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IDEO: A Study in Core Competence

Alan Clardy, Ph.D.

Associate Professor, Psychology

Towson University

8000 York Road

Towson, MD 21252

410-704-3069

aclardy@towson.edu

November, 2005

© Alan Clardy. All rights reserved.


This is a draft paper intended for commentary and is not for quotation.

IDEO: A Study in Core Competencies

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IDEO is a firm that specializes in product design and innovations; it also provides

services in packaging design, product research, executive training and education on

innovation, and strategic consulting services (IDEO, Inc., 2005). In IDEO’s own words,

it “helps companies innovate. We design products, services, environments, and digital

experiences” (ideo.com, 2005); with rare exceptions, IDEO does not manufacture or

distribute its creations. IDEO is headquartered in Palo Alto, California and has offices in

Chicago, Boston, London and Munich (Nussbaum, 2004). While the company is

privately owned, Steelcase (the office furniture manufacturer) has a controlling interest

but allows IDEO to run independently. In 2004, IDEO had sales of $62 million, down

from its 2002 peak of $72 million; in 2004, 20% of revenues came from work in the

health care field (Nussbaum, 2004). It has approximately 350 employees, and while

more than half of its employees are engineers, IDEO prides itself in employing a number

of people from wide variety of eclectic backgrounds, including anthropologists, medical

school dropouts, and psychologists (ABC, 1999; Nussbaum, 2000; Nussbaum, 2004).

In terms of both sales and employee head count, IDEO is more than twice as

large as its next largest competitor “frog design”; Hoover (ideo, inc., 2005) indicates that

IDEO has six additional main competitors, all of whom are smaller. Perhaps even more

impressive is IDEO’s resume of more than 4,000 new product development programs for

a who’s who list of clients. For example, IDEO designed a computer notebook for

Japan’s NEC, a cordless office phone for Dancall of Denmark, and the following

products for American firms: the Palm V handheld organizer for Palm, a child’s

toothbrush (Oral-B), the Neat Squeeze toothpaste tube for Crest, Polaroid’s i-zone instant

camera, the interiors of Amtrak’s Acela Trains, and a device by which surgeons can open

blood vessels (Kirsner, 2004; Kotelnikov, n.d.). Other clients include Hewlett-Packard,

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ATT Wireless, Nestle, NASA, and the BBC (Nussbaum, 2004). More recently, IDEO

has been helping companies attempt to remake their corporate cultures in order to

become more innovative. In this manifestation, IDEO begins to tread on the traditional

management consulting turf of such powerhouses as McKinsey, the Boston Consulting

Group, and Bain. But unlike the more business-school, hands-off and button-down

methodology of these management consultancies, IDEO’s emphasizes hands-on learning

about the customer through a partnership between IDEO staffers and members of the

client organization; this active, immediate and fun process of engagement gives IDEO a

distinctive selling proposition and niche presence in the traditional management

consulting marketplace. The fact that clients love working with IDEO also helps

(Nussbaum, 2004).

Cultural Roots and Company Distinctions

IDEO was formed in 1991 from the merger of four firms, David Kelley Design,

Matrix Product Design, ID Two and Moggridge Associates of London (IDEO, the

company, 2005; Kelley and Littman, 2001; Peters, 1992). David Kelley Design (DKD)

was the business outlet of Stanford mechanical engineering professor David Kelley.

Kelley is a tenured Stanford oddity, holding the Donald Whittier endowed chair without

a Ph.D. (Nussbaum, 2004). DKD was responsible for the Apple computer’s first mouse.

More recently, Kelley was on Esquire Magazine’s list as one of the “21 most important

people of the 21st century” (Kotelnikov, n.d.). ID Two was an industrial design firm

specializing in human factors work (Winograd, 1996). ID Two designed the first laptop

computer.

IDEO bears the imprint of Kelley, its founder, and embodies his own

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unconventional character. As an electrical engineer, Kelley worked for NCR and Boeing

before affiliating with Stanford University. He formed DKD in 1978 with colleagues

from Stanford. One of his first clients – and a role model, of sorts – was Steve Jobs and

Apple Computer. DKD and its progeny IDEO are very protective of its almost counter-

cultural sensibilities. Status distinctions are avoided, employees go to the work they find

interesting, the entire atmosphere of the office is eclectic, personalized and non-

rectangular, with public work areas (or “parks”) adjacent to office cubicles. “My brother

David hates rules,” says his brother Tom (Kelley and Littman, 2001). “He hates them

because he knows that when you start making rules, you sew the first seeds of

bureaucracy. We reject titles and big offices because they impose mental and physical

barriers between teams and individuals” (p. 243). The culture of the workplace is honed

even more by the methodology of innovation they use (described more fully below). A

keystone of IDEO culture is learning, exemplified by an early principle of Kelley at

DKD: he would not take on projects – and business – unless they could learn something

from it.

