Tangents

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Entries in product development (27)

Thursday
Nov172011

Depreciation of a Design

Changing best practices in accounting to value intangibles

By Ty Hagler

The design community has a natural blind spot in understanding the language of accounting and finance.  When launching new products in the marketplace, hitting design trends in a timely fashion should count for more, while inefficiencies and delays should count for less. Companies should be able to treat industrial design expenditures as they would capital investments on their balance sheets.

In 1999, designers first started converting repurposed furniture cabinets into bath vanities.  By 2005, the trend had exploded to the point that industrial designers were developing vanities built to look like furniture pieces. 

Homeowners were replacing traditional cabinet sinks during bathroom remodels as an easy way to improve the value of their homes.  By 2009, bath vanities had become the dominant design for new bathrooms, reaching a point where even competing cabinet sink designs featured baseboard holes, mimicking the bath vanity design to a point.

Back in 2006, I worked on a family of bath vanities. Our product development group had targeted this particular line for getting in front of the emerging design trend. We created specifications for a multi-vendor request for proposal.  Each vendor had to meet the specifications and submit their designs with sample prototypes.

We received the expected range of quality and pricing, resulting in three rounds of revisions and eventually culling the vendors down to two finalists.  Our process proved cumbersome, however, and the bitter irony proved that industry trends moved faster than our ability to get the design to market.   By the time shelf space was available for consideration, the leading trend had moved from the conservative box-like vanity we had started with to elegant curves and open, wall-mounted units that you see in stores today. 

Several lessons emerged from this experience, but perhaps the most important concept I took on board during this time was that of depreciating a design. Companies ideally target their designs to hit a trend in timely fashion by the product hits the market.  With a typical development time of six months, the designer needs to correctly predict the finishes, shapes, and functions that will move the market six months out.  If the product launch faces a delay, then the value of the design expenditure (assuming the designer has initially hit the trend in timely fashion) decreases as the launch is pushed out.  

Current accounting practices require that financial officers account for intangible expenses such as branding, marketing, research and development, and design by expensing them at their time of purchase.  The company then realizes the value of the intangible asset through a change in sales over a period of time, until the particular asset no longer has market relevance. In a study of the impact of industrial design effectiveness on corporate financial performance, Dr. Julie Hertenstein, accounting professor at Northeastern University, and her colleagues, proposed the following:

“If one accepts that effective industrial design leads to better financial performance, then the robustness of these findings suggests that expenditures on industrial design should be considered investments similar to capital equipment.”   

In case you missed it, this is a huge idea: if industrial design is to be taken seriously, we need to improve the accounting tools used to measure our work.  As the saying goes, “You can only manage what you can measure.”  The financial community measures industrial design as an expense with few tools to understand if there is a return on the investment. 

Let’s suppose a company spends $150,000 to develop the vanities in the example over the last two quarters of 2006, with an expected launch for the first quarter of 2007.  We can further suppose that forecasted net sales will be an estimated $15 million for the first year, and they will subsequently decline over three years until removed from the market.  Under current accounting systems, the data appears as follows:

 

Y0

Y1

Y2

Y3

Y4

Design Expense

$(150,000)

 

 

 

 

Revenues

 

$15 M

$10 M

$5 M

 

Operating Costs

 

$(9 M)

$(6 M)

$(3 M)

 

Income

 

$6 M

$4 M

$2 M

 

Net Present Value

$9.2 M

 

 

 

 

 

By viewing the Design Expense as an asset to be depreciated over the life of the product, the Net Present Value improves by 10%, or in this case, close to a million dollars.

 

Y0

Y1

Y2

Y3

Y4

Design Expense

-

 

 

 

 

EBDT Income

 

$6 M

$4 M

$2 M

 

MARCS 3Y

 

33%

45%

15%

7%

Depreciation

 

$(49,000)

$(67,000)

$(22,000)

$(10,500)

EBT Income

 

$5.9 M

$3.9 M

$1.9 M

$(10,500)

Net Present Value

$10.1 M

 

 

 

 

 

Observant managers will note that, in this scenario, half of the value of the design disappears if the project is delayed by a year, or an NPV of $4.2 million.  Further analysis shows the NPV recovers to $8.2 million with an additional $150,000 outlay to redesign the product to meet the latest trend in Y2.

What this stylized example proves is that the current language of finance and accounting has a bias against design that can profoundly impact managerial decision-making.  By defining design as a capital expenditure, we gain better clarity to the shifting value of a specific product design, as trends may sometimes dictate where industrial designers must land in the market.  Dr. Hertenstein and her colleague’s thought leadership on this subject presents a significant opportunity to better explain our value as designers.   Taken seriously, their work is a call-to-arms for the design community to lobby for a change in the GAAP (Generally Accepted Accounting Practices) rules.   “Depreciate My Design!” does have a fun ring to it.

