Change by Design Read online

  Companies such as P&G, Hewlett-Packard, and Steelcase that make products and manage brands have a head start when it comes to transforming their internal cultures because they already have designers, and even some design thinkers, on their payrolls. Though it may be difficult to convince management of the merits of a more strategic role for design, once they are convinced there is often a base of talent already in place. In service organizations, or even manufacturing companies where design has traditionally been outsourced, that base may not exist and the challenge is greater.

  The giant health care provider Kaiser Permanente is a case in point. In 2003, Kaiser set out to improve the overall quality of the health care experience from the point of view of both patients and medical practitioners. IDEO proposed that rather than hire a slew of internal designers, the existing staff should learn the principles of design thinking and apply them themselves. Over the course of several months we conducted a series of workshops with nurses, doctors, and administrators that led to a portfolio of innovations. One of them—a project to reengineer nursing staff shift changes—involved a strategist with a nursing background, a specialist in organizational development, a technology expert, a process designer, and a union representative, facilitated by designers from IDEO.

  Working with frontline caregivers at each of four Kaiser hospitals, the core team identified the problems that occur when shifts change. Departing nurses routinely spent forty-five minutes briefing the arriving shift about the status of their patients. The procedures were unsystematic and differed from hospital to hospital—from recorded dictation to face-to-face meetings—and methods used for compiling information varied from the frantic use of Post-it notes to information scrawled on hospital scrubs. Knowledge that patients cared about was often lost: how they had progressed during the previous shift, which family members were with them, which tests and therapies had been completed. The team learned that many patients felt that the shift change created a hole in their care. What followed from these observations were the now-familiar elements of a robust design process—brainstorming, prototyping, role playing, videotaping—carried out not by professional designers but by Kaiser’s own staff.

  The result was a change in approach, with nurses exchanging information in front of the patient instead of back at the nurses’ station. The first prototype, built in only a week, included new procedures and simple software that enabled nurses to call up previous shift-change notes and add new ones throughout their shifts. More important, patients were now part of the process and could bring up additional details that were important to them. Kaiser measured the impact of this change and found that the mean time between a nurse’s arriving on shift and first interacting with a patient was more than halved. The innovation also had an impact on how nurses felt about their job. In a survey, one commented, “I’m an hour ahead, and I’ve only been here forty-five minutes.” Another was excited that this was the “first time I’ve ever made it out of here at the end of my shift.”

  The new nurse shift change had an impact on patients and nurses but on its own was a long way from achieving the desired goal of a systematic improvement in the overall quality of health care at Kaiser. To achieve that, the core team of nurses, development experts, and technologists went from carrying out their own projects to acting as consultants to the rest of the organization. Through the establishment of the Kaiser Permanente Innovation Consultancy the team pursues the mission of enhancing the patient experience, envisioning Kaiser’s “hospital of the future,” and introducing innovation and design thinking across the Kaiser system.

  It takes a systematic approach to achieve organizationwide change. Initiating nurses and administrators (or executives and clerks, or branch managers and bank tellers…) into the mysteries of design thinking can unleash passion and energy and creativity. At Kaiser it resulted in literally dozens of innovative ideas that were ready to be rolled out across the entire hospital system. It can also elicit new levels of engagement from people who may have spent so much time fighting the system that they could barely imagine having a role in redesigning it. But without a sustained commitment and an integrated approach, the initial effort might have been overwhelmed by the day-today exigencies of running a complex health care system.

  The transformation of a business-as-usual culture into one focused on innovation and driven by design involves activities, decisions, and attitudes. Workshops help expose people to design thinking as a new approach. Pilot projects help market the benefits of design thinking within the organization. Leadership focuses the program of change and gives people permission to learn and experiment. Assembling interdisciplinary teams ensures that the effort is broadly based. Dedicated spaces such as the P&G Innovation Gym provide a resource for longer-term thinking and ensure that the effort will be sustained. Measurement of impacts, both quantitative and qualitative, helps make the business case and ensures that resources are appropriately allocated. It may make sense to establish incentives for business units to collaborate in new ways so that younger talent sees innovation as a path to success rather than as a career risk.

  Were all these elements to work together in harmony, the gears of innovation would turn smoothly. It is not so easy in the face of the real-world challenges confronted every day. Individual business units are focused on immediate concerns, and it can be hard to persuade them to participate in systemwide innovation initiatives. We all know how difficult it can be to keep faith in a volatile business environment in which short-term obstacles seem more demanding than long-term objectives. Too many executives panic at the first sign of bad news. Innovation is not something to be turned on and off like a faucet. Breakthrough ideas take longer to germinate than it takes for all but the longest and deepest recessions take to pass. Companies that suspend innovation efforts, lay off staff, and kill projects as they enter a downturn will only weaken their innovation pipeline. They may need to refocus their efforts and run their projects with fewer resources, but cutting them off altogether leaves them at risk of being blindsided when markets recover.

  An idea incubated in a downturn may have massive impact when times improve. As Andrew Razeghi has recently shown, Fortune magazine was launched just four months after the stock market crash of October 1929 at the high price of $1 per issue and to a small market of only 30,000 subscribers; by 1937, circulation was 460,000, with net profits of $500,000. Other instances followed, including instant coffee, budget airlines, and the iPod. Razeghi argues that new needs are easier to spot in a downturn than in a boom, where there is a surfeit of great ideas chasing needs that have already been met. This conclusion indicates that design thinking may be one of the most profitable practices a corporation can adopt during a recession.

  In the 1950s, W. Edwards Deming began to plant the study of quality on rigorous foundations. Design thinking is unlikely to become an exact science, but as with the quality movement there is an opportunity to transform it from a black art into a systematically applied management approach. The trick is to do this without sucking the life out of the creative process—to balance management’s legitimate requirement for stability, efficiency, and predictability with the design thinker’s need for spontaneity, serendipity, and experimentation. The objective, as the University of Toronto’s Roger Martin reminds us, should be integration: holding these conflicting demands in tension while we create innovations, and indeed companies, that are more powerful than either of them.

  CHAPTER EIGHT

  the new social contract,

  or we’re all in this together

  An organization that commits itself to the human-centered tenets of design thinking is practicing enlightened self-interest. If it does a better job of understanding its customers, it will do a better job of satisfying their needs. That is simply the most reliable source of long-term profitability and sustainable growth. In the world of business, every idea—however noble—must survive the test of the bottom line.

  But this is not a one-sided proposition
. Businesses are taking a more human-centered approach because people’s expectations are evolving. Whether we find ourselves in the role of customer or client, patient or passenger, we are no longer content to be passive consumers at the far end of the industrial economy. For some this leads to a quest for more meaningful pursuits than “getting and spending.” For others it may take the form of holding companies accountable for the impact of their products upon our bodies, our culture, and our environment. The net effect, however, is a far-reaching shift in the dynamic between sellers of goods and providers of services, and those who purchase them.

  As consumers we are making new and different sorts of demands; we relate differently to brands; we expect to participate in determining what will be offered to us; and we expect our relationship with manufacturers and sellers to continue beyond the point of purchase. To meet these heightened expectations, companies have to yield some of their sovereign authority over the market and enter into a two-way conversation with their customers. This shift is happening at three levels, and they will shape the argument of this chapter. First, there is a seemingly inexorable blurring of the line between “products” and “services,” as consumers shift from the expectation of functional performance to a more broadly satisfying experience. Second, design thinking is being applied at new scales in the move from discrete products and services to complex systems. Third, there is a dawning recognition among manufacturers, consumers, and everyone in between that we are entering an era of limits; the cycle of mass production and mindless consumption that defined the industrial age is no longer sustainable.

  These trends converge around a single, inescapable point: design thinking needs to be turned toward the formulation of a new participatory social contract. It is no longer possible to think in adversarial terms of a “buyer’s market” or a “seller’s market.” We’re all in this together.

  the shift to services

  In some sense, every product is already a service. However inert it may seem, a product implies a prior association with the brand that stands behind it and carries the expectation of the maintenance, repair, or upgrade that will follow once we have purchased it. By the same token, few services do not include something tangible, whether it be the airplane seat that carries us across a continent or the BlackBerry that connects us to a vast network of telecommunications services. The line between product and service has become blurred. Some companies—Virgin Atlantic Airways, the European mobile operator Orange, Four Seasons Hotels and Resorts—have been quicker to recognize this than their competitors and have been rewarded by a loyal customer following.

  It is surprising, then, that service businesses have been so much slower to innovate than companies that produce office furniture, consumer electronics, or sportswear. Few of them have built strong research and development cultures. Their business operations are rarely informed by the strategies that have proven so successful elsewhere.

  The core of the problem is that the manufacturing sector deals with machines and the service sector deals with people. This is a rather gross oversimplification, of course, but it rests on a principle that is quite complex. Industrialization was driven by sweeping innovations in technology. One need only dip into the novels of Charles Dickens, Émile Zola, or D. H. Lawrence to observe how people were dragged along in its wake. Companies competed with one another on the basis of their technological prowess and adopted practices designed to increase their capacity for technological innovation. As small start-ups grew into industrial empires such as General Electric, Siemens, and Krups, they established research labs, design studios, university affiliations, and other means of systematizing innovation. Historians such as David Noble and Thomas Parke Hughes have tracked how new forms of intellectual property—patents, copyrights, and licensing arrangements of every imaginable sort—were tied to the growth of these new megacompanies. Even governments took on the role of protectors of intellectual property as a matter of national competitiveness: Britain in the 1850s, Germany in the 1910s, Japan in the 1950s, and China today.

  Investing in a future stream of technical innovation became part of the management of the large industrial company. Thomas Edison led the way with the opening of the first modern industrial research lab—the so-called invention factory—in 1876, and research and development has been part of manufacturing companies ever since. Though they may not be quite as ambitious as “the Wizard of Menlo Park”—Edison famously promised a minor invention every ten days or so and a “big trick” every six months—most manufacturing companies assume that the way to ensure a stream of products tomorrow is to invest in technological research today.