IDEO enjoys something of a distinctive position in the world of commerce:

everybody loves it (Nussbaum, 2004). The praises of IDEO have been sung from its

inception. Recent guru Tom Peters (1992) claimed to be first to recognize the special

virtues of DKD just shortly before the merger creating IDEO. The cultural traits of

DKD, traits that Peters thought essential for successful companies in the emerging

economy, were passed along almost entirely, as the DKD group was kept intact as the

IDEO Product Development division (Peters, 1992). It has been featured in the 1996

book Bringing Design to Software (Winograd, 1996) and the more recent Harvard

Business School Press volume How Breakthroughs Happen: the Surprising Truth about

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how Companies Innovate (Hargadon, 2003) along with its companion piece in the

Harvard Business Review (Hargadon and Sutton, 2000). Founder David Kelley’s brother

authored the book The Art of Innovation, Learning Creativity from IDEO (Kelley and

Littman, 2001).

Perhaps the best example of adulation came from the 1999 ABC Nightline

episode that showcased IDEO. In that segment, ABC commissioned IDEO to redesign

an object of common and familiar usage – the grocery shopping cart – in five days. The

cameras recorded the process as a group of approximately 20 IDEO designers observed,

studied, imagined and finally designed a new cart, using a process called the “Deep

Dive”. On day 1, designers, working in small groups, fanned out to various locales: a

grocery store, a buyer of carts for a grocery chain; one group concentrated on child safety

seats. Later than day, groups reported back on their findings. Day 2 was spent in

brainstorming ideas, selecting good ideas, and prototyping examples. More evaluation

and prototyping followed. On the last night, IDEO’s machine shop fashioned a full-scale

working model that was proudly revealed on schedule. Interspersed throughout were

behind-the-scenes glimpses of IDEO’s history, workplace, design failures and successes,

employees, and culture. This was one of the most popular Nightline broadcasts of the

year and was replayed several months later (Kelley and Littman, 2001).

This adulation seems well founded. Peters (1992) rated IDEO parent DKD as the

best firm in terms of learning from clients, outsiders, and from each other in his list of

bell weather companies (that included such standouts as McKinsey, EDS, ABB, and

Johnsonville Foods). On most any measure, IDEO seems to be a runaway success.

“Every spring, Business Week publishes a feature story on the power of design in

business and includes a cumulative tally of firms who have won the most Industrial

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Design Excellence Awards. IDEO has topped that list for 10 years running”

(Kotelnikov, n.d.).

Structure and Operations

IDEO is set up as a collection of studios (14 as of circa 2004) of about 10-20

people each. This structure was formed in a characteristically IDEO fashion around

1995. Several top employees were designated as a “studio leader.” Then, at an all-hands

meeting in the Palo Alto office one day, the studio heads made a pitch about their

interests and projects; employees then selected the studio that would become their home

base. Everyone got their first choice. (This process was repeated several years later.)

Each studio is operated on a profit and loss basis, and studio heads are not hired from the

outside but come from within. Apparently, the studios serve like a home base for

employees. [What is the compensation plan for studio leaders?]

The real innovative work at IDEO is done through project teams, however.

Founder Kelley believes strongly in the value of multidisciplinary teams (what they call

x-func for cross-functional teams) (Winograd, 1996). In this capacity, IDEO has

something similar to a matrix-like structure. Projects operate across studios, drawing

people from different studios. Project teams can have as few as three or four, or as many

as a dozen members. Once projects are finished, the teams disband and employees move

to other projects. The result of this structure is a continual circulation of personnel – and

more importantly, what they have learned on prior projects – over time. Projects are

assigned to teams based on the team’s desire or excitement for the project. There are no

position titles on business cards (IDEO, the company, 2004; Kelley and Littman, 2001).

More recently, IDEO may have been set up in terms of practice areas, such as

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technology-based areas, a "smart spaces" practice (for redesigning places like hospital

emergency rooms or the women's lingerie area in department stores) (Nussbaum, 2004).

