The Design of Business: Why Design Thinking Is the Next Competitive Advantage

by Roger L. Martin

  Design in Unlikely Places

  Design thinking can create value in areas of the corporation far removed from marketing and product development. Design thinking, for example, transformed P&G’s Global Business Services into a design shop. The effort began in 1998, when P&G undertook its most significant reorganization in more than twenty years. Seven global business units (GBUs) replaced the previous structure, which had divided P&G’s businesses into four geographic regions. In the new structure, rather than having four separately managed, regional detergent businesses, P&G would have a single detergent business with profit responsibility for the entire globe.

  Second, P&G created five market-development organizations (MDOs) to distribute products in the various markets on behalf of the GBUs. The MDOs were accountable for sales volume but not profits. Third, it created a global shared services organization (Global Business Services or GBS) to deliver employee services, facilities management, financial and accounting reporting, purchasing, and information technology. It was a bold reorganization, in which P&G created the first global market-facing organization (MDO) in its industry and a truly integrated, global shared services organization (GBS).

  In 2002, P&G took an even more momentous step with GBS. Realizing it had gone as far internally as it could to drive scale, the leaders of GBS made the strategic decision to outsource key business processes. Rather than outsourcing to one integrated provider, P&G opted to establish relationships with best-of-breed partners that were leaders in their field, including Hewlett-Packard for IT infrastructure and accounts payable, Jones Lang LaSalle for facilities management, and IBM for employee services. More than two thousand GBS employees transferred to the partner firms.

  During the decision-making process, Filippo Passerini was a key GBS advocate for the best-of-breed strategy. In 2003, Passerini was named head of GBS. Passerini’s challenge was considerable, as was his opportunity. He recognized that GBS had now outsourced the most algorithmic of its activities. Those activities were the most readily translated into service-level agreement terms in outsourcing contracts. The question now was how to think about the GBS services and employees that remained.

  Passerini’s vision was to redefine GBS as an agile design shop whose employees would focus on opportunities to turn heuristics into algorithms and refine algorithms into code. This meant attacking wicked problems that bedeviled P&G, working on a project basis rather than a permanent basis, and flowing teams of GBS staff to whatever work was deemed most critical and time sensitive.

  For example, the product category teams around the world prepared each year for strategy and planning exercises by assembling a binder of information on the overall business environment, competitive challenges, and the like. GBS staffers noticed that the binders contained many common elements and saw an opportunity to streamline the process into an algorithm. A GBS team wrote code that automatically pulled together the vast majority of the information into integrated, online “decision cockpits” that put the information the executives needed at their fingertips. Automating that task freed up the organization for higher-level work.

  The flow-to-the-work project culture also helped P&G integrate the $57 billion acquisition of Gillette, itself a global organization with $10 billion in sales and thirty-five thousand employees. GBS, together with its partners, flowed numerous project teams to work on the Gillette integration and completed it flawlessly, a huge undertaking. GBS moved all Gillette’s systems, encompassing a corporation operating in more than two hundred countries and territories worldwide, onto P&G’s platform. The pressure to work quickly and efficiently was intense: P&G management had publicly projected $1.2 billion in synergy savings. By flowing teams to the work, GBS was able to deliver the systems integration in just fifteen months. It was the largest and fastest integration in P&G’s history and took far less time than large-scale integration efforts at other leading corporations.

  With the transformation of GBS—and its continued success as a partner to business units in tackling wicked problems—morale has soared. GBS personnel now point with pride to their record of taking over an activity and delivering equal or better service at a substantial reduction in cost. That savings gives P&G the lowest cost of shared services in the industry and puts it on a path to significantly reduce the cost of shared services as a percentage of sales. And it has made Passerini a star among chief technology officers for sowing creativity across traditionally administrative functions such as employee services, facilities management, and IT. Rather than focusing exclusively on honing, refining, and cutting the cost of current algorithms, his organization’s focus is on helping P&G speed activities through the knowledge funnel, whether in-house or through an outsourcing partner.

