Better by design?

Fisher & Paykel, Formway, Icebreaker — on a global scale, those three companies can’t compete with design icons like Apple or Nokia. But they are New Zealand companies creating a point of difference and forging a path as iconic brands on a global stage.

It’s as good a place as any to start a story about Better by Design, the government-backed initiative aimed at developing a design-led economy. Any government with designs on a smart economy could do worse than hold those three up to the light if, as we’re increasingly told these days, design is the way of the future.

Take Formway, which created the intuitive Life Chair by watching people at work, identifying a need that hadn’t been articulated, and creating a product which is a global success. Or Fisher & Paykel, which had record appliance sales last year of more than $1 billion, and its legendary innovation process which led to the DishDrawer.

Or Icebreaker, the outdoor clothing company founded by Jeremy Moon with seed capital of $250,000. Moon spent $150,000 of that on design, and design strategy. First he came up with the idea, then a story for the brand, then designed the first clothes, because product follows identity. They weren’t flash — Moon later described them as “kind of confused thermal underwear that you could wear as outerwear” — but last year Icebreaker delivered more than one million garments around the globe.

Better by Design is spending $12.5 million over five years with the aim of injecting an additional $500 million into the economy by 2008 and $1.5 billion by 2013 by helping fast-growth companies increase their exports through becoming design led.

It’s an ambitious undertaking, especially given the dollar figures attached to the brief. But design can clearly add value to business and boost economic performance. Studies carried out in Britain for the UK Design Council found that design-led businesses perform significantly better than those that aren't. One-third of the fastest growing companies in Britain say design is an integral part of business. And almost half of those companies who see design as integral have improved turnover and profit, compared with 10% of companies overall.

Design, says Moon, who chairs the Better by Design Advisory Board, can give us a competitive edge offshore. It’s not just about designing cool widgets, or even extremely cool merino outdoor garments. “Really, it’s about enhancing innovation through integrating design into the mix.”

Better by Design’s budget goes on design audits, mentoring, internships and funding for specific projects. To date, Better by Design has carried out design audits of 38 companies, which had combined exports worth $345 million at the time of entering the programme. The audit process has been reviewed, says Moon, and there will be fine-tuning.

“But it will be the same idea of skilled experts working with senior management to understand where a company is now, and the opportunities for where the company could be, and creating a strategy to get there as well as creating a network and some funding to assist with execution of a major project.”

Ray Labone, the design guru who chaired the original Design Taskforce which led to the establishment of Better by Design, points out these companies aren’t intended to grow the economy all by themselves.

“The original intention, which I think is still valid, was to create exemplar companies which will in turn create something of a culture shift and lead by example … so it was very much a strategy of infecting other business, making it design contagious. We just don’t have enough companies that are effectively using design as a competitive advantage which others can learn from. We keep coming back to the same old companies that are Fisher & Paykel, Formway, Icebreaker and companies like that.”

To create a buzz, a design conference was held last year featuring international business guru Tom Peters as a keynote speaker who said things like “design is the soul of new enterprise” and the key to New Zealand’s future. Design, according to Peters, is embraced by cool countries like Finland and Denmark and must be at the heart of business thinking.

And yes, design — or the notion of design as a competitive edge fostered through government intervention — is the new black. As it is in South Korea and Finland, notably, which have developed policies similar in concept to Better by Design. South Korea’s major success story has been Samsung which, with the help of the government, grew into a hugely innovative company ranked fifth in the world in 1991 for patents on electronic goods.

Design 2005! — Finland’s version of Better by Design — promotes design, education and research as drivers of international competitiveness. Professor Yrjo Sotaama of Helsinki University was on hand at the Auckland design conference to point out similarities between Finland and New Zealand: both small, relatively isolated countries with design-led potential. Finland’s major brand is Nokia. Ours are the All Blacks and Fonterra. The conference got a good crowd and plenty of press. But it was just a start, says Moon. What’s needed now is a circuit breaker — a company of sufficient size to achieve the foreign exchange objective. The Better by Design strategy is not just about identifying a number of companies to undergo a design audit. “It’s about trying to enable a significant shift in 200 to 300 leading companies across a variety of sectors. We have to work with bigger companies to achieve the foreign-exchange objectives and we can’t ignore the smaller companies.”

If one part of design is telling compelling stories, then Richard Cutfield has a good yarn. Cutfield is an executive director of Pencarrow Equity, who sits on the advisory board of Better by Design and was a member of the taskforce which led to the programme’s establishment. And last year, he and his Danish wife went back to her homeland for a six-week trip.

“We took the kids to Legoland, an example of an international company; you drive past the Velux company, which dominates the world in skylights; stop and have a cup of coffee with Bodum coffeeware … there are a whole lot of examples of international brands, and that’s a country of, I think, five million people. There are examples littered around the place.”

Cutfield chairs the board of Methven, the shower and tapware manufacturer that even manages to sell its showers to Italy, which says something for its design process. Actually he’s on the boards of four design-led companies that Pencarrow has invested in. It makes good sense to invest in companies with this strategy, he says. Design is an enabler of business and good design is about products that enhance people’s lives. It’s as simple as that. Good design will differentiate a product so that it stands out in a crowd. “That’s been part of our approach in an investment sense — to recognise differentiated products which win sales in multiple markets.”