[It’s not clear whether in fact this occurred or how it is different than the studio system]

The IDEO way

The Nightline segment focused on IDEO’s signature process: learning about

customer needs and experiences as the basis for innovative and rapid product design.

This process, known as the “IDEO way”, is the centerpiece method to IDEO’s madness.

Three values seem to infuse the learning and evaluation process throughout: user

desirability, business viability, and technical and manufacturing feasibility (Winograd,

1999).

The IDEO design process begins with understanding the product’s history and

uses, and observation of consumer experiences, a step owing more to anthropology than

conventional market research. Here, IDEO's staff and client partners move into the field

to see how consumers experience and use the product of interest. For example, a product

development team will shadow consumers and observe how they use a product, or how

they go about shopping, or how they experience a hospital emergency room. They take

photographs of the spaces and how people occupy them. They keep track of all the

interactions consumers have with the product or service or space. They may interview

consumers and ask them to describe their personal experiences (their stories) about using

the product. In the ABC Nightline (1999) example, the product development team was

organized into subgroups of about four or five people each. Each subgroup pursued its

own special perspective in learning about grocery shopping carts, such as the shopping

experience in the store, how children factor in, and so on. They may also call together

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“unfocus groups" of diverse and extreme users of a product. For example, on a different

project, to understand how sandals were used, they formed a group that included an

artist, a body builder, a podiatrist, and a shoe fetishist. In this vein, Kelley (Kelley and

Littman, 2001) notes that one can learn more from the consumer who doesn’t follow the

instruction manual or who invents new uses of a product. “You learn from people who

break the rules” (p. 39).

Once information has been gathered, the team(s) convenes for brainstorming

sessions (what they call “brainstormers”). Such sessions, because they can be so intense,

should last no longer than one hour. There are strict rules for brainstorming, posted on

walls. Rules are fairly standard for brainstorming: Do not judge or dismiss ideas, build

on the ideas of others, encourage wild ideas, go for quantity, stay focused on the topic,

and only engage in one conversation at a time. In the ABC Nightline (1999)

demonstration, the initial meeting involved the different teams reporting on what they

learned from their field visits, including abuses and problems. Character maps are an

interesting tool that can be used at this step of the process (Winograd, 1996). These are a

biographical characterization of a market segment that highlight how different users

interact with a product. Character maps "detailed personality and activity descriptions

for a small set of envisioned typical users" (Winograd, 1996, p. 167).

Step three involves rapid prototyping of ideas. This means developing actual

working models or images of their ideas. These physical representations and models

help the product development team visualize and experience their conceptions more

directly. The mockups should be built cheaply and quickly and without obsessing over

details. The purpose of the prototype is to demonstrate a design idea, not execute it fully.

Another type of technique here is called "body storming" where different types of

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consumers are identified and their potential use of the product is acted out. In the ABC

Nightline (1999) demonstration, the teams developed prototypes in line with their

themes. For example, one group looked that how consumers find price information

about a product. They created a prototype scanner that was on each shopping cart that

could give price information and then demonstrated that use in a body storming session.

Products are not the only things that can be prototyped; services and spaces can

be, too. For example, "for Amtrak, they built a full-scale railroad car out of foam core

and aluminum. The IDEO designers wanted their clients to experience what it would be

like to bring luggage through the doorways, work in the cafe car, and negotiate the

bathroom while seated in a wheelchair" (Kirsner, 2004). Similar efforts include using

floor layouts for health care spaces. Another way to give prototypical substance to the

intangibles of product or service usage is by storyboarding and scenarios. Storyboards

are visual depictions of a sequence of consumer uses, almost in a comic-book visual

format. Scenarios are more verbal, text-based stories of usage. Either way, they give a

concrete illustration of usage that can illuminate hidden issues or problems that otherwise

might stay hidden until after the product has been rolled out (Winograd, 1996).

