2020 VISION – THE UK DESIGN INDUSTRY TEN YEARS ON: IMPLICATIONS FOR DESIGN BUSINESSES OF THE FUTURE
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2020 Vision – The UK Design Industry Ten Years On: Implications for Design Businesses of the Future Prof. Alex Williams,1 Prof. Rachel Cooper,2 Martyn Evans2 and Dr Qian Sun,1 (1University of Salford, 2Lancaster University)
Background
1
DEPARTMENT OF TRADE AND INDUSTRY, 2005. Design and Business Performance, Economics Paper No.15. London: HMSO.
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COX, G., 2006. The Cox Review of Creativity in Business. [online]. London: HMSO. Available at: <URL: http://www. hm-treasury.gov.uk/coxreview_ index.htm>.
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Over the last five years a great deal of research has looked at the central roles of design and innovation within economies,1,2,3 and how UK design businesses can face up to the challenge of a world that is quickly becoming more competitive. Various government initiatives have supported related areas such as technology and enterprise, but the design sector itself has not received specific attention, particularly regarding the significance of business models in design consultancy and their sustainability. Sustainability is important in running any industry but especially for design consultancies, many of which are subject to high levels of turnover. This is compounded by the uniqueness of the design industry structure, and the ‘virtuous brokerage’ role many organisations play between design companies, higher education (HE) and other knowledge/production suppliers, as well as the fact that, although themselves small to medium enterprises (SMEs), many design consultancies are excluded from support.4 Recent events, such as the global recession, underpin the need to develop a deeper understanding of the sector and means for developing/ refining sustainable capacity. 2020 Vision was a research project undertaken by the Universities of Salford and Lancaster, in partnership with the UK design industry body, British Design Innovation (BDI). The aim of the study was to investigate and establish future scenarios that reveal the threats and opportunities for the UK design industry over the next ten years.
PAYNE, G. and MORRIS, L., 2007. High-Level Skills for Higher Value. London: Creative and Cultural Skills and Design Council.
4
HORN, M. J. and WALKER, J., (eds.), 2008. The British Design Industry Valuation Survey 2007 to 2008. Brighton: British Design Innovation.
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The study set out to examine the future of the UK design industry, by: • researching the shape of, and challenges /opportunities facing, the design industry over the next decade • proposing frameworks for the sector in 2020 based on these insights. It addressed measures to support/develop the commercial design sector, with specific reference to consultancy-based design activity rather than in-house design. The study recommends a series of interventions which will encourage the emergence of differing design business models and industry policies to support the sector. Both the Universities of Salford and Lancaster are actively involved in researching design, policy and its management. Working with the BDI, a design membership association, was, however, key in promoting the project to the sector and in ensuring significant levels of participation from designers.
Context
In 2005 the UK design sector represented 185,500 designers, of whom 47,400 worked as freelancers and 77,100 worked as in-house designers in over 5,900 businesses. The remaining 65,750 worked within 12,450 consultancies, the vast majority of which had fewer than five employees; these businesses also accounted for the employment of a further 348,300 non-designers. UK design businesses turned over £11.6 billion in 2005–4, an average of £62,000 per capita, although almost 80 per cent had turnovers of less than £100,0005, leaving them susceptible to economic downturn.5 The sector has been subject to significant change, with the emergence of alternative providers of design and innovation services, diversification in the range of design services offered, greater integration of design and responsibility for implementation, the emergence of the service sector, and growing consumer awareness of corporate social responsibility issues such as eco-sustainability. Many designers recognise that the industry is in a state of transition, and that it needs to become highly adaptive to allow it to manage rapid, continuous and disruptive change. Internally, the design industry would appear to be polarising between commoditised design and high-value strategic design.
5
THE DESIGN COUNCIL, 2005. The Business of Design. London: Design Council.
