the algorithm is run at an outsourcing firm in Chennai, India.
In companies org
anized around ongoing, permanent tasks, roles are rigidly defined, with clear responsibilities and economic incentives linked tightly to those individual responsibilities. This structure discourages all but senior staff from seeing the big picture. People define their work as “my responsibilities,” not “our responsibilities.” They limit their focus to those individual responsibilities, refining and honing outputs before sharing a complete, final product with others. The senior vice president of marketing will refine and adjust the annual marketing plan until it is airtight. Only then is it presented to the CEO, who, it is hoped, will pronounce it perfect.
As well-suited as that construct is for running known heuristics and algorithms, it is not an effective way to move along the knowledge funnel. That activity is by definition a project; it is a finite effort to move something from mystery to heuristic or from heuristic to algorithm. And such projects demand a business organized accordingly, with ad hoc teams and clearly delimited goals. A design-thinking organization would function more like P&G’s Global Business Services (GBS) unit, which uses a fluid, project-based activity system to tackle large undertakings such as the Gillette integration. When the project is finished, the team disbands, reforming in a different configuration suited to the next task at hand. “Flow to the work” is what GBS has come to call its structural approach, and over time, the GBS employees have become increasingly at ease with organizing themselves by projects rather than permanent structures.
Design consultancies illustrate the power of an alternative job structure. Designers are accustomed to being assigned a clearly defined project that comes to an end at a specified date. Designers get used to mixing and matching with other designers on ad hoc teams created with a specific purpose in mind. The typical designer’s résumé consists of an accumulation of projects, rather than an accumulation of hierarchical job titles. The project-based approach informs the entire mind-set of the designer. David Kelley of IDEO illustrates the approach perfectly: “I look forward to going to the IDEO café at breakfast time or talking with my students in the d.school,” he says. “I ask the first person I see, ‘What are you working on?’ ” 7 He does so because that person’s daily work is defined by project, not title.
The designer’s résumé may well reflect reality better than one organized as a progression of titles. Most of work life is a set of projects, each with its own ebbs and flows. Many managers complain that, because they are constantly running around putting out brushfires, they can never focus on their so-called real jobs. But perhaps their real job is firefighting projects.
The project-based work style emphasizes collaboration. Projects are typically assigned to teams rather than to individuals, although that team may have its own internal, and often temporary, hierarchy—a captain or a quarterback, as well as linemen to handle the blocking and tackling. But the solution is expected to come from the team, not the quarterback. And the team is expected to include the client in the collaborative process. Rather than waiting until the outcome is just right, the client is exposed to a succession of prototypes that grow more right and more elegant with every iteration.
Architect Frank Gehry is famous for this iterative style. The first design he presents typically provokes a firestorm of protests for its inadequacies. Gehry’s initial design for the Art Gallery of Ontario (AGO) elicited an apoplectic reaction from one of the gallery’s most important benefactors. Thinking the design slighted the part of the gallery he considered his baby, he resigned from the board, swearing off any further involvement with the institution. But Gehry was at the beginning of his process, not the end point. He wanted feedback that he could incorporate into his next iteration, which would not be final either. The final design was still many iterations away.
Many corporate managers who engage designers could sympathize with that benefactor. Designers produce prototypes for feedback, but managers are accustomed to delivering final products, as A. G. Lafley saw before he changed P&G’s strategy process. Designers work differently, recruiting their clients onto the design team and helping them see the design for what it is—a prototype. When the AGO’s disappointed benefactor grasped that his feedback was integral to the undertaking, he responded with enthusiasm, critiquing each successive iteration, and emerged positively gleeful (like virtually all observers) about the final design, which opened to rapturous reviews in 2008.
But large organizations can’t or shouldn’t convert themselves entirely to project-oriented, iterative, prototyping design shops. The balanced, design-thinking organization picks the style of work that best fits the task. If the task is to create a company-defining product like the Aeron chair, then fixed, standardized processes will not get the job done.
As a rough rule of thumb, when the challenge is to seize an emerging opportunity, the solution is to perform like a design team: work iteratively, build a prototype, elicit feedback, refine it, rinse, repeat. The team uncovers problems and fixes them in real time, as the process unfolds. On the other hand, running a supply chain, building a forecasting model, and compiling the financials are functions best left to people who work in fixed roles with permanent tasks, people more adept at describing “my responsibilities” than “our responsibilities.”
If that sounds like an organization with a baked-in paradox—where one half functions like an accounting firm and the other collaborates like a design shop—well, perhaps it is. But Google shows that a global-scale corporation can balance between the two poles. CEO Eric Schmidt has said that the part of Google that looks like a normal company (sales, marketing, operations) is run like a normal company, but the part that defines what the customer sees and experiences (software coding and engineering) feels more like a design shop, free from top-down control. 8 The challenge for CEOs like Schmidt is to balance freewheeling innovation and buttoned-down operational discipline, validity and reliability, and honing and refining versus jumping to the next stage of the knowledge funnel. While it is not an easy proposition, dealing with this paradox is preferable to being eclipsed by some tiny start-up that stares into the next mystery, while its reliability-fixated rival runs, hones, and refines its existing heuristic or algorithm. The people of Yahoo! know the feeling. It was a lot more fun to own the search space than to watch Google snatch it away.
Processes That Give Innovation a Chance to Flourish
Two central corporate processes—financial planning and reward systems—are dramatically tilted toward running an existing heuristic or algorithm and must be modified in significant ways to create a balance between reliability and validity. Not unlike the corporate hierarchy, financial planning and reward systems form the hidden infrastructure of the organization, an all-but-invisible force that can promote or stifle design thinking.
Financial Planning
Financial planning, budgeting, and budget management are fundamentally reliability-driven processes. They feed on data from the past to predict the future, setting targets for managers to steer toward. They come complete with benchmarks that top management and directors use to assess managerial performance. The best performers run their assigned heuristics or algorithms to meet the outcomes set in the budget. If an operation encounters obstacles to meeting the budget, managers tighten their belts and take extraordinary measures to get back on target. Over the short term, the guiding principle is to produce the consistency of outcomes that boards and stock analysts demand.
The problem is with the long term. For the company to prosper —or even survive—in the long term, it needs a steady stream of insights to push through the knowledge funnel. Only then will it gain the efficiencies that fund the exploration of new mysteries. But the work of converting mysteries to heuristics and heuristics to algorithms is difficult, if not impossible, to financially plan or budget. The past is of little use. The solving of a particular mystery is a unique event that, as our friend Charles Sanders Peirce reminds us, requires a logical leap of the mind. The same holds for the insight that pushes a heuristic to an algorithm. Logical le
aps of mind cannot be scheduled; the resources needed to achieve them cannot be determined in advance. Solutions sometimes happen quickly and efficiently, but there is no guarantee.
Companies that truly want to reap the rewards of validity-oriented activities have to take a nontraditional approach to financial planning. Conventional approaches, as we have seen, are tailor-made for those activities involving existing heuristics or algorithms, and the company should plan, budget, and manage them rigorously, aiming for high levels of reliability. For activities aimed at advancing knowledge, however, financial planning should consist only of setting goals and spending limits. Goals define the breakthrough the company is seeking. Spending limits reflect the reality that the company can afford only so much innovation spending in total, and each knowledge advance is worth only so much to the company. The spending limit has to be attuned to the company’s entire activity spectrum and the estimated value of the innovation.
In essence, the job of the existing heuristics and algorithms, and those managers running them, is to produce the financial capacity to set the spending limit on innovation high enough for the necessary innovation to be within reach of the organization.
Reward Systems
The Design of Business: Why Design Thinking Is the Next Competitive Advantage Page 11