In stage four, this broad variety of ideas are narrowed down. In the ABC (1999)

project, each subgroup presented their prototypes, and all participants on the team

offered reactions, feedback and assessments. This evaluation process helps critique ideas

and narrow them down to ones that seem to have the best solution. By involving clients

at this stage of the process, the better the chances for effective acceptance and

implementation. In the ABC video, a small group of decision makers met to select the

best direction for the new cart design. Kelley sees that his teams undergo something of a

natural process of narrowing down over the course of a project: the initially large and

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diverse group of participants reduces over time until near the decision stage, a fewer

number remain. “The appropriate prople remain interested in the problem and it

continually narrows down as you move towards implementation. It’s important to have

fewer people as you make decisions” (Winograd, 1996, p. 159)

Finally, the last stage involves product refinement and implementation. Here,

IDEO has a skilled workshop for actually engineering and developing their real

prototype for product. IDEO considers this group, made up of master machinists and

model builders, one of its best kept secrets; “it’s a competitive advantage that our clients

have come to rely on” (Kelley and Littman, 2001, p. 141). For example, the shopping

cart that emerged from the design process was built as a full-scale, actual working model

or prototype overnight.

The IDEO Way and Core Competencies

If it’s as simple as following those five basic steps, why doesn't everybody do it?

What is remarkable in this story is the taunting gauntlet (unintentional as it may be) that

IDEO tosses before corporate America. As is obvious from the prior section, the secrets

of IDEO success are well codified and in plain view. For example, the IDEO web page

(ideo.com, 2005) clearly lists and demonstrates the standard innovation procedure that

characterizes how IDEO goes about doing its work. That methodology has been

published in Business Week (Nussbaum, 2004), reported in books (Kelley and Littman,

2001) and demonstrated on national television (ABC). It would appear that its “core

competencies” are available for any and everyone to follow. Yet, while any number of

firms have tried to conjure up the same magic, "most fail. That's because although

IDEO's magic includes its particular way of organizing, it depends as much on the firm's

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dedicated strategy as a technology broker" (Hargadon, 2003). Other factors are also

involved.

Consider an analogy from recent professional football: if the book of plays from a

reigning championship team like the New England Patriots was given to a perennial

losing team like the New Orleans Saints, would the Saints become a contender

overnight? In all likelihood, no. Any a number of other factors, including player talent

and experience, morale, coaching capabilities, abilities to learn and make adjustments,

and team self-confidence (to name just a few of the more obvious factors), also

contribute to the longer term success of the Patriots.1 Even so, professional athletic

teams do not share their play books, as far as I know.

The IDEO Way is IDEO's playbook, and has been noted, this playbook is open

for all to see and copy. While copying has apparently been tried, it has not been

successful, though (Nussbaum, 2004). Why not? Obviously, just as the football

examples suggest, there must be something more going on at IDEO than a simple list of

steps. Otherwise, the competition would have simply copied these steps, undercut

IDEO’s price and performed the same tasks in creating comparable outputs. What other

factors can explain not only IDEO's success in design but its apparent immunity from

duplication? This question can be answered in at least two ways. First, the literature on

core competencies would predict that there is an enormous accumulation of tacit learning

that is now embedded in IDEO routines and practices. This learning would be very hard

to codify and replicate. Second, there are a number of related, ancillary practices and

conditions that surround and embed the IDEO way, supporting, aiding, maintaining, and

amplifying it. These conditions, once codified, can also be replicated to varying degrees

and should increase the chance of being successful replication and transfer.

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The following is an initial listing of likely ancillary practices and conditions,

drawn from various in-house and other published reports. This list is suggestive, though,

being compiled selectively from the documentary sources written for other purposes. So,

it is not clear from this list whether in fact the practice and condition is present, and if so,

how important it is. Such an assessment can only come from a direct examination of

IDEO conditions. Thus, these factors should be taken as hypotheses, keeping in mind

that certain important practices may not have either been identified or published. One

additional lesson here is that the IDEO way cannot be separated from the larger socio-

cultural context of IDEO as an organization in which it is embedded.

• The amount of tacit learning embedded as knowledge at IDEO is substantial.

Tacit learning seems to be one of two intentional goals of the project work, the other

being the creation of an innovation ready for production and marketing. The

primary vehicle for tacit learning is project work, carried out in a broad diversity of

industrial segments. Indeed, founder Kelley believed that this diversity of

experience is a strength of the firm. Two other factors are involved here. First, the

circulation of personnel among studios and across projects literally results in the

cross-pollination of ideas. Second, learning has been captured in one type of

knowledge management procedure known as the Tech Box; it is a method for

stockpiling ideas, literally.

