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THE EUROPEAN ACADEMY OF DESIGN


CONTEXTUAL DESIGN-DESIGN IN CONTEXTS
23-25 APRIL 1997 STOCKHOLM

Submission: Working Paper

Industrial Design for Competitiveness*

GERDA GEMSER
ROTTERDAM SCHOOL OF MANAGEMENT
ERASMUS UNIVERSITY ROTTERDAM
P.O. BOX. 1738
3000 DR ROTTERDAM
THE NETHERLANDS
TEL: **31-10-4082616/ 2006
FAX: **31-10-2120549
EMAIL: GGEMSER@FAC.FBK.EUR.NL

ABSTRACT

The main purpose of this study is to shed more light on the impact of industrial

design on the competitiveness and business performance of small- and medium-sized firms (SMEs). To
this end, a comparison is made between the economic performance of Dutch SMEs investing

in

industrial design (n = 20) and competing firms that do not invest in design (n = 20). Empirical data is
being gathered using a structured questionnaire administrated during visits to firms that develop and
manufacture home furniture, medical- or industrial instruments. Firms were selected randomly, although
a short 'qualification' survey administered by telephone was necessary to construct a sample that included
an equal number of firms investing in industrial design and competing firms that do not. The findings of
this 'work-in-progress' will be presented during the European Academy of Design Conference. In the first
section of this paper, previous studies that have been assessing the competitive impact of industrial
design using quantifiable surveys will be discussed. Particular attention will be paid to methodological
difficulties and the way these have (not) been solved. These methodological insights have been used as
building blocks for the research design used in this study, a research design which will be discussed in
the second section of this paper. A brief summary is given in section three.

This research project is co-financed by the Dutch Professional Design Association (BNO)

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and the Dutch Ministry of Economic Affairs.

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1.

PREVIOUS STUDIES ON THE COMPETITIVE IMPACT OF INDUSTRIAL DESIGN

1.1

Introduction

This study examines, in quantitative terms, the impact of industrial design on business
performance and competitiveness. Tentative evidence on the profitability of design
investments came from case study research (e.g Lorenz, 1986; Svengren, 1994; Design
Council, 1990) and marketing-oriented studies into the importance of design or its
component elements (aesthetics, ergonomics, etc.) in customers purchase decisions (e.g
Rothwell, 1981; Bruce and Whitehead, 1988; Berkowitz, 1987; Yamamoto and
Lambert, 1994).
This last decade, more specific studies into industrial design's contribution to
business performance have been conducted. Many of these studies have been conducted
in Great Britain (Walsh et al. 1992; Potter et al., 1991; Black and Baker, 1987) and will
be discussed in section 1.2. Others are performed in the Netherlands (Roerdinkholder,
1995) and in France (Groupe Bernard Julhiet, 1995), and will be discussed in section
1.3. Some of these research projects used sector studies to link design and profit or
competitive success (Walsh et al., 1992; Black and Baker, 1987); others tried to assess
the value of design on a less aggregate level, i.e on a product or project level (Potter et
al., 1991; Roerdinkholder, 1995). For each of these studies, the different
methodological approaches will be briefly outlined, as well as the major research
results. The methodological insights of these studies have been used as building blocks
for the research design as used in this study, a research design which will be discussed
in section 2.

1.2

Empirical studies performed in Great Britain

Black and Baker (1987) examined design practice in small engineering and textiles
companies in Scotland. The fundamental hypothesis of their research was that business
success, defined as relatively high sales growth, is a function of design orientation,
measured through the involvement of (internal or external) engineering and industrial
design throughout the product development process. A non-random sample of small
firms was drawn from the Scottish textiles and engineering industries. In total, 61
managing directors agreed to be interviewed by means of a structured questionnaire.
Black and Baker found that in their sample firms with high sales-growth have greater
design involvement (both engineering and industrial) throughout the product
development process than negative sales-growth firms. The respective authors

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acknowledge that their findings should be interpreted with care, since the independent
variable of their research, i.e design orientation, may also be viewed as a dependent
variable, influenced by company size and industry sector, amongst others.
The British Design Innovation Group (DIG) conducted several ground-breaking
surveys within the design field. In the first two research project of the DIG (discussed
extensively in Walsh et al, 1992), the link between good design and business success
was examined by comparing business performance of design-conscious firms
recognized for their good design, with a random selection of representative firms
competing in the same industries. Business performance was measured by several
indicators, including return on capital, profit margin, profit growth, turnover growth,
and export sales. Measures used to assess a firms reputation for good design included
its success in gaining various design awards, prizes and citations, and/or the views of
other companies operating in the same industry.
In the first, tentative, research project of the DIG, the role of design in business
performance in the UK plastic products industry was examined. The method used to
obtain empirical data consisted of interviews with managers and design staff using a
check-list of questions. It was found that the eight design-conscious firms performed
significantly better on several business performance indicators than the randomly
selected sample of typical firms (n=41) without good design credentials. The
differences in turnover growth, capital growth and return on capital, averaged over
seven years, were statistically significant. Since the possibility of reverse causality, i.e
the extent to which better business performance results

in

good design, is not

explicitly taken into account, these findings should be interpreted with care.
Furthermore, the industry from which the sample was drawn, that is the UK plastic
products industry, is defined broadly including plastic products ranging from toys to
engineering components, which may raise questions of the extent to which the sampled
firms are comparable.
In the second DIG research on design impact, empirical data was gathered by
means of in-depth, face-to-face interviews with senior management of design-conscious
and typical firms making office furniture, domestic heating equipment, or electronic
business/computing equipment. The British firms (n = 42) were sampled randomly and
included eight design-conscious companies. The overseas firms (n = 9) were chosen for
their reputation for good design and their success in UK and world export markets.
The most important findings regarding the link between design and business success
were threefold. First, there was a positive statistical association between a firms design
performance, measured by the number of citations or the number of awards and prizes
for design, and its subsequent average profit margin. Second, firms with a large number
of citations exported a significantly higher proportion of their total sales than typical

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firms. Third, the six British furniture, heating, and electronics firms which did best in
overall design terms, measured by a combined indicator of citations, awards and peer
evaluation, had significantly higher profit margins and return on capital than the
remaining British firms randomly sampled in these sectors.1 These findings should be
placed in perspective as reverse causality is not explicitly taken into account and, as
noted by the DIG, the really successful firms of the DIG sample were good at other
aspects of their business (like marketing and production) as well as being good at
design (Walsh et al, 1992, p. 86).
Next to the above described sector studies, the DIG conducted a study on the
commercial impact of design using a less aggregate level of analysis, i.e the individual
project level (for an extensive discussion, see Potter et al, 1991). For this study, a
sample was drawn from UK firms which had received a government subsidy, enabling
them to employ a professional design consultant (in the field of engineering-, industrialor graphic design) during a specific product development project. The sample included
firms across all UK manufacturing sectors, the majority of which were

small or

medium-sized firms (SMEs). In total, 221 design projects were surveyed either by faceto-face interviews or via a postal/ telephone survey. Benefits of investments in design
were assessed by gathering, on a project level, financial data on sales, gross profit
margin, market share, manufacturing costs, and exports. Costs of investment in design
were assessed by gathering data on (internal or external) design consultant costs and
any consequent costs.

The DIG found that investing in professional (engineering,

industrial, or graphic) design expertise, led to profits in 89% of the projects that were
launched on to the market. The average payback period for the subsample for which the
DIG had full quantitative financial data (n = 91), was 15 months from the launch of the
product. Another subsample analysis showed that projects which involved redesigns or
updates of existing products, on average generated an increase in sales of over 40%. Of
the implemented projects for which export information was available (n = 72), 16%
resulted in new or increased exports. Other (in)direct commercial benefits of the design
investments included: reduced manufacturing costs, reduced stock holding costs,
increased profit margins and improvements in a companys external image (Potter et al,
1991, pp. 28-30).
In this third study, the DIG explicitly took into account that the positive
financial effects (as outlined above) may not necessarily be due to the design input.
Indeed, to check this, firms were asked to rate the relative influence of design and other
factors which might have affected the commercial outcome of the project. In only 12%
1

Unlike the DIGs plastic products study, no statistically significant differences in rates of
turnover growth or capital growth between the six design leaders and the rest were found
(Walsh et al, 1992, p. 78).