  Investment in innovation continues to grow and evolve. It now includes a variety of models. Apple Inc. does not maintain a large research facility, but it does invest hundreds of millions of dollars every year in the design and engineering of new products. Procter & Gamble maintains a large commitment to R&D but also invests heavily in consumer-centered innovation and design. Toyota, the world’s biggest automaker, is famous for investing in process innovation to improve the quality of its manufacturing. Product companies are so dependent on their stream of new ideas that the stock market often values them on their commitment to innovation. Why is this not the case with the service sector?

  Among service companies one rarely finds a culture built around investing in future innovations. Where it does exist, it tends to be concentrated on the infrastructure that makes a service possible rather than the service itself. Telecommunications companies invested in copper wire–based networks and then in mobile technology, but they paid little attention to the customer experience. AT&T built one of the most famous research laboratories of them all, but even during its heyday Bell Labs behaved more like a manufacturer of telephones than a provider of telecommunications services.

  In the Main Street world of retailing, food services, banking, insurance, and even health care, there was little thought given to systematic innovation before the advent of home computing and more specifically the Internet. Citibank gained its reputation as one of the most innovative financial institutions in 1977 when it installed networked ATMs in its branches around New York. This radical service innovation allowed customers to do their banking on their own terms. For the first time since the invention of the slot machine, a piece of technology got between us and our money, and many people had a difficult time with that. Eleanor Wetzel, whose husband invented it, claims never to have used one.

  Prior to the computer and the Internet, almost every service relied on direct interaction between the service provider and the service recipient. In this people-to-people world, a company’s competitiveness rested on how well service personnel could look after their customers. This translated into a simple formula: the more premium a service, the more people were generally involved in delivering it. A luxury hotel had more bellboys, concierge staff, cleaners, and cooks per customer. A premium private bank gave its wealthy customers one-on-one service rather than forcing them to line up for a teller like the rest of us. As long as it was people who determined the quality of the service customers received, there was little incentive to think about the sort of breakthrough service innovations that could redefine a market.

  Of course, there are exceptions. Isadore Sharp created Four Seasons on the premise that large-scale hotels and great service were not incompatible. Howard Schultz built Starbucks into a global brand on the insight that ambience is as important to coffee drinkers as caffeine. Whether he is selling records, bridal wear, or airplane tickets, Sir Richard Branson recognizes the centrality of the service experience.

  By the end of the 1990s, many companies had finally acknowledged that technology was destined to replace, or at least significantly augment the role of people in defining the consumer experience. In just a few years, companies such as Amazon, Zappos, and Netflix went from untested start-ups to major brands. eBay went one step further, creating a clever infrastructure that enabled customers to do all of the work and cha
rging them for the privilege of doing so. Other sectors recognized that these new networks offered huge potential. Dell found that it didn’t need to rely on archaic electronics stores to distribute its computers. Instead it went direct to the customer. Wal-Mart used computer networks to manage a gigantic group of suppliers with a level of efficiency never before seen and at the lowest possible price. Suddenly, it seemed, service companies were competing based on their leverage of technology and not just of people. Competitiveness became dependent on innovation.

  At the same time, not all service-sector companies have gone on to discover the hard-won lesson learned by their manufacturing counterparts: technology alone does not necessarily result in a better customer experience. Coming from the British Midlands, I sometimes think of the interminable loops of telephone answering systems or the confounding Web sites of so many e-tailers as the modern-day equivalent of the “dark satanic mills” that haunted the imagination of William Blake during the first throes of the industrial revolution. They subordinate humans to the inscrutable logic of the machine; they degrade and frustrate us; they compromise the quality of life and the efficiency of work. Service companies that use innovative technology but do not innovate to improve the quality of people’s experience are destined to relearn the bitter lesson of the companies of the industrial age: that past innovation is no guarantee of future performance.

  Netflix is one service company that understands this. During its first few years, once it had launched its breakthrough innovation of renting DVDs via the Internet and having them delivered by the postal service, Netflix focused on building its core proposition and securing a customer base large enough to sustain it. Early experiments were incremental and focused on improving the usability of its Web site and tinkering with different subscription levels. Next the company began identifying networks of trends and providing subscribers with a repository of film data and rankings. More recently it has begun experimenting with what is probably the inevitable shift to using the Internet not just as a sales counter but as an online movie delivery system. This first required downloading movies and watching them on a home computer, but technology is advancing. The California-based company Roku builds a set-top box that allows people to download movies and watch them on a standard television. The South Korean giant LG Electronics has Netflix-downloading capability built into its standard Blu-ray players. With every advance, Netflix has focused on the design of the experience and not just the technology. There is still a long way to go before thousands of letter carriers no longer drop millions of red envelopes into mailboxes, but Netflix has begun to guide its customers on a gradual journey without frustrating them, alienating them, or losing them along the way.