DESIGN-DRIVEN INNOVATION: AT THE INTERSECTION OF DESIGN AND BUSINESS

by Otto Driessen
March 2006
This article presents a market perspective on the phenomenon of design and business
converging into design thinking by presenting notes and reflections following a recent design
strategy & innovation conference. In the process, it presents some differences in approach
between the American and European perspectives on design-driven innovation.
1. Design + Business: Trends & Developments
During the past few years, the amount of literature on the dematerialization of the economy
seems to have multiplied exponentially. We have evidently entered an era where we will rid
ourselves of the stuff we learned to produce so efficiently during the Industrial and Information
Ages. In one sense, we are merely advancing a step on the Maslow pyramid. Our material
prosperity and abundance are giving rise to a phenomenon that places a premium on more right
brain sensibilities, such as beauty, well-being, spirituality and emotion. At the same time, the
(mainly Asian) competition is knocking on the door of our Western industrialized countries. If we
cannot compete any longer on cost, what will our next platform for innovation look like?
At least part of the answer appears to be in the field of design. According to a recent Conference
Board survey of CEOs and board chairmen, executives number one concern is sustained and
steady top-line growth 1 . While internally-focused and left brain-heavy R&D departments are
reaching their limits in sustaining this growth, design is coming to the rescue. It has therefore
enjoyed a meteoric rise in popularity in the world of business innovation. Design is not merely
gaining popularity for its aesthetic dimensions, however. Business managers are recognizing the
power of so-called design thinking for its holistic problem-solving ability. By virtue of its integral,
non-linear, forward-looking and iterative nature, design thinking has taken center stage at such
corporate giants as General Electric (GE) and Procter & Gamble (P&G). The business of design,
in other words, is getting its hands in the design of business.
The United States, the champion of production efficiency during the 20th century, seems to have
been at the forefront of this trend. Design is more a more overt part to the innovation agenda in
the United States than in Europe. American authors such as Joe Pine and Dan Pink have clearly
documented the rise of the Experience Economy and the Conceptual Age 2 , in which the
conceptualization and design of nearly everything will need re-thinking. Furthermore, of the
countless design + business blogs, books, consultancies and forums, many are American or
have strong American connections.
2. Design 2.0: From Complexity to Simplicity
So where is this design + business innovation agenda headed and what can we learn from the
differences between the American and European perspectives? In search of understanding the
similarities and differences in approach better, I recently attended one of the Design 2.0
Discussions on Design Strategy & Innovation, organized by Core 77 in New York City on
February 28, 2006. Moderated by Bruce Nussbaum, the design & innovation champion from
Business Week, this session focused on distilling the ingredients of those customer experiences
that represent the Holy Grail in Experience Land: to take complex systems and represent them to
users as simple and clear experiences 3 .
1

Larry Huston and Nabil Sakkab, Connect and Develop: Inside Procter & Gambles New Model for Innovation, Harvard
Business Review, March 2006, p. 61
2
Joseph B. Pine and James Gilmore, The Experience Economy: Work Is Theatre And Every Business A Stage, Harvard
Business School Press, 1999; Daniel H. Pink, A Whole New Mind: Moving From the Information Age to the Conceptual
Age, Riverhead Books, 2005
3
See Bruce Nussbaums March 1 blog entry of this event at http://www.businessweek.com/innovate/NussbaumOnDesign