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of the projects, factors other than design were considered to be the main influence on
commercial outcomes.2 The extent to which these findings reflect 'socially desirable'
answers can however not be determined.

1.3

Empirical studies performed in France and the Netherlands

In France, Groupe Bernard Julhiet (GBJ) (1995) examined the extent to which a
random sample of SMEs (10 to 500 employees) made investments in industrial design
and the costs and benefits of these investments. Data was gathered under SMEs by
means of a short qualification questionnaire administrated by fax and telephone (n=
672); and an extensive mail questionnaire (n=565). In both surveys, industrial design
was defined to include both product design and packaging. Based on the respondents
own opinion, firms were classified as using industrial design regularly, occasionally or
as not using industrial design.
It was found that more than 1 out of 3 SMEs sampled (36%), did make
investments in design. Of the firms investing in design, only 40% did so on a regular
basis, with the remaining firms investing in design only occasionally. The most
important reasons to invest in design included: responding to customers needs (68% of
the firms investing in design); to penetrate new markets (63%); and to expand markets
(60%). The most important reasons not to invest in design related to the nature of the
product which was assumed to be unsuited for industrial design (45% of the firms not
investing in design) and lack of market demand (29%). The percentage of total product
development costs spent on industrial design, was estimated to be 10% by the SMEs
who invest regularly in design and at 15% by the other firms (although respondents
often emphasized the difficulty or even impossibility to separate design from other
aspects of business). According to the respondents, industrial design had above all a
favourable impact on the image of the firm, the appearance of their products (the look)
and customer satisfaction. Technical aspects, selling price and margins were last on the
list of factors on which design was assessed to have a favourable impact.
The above findings are based on the subjective judgements of the respondents.
GBJ tried to provide more objective figures by comparing the financial performance
of a group of firms investing regularly in design (n = 70) with a group of firms not
investing in design (n = 30), using figures provided in annual reports of 1991, 1992, and
1993. It was found that the financial performance of the firms investing regularly in
design was better, especially in terms of average turnover, export percentage, net yield,
and net result per employee. It should be noted that, again, no attempt was made to

These other factors were mainly marketing effort, pricing, technical quality, and market changes.

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check if industrial design was the main reason for the results reported. Furthermore, the
sample included SMEs across all French manufacturing sectors (excluding fashion and
agricultural food). As such it could be questioned to which extent firms may be
compared.
In the Netherlands, Roerdinkholder (1995) performed an empirical research into the
economic value added of industrial design on the product level. A sample was drawn
from products that were given the Dutch Good Industrial Design (GIO) award in the
years 1991 and 1992.3 Of the 83 mail questionnaires that were sent out, a total number
of 38 questionnaires returned. To assess the commercial success of the awarded
products, various indicators were used, including measures of profitability and market
share, customer satisfaction and product performance, product development and
introduction, sales, and company impact. Respondents were asked to rank on a scale
from 1 to 5 the degree of success of the awarded product according to the specified
indicators, where the average score normal for such a product had to be used as
reference value.
The average of the short-term commercial success of the awarded products was
3.307, where 3.000 was the reference value; in total, 79,3% of the sampled products
were commercially more successful than usual. In the long term, the commercial
success of the sampled products was 3.236 (reference value: 3.000), where 67.6%
scored better than is customary for these products. Although the awarded products
scored on most of the commercial success indicators better than usual, the results are
not overly significant. Furthermore, as acknowledged by Roerdinkholder (1995, p.
40), the results of his study are not easily generalized because of the specific group of
products sampled, i.e those that were given a GIO award and the low response rate (n =
38). In this context, Roerdinkholder suggested that comparisons should be made
between products developed in cooperation with professional industrial designers and a
reference group of products in which no such design expertise is used (Roerdinkholder,
1995, p. 42).