Tuesday
Nov012011

Services Innovation: Visual Tools for Change Management

By Ty Hagler

I was recently invited to participate in a very productive ideation session with a global services company to serve as the visual scribe. The experience was certainly rewarding as it was an opportunity to learn from leaders in a completely new industry immersed in a thick vocabulary of shorthand ideas and acronyms. Given my lack of experience in this industry, it was something of a surprise and relief to still be able to make a contribution to the ideation team using principles from design. 

As designers, we understand that ideas can be fragile things, easily molded and shaped, combined with other ideas or discarded in a flash. Often, companies invest heavily in the front end of innovation to unearth great customer insights, wrestle to solve the most pressing challenges and create fantastic ideas, only to see those ideas fail to be implemented due to a disconnect somewhere along the way.  In truth, large companies have an immune system that is very good at repelling new ideas that could change how the existing business operates. If a great idea is to survive long enough to be adopted, design has several tools to strengthen it to fight the cultural antibodies.

The magic of an ideation session itself rests in the fact that complex problems and ideas are best solved by teams with individuals representing many different areas of the company and its customers. When one person expresses half of an idea to solve a key problem, others filter it, interpret, and then re-express the idea through their unique lens to add richness to the idea. As this ideation process goes forward toward an elegant solution, the team captures complex information in a condensed form – similar in scale to the complexity of information that shapes the company’s stock price.  

Unlike the stock price, however, a great idea at this stage has little ability to shape behavior in the company. If it isn’t accurately recorded and incubated, the idea dissolves as easily as the team dispersing to go home for the day. It was at this point where I found my skills as a designer making an impact. As a ‘visual scribe,’ I sought to capture the gestalt of the idea through rough sketches of the core elements of an idea. For some of the more elaborate ideas, it took 2-3 sketches before the team was satisfied that, yes, they fully captured the idea. Later when each team was presenting their work to the room, I was thrilled to see some of them repeatedly reference the sketches as a tool to succinctly express the idea. In some cases, we used creative metaphors to quickly express abstract concepts and their benefits to the user – perhaps sowing the seeds for future advertising campaigns.    

As the internal innovation team strategizes how to shape and implement the fruits of this ideation session, a long-observed principle from design will apply. Given the nature of the ideation session, the ideas were presented in a rough format – which invited lively discussion from the room. Similarly, rough concept sketches invite more feedback and engagement from others, creating a broader sense of ownership and buy-in to the idea. By contrast, a tightly detailed photo-realistic rendering of the same concept, while it may be beautiful in execution, appears much more static in nature – something that can only be accepted or rejected. 

In the context of change management and the socialization of ideas, design teaches us that the stylistic presentation of an idea can impact the psychology of those cultural antibodies that are predisposed to reject change. First, it is through accurate use of visual tools that the gestalt of the idea can be more quickly communicated, avoiding rejection from an ancillary feature that proves to be a red herring.  Second, stylistic choices can have a powerful signaling effect on whether the recipient of the idea is invited to help shape its success or to make a Go/No-Go decision. Implementing innovation within large corporations is certainly a challenging task that involves a high degree of emotional intelligence, to which design tools can improve the chances for success.

Wednesday
Aug172011

Murphy's Hypotenuse: When Form Takes Over Function!  

Murphy's Hypotenuse - the angle on product design

In an effort to share my thoughts, insights ,and ideas surrounding modern product design with others, and, more importantly, to help myself stay informed and receptive of modern design trend, I will be writing a series of pieces on this very topic. It is my hope that Murphy’s Hypotenuse will supplement and expand the breadth of insightful content that Trig's Tangents is all about, while exploring the trends, uniqueness, and in some cases, horrors, of today's product design landscape. Enjoy—Patrick Murphy, Industrial Designer, Trig Innovation. 

Often, product developers find that continued functional evolution of their products reaches a point of bringing diminishing returns. This phenomenon occurs when developers have exhausted all of the cutting edge materials, manufacturing techniques, and technical magic they had at their disposal during the product’s life cycle. Real functional development for the product is now at a standstill, barring some disruptive materials innovation by NASA, for example,  or is, at the very least, too slow to offer the product any tangible advantage in its marketing or distribution. Rule Number One of successful product design is that form follows function—we designers are, ultimately, at the service of the engineers. But once the engineers reach their limits in functional development, form exploration, independent of established function, then becomes free game (and this, my friends, is where the real fun begins).

Enter the golf club. Technologically light years ahead of its predecessors, the golf club is the primary tool used in one of the most popular and lucrative sports around the world. Not only does the golf club benefit from a global, affluent market, it also thrives from its pivotal, central role in the sport—specifically, participation (and successful participation, for that matter) in golf depends very much on the peripheral equipment utilized by the players.  Given these market conditions, the clubs of yesteryear, composed of hickory and steel, have given way to everything modern science has to offer, all in the name of extracting more performance out of sponsored pros and convincing customers that with the same clubs they, too, can shoot lower scores.

Just in the last generation of product development, we’ve seen carbon fiber shafts, titanium bodies