IDEO has made a science of accumulating junk. . . . . Six IDEO offices in


scattered locations have cabinets known as Tech boxes in which designers
have placed a shared Treasury over 400 materials and products: tiny
batteries, switches, glow-in-the dark fabric, flexible circuit boards, electric
motors [and so on.] . . . It became a status game as people at IDEO
competed to contribute cool new stuff. . . . Each tech box is now
maintained by a local curator and each piece is documented on IDEO's
intranet. Designers can find out what each product or material is and who

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knows most about it inside and outside IDEO. Engineer Christine Kurjan,
head curator of IDEO's Tech Boxes, hosts a weekly conference call with
the local curators in which they talk about new additions and the uses to
which items are being put in new projects. (Hargadon and Sutton, 2001,
p. 160-161)

• [The only mention I’ve seen so far of a more formalized knowledge management

system, like the one reported for Arthur Andersen (Davenport and Hansen, 1998),

is the intranet system just noted. The presence, structure and operations of this

intranet system could be a potentially very important factor about which I have

essentially no information now.]

• For Hargadon (2003), the key to IDEO's success goes beyond its "Way" to its

position as a "technology broker". Consider this problem, presented to IDEO by

a bicycle manufacturer: they wanted a water bottle that could be used easily by

bicyclists. IDEO's solution was a bottle with a spill-proof nozzle that did not

need to be opened or closed. Rather, by squeezing the bottle, the nozzle pops

open, and then closes when released. This solution had been developed five years

earlier by a different team that had used a similar solution for a shampoo bottle

that could hang upside down in the shower. That bottle application came about

after working with a medical products company in the design of an artificial

hearts. Thus, technology brokering really involves transferring technologies from

one setting and use to another. IDEO seems to be particularly well suited in this

regard because of their wide-ranging experience with more than 50 different

industries developing more than 4000 new products. In short, IDEO has a

particularly strong history of learning about technology applications and usages.

• Tacit learning is also enabled by the configuration and lay-out of IDEO’s

workplace and office spaces. Like a college campus at its best, IDEO offices

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afford spaces for both serendipitous meetings as well as for more private work.

In the office architecture used, informal communication and work visibility are

high. Three principles – or metaphors – in space design seem to be operating

(Kelley and Littman, 2001). First, the workspace should be like a greenhouse

that incubates innovation, providing the right kind of “climate” and nutrient soil

for performance. Office equipment is mobile and modular, allowing easy

reconfiguration and movement. Second, the plan seems to center on

neighborhoods with their own parks. For example, a studio may have a set of

office cubicles located around an odd-shaped desk in a central public area (the

park). On the table sit prototypes, blueprints, sketches and so on, available for

any and all to see. "IDEO's studios are laid out so that everyone sees and hears

everyone else's design problems" (Hargadon and Sutter, 2000, p. 162), making it

possible for engineers working on other projects to overhear conversations,

realizing they can help and offering ideas. Third, there are clubhouses in the

neighborhood. Not strictly space per se, clubhouses are the play times of teams

and departments where they can engage in non-work activities like going to a

movie or a ball-game. IDEO considers its office space architecture to be one of

its greatest assets (Kelley and Littman, 2001).

• In addition to the internal transfer of technology, IDEO has also developed

linkages with a network of vendors, suppliers, and manufacturers that are

themselves innovative, easy to work with, and very knowledgeable. Thus,

IDEO’s competencies involve more than their internal innovation procedure to

include a position in a network of innovators and developers.

• The climate of operations at IDEO comes from the top. Founder David Kelley

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and his brother Tom, now General Manager, seem to have clearly defined values

that are consistently communicated to the staff. That is, the values are authentic

expressions of their character, not some carefully crafted, artificial vision or value

statement. These values seem to characterize the culture of IDEO. One value

seems to be having fun and playing. A second is allowing employees freedom

and discretion in their work. Learning would be an obvious other value. Kelley

also appreciates that risk, messiness and failing are normal in the context of

innovation. For example, Peters (1992) reported the FLOSS philosophy of

design Kelley articulated for DKD: Fail sometimes, be Left-handed, get Out

there, be Sloppy, be Stupid. In the ABC (1999) video, the slogan "Fail often to

succeed sooner" is noted as a neat sacrosanct norm of practice. In short, IDEO

seems to have a culture that is very strong and very much aligned with the nature

of the business: innovation.