2.

DUTCH SMEs AND INVESTMENTS IN INDUSTRIAL DESIGN EXPERTISE

2.1

Methodological difficulties

From previous empirical studies, discussed in 1.2 and 1.3, it may be concluded that
different methodological problems are encountered when trying to measure designs
3

To qualify for a GIO award, granted annually by the Netherlands Foundation for Industrial
Design, no evidence of commercial success is required.

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contribution to business performance. The first major problem arises when trying to
define design. Design is open to varied interpretation and rarely discussed within a fixed
frame of reference (cf. Black and Baker, 1987). A related difficulty is how to best
measure a firms design orientation. Examples of indicators used in past research
include counting the number of (internal or external) professional designers involved in
product development, the breadth and scope of design job titles and (relative)
expenditures on design (Black and Baker, 1987). Further methodological difficulties
arise when a selection has to be made regarding the appropriate (quantitative and/or
qualitative) measures of business performance, and when trying to link measures of
design orientation and business performance to each other. As pointed out by different
researchers (e.g Roy, 1994; Walsh et al., 1992; Groupe Bernard Julhiet, 1995),
business performance is dependent so many interacting factors that one can never be
completely certain that design or any other factor has brought the (un)desired results.
Finally, the relationship between design and business performance is interactive:
successful firms, for example, are more likely to have resources to invest in design than
those in financial difficulties (Roy, 1994, p. 13).
In this study, a research design is used that builds on the research design used by the
DIG and others, but which tries to avoid the methodological pitfalls discussed above.
The research design used is discussed in the next section.

2.2

Research Design

To examine the competitive impact of investing in industrial design, a comparison is


made between the competitiveness and business performance of SMEs investing in
industrial design (n = 20) and competing firms that do not invest in design (n = 20). A
sample is randomly drawn from small- and medium sized manufacturing firms
operating in the Netherlands. Firms were sampled from two types of industries: 1) firms
from an industry were competitiveness is mainly determined by product aesthetics, i.e.
home furniture; and 2) firms from an industry were competitiveness is mainly
determined by product technology and performance, i.e. medical- and/or industrial
instruments. Firms were selected randomly, although a short 'qualification' survey
administered by telephone was necessary to construct a sample that included an equal
number of firms investing in industrial design and competing firms that do not. Other
selection criteria that determined if a firm was included in the sample were: being a
small- or medium-sized firm (defined as having 10 to 250 employees), having financial

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data deposited by the Dutch Chambre of Commerce,4 and (partly) developing and
manufacturing end products, thus excluding pure trading firms and component
suppliers.
Industrial design has been defined in various ways but none of these definitions has
been universally accepted. Indeed, these definitions are often normative and the
reflection of an individuals ambition regarding the content of the design profession. In
this research, firms make investments in industrial design whenever they use
professional design expertise in the product development process. Following Potter et al
(1991, p. 62), 'professional design expertise'

is defined as work undertaken by

somebody formally qualified in the design subject or whose job description is that of
industrial- or product designer. This implies that design undertaken by staff whose main
job is something else than designing, who have no formal design qualifications, and
may not accord it much time and effort is explicitly excluded (Gorb and Dumas, 1987;
Walsh et. al, 1992, p. 22). This study focusses on industrial design applied to threedimensional products, were the term product is interpreted narrowly to include only
goods manufactured in batch- or mass production. Competitiveness and business
performance is measured using a combined set of business performance indicators
including profits, turnover, export sales, innovativeness, market share, return on capital,
profit margin, profit growth, and turnover growth -averaged over a three year period
(1993-1995).
Empirical data is being gathered by means of in-depth, face-to-face interviews
with senior management using a structured questionnaire. The questionnaire focusses
on if and how firms use professional design skills, their motivations for (not) doing so
and, whenever relevant,