  At each stage of P&G’s transformation into a design-thinking organization, Lafley aimed at driving activities down the P&G knowledge funnel, shaving costs and gaining speed in the process. Within three years of Lafley’s appointment as CEO, P&G was transformed from a mature company with slowing growth, eroding profits, and moribund brands into a genuine growth company, with profit growth of 15 percent per year. Thirteen of its top fifteen brands had increased their market share. Within six years, revenues were $70 billion and growing at a consistent 10 percent clip. P&G’s roster of billion-dollar brands expanded to twenty from ten, and several other brands were flirting with that benchmark. R&D spending fell from 4.8 percent of sales to 3.6 percent, yet the success rate of its new-product initiatives had quintupled to 65 percent. Profit had doubled and was growing at 15 percent annually. But perhaps the surest sign that Lafley had won over the reliability-oriented financial community was the growth in P&G’s market value. Within three years, it had doubled to nearly $200 billion, making P&G one of the ten most valuable companies in the world, ahead of Johnson & Johnson and about the same as Walmart. No single factor can account for such an impressive and thorough turnaround, but by almost any measure, the P&G of today is dramatically more innovative and strikingly more efficient than the P&G of just a few years ago. As an argument for the power of design thinking, that’s hard to top.

  CHAPTER 5

  The Balancing Act

  How Design-Thinking Organizations

  Embrace Reliability and Validity

  IN EARLY 1993, I SPENT the first of many pleasant nights at Marigold Lodge on the north shore of Lake Macatawa, in Holland, Michigan. Macatawa isn’t really a lake but a large inlet with a narrow mouth, on the eastern shore of Lake Michigan, about forty-five minutes southwest of Grand Rapids. The inn was at the end of a discreet lane off a long, winding, backwoods road, located on a little peninsula that juts out into the lake. The rooms were small and austere, with no television or other modern conveniences. Dinner in the dining room looking out on the lake was a wonderful experience, but I’d been told not to ask for a glass of wine with my meal—no alcohol was allowed.

  The place had a distinguished, elegant feel befitting its 1913 Prairie School origins. But something did feel very modern—the furniture. Every piece was sleek and perfectly suited to its placement and function, from the compact desk in the room to the side tables in the dining room to the undulating molded-wood area dividers, which I later learned are precious, original Eames screens. I shouldn’t have been surprised. Since 1978, Marigold Lodge has been owned by Herman Miller, Inc., one of the world’s leading office furniture companies, headquartered in nearby Zeeland, Michigan, and has served as its training center and home for visiting designers.

  Zeeland and its surrounding area form the heart of Dutch Reform country in western Michigan. Dutch cabinetmakers settled the area, hence the tulip festivals, the replica windmills, and, sadly, the absence of wine at dinner. The cabinetmakers built a leading home-furnishing industry here, and when the industry began to move to the southeastern states in search of lower labor costs, the western Michigan firms migrated successfully toward higher-end office furniture. The area became and remains the home of the global office furniture industry, with giants Steelcase,
Herman Miller, and Haworth situated nearby.

  The purpose of that first visit in 1993 was to begin work on strategy with the top management team of Herman Miller. The work lasted two years, but it made an impression on me for life. In my previous dozen years as a strategy consultant, I had never encountered a place like Herman Miller. I had worked for giant firms like P&G, AT&T, and Nortel, which were much bigger than Herman Miller, as well as a variety that were smaller. But none had the design approach of Herman Miller.