The first panelist, Kevin Farnham, founder & CEO of Method (www.method.com; a multidisciplinary design & communications agency) envisaged a new relationship between
businesses, technology and users in which a more user-centric approach creates more loyalty.
He led off by showing how, with an explosion of platforms, people increasingly experience their
products through interfaces, thus making interfaces the next battlefield for brands. Kevin
explained how the average US household currently has over 25 electronic devices, which are
quickly becoming brand storytelling devices as well as new channels in their own right. Kevins
presentation made me wonder: is the interface really replacing content as king? If its anything to
go by, keynote speakers at events of this sort tend to be predominantly from Google, Yahoo, and
other interface companies.
Marissa Mayer, VP of Search Products & User Experience at Google, was a case in point. She
leads the product management efforts at Google and illustrated how her job is to provide a simple
interface to Google visitors. Asked what innovation means to Google, Marissa explained that
Google begins and ends with the needs of its users. This sounds trivial, but maintaining a balance
between complexity and simplicity is difficult. For one thing, users cannot necessarily articulate to
Google what they need. Interestingly, this problem gets worse as users become more advanced
(to my surprise, advanced users are Googles target audience, for the simple reason that
everyone is an advanced user after about one month). It turns out beginners can sometimes put
their finger much better on basic problems related to interface. Google also learned: insert too
many features and users lose oversight, eventually using Google less, not more (Google calls this
the spiral of doom). Google therefore focuses on providing ease and speed for its users, so that
they dont necessarily stay on the website longer (the Yahoo strategy), but return to the Google
site more frequently for their everyday queries.
Jenneane Rae, co-founder of Peer Insight (www.peerinsight.com; an experience design
consultancy) began by comparing the financial performance and five-year stock returns from
innovation-minded companies that focus on the customer experience (e.g., Starwood Hotels,
P&G, Apple Computer, etc) with those of S&P 500 companies. With the former group performing
significantly better, she demonstrated why design thinking and strategy are considered key to topline growth and profits at the moment.
Jeneanne continued by noting that services represent around 80 percent of the US economy.
Why then, she wondered, is most attention directed towards product innovation? In her view, a
customer experience in a service context is an ongoing relationship defined by multiple
touchpoints. These touchpoints, she explained, must engage all senses, evolve over time, and
contain both functional and emotional elements. From her experience as an advisor to P&G, she
talked about how the company employs two moments of truth (MOTs). First, theres an F-MOT,
the first moment of truth, when people approach a product on the shelf and make a decision
whether or not to purchase it. The second S-MOT occurs when they actually use the product:
how much satisfaction do they get out of using it? Will they use it again? She made a strong plea
for focusing on consumer empathy instead of short-term profits, as this mindset only pays off in
the long run. Starwood Hotels, for example, has focused on the exhale moment, when guests at
their hotels close the door behind them, put down their bags and look around the room. At a cost
of $800 million, it created the Big Bed concept to delight during that exhale moment. Has it
worked? Just look at their stock price, offered Bruce Nussbaum.
Other Rae-isms for customer experience design included:
Use well-articulated brand values as a North Star for the customer experience. This
should be expressed in terms of a customer need, not a business need (an exemplary
case is Whole Foods, the leading natural & organic foods supermarket in the U.S.) 4 ;
Link IT platforms with HR models to create mass customization (a good example is how
frontline employees at John Lewis, Harrahs Casinos and other companies share a
4

See for instance: Charles Fishman, The Anarchists Cookbook, Fast Company, July 2004

significant portion of company profits as a direct result of commonly defined targets

Jeneanne recently wrote a series of interesting articles for Business Weeks online Innovation
section which cover these principles in greater detail 6 . She certainly offers a very interesting view
of service-based innovation for which, in countries largely devoid of a service culture like The
Netherlands, there is ample opportunity.
I would only add that stock price performance by itself may not be the best way to gauge
innovation. A stock price reflects the expected ability to manage the bottom-line i.e., to generate
cash going forward, and therefore, the ability to create market share (or power). It does not
necessarily reflect long-term top-line revenue generation potential (or the ability to create
sustainable innovation). In fact, stock prices are often at best late in spotting innovative potential.
Consider the iPod launch and Apple Computers stock price: introduced in October 2001, iPod
initially did little to Apples share price. Even taking into account market performance and Apple
making the technological platform available to Window users (in 2002 and 2003, Apple released
the second- and third-generation iPod for Mac and Windows), the stock price reacted little. Not
until October 2004, when it became evident that the iPod dominated digital music player sales in
the United States (with over 90% of the market for hard-drive-based players and over 70% of the
market for all types of players), did Apple shares take off (see graph below) 7 :

See for instance: Jena McGregor, High-Tech Achiever: Netflix, Fast Company, October 2005
See for instance The Value of Inventive Services, Business Week, July 29, 2005, and Building an Innovation Engine,
Business Week, November 3, 2005
7
Chart courtesy of Yahoo! Finance
6