the (in)direct benefits of their investment in professional

design expertise. Furthermore, respondents are being asked to give financial data
regarding turnover, export sales, and profits for the years 1993, 1994 and 1995.
Respondents are also being asked to rank company performance according to other
business indicators (e.g innovativeness, turnover growth, profit growth, return on
investment, market share), were the average industry performance has to be used as
reference value. These 'subjective' data are supplemented with 'objective' financial data
found in annual reports (1993-1995) deposited with the Dutch Chamber of Commerce
and the financial data as found in the database of Dun and Bradstreet. To determine the
performance of a firm, its financial data are being compared with the financial figures of
the industry in aggregate as provided by the respective trade associations.
To check if positive financial effects are the 'result of' or 'result in' design
investments, control questions were included, e.g, respondents are asked to rank on a
4

Althoug this is required by law for legally independent firms not every firm was found to have
deposited (up-to-date) financial data.

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scale from 1 to 5 if they agreed with the proposition that an important reason (not) to
invest in design included having (in)sufficient financial means.5 Similarly, in order to
rate the relative influence of industrial design and other factors which might have
affected the commercial outcome of the firm, questions are asked regarding, for
example, marketing expenditure and overall market conditions.
As pointed out by Groupe Bernard Juilhet (1995, p. 69), firms operating within
an industry can be as heterogeneous as firms operating in different sectors of industry.
Therefore, within this study an attempt was made to select firms that may be considered
'direct' competitors, were firms making sitting room furniture are assumed to consider
firms making bed room suites to be colleagues instead of competitors -an assumption
which is being confirmed by the empirical data gathered so far (n = 20). However, when
constructing the sample, I had to become 'less picky', as it was hard to find firms that
would cooperate and that complied with the selection criteria. Indeed, several firms
indicated that they were the sole Dutch manufacturer in their specific field.6 Therefore,
selecting only firms which are truly competing for the same market (niche) proved to
be impossible, although still firms were selected having quite similar characteristics.
For the furniture industry this implies for example, that firms producing sitting room
furniture and bedroom suites are included, and that manufacturers of kitchens and office
furniture are excluded; while in case of instruments, no producers of machinery are
included.
The interviews are to be held in the period January 1997 - February 1997. The
interviews will be analysed by quantitative statistical techniques and qualitative
methods (content analysis). The findings of this 'work-in-progress' will be presented
during the European Academy of Design Conference.

SUMMARY

The functions attributed to industrial design are manyfold and often dependent on the
actors involved. In this research the focus is on the manufacturing firm and it is
assumed that for this actor the main function of design is enhancing profitability. If this
is indeed the case has been subject to different empirical studies. However, these
empirical studies struggle with demonstrating convincingly causal relations, not in the
least because of the difficulty to isolate and measure the design contribution. Keeping
this proviso in mind, the results of the empirical studies discussed in the second section

it
6

Of course, one might never know if respondents are honest when answering this question, since
is a rather delicate question.
This does however not imply that they are monopolists as they have to compete with foreign
competitors active on the Dutch market.

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indicate that design investments contribute to commercial success, both on the firm- and
product or project level.
To order to examine if design investments indeed enhance a firms profitability,
a research project is presently initiated in the Netherlands, the research design of which
is presented in section two. Empirical data is being gathered by means of a structured
questionnaire that is administrated during visits to firms manufacturing home furniture,
medical- or industrial instrumentation.
Although the main aim of this research is to demonstrate a link between business
performance and investments in industrial design, the research will also provide policy
guidelines for the Dutch Ministry of Economic Affair and (representatives of) industrial
designers regarding the possibilities of enhancing investments in professional design
expertise. Stimulating the use of professional design expertise is necessary as from
previous research (Roerdinkholder, 1995) and this research it seems that Dutch SMEs
make relatively few investments in design in comparison with their foreign competitors
and as such appear to loose ground to these foreign competitors.

REFERENCES

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Bruce, M., and Whitehead, M., 1988, Putting design into the picture: the role of product
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no. 2, pp. 147-162.

Design Council, 1990, Design to Win: Case Histories, London, The Design Council.

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de

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published by Netherlands Design Institute, Amsterdam.

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