2. Product Design, Innovation and Competitiveness
2.1 Microeconomic factors and design (the commercial role of design)
Product Design is one of the most important non-price factors which determines the success of a product. The role of product design changes throughout the life-cycle of a product. In the initial product development stage, the role of design is to create a marketable product from an innovation. The product may create a need where none existed before, (for example when the Sony Walkman was introduced) or quite different products may be competing with others in the same market (for example trams, cars and buses compete for urban transport). As the product life cycle matures, more competitors enter the market and the chief role of design is in product differentiation; through quality, appearance, performance, ease of use, reliability, reparability and so on (Walsh et. al. 1992: 32,82).
The importance of design as a non-price factor and the role of design in determining the production and running costs of a product lies in the theory that:
- A purchaser will chose a better designed, higher quality product when given the choice of two products of similar price.
- A purchaser will chose the cheaper of two products of similar design and quality.
In reality, purchaser choice will also be influenced by various other non-price factors such as availability, advertising, company image, and ideology (for example, nationally produced or environmentally friendly products) (Walsh et. Al, 1992: 65). In addition, price is often regarded as an indication of quality (Uganwa and Baker, 1989). Finally, purchasers can also chose between a product or a service (for example a washing machine or a laundry).
A number of studies (Pavit, 1980; Patel and Pavit, 1987; NEDO, 1979) have shown that innovativeness and technical sophistication are the non-price factors which most determine competitive success in international markets.
While product design is generally considered to be a non-price factor it also important to consider the influence of design upon product price. Product design effects the cost of production through the choice and use of materials and how the product is assembled (known as Design for Manufacture). Design also influences after-sales maintenance and running costs (which is more important for some types of products such as heating systems). Running costs are often calculated as being integral to the price of a product in purchasers decisions. Therefore it is simplistic to view design as purely a non-price factor (Walsh et al: 80-82).
In the UK, studies of the return of investment in design have been carried out by the Design Innovation Group of Open University and Manchester Institute of Science and Technology. One study showed that 'Design Conscious Firms' had a three per cent higher return on capital, one per cent higher profit margin, 28 per cent higher Turnover growth and a seven per cent higher capital growth than a representative sample. (Walsh et al: 1992, 79).
2.2 Macroeconomic factors and design
In industrialised countries, the link between design of products and industrial competitiveness has increasingly been acknowledged by economists and policy makers as well as by designers themselves.
In the UK, two important reports stimulated debate into the important role of design in competitiveness: the Corfield Report on Product Design (NEDO, 1979) and the Finniston Report, 'Engineering our Future' (Finniston, 1980). The reports suggested that Britain was declining industrially through loss of market share to other countries, especially Germany and Japan, both of which were renowned for the high quality and design of their products. The reports pointed to a cause being the UK's relative lack of investment in Research and Development and Product Design. Walsh et. al. (1992: 4) summarises the main findings of these reports:
Since the Second World War, and particularly since the late 1950s, the creation and manufacture of well-designed products, across the whole spectrum of innovation, have become essential to the success both of individual companies and national economies...our research has shown that those firms that invest resources and professional expertise in product and industrial design in both traditional and new industries have been commercially more successful than firms that pay less attention to these aspects of design.
Such has been the concern in the UK with the country's decline in the share of the world's manufactured products, that during the 1980s, the Conservative government significantly departed from their policy of reducing public spending when they funded a new initiative to directly subsidise product design within firms (the Support for Design Scheme). Margaret Thatcher (1992) cited in Walsh et. al. (1992: 69) wrote of the importance of product design:
There are many ingredients for success in the market-place. But I am convinced that British industry will never compete if it forgets the importance of good design. By 'design' I do not just mean 'appearance'. I mean all the engineering and industrial design that goes into a product from the idea stage to the production stage, and which is so important in ensuring that it works, that it is reliable, that it is good value and that it looks good. In short it is good design which makes people buy products and which gives products a good name. It is essential to the future of our industry.
These reports and government initiatives have been reflected in other reports relating to design in Japan, Germany, France, UK, Scandinavia.
According to Braunerhjelm and Fors, comparative advantage can be regarded from two perspectives, static or dynamic. In this analysis, static comparative advantage includes the fixed factors of production such as physical capital, labour, human capital, labour skill, land and natural resources. Dynamic comparative advantage is the ability to upgrade skills, adopt new technologies, introduce innovative products and production techniques and the transfer of these technologies between companies in a country. Therefore, goods competing on price, compete on a static comparative advantage whereas goods which are of higher value added, more technically sophisticated and differentiated, require that dynamic comparative advantage be present (Braunerhjelm and Fors, 1994: 7). Thus product design, as a process, is a factor of dynamic comparative advantage. Braunerhjelm makes two important points regarding dynamic comparative advantage; firstly, with dynamic comparative advantage it is more difficult to predict which firms will succeed, since success depends on individual companies internal capacity to innovate and adapt. Secondly, in an open international economy, it will be more difficult to predict winners (Braunerhjelm and Fors, 1994: 6-7).