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Against this background, the UK design sector can be characterised by features such as: • Size: the vast majority of design consultancies are small (less than 5 employees). • High rates of consultancy churn. • Cross-disciplinarity: some 70 per cent of consultants provide more than one form of design service.6 • Ambivalent client and consumer perceptions of design value. • The generation of intellectual property: a marginal activity, currently restricted to a few consultancies. Much of the difficulty and challenge facing the sector appears to lie in the business models adopted by design consultancies and the extent to which these are recognised or valued by current and potential clients. Little knowledge exists about the business model possibilities for design consultancies compared with other professional service firms (PSFs), such as management consultancies. It is unclear how the design sector is likely to react to the current (2009) economic downturn. In the retail sector, evidence suggests, many organisations are adopting cost-cutting strategies, design becoming an early victim; whereas in the financial sector, branding has assumed great importance in attempting to rescue various bank reputations in the eyes of the consumer. In order to identify the most appropriate business models for design consultancies it is therefore essential to understand potential future industry scenarios. One of the main outcomes of this research are suggestions for a range of business models fit for 2020, which have many important implications for future policy.
6
THE DESIGN COUNCIL, 2005. National Survey of Firms 2004–5. London: The Design Council.
Methods/Approach/Journey
The research was conducted in three stages. The first stage involved an extensive review of literature and preliminary focus group research, which identified key concerns within the sector and informed the development of a framework to conceptualise the industry. The framework helped to establish the nature of the transactions between all parties in the knowledge supply chain in terms of perceived value, client/consultant relations, competition and collaboration, business propositions and reward models.
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In the second stage, future scenarios were developed in consultation with a panel of experts within differing political, economic, social, technological, environmental and legal fields. In the third stage, interviews and focus workshops were used to evaluate the impact of the various scenarios with three sets of stakeholders: • design practitioners and design consultancies • design buyers/clients (from both private and public sectors) • government, design association and HE representatives. These sessions explored the threats and opportunities posed by each scenario and sought to identify new, more appropriate models of practice. This work was complemented by a survey of designers and subsequent cluster analysis of survey findings. A summary of this three-stage approach is shown in Figure 1.
Figure 1, An overview of the methodology
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A conceptual framework for the industry
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PORTER, M. E., 1980. Competitive Strategy. New York: The Free Press.
Porter’s Five Forces7 have been used as a framework for industry analysis for many years. The strength of each of the five competitive forces is a function of industry structure, or its underlying economic and technical characteristics. The five forces are: • • • • • the threat of new entrants the threat of substitute products or services the bargaining power of suppliers the bargaining power of buyers the rivalry among the existing competitors.
In this project, the framework was adapted to identify key relationships within the design industry, envisaging this as a knowledge economy and exploring the impact of various stakeholders on the business of design including: knowledge buyers (design clients); knowledge suppliers (technology developers and consumers); alternative design providers and design associations. These underlying relationships were determined through a series of focus groups containing 24 design consultants, educators, commentators, researchers and clients. Based on this collective experience the following insights were reported. Competition level Many design consultancies appear not to be proficient at, or interested in, business development, starting off as loose groups of colleagues and ending in the establishment of break-away businesses with the appropriation of clients. Despite their creative ability, many such businesses are not good at managing change, lacking the time or resources to devote to business development, risk management and sustainability. As with other PSFs, frameworks are not particularly defensive; differentiation is dependent on the quality of the intellectual capital of the firm, embodied in its reputation and the collective ability of its senior people, a factor which is not scale-specific. Medium-sized design groups appear to be more susceptible to closure, being neither big enough to attract a portfolio of new clients nor small and flexible enough to weather economic downturn. Pressure on smaller consultants is compounded by ‘free pitching’ and commercial pressure to lower fees.