He cites a New Zealand Institute of Economic Research report, commissioned by the Ray Labone taskforce, which looked at investment portfolios from design-led companies in the UK. In every case they easily outperformed their relative stock markets.

How far does New Zealand have to go to be like Denmark? Look at the NZX, says Cutfield, cast your eye down the companies there and name which ones are design led. There’s Fisher & Paykel and … “I’m struggling to find three,” he says. “I think a lot of New Zealand business thinking is stuck in commodity-type strategic-asset thinking. People are starting to move this way but I think we’ve got lots of talent here which is underemployed. You’ve got people leading the way like Fisher & Paykel, establishing global brands with products with points of difference and good design.”

And hopefully, Better by Design will lead a groundswell throughout New Zealand, he says.
“All we need is one Nokia to change this country. I can’t see, as a country, how we can go any other way.”

Moon also has a story which illustrates what he hopes Better by Design will achieve, or at least be a building block for.

“Last week I was at a great conference in Montreal and I was with the head of design at Ikea, which this year will do $30 billion and they’re from a country of eight million people. That’s a nice idea of a larger company from a smaller country. And the other guy I was with was a design director from Nokia and he’s created products which have sold over one billion units. Again big-scale business from a small country. That’s what we’re interested in.

“How do you make size and proximity become less of an issue? By creating a business offering more relevant to international markets. It can’t be just about cute ideas; there needs to be evidence of commercial scale for us to get a return on investment, which is the government’s money, or yours and mine.”

There are plenty of examples of New Zealand companies which have successfully focused on design. The Design in Business Awards are a good place to start. Previous winners include Formway; the wetsuit manufacturer Orca; Glidepath, which makes internationally recognised baggage handling systems; and OBO, the Palmerston North-based company making field hockey equipment. OBO, a company of 16 people, sells 80% of its products in 61 countries. It became a market leader by finding out what its customers really want, then uses professional product designers to perfect its products and a swish manufacturing process based in New Zealand. As a result, it makes the coolest hockey helmets on the planet. Its success, says managing director Simon Barnett, comes from creating a brand personality that customers become passionate about.

Of course, not everyone is wild about Better by Design. Roger Kerr, executive director of the Business Roundtable, says the programme relies too much on picking winners with its policy of helping fast-growth companies. Probably the most public and eloquent critic, albeit slightly reluctant, has been John Heng, CEO of Click Clack and chairman of Vision Manawatu. Heng’s company, which is used as a case study on the Better by Design website, exports products designed and made in New Zealand to more than 50 countries. Heng put his company through a design audit but felt it gained little benefit and says the audit team didn’t seem to understand the international scale Click Clack had already achieved.

Click Clack was one of the first companies to go through a design audit, says Moon, and Better by Design has been continually refining the process.

But more importantly, Heng is uneasy about the whole concept of Better by Design. The idea of putting the New Zealand economy on a smarter footing and reducing our reliance on commodity exports is nothing new. It’s an admirable idea, says Heng, but he remains unconvinced that Better By Design is the right vehicle to achieve that aim and questions the target of an additional $500 million from 50 design-led companies.

“I said to them that any smart-ass investor who can get a result like that will give you $12.5 million for every company. That just doesn’t happen in the real world. But that was the brief. Realistically that was never going to happen and no one in their right mind would expect it to come out of an investment of $2 million to $3 million a year.”

Ray Labone points out that most companies undergoing a Better by Design audit have annual revenue of between $20 million and $100 million. The strategy aims to get growth of 25% a year in each company.

“That’s not unrealistic, especially in companies which, if not still in an entrepreneurial phase, are in a relatively early stage of growth.”

Design led is a phrase getting plenty of airtime. You’ll find it liberally sprinkled throughout this magazine. It isn’t just about creating good-looking things, as Moon so carefully stresses. But what does it really mean?

To Moon it simply means the business of being innovative, something Kiwis are pretty good at. But we’re not so good at taking innovations to market. The purpose of innovation, according to Moon, is to create meaningful new things for humans, and in a business sense, to meet the objectives of an organisation.

“The objectives should be the bottom line, about increasing profitability. But other objectives are enhancing a brand, blocking competitors, energising employees and so on, so when you think about innovation from that point of view, it needs to be led and endorsed by senior management including the CEO and it’s a process of which design is a core component. Innovation includes company strategy, competition strategy, design strategy and organisation strategy, and design works through all those things. So we’re not saying, build something and use some design to make it look better. We’re saying design is central to business thinking.”

It’s far too early to gauge what kind of impact Better by Design is having. And the sort of culture shift — led by exemplar companies — that Labone and Moon talk about will take time to become established. But, bar the odd critic, the companies involved are extremely positive. And, given that fewer than 4% of New Zealand companies currently export, and just 151 of them are exporting goods or services worth more than $25 million a year, Better by Design’s programme looks like a bargain, and one we can’t afford not to buy into.