• Another key value of IDEO is speed, minimizing the time between conception

and sale. Since corporate clients may drag their feet after the presentation of a

consultant’s report, IDEO insists that members of the client company participate

in virtually all phases of the research, analysis and development process. When

the development cycle is finished, clients are ready to go; another time-

consuming step for obtaining client buy-in is avoided. “Unlike traditional

consultants, IDEO shares its innovative process with its customers through

projects, workshops, and IDEO U, its customized teaching program” (Nussbaum,

2004). In the ABC (1999) video, Kelley points to a meeting with new clients,

noting how they haven't been "trained" yet in IDEO's ways.

• The performance unit at IDEO is the project team, or what they call “hot groups”.

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The membership of these groups is drawn from across the entire organization,

and participation seems to be recruited rather than assigned. There is a defined

team leader, and the teams have both clearly stated goals and specific deadlines.

[While no information yet on the last point, it would be hypothesized that IDEO

has mastered skills in forming, leading and operating temporary project teams.

How are team leaders picked? What kind of power do they have? Another

hypothesis would be that team leaders have little position power (and probably

don’t need it, anyway) but would have personal power, perhaps in the form of

technical expertise, but more likely in the form of facilitative and interpersonal

power.] Kelley indicates that a “strong, fair leader” often naturally emerges to

guide a group. The distinguishing characteristic of such an effective leader is an

indifference to a specific outcome; that is, the leader is primarily driven by the

desire to facilitate the group’s process, not to achieve a specific type of outcome

(Winograd, 1996). [As this is true, leaders are followed because they are

perceived as being good at facilitating group process; that is, personal power

comes from group facilitation skills. Finally, it is likely that when team members

join the teams, the members already have high motivation and high self-

confidence. Some amount of these qualities would be hired, and some would be

inculcated through the IDEO employment experience. So the problem team

leaders face is not to manage motivation but to channel high talent and energy.]

The IDEO way becomes the default structure for running the team; this blueprint

or game plan would be known by all members, which would make teams almost

self-directing.

• Kelley (Kelley and Littman, 2001) notes that many innovations occur because of

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chance or unexpected events, like the water bottle for cycling. Thus, he notes

another IDEO value of “looking cross-eyed” or seeing things in new or different

ways. Using metaphoric thinking and searching for solutions in new and

different fields is an example. Gathering information from a plethora of sources

is part of this; IDEO subscribes to more than 100 magazines of various kinds. In

this same vein, Kelley recommends an attitude of humility and openness to new

ideas. [Whether such an attitude does in fact exist and how it is manifested would

need to be researched.]

• According to Peters (1992), Stanford University has an elite product design

program in its Mechanical Engineering Department. Early on, the DKD and then

IDEO offices in Palo Alto were apparently very close (within six blocks?) to the

university. Given Kelley's position at both Stanford and at DKD as well as the

proximity of the two locations, DKD and presumably IDEO benefited from a

ready supply of trained personnel that could easily be prescreened and recruited

on campus. [I don’t know what percentage of employees was recruited this way.

Nor is it known the other ways by which people are recruited or attracted. The

entire recruiting and selection process would be very useful to know.]

• Beyond the mix of industries served, diversity is appreciated in another way as

people with a variety of backgrounds are hired. That is, a technical, scientific

and/or engineering background is not essential for being considered for

employment. [If true, this point raises a number of questions: (1) how are

staffing/manpower needs identified; that is, how are decisions made about what

kind of background (technical or not) to request? How are job specifications

determined? (2) Is there a manpower planning process in place? (3) Is there any

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formal training process, perhaps outsourced through a university, to increase

technical abilities in non-technical personnel? (4) Is there any type of sorting

process in using skills on projects, such as: are liberal arts majors given the lead

in the consumer sensing steps and the technical people, in prototyping?] Kelley

(Winograd, 1996) indicated that he (or more likely, IDEO) has had luck teaching

artistic types engineering and technical basics.

• Co-founder and IDEO general manager Tom Kelley believed that by hiring

people he liked and respected, two things would result: people would have fun at

work and also be more productive. The hiring process involves interviews with a

dozen people. [There are a number of issues here: (1) is there a HR department

or function that manages or oversees the hiring process? Who is in charge of

hiring? (2) How well defined is the hiring process: are applicant criteria clearly

stated, and if so, what are they? (3) Do they use any more formalized testing

procedures? (4) Since it would appear that employee character and natural

ability are so important (vs. credentials and experience), it would be hypothesized

that IDEO follows more of a strategy for hiring for the organization rather than

hiring for the job. True? (5) How is the interview process coordinated; how are

a dozen interview results combined? (6) How structured is the interview process;

are the people doing interviews trained? Alternatively, do they rely on hunches

and impressions?] When interviewed, Kelley indicated a clear appreciation and

even preference for people who can operate creatively and flexibly (Winograd,

1999). Indeed, he seems to believe that engineers may have a trained incapacity:

by virtue of their training in applying very specific techniques, they often focus

on fixing specific glitches rather than imagine entirely new approaches.