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A number of ‘product-focused’ consultancies are considering whether to take ownership/equity stakes in projects, making the transition from fee-to royalty-based services. However, only the larger agencies appear to have the cash flow to support the investment required. Suppliers of knowledge The impact of ‘open innovation’ is yet to be seen in the design industry. Clients are, however, increasingly aware of the power of social networks in forming and gathering opinion. In parallel, there is an increasing emphasis on experience and service design. There is recognition of the need to embrace more innovative means of engaging increasingly self-selecting social groups both globally and regionally, the latter evident particularly with regard to healthcare, ageing populations and other ‘longtail’ niche sectors. At the same time, escalation in the rate of technology developments reinforce the need for specialisation, particularly in terms of systems, materials and applications. This also results in an escalation in levels of contracting out services to alternative providers. These issues are compounded by an over supply of graduates, and a widening skill gaps between education and design practice. Rewarding and retaining talented designers is increasingly difficult as the urge to work for themselves results in higher staff turnover as they gain experience and move on. Design buyers The focus groups revealed that it is common for design services not to be seen as knowledge providers, but to be treated as other commodity suppliers. Clients tend to be unwilling to pay a premium, whereas there was a perception that PSFs tend to be paid based on the value of the services to the client, and not to the costs of delivery for the PSF. Even where clients understand that design adds value to a business, creativity and innovation are perceived to increase financial risk, especially in smaller businesses. At the same time, there is a reluctance for middle management to make decisions, whereas PSFs predominantly deal at board level, the latter being less sensitive to price. Clients have the power to choose from various design sources, either in the UK or abroad; however, where they see design as critical to their business, there is a tendency to invest in in-house design capability, instead of outsourcing as a means of maximising value. Moreover, clients are able to play agencies off against each other, as in reality over capacity leads to the development of a buyer’s market. The exceptions to this appear to be marketing and branding, where ‘out of the box’ concepts are valued more highly.
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Whilst many designers believe design services can move to a more strategic level, clients tend not to share this perception, failing to recognise design’s strategic contribution and tending only to engage with design to solve problems at the end of processes. At the same time, designers have a narrow view of what constitutes a client and tend to overlook the public sector, whereas much of the growth dynamic regionally is in the blueprinting and outsourcing of public sector services. Alternatives Whilst much of Asian design appears to be concentrated on product and assimilation, its low cost base has proved particularly attractive, as has its co-location with production and focus on rear-end development. A number of Western design groups have been successful in Asia because of their value-driven insights, simultaneously addressing Asia’s growing resource issues and increasing the cultural relevance of products imported back to the West, particularly with regard to eco-sustainability. However, the focus groups reported a notable shift from ‘A–Z’ to ‘A–G’, or front-end concept development, particularly within commodity product sectors, as clients have increasingly sought to commission detailing and prototyping with designers co-located at the point of production. Diversification in design has also created niche opportunities, particularly in areas related to strategic design and ‘design thinking’, where many smaller organisations lack individual authority in this field and are subject to extensive competition from other PFSs. Barriers The consensus is that design is essentially a ‘cottage industry’ with the majority of design companies having less than five employees. Whilst the barriers for most PSFs are defined in terms of client relationships, credibility, and the ability to hire talent and keep it, these are largely absent in the design industry where there are fewer barriers to entry. Clients, for example, expect consultants to regularly pitch for new work, and current accreditation initiatives have little impact. Perceived value appears to be lower in design than other PSFs, resulting in few sustainable client relationships. As such, the competition between designers is more likely to be price- rather than value-based. Whilst many design associations are now championing the introduction of accreditation and regulation as a means of raising quality standards, these associations are, however, perceived as factional, and design representation is poor with few designers on policy bodies.
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POUFELT, F., GREINER, L. and BHAMBRI, A., 2005. The Changing Global Consulting Industry. In: L. GREINER and F. POUFELT (eds.), Handbook of Management Consulting: The Contemporary Consultant. Independence, KY: Thomson South-Western.
In general, PSFs have demonstrated a steady migration from mature to newer offerings and segments – evident also in design’s adoption of ‘strategic thinking’ and focus on niches such as medical products – driven by industry consolidation as rivals compete for a finite number of regional, national and global client accounts.8 High-growth segments have tended to be highly fragmented, made up of a plethora of innovative private consultancies. At one extreme of the spectrum, highly consolidated segments are dominated by larger consultancies which closely track the globalisation of client firms and the shift of economic activity away from mature economies. At the other, consultancies are fundamentally regional, competing to service the needs of local clients. In line with models of cluster dynamic, the evolution of professional design services is matched by increasing specialisation. However, whilst in other sectors the dominant strategy has been for integration across a diverse set of disciplines, design has looked to global extension along a single ‘offering’. Many small and medium-sized design consultancies have sought to develop global client links rather than collaborate in multi-local networks with other service providers in what are saturated markets. It is clear from this assessment that whilst changing business issues and opportunities facing clients have led to new management techniques and concepts, the adoption of particular design practice models is yet to be seen. Growth in consultancy is largely driven by shifts in the economic cycle and by what clients are doing/demanding, rather than any internal logic. The study therefore went on to consider the evolution of the industry in terms of possible futures.