  The relationship started out in a unique way. I was hired by the senior vice president of design, a wonderful man named Rob Harvey. To be hired not by the senior strategy officer or the CEO, but by the senior design officer, was a first. Harvey was a true designer who had planned hospitals before coming to Herman Miller. One day he offered to take me to his home, which he had personally designed. It was, he explained, about ninety minutes north of corporate headquarters. That struck me as odd as I drove north for my first visit to Harvey’s home. People endure long commutes for the chance to work in Manhattan or Los Angeles, but don’t they come to a place like Zeeland, Michigan, to eliminate that commute? Not if you want to design a house that sits on top of the sand dunes that rise high above the eastern shore of Lake Michigan. At Harvey’s home, while watching a sunset that rivaled the best in coastal California, we drained ancient bottles of 1961 Bordeaux that he had bought when he was working as a young man in London thirty years earlier.

  When I had gotten to know Harvey well enough to ask him why he was in charge of strategy, he responded matter of factly, “Well, Roger, strategy is a design exercise, isn’t it?” Sure enough, everything we did as consultants was scrutinized heavily, with Harvey or some other Herman Miller executive wanting to know, for example, why we had designed the market research this way rather than some other way. No organization before or since had wanted to know in such detail the thinking behind the design of every step. Herman Miller was determined to understand the design of its strategy the way it understood the design of its furniture.

  I was extremely fortunate to arrive at Herman Miller not long before the launch of the legendary Aeron chair in 1994, so I saw from inside the lead-up to that epic event and the way in which abductive reasoning and a search for validity drove the process. As was customary for Herman Miller, the Aeron chair project was led by two outside designers, Bill Stumpf (who passed away in 2006) and Don Chadwick. Paradoxically, the firm known worldwide for the design excellence of its furniture uses outside industrial designers for virtually all its major projects. Stumpf and Chadwick had previously collaborated with Herman Miller to design the Equa chair, an ergonomic breakthrough launched in 1984 that Time magazine had called the Design of the Decade. 1 Within the subsequent decade, every company in the market had a chair that resembled the Equa (see figure 5-1).

  The challenge this time for Stumpf and Chadwick was to start with a clean slate and step back from their own assumptions about form and material to design a totally new kind of chair. What do people really need when they sit down to work? That was the wicked problem, and it was one of the oldest. Mies van der Rohe, the brilliant designer from the Bauhaus, famously remarked that it is almost easier to design a skyscraper than a chair. A chair must look good and feel comfortable, of course, but it must also provide ergonomic support and adjust in simple ways for whatever task we take on. It should fit, in every sense of the word.

  FIGURE 5-1

  The Equa chair

  Photo courtesy of Herman Miller, Inc.

  Before they even drew their first sketches, Stumpf and Chadwick visited many offices and spoke to the people who sat in chairs all day. They learned how complex sitting really is, how many different tasks people perform while they are in their chairs, and how the chairs work for or against them as they move. They observed the subtle signals of discomfort, the shifts of position as sitters grew stiff or the seat got too warm. They drew on their experience in materials and engineering to imagine elegant solutions to problems of weight, shape, and contour. And by reasoning what a chair ideally suited might be, they arrived at the unprecedented Aeron chair.

  The Aeron, as Esquire magazine noted, looks more the X-ray of a chair than the chair itself. 2 In an era when executives signaled their status by sitting in the largest, most padded, and most luxuriously upholstered chair in the room, Stumpf and Chadwick appeared with a chair that had no padding or upholstery whatsoever (see figure 5-2). In their focus groups, users told them it did not even look like a chair. The feature that startled the focus groups most was the porous, screenlike material called Pellicle that makes up the chair’s seat and back. Stumpf and Chadwick had wondered why people would shift and reshift while sitting in even the most ergonomic of conventional chairs. They conducted studies that pinpointed the problem: conventional upholstery retained too much heat. People shifted because they were seeking a cooler position. Pellicle, which breathed instead of soaking up body heat, solved the problem and gave Aeron its unique transparent look. However, as Malcolm Glad-well recounts in his book Blink, the early focus groups were turned off by the odd look of the chair, complaining that it was just plain ugly. Some even asked to see the finished version, the one with upholstery and padding added. 3

  FIGURE 5-2

  The Aeron chair

  Photo courtesy of Herman Miller, Inc.