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Likewise, he values people who feel free to wander and explore, while not being

chained to a preset, linear schedule. As these examples suggest, personality

dispositions may be major considerations in the selection of employees.

• There appears to be a performance appraisal process that involves a 360 degree

process. Evidently, employees are evaluated by 3 people, two of whom they

select for a peer review process (Kelley and Littman, 2001). [More details about

this process are unknown, including whether there is any post-project review or

assessment by team leaders, as might be found with audit teams.]

• Fun seems to be an integral part of the IDEO culture, where pranks are common

(Kelley and Littman, 2001; Kotelnikov, n.d.). Play is a legitimate form of

expression, and even a means of working, at IDEO.

• Brainstorming is a way of life. In its earlier form at DKD, anyone could convene

a brainstorming session at any time (Winograd, 1999). "Others, no matter how

busy they are, pretty much drop what they're doing and attend" (Peters, 1992, p.

169). Both the ability to organize a brainstorming session as well as participation

seem to be norms strongly etched into the IDEO culture. In brainstorming

sessions with clients, group productivity is measured by IPH or ideas per hour.

The standard is 100, sketched on a piece of paper (Kirsner, 2004)

• In situations like these where very creative and independent people are interacting

to generate ideas, assessments and critiques, the question of ego could be a

natural concern as people consider: “Will I be recognized as smart and effective?

Will I be given credit for my work? Will everyone appreciate my contribution?”

The potential “grab for recognition and glory” could turn interactions into

competitions and conflicts, rather than cooperation. Taming those natural

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impulses becomes an important issue which IDEO seems to have mastered.

According to Kelley (Winograd, 1999), egoistic demands for idea ownership are

not a problem at IDEO. Because of the group process, either everyone thinks the

idea was his or hers, or they can’t identify who the author was. If there is an

ownership issue, it belongs to the person who posed the question (called the

brainstormer). Thus, it would appear that the group/team process diffuses

concerns about ownership, while the accountability system seems to reside de

facto ownership with the person initiating the project.

• [This issue raises one additional concern: how does IDEO handle low

performers? Given the nature of the work process where employees may both

self-select for participation into a project or be recruited into a project, it may

occur that some employees are simply not picked. Given the likely kinds of

employees recruited, more traditional performance problems of poor motivation

or becoming a “free rider” seem unlikely. The open space set-ups make it likely

that the studio groups will monitor on a de facto basis the work done by all. The

more likely performance problem would be an employee who simply just does

not work out, either because of interpersonal problems, ego needs, and/or simply

being slow to adapt and learn. How often does IDEO have to terminate

employees? The amount or frequency of termination would be a strong indicator

of the success of the recruiting, selection and orientation process used. How does

IDEO know when someone is not performing acceptably? What is the

accountability system in place? How do they handle the separation process?]

IDEO and Core Competencies: Lessons

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On several different measures, IDEO seems to be a superior performer on an

ongoing basis. In other words, IDEO seems to have a sustainable competitive advantage.

Since IDEO has no manufacturing facilities or equipment of any note, the fixed asset

portion of its balance sheet should be relatively small, making it unlikely that the source

of its sustainable competitive advantage would be hard assets. Instead, the source of its

advantage would be the intangible capabilities found in its people, its culture and its

history. These sources of advantage would be considered core competencies.

On the surface, that intangible capability seems to be represented by the IDEO

Way. This is a series of well-defined steps, plus the various sub-routines and methods

within each step, for carrying out the process of innovation. This capability is an open

book, available for all to see; as such, it could presumably be copied by any competitor.

Some observers claim that such copying has been tried – unsuccessfully. This leads to

the conclusion that while the IDEO Way may be a necessary condition for IDEO’s

sustainable advantage, it is not sufficient. Thus, in this case, the codification of a

production process tells only part of the story of IDEO’s core competencies. That is,

there is a deep structure of linked conditions that creates the platform on which IDEO is

successful.