Lastly, Andrew Zolli, founder of Z+ Partners (www.zpluspartners), took the stage. Andrew, a
member of Fast Companys Fast 50 Club and an advisor to GE, is a futurist who analyzes trends
at the intersection of culture, technology and global society 8 . In what could have passed as a
stand-up comedians performance, Andrew managed to really connect with the audience through
storytelling. He first focused on what he calls the tyranny of choice: American consumers are
awash in a sea of 40,000 products in an average supermarket, yet actually look at only 160 of
these (not to mention recall or recommend). Not surprisingly, its now the experience of these
products that counts. But what is the next big thing after experiences? Interestingly, Andrew
offered culture as the next step (where Boswijk, Pine and others use personal transformations):
brands are culture now and we mix them when and how we like. And so his second story focused
on the participation revolution (or, the emergence of co-creation).
So far a more or less familiar story, but then Andrew really started to drive the point home by
wondering: how will we get there? What will the path of innovation toward the next level of
economic offerings look like? To get the discussion started, he offered five innovation models:
Invention: the classical innovation model involving the genius (or R&D department)
working in isolation, dreaming up new inventions;
Ethnography: since consumers cannot tell you what they want, use diverging techniques
such as contextual observation, metaphor elicitation, etc;
Foresight: as a futurist, trying to predict what the future will/might hold;
Iteration: picking the best 3 models or solutions and re-work (or re-design) them;
Network: leveraging external sources to find good ideas and bring them in to enhance
and capitalize on internal capabilities
Andrew clearly expects most from the network innovation approach, citing the success of P&Gs
Connect & Develop innovation methodology. As at other companies, R&D productivity at P&G
until a few years ago was flat while the company faced a growth mandate that their existing
innovation models couldnt support. By embracing the network model in 2000, P&G began to
experiment with the concept of open innovation, leveraging other firms (even competitors)
innovation assets products, intellectual property and people. Now, this model generates 35% of
the companys innovations as well as billions of dollars of top-time growth.
3. The Value of Design-Driven Innovation: Its about a Mindset, not a Department
Attending events such as Design 2.0 has convinced me that a widespread acceptation of design
thinking in the business world will require a shift in the way we think and talk about it. What we
need are different mental models and stories for inspiration. This goes beyond labels its about
a different approach to the concept of value. To illustrate the point, innovation and design are
still two very different quantities in the eyes of most managers. Innovation is often regarded as
the primary task of the R&D department, while design sits at the very back of the value chain,
with seemingly little impact on the bottom line. One could, of course, argue whether we should be
speaking of a value chain any longer in the first place in an era of networked innovation and
customer co-creation. But what I really want to do here is to highlight the need for design to
become more articulate about (and ultimately, equated with) generating value. Secondly, I want
to dispel the notion that innovation (or conceptualizing this value) should be confined to a firms
four walls.
There are three types of value that design can create. Everyone would agree that design delivers
aesthetic value. It delivers two additional dimensions, however, that remain less well recognized:
economic value for business (e.g., return on investment and profitability), and social value for
people (products and services being responsive to user needs and having to possess social
qualities that are positive and reinforcing). This sum of these value dimensions can be powerful:
beyond looks, and even economics, design-driven innovation has the power to enhance life.

See for instance his recent article Demographics: The Population Hour Glass, Fast Company, March 2006

So if we are to measure the impact of design-driven innovation, we must bear the above in mind.
Equity analysts have traditionally equated innovation with R&D spend. In a world where the value
of innovation is accurately reflected, this can no longer hold true 9 . If innovation is increasingly cocreated by companies and users alike, company-centric metrics such as return on investment
(ROI) and earnings per share (EPS) will need to be complemented by a return on user
experience (ROX) and/or other metrics that measure user value (the value which the user
receives or can expect to receive). This will become increasingly important, and while not yet
perfect, a number of people are already making considerable progress in this arena.
The next frontier looks to be to obtain a better understanding of the operational and
organizational design implications of the network innovation model that Andrew Zolli spoke of. In
a recent article on P&Gs Connect & Develop program in Harvard Business Review, Larry
Huston and Nabil Sakkab highlighted four key guiding principles 10 :
1. Where to play: establish carefully defined targets around the desired type of innovation
and determine the areas in which to look for these ideas;
2. How to network: establish how to build and use the network (e.g., by tapping different
types of networks and different players within the customer experience ecology);
3. When to engage: once products and ideas are identified, screen them internally;
4. Push the culture: establish carrots and sticks to encourage external idea hunting and
internal idea exchange, as well as to combat risk aversion (as Jeneanne Rae noted,
Why try something radically new when youre successful at what youre already doing?).
Evidently, the challenge at some point becomes less about coming up with innovations per se,
and more about identifying which ones best support new business opportunities, as well as
seeing how these opportunities support top-level business goals.
4. Comparing the American and European Perspectives
Lastly, I would like to reflect on the differences in approach to design-driven innovation between
the United States and Europe. First, there is credibility. Design is more established as a part of
the North American innovation agenda largely because big, slow-growing companies discovered
its problem-solving potential. Even the government and education sectors have joined the
bandwagon (witness, for instance, the Governor of the State of Michigan articulating plans to turn
the state into the innovation capital of the U.S. 11 , as well as the business/design school tie-up
between INSEAD and ArtCenter College of Design, or the integration of design thinking into the
MBA curriculum at the University of Torontos Rotman School of Business 12 .
The U.S. seems to be ahead in realizing that were moving from a knowledge economy that was
dominated by technology into an experience economy controlled by consumers and the
corporations who empathize with them. 13 I say seems to be because it is happening more
overtly in the U.S. and it is led by the private sector, contrasting with more covert and more
government/institution-driven innovation in Europe. To be sure, the art of storytelling has better
mingled with business in the U.S. than elsewhere, and the concept of value is more crystallized
out there. And while the pervasive optimism, the sense of determination and the urge to quantify
everything in American business circles may at times seem shallow, it has made the definition of
the value of design more holistic and personal. Witness, for instance, the title of Tom Kelleys new
book, The Ten Faces of Innovation: IDEOs Strategies For Beating The Devils Advocate &
Driving Creativity Throughout Your Organization. Contrast this with Europe, where the perception
of design still struggles to move outside the aesthetic sphere, and where innovation remains more
often than not the subject of a government subsidy or awards ceremony.
9

See for instance the scrutiny of TheStreet.coms analysis of Apple Computers innovation spend by the
37 Signals blog: http://37signals.com/svn/archives2/innovation_is_not_proportional_to_money_spent.php
10
Larry Huston and Nabil Sakkab, Connect and Develop: Inside Procter & Gambles New Model for Innovation, Harvard
Business Review, March 2006, pp. 58-66
11
Jennifer Granholm, Michigan Governor Talks Design, Business Week, March 1, 2006
12
Bill Breen, The Business of Design, Fast Company, April 2005
13
Bruce Nussbaum, The Empathy Economy, Business Week, March 8, 2005

In this sense, recent innovation programs in the American private sector seem, on the whole,
indeed more empathic than more invented European initiatives. Symptomatic of this is the
unparalleled ability of American customer-experience firms to reframe the very definition of what
business they are in from a user perspective. Starbucks market, seen this way, is not coffee
drinkers, but people who buy into an upscale twenty-first century caf experience. 14 Such an
outside-in approach contrasts with a more functional, inside-out mindset found in Europe
(where one might more easily expect the a coffee shop is, after all, a place where you can buy
and/or drink coffee sort of rebuff).
So the classic American marketing maxims of speed and differentiation the faster and more
differentiated you are, the higher your chances of succeeding have yielded the U.S. a head
start in articulating the empathic dimension to the value of design. But can there be too much of a
good thing, or indeed, an innovators dilemma (Clayton Christensen) at work? There is still a
difference between firms meeting user needs and users achieving personal transformation (by
facilitating what Albert Boswijk calls a personal journey, in which the user constructs and directs
his own experience, without the intermediation of suppliers) 15 . I would argue that on the whole,
the European mindset might be better suited to develop this latter dimension as it seems less
involved with organizations (such as the corporation) and more occupied with the involved,
transformative experience at the individual level. This contrasts with the often more passive,
staged approach originating at the organizational level in the American private sector.
The role of technology illustrates the point because its major competitive platform is speed,
because people increasingly experience products through electronic interfaces and not least,
because the U.S. seems to bestow a nearly limitless faith upon it. The uptake of technology tends
to follow an S-curve (see graph below). 16 It starts out at the bottom left, delivering less than users
require. Users then demand better technology and more features, to the point where technology
can satisfy the basic needs. Beyond that point, the growth of perceived product performance
diminishes, as there simply is too much technology available. So while the left half of the graph
is technology-led, the right half is usability-led, as a consequence of excess technology:

14

Alison Overholt, Thinking Outside the Cup, Fast Company, July 2004
Albert Boswijk, Thomas Thijssen and Ed Peelen, A New Perspective on the Experience Economy: Meaningful
Experiences, Pearson Education, Amsterdam (forthcoming)
16
Graph adapted from Don Norman, The Invisible Computer: Why Good Products Can Fail, The Personal Computer Is So
Complex And Information Appliances Are The Solution, MIT Press, 1999
15

It is therefore very important to be clear about where one is on this curve, and who is in charge.
Mobile telecom operators, for instance, tend to be all over the map, sometimes behaving in a
technology-led fashion, sometimes in a user-led way. Yet on the whole, technology firms
(particularly American ones) tend to behave as if the world is more technology-led than it really is.
But the real point is this: its not about speed for speeds sake, but about truly connecting with
users at a deep level. Just ask any mobile telecom operator or retail bank. The further one travels
using a Maslow lens up the hierarchy of attributes that technologies offer, the less things like
speed and technological power seem crucial, while things like emotional appeal and involvement
(i.e., real loyalty) gain importance. At the most basic level, we find hygiene factors, followed by
the attributes that yield customer satisfaction and delight, respectively (the former being expected
and the latter unexpected). At the top, we find transformative attributes that facilitate the personal
journey through self-produced meaning. To be sure, this hierarchy is in constant flux: what was
once viewed as a differentiating attribute (a camera on a mobile phone, for instance) might now
be seen as a hygiene factor. But on the whole, the organizational perspective becomes less
important, and the individual perspective more so. At the risk of generalizing, it would be fair to
say that such a notion can more easily be attributed to the European perspective, where the
individual more often takes priority over the firm than in its U.S. equivalent.
There is another nuance to the point above. With technological attributes ascending the Maslow
pyramid towards emotional appeal and involvement, technology itself becomes more subservient
to storytelling. Storytelling is about portraying a Hero and his Journey. When comparing the
European and American story, the European story is often the tragedy (the Hero rises and then
falls), and the American story is the success story (the Hero first falls and then rises). In the
European tragic story we can recognize the process of socialization. As Ashraf Ramzy said,
misery unites. 17 In the redemptive pattern of the American story, on the other hand, we
recognize the process of individualization. The corollary of this might well be that, seen from a
distance, European technology-based innovation attempts to socialize (think of SMS technology)
while its American counterpart has more of a tendency to individualize.
Finally, the S-curve phenomenon that applies to technology may hold equally well for innovation:
here too, there is a precarious balance between too little and too much. Imagine what the right
half of the innovation S-curve would look like. Parallel to the user experience assuming
importance in the technology S-curve, it would reflect innovation becoming a commodity. People
such as Tim Brown from IDEO and Roger Martin from the University of Torontos Rotman School
of Business have described this phenomenon as unpredictable (or wicked) problem solving, in
which neither the problem or answer are defined, becoming mainstream. In the twenty-first
century, there are more of these problems than ever before, like how can big cities actually
work? Fixing them, writes Martin, is [still] a major mystery. 18 Wicked problems are
unpredictable and complex largely because they are inherently social in nature. And if the history
of societal problem tacking is any indicator, one could argue that Europe may be more inclined to
tackle wicked problems than the United States (though one could also argue that the U.S. may be
forced to do so soon).
In conclusion, we have seen that the United States is enjoying a clear head start in design-driven
innovation for its ability to make the concept of value more holistic and personal. And while the
European perspective lags behind at present, it may well eclipse the American inertia as
innovation climbs further up the Maslow pyramid and its social dimensions thus far all too often
considered inhibitors to innovation turn into virtuous prerequisites for innovation. But lets not
forget this is not a race to arms. In fact, speed may in the end not be as much of a Holy Grail as
sometimes proclaimed 19 . So lets take things one step at a time.
17

Ashraf Ramzy, The American Story, presentation at the Palm Springs Story Conference, 2002
George Martin, The Design of Business, Rotman Management, Winter 2004, p. 9
19
See for instance: Steve Hamm, Is Your Company Fast Enough? Business Week, March 27, 2006
18