Scenario development
At a second stage, the relationships and forces identified in the earlier conceptual model were tested against a number of future scenarios. Scenario thinking is a strategic planning method used to make flexible long-term plans. The basic approach uses a group of analysts to generate simulation games for policy makers. The games combine known facts about the future, such as demographics, resources and industry dynamics, with plausible alternative social, technical, economic and political (PESTEL) trends that represent key driving forces. Scenario planning can include anticipatory thinking elements that are difficult to formalise, such as subjective interpretations of facts, shifts in values, new regulations or inventions. In projecting some 5–10 years ahead, the authors recognise that it is not possible to predict a single future, and that analyses can only
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LINDGREN, M. and BANDHOLD, H., 2003. Scenario Planning. Basingstoke: Palgrave Macmillan.
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SCHWARZ, P., 1997. The Art of the Long View: Planning for the Future in an Uncertain World. Chichester: John Wiley.
indicate a series of possibilities. Scenarios do, however, represent a vehicle for testing the relevance and responsiveness of current practice. The scenarios are therefore not intended to predict the future, but represent tools for thinking about the future, based on two assumptions:9,10 • There are many possible futures, and scenarios map a ‘possibility space’. • Scenario development involves both rational analysis and subjective judgement. The four scenarios in this study were developed in collaboration with eight leading-edge thinkers comprising futurologists, sustainability experts, business futurists, consumer experts, sociologists, technologists and designers, and they build on an extensive review of national and global futures. The four scenarios consist of the following. Scenario 1: BRIC dominance In this scenario, China and India have become powerful economic forces within the global economy, whereas Russia’s power lies in its control of energy resources and individual wealth, and Brazil’s economic growth and raw material resources renders it global bargaining power. Here, the UK economy has become more nationally focused, operating as a satellite server providing a gateway to the EU. The developing economies of Brazil, Russia, India and China (BRICs) have established strong regional identities and this shift has meant that ‘glocalisation’ (think globally and act locally) rather than ‘globalisation’, is the driver for companies working internationally, with multinational corporations now developing products and services that are mass-glocal rather than mass-global. Dominant forces here are advances in production and communication technologies, with open innovation as a key mechanism Scenario 2: global flow In this scenario, economic decline, combined with global warming and population explosion, put pressure on countries and organisations to come to global agreements on how to work together to resolve these crises, resulting in a greater sense of global connectivity. People migrate for work and environmental reasons, as large areas of the world provide employment opportunities. This constant flow has led to a greater acceptance of cultural similarities rather than differences. This sense of sharing exists between communities, across countries and regions.
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Scenario 3: eco-imperialism Here, global warming is the major issue, driven by strong economic growth and population explosion, particularly in developing economies such as Africa and parts of Asia where technology has enabled the developing world to leap-frog communication infrastructures and participate more readily in the global economy. Significant pressure is now placed on the supply of energy and other essential resources such as food production, with high levels of pollution resulting from increased urbanisation. The world is divided between those that have easy access to life-essential resources, and those that have working-age populations. The global management of energy and resources has become a power struggle between those that have the wealth and those with the resources and production capacity. Carbon trading is common practice, with sanctions and tariffs placed on non-conforming states. In this scenario multinationals and governments seek to control the supply of resources, and, by extension, access to R&D, resulting in closed innovation. Scenario 4: special-interest groups, communities and third-sector organisations In this scenario an ageing population is now the dominant force in many key markets – Europe, Japan, Russia and, increasingly, China. There is therefore a growing reliance on the elderly and other excluded or niche groups to remain economically active. The emergence of longtail economics and e-governance has empowered these communities. Organisations are actively finding ways to engage with them, provide for their needs and develop more participative means of consultation. Such groups become more instrumental in determining, resolving and satisfying their own requirements. The strength of such communities lead to stronger identification with local, regional or like-minded communities, rather than global cultural homogeneity. In this scenario the emergence of open sourcing is a key concept.
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Design consultancy business models
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WILLIAMS, A., SUN, Q. and EVANS, M., 2008. The Development of a Model of Relations within the UK Design Industry, and its Implications for the Management of Design Businesses. In: Proceedings of the 15th International Product Development Management Conference [CDROM], Hamburg, 30 June–1 July 2008.
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Three subsequent workshops undertaken with designers and representatives of UK design associations identified key design industry drivers within each of the four scenarios. In summary: • Scenario 1, BRIC – suggested: specialist manufacturing; continued outsourcing of high-cost production; the sale of ‘power by the hour’ complex design services; and the expansion of regional branding and service provision. • Scenario 2, Global Flow – suggested: increased global trade with niche international markets; the need for complex design services; and with increased automation, the return of some manufacturing to the UK. • Scenario 3, Eco-imperialism – suggested: the use of regulation to stimulate innovation and increase consumption (of lower-impact technologies); and the use of specialist design services. • Scenario 4, SIGs – suggested: increasingly short-run production; with automation, the return of some manufacturing; co-innovation bypassing consultancy; and the development of new distribution and service models. During workshop discussions twelve distinct models of design practice emerged from the four scenarios,11 based on: • • • • • • services offered forms of innovation supported client type and location relationship with other sector players income model risk adversity.
FRANKLIN, D. (ed.), 2009. The World in 2009. London: The Economist.
The 12 distinct business models were analysed in detail and the projected dominance of each, within each of the four possible future scenarios, was estimated by reflecting on projected economic growth, levels of international competition and increased rates of innovation, and how these are likely to affect the various design sectors. (These projections were cognisant of the possible duration of the current [2009] recession, and estimates of subsequent activity.)12 Table 1 shows the 12 distinct business models listed as items A–L in column 1. The estimated dominance of each model within each of the four future scenarios is shown in subsequent columns.
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Table 1, Projected breakdown of the design sector by type and scenario, 2020
It is worth noting that the project team’s analysis suggests that only two of the four scenarios, global flow and eco-imperialism, project sector growth, with BRIC domination and SIG communities projecting shrinkage, albeit with differing sector compositions. Currently, fee income in the design industry is distributed evenly across client locations – 33 per cent coming from the UK SME sector, 40 per cent via UK National Corporations/Multinational Corporations (MNCs), and 27 per cent via international clients (17 per cent US, 5 per cent Asia, Middle East and Africa 5 per cent).13 In the projected 2020 position significant redistribution is anticipated under each of the four scenarios. • Scenario 1, BRIC: Overall fee income decreases, the only increases being within service, communications and branding due to an expansion of localised provision. • Scenarios 2 and 3, Global flow and eco-imperialism: Overall fee income increases driven by expansion of product, service and branding due to niche market emergence and increased innovation. • Scenario 4, SIGs: Overall fee income decreases except in digital and service design, where new distribution and service models are required.
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HORN, M. J. (ed.), 2009. Delivering the Innovation Dream: The BDI Report. London: British Design Innovation.
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Interestingly, the product design sector is identified as perhaps the most volatile with: (i) significant growth opportunities under eco-imperialism, fuelled by high levels of investment in innovation and public sector funding; (ii) little impact under a BRIC scenario; and (iii) a sizeable reduction in the level of activity under a SIG scenario.
Policy implications
Based on this analysis of the 2020 position the project team also explored the roles of associations and policy bodies/government/regional business support agencies in formulating and implementing support strategies for the sector. Rather than consider support for the design sector as a homogeneous whole, this study predicted continued fragmentation, the extent and shape of which is dependent on which future scenarios emerge. As a consequence, the project team recommended that policy development be focused on supporting/nurturing the business models considered most appropriate, to ensure fitness for purpose. Strategy in this sense is more about the ability (for design businesses) to react to rapid change, and policy might best be focused on equipping them to achieve this. For nations seeking to compete, the national design policy allows a means of global (external) positioning and branding for the local design and manufacturing industry, supporting brand growth by adding marks of ‘good design’ and demonstrating national support. However, it could be argued that not every nation can join the race to position itself as ‘the’ design resource for the global economy. There is a need to first look inwards to see how design can empower and enrich its own economy and culture, and address its internal imbalances. This led the project team to reflect on what is meant by creating a National Design Strategy. Is the intention to: (i) promote innovation in secondary and tertiary sectors, (ii) develop a self-sustaining quaternary consultancy sector, or (iii) combine (i) and (ii)? Given the potential for conflict in achieving (i) and (ii), it is necessary to separate/distinguish between what should be undertaken by a government-appointed independent body – assuming the role of government is to draw up policy and commission it – and trade associations representing the interests of
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the industry. For example, where design can be more effectively sourced elsewhere (in the timescale necessary for exploitation), should this be promoted? Is the answer to train or encourage an influx of design talent? Are greater economic returns likely to arise from building in-house (vertical) quaternary capability or by maximising tertiary returns, whatever the means? In many countries, a lack of protectionist approaches has facilitated the emergence of design entrepreneurship and ‘peer production’ as a means of leap-frogging the innovation-driven stage to one of wealth creation. For any nation seeking to export design to Asia/BRIC, such as the UK, the issues are whether: • foreign design consultancies are sufficiecntly market-ready to capitalise on efforts to raise the profile of that nation’s industry • there is sufficient awareness of the UK’s design capabilities when compared with its competitors.
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UKTI, 2008. Findings of the UK-China Design Taskforce. London: UK Trade and Investment.
Based on the UKTI’s recent report on opportunities in China,14 the short answer is perhaps ‘no’ – a perspective shared by many of the experiences of the design businesses interviewed in this study. A more client-focused sector with niche specialisms and better attuned models of engagement is likely to fare significantly better.
Conclusion
The UK design industry is likely to fragment into discrete sub-sectors representative of the specific needs of the various engagement models outlined in Table 2. The exact make-up of the sector is highly dependent on which of a series of scenarios – not necessarily those shortlisted – emerge. Despite the sector’s aspirations, it is dependent on client demand, and the need to refine/redefine its offerings in light of new client business models, configurations and locations. Key amongst these is the emergence of new client sectors, such as public sector procurement, communities and special/minority-interest groups. The greatest growth is anticipated in the service and strategic design fields, although these will remain comparatively small.
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Design specialisation will increase, particularly within the health, corporate social responsibility (CSR) and eco-sustainability fields, but these are likely to become the domains of larger non-design-specific consultancies, themselves specialising in other forms of innovation. Whilst there is a role for design here – associated with ‘design thinking’ – cultural dissimilarities are unlikely to result in long-term relationships, and many small businesses may find themselves ‘consumed’. Competition remains a key driver and, unlike in other clusters, collaboration is unlikely. Whilst the business models proposed provide some differentiation, the different formats do impact on one another, many of those interviewed believing that freelancers and small independents (including early-stage start-ups) represent the greatest threat to the credibility of the sector. There are many calls for more professionalism in the sector, but awareness of the problems associated with accreditation, arbitration, training and the identification of professional pathways is limited and as such presents challenges to any initiatives to professionalise the design sector. These challenges are likely to result in a two-tier design economy in which the large grow larger, and the small become smaller. As these are unlikely to be serviced by ‘one size fits all’ policies, the various sector-facing trade associations my well become champions for discrete sub-sectors. There is still debate as to whether to subsidise the design sector directly, or encourage indirect uptake via funded innovation. The latter approach has not favoured design consultancies and agencies, the vast majority (more than 80 per cent) being too small to qualify for/engage in tenders under regionally administered procurement processes. Whilst national design and innovation agendas have focused on economic development, governments themselves have often failed to engage with design (demonstrated in the lack of a public sector design procurement policy). Very often these agendas also confuse the indirect funding of demand for design through industry grants, with advocacy and funding of the design sector. This has led some designers, albeit those of a critical size with access to capital, to pioneer the emergence of a new category of design/ intellectual property entrepreneur, based on models of shared risk/ royalty. This value-added perspective is not, however, new, and is evident in many developing economies where no dedicated support agencies or government-subsidised initiatives exist.
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What is clear is that current UK models of practice are not necessarily appropriate globally, and that the next generation of businesses need to be more focused on specific client sectors. How the sector might be encouraged to rethink its offerings has yet to be decided. This is, perhaps, the role of policy in providing the stimulus for such change, and highlights the need for Design Policy to exist as an academic discipline. The next step for researchers will be a comparative analysis examining the national design policies of Korea, Japan, China and India, particularly as the latter are emerging economies.
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