The analysis of these supporting conditions presented above was drawn from

multiple public sources, most of which were not written by or for organizational

scientists. Some of the sources were IDEO principals, some were academics, industry

observers and reporters, some where unknown sources off the internet. Despite the

diversity, a common story was told. In its own way, these sources do provide some sense

of triangular confirmation. Their reports of what would appear to be “factual”

descriptions of IDEO were reassembled into the account presented in this paper. I was

21
able to pull these sources together and compile this report in a relatively short time (five

days). These reports produced a set of “deep” factors or structures that seem to be

critical for IDEO’s sustainable advantage, including organizational structure, culture,

tacit learning, physical layout, team management and operations, and human resource

practices. The authenticity and relative importance of these various factors have not been

studied directly for this paper. Further empirical investigation would be necessary to test

these observations.

However, what’s interesting in these reports is as much what is not being said as

what is. In particular, the elements of the HR process regarding recruiting, hiring and

performance appraisals are sketchy at best; I was not able to find any information to date

on the compensation system. Given the dependence of IDEO on the qualities of the

people it employs, understanding the operations of the HR system is critical.

The full listing of factors consolidated here – the IDEO way plus all the

additional factors noted – provides a more complete playbook than the IDEO way itself.

As such, it provides a more complete model of what makes IDEO successful. This point

leads to this question: if the full package listed in this paper were copied, how much

closer would the imitator be to replicating IDEO’s core competencies? Alternatively,

how much additional performance would be added by the supplementary factors, over

and above the performance that results from simply following the IDEO way by itself?

If the IDEO way explains, say, 30% of its success, and the additional factors explain

another 10%, we would still be a long way from identifying IDEO’s core competencies.

On the other hand, if the additional factors added another 40% to the explanation, so that

70% of IDEO’s success could be explained – and copied, we would be well on the way

to locking down core competencies. Making such a calculation in a field experimental

22
trial would be impossible, though. Indeed, such an approach may be guilty of a

reductionist fallacy, as if it were possible to isolate each separate factor for its unique

contribution. While separate features may be noted, it seems that the power of IDEO’s

core competencies lies in the fact that they are all part of the whole; here, the whole may

be indeed be greater than the sum of its parts. So, core competencies, at least in the

IDEO manifestation, are likely to be a total system of beliefs, practices, operations,

structures and conditions that nurture an organization of high team performance under a

regimen of learning, exploration, trial and error, and play. It is probably the total

configuration that is basis of core competence, not any one single factor or even set of

factors. The components of that configuration can be identified and its essential features

described, but each factor is probably not as important by itself as how the ensemble

plays together.

To the extent that this is true, the implication is that core competencies cannot be

copied item by item but rather have to be implemented as a culture change, a change in

the system of beliefs, practices, operations, and so on. On the other hand, the principle

of equifinality would apply, too. That is, it may not be essential to copy all the elements

of a culture of core competence. There can presumably be different ways to get to the

same end (an organization operating with core competencies). Thus, in the final

analysis, what may be most important is the ability to identify sustained superior

performance as the goals and work towards that goal, rather than copying specific

practices from an exemplar.

Endnote
1
This same basic principle could be extended to such consistent NFL franchise

powerhouses in the past as the Greenbay Packers (under Vince Lombardi), the Pittsburgh

23
Steelers under Chuck Knoll, the Dallas Cowboys under Jimmy Johnson, the Washington

Redskins under Joe Gibbs, and the San Francisco 49'res under Bill Walsh. For several

consecutive years, each of these teams was able to dominate the league. (One interesting

question here is what happened that led to the decline of each of these dynasties. I

believe in all cases, the decline was due to a loss of both player and coaching personnel.

If so, it was the loss of star personnel that was decisive which means that the teams were

not successful in replacing key personnel.) Another interesting variation here has to do

with sports that are not so set-play dependent, such as basketball or soccer. Again,

examples of the Boston Celtics (both the Red Auerbach regime and the Larry Bird era),

the Los Angeles Lakers (under Bill Riley), the Phil Jackson era with the Chicago Bulls in

basketball, and the Brazilian national team in soccer come to mind. In these cases, the

availability of a play book probably plays less of a role in success. In short, sports

franchises are probably very good sources for study of core competencies in

organizations. The NFL may be particularly good because of the policy of team parity

(reducing entrenched or legacy advantages) between franchises. (This of course

contrasts with baseball’s inability to reach this condition as exemplified by the seemingly

never-ending dominance of the New York Yankees.).

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