  It was a unique experience to be working with senior management when this very mixed customer feedback came back from the field. At most companies, the response would be to either drop the project or significantly rework the product and test it until the consumer feedback improved dramatically. But not at Herman Miller. Market research and focus group data didn’t trump the work and judgment of the designers. The designers had done detailed work to study the mysteries of how users interacted with the chair they used all day long. They combined that detailed work with their deep expertise in industrial design to make the logical leap of mind to a new design: a radical idea that could not possibly be proven successful in advance. “It was a matter of deliberate design to create a new signature shape for the Aeron chair,” said Stumpf. “Competitive ergonomic chairs had become look-alikes. Differentiation was a huge part of the Aeron design strategy.” 4

  That the designers were confident of their own design was no surprise. The surprise was that design chief Rob Harvey, seating division president Andy McGregor, and chief executive officer Kerm Campbell gave a green light to this logical leap of mind in the face of mixed data. And it was a big green light. They didn’t dribble the Aeron into the market; they launched it with a flourish.

  The decision to launch makes perfect sense in light of a story that Harvey told me. Early in his tenure as senior vice president of design, he took an aging D. J. De Pree through a product review. (De Pree was Herman Miller’s legendary first CEO, serving for thirty-nine years before turning the job over to his son Hugh and moving up to chairman, where he served an additional seven years. For more on the De Prees, see “The De Prees of Herman Miller.”) During the review, De Pree turned to Harvey and asked whether he had gathered the feedback from the sales force on the product design that they had just reviewed. He asked the question rather conspiratorially, as if to suggest that he hoped and expected that Harvey had gotten sales-force feedback. Fortunately, the politically savvy Harvey had already asked some of the old guard about De Pree’s predilections and learned that De Pree tested all the new executives with this question. Harvey knew that the right answer was, “No, absolutely not!” De Pree smiled in appreciation. “That is right, Mr. Harvey. You never ask the sales force what they think of a design. Their job is to sell it.” 6

  The De Prees of Herman Miller

  It is a wicked problem that has perplexed business leaders for decades: how to connect business and design. In a 1965 speech at the Rochester Institute of Technology, Hugh De Pree, one of a troika of De Prees who presided over Herman Miller for over half a century, described how his family tackled the problem. Their solution transformed Herman
Miller from a tiny, failing residential furniture manufacturer to a paragon of American design:

  Design is an integral part of the business. The designer’s decisions are as important as those of the sales or production departments. It is his responsibility to recognize needs and solve them in his own way. There is no pressure on the designer to modify design to meet the market. Sales and Manufacturing have a responsibility to feed back to Design information that helps the designers to define the problem.

  But the designer decides how to use this information. We decide what we will make. If the designer and management like a solution to a particular problem, it is put into production. There is no attempt to conform to the so-called norms of public taste, nor is there any special faith in the methods used to evaluate the buying public. Our designers must not be hamstrung by management’s fear of getting out of step. All that is asked of the designer is a valid solution. 5

  Hugh, like his father D. J. and his brother Max, believed the role of designers was to create those valid solutions. The role of sales and manufacturing was to provide feedback that would help designers define problems. The role of top management was to protect the designers from the rest of the company: “In our company, the designers receive and depend upon feedback from Sales and Manufacturing, but they report only to top management.” His philosophy follows from firm principles that Gilbert Rohde brought with him when he was hired as Herman Miller’s first designer in 1931: “The designer was to retain absolute control over the production of his creations. The manufacturer would not be allowed to change the mechanics or appearance of a design to the slightest degree.” The De Prees knew they had to assert the legitimacy of validity in a reliability-oriented environment. Market research, sales, and manufacturing would tilt toward reliability if given a chance. “Valid design” needed top management to provide the counterweight. Hugh De Pree helped establish the authority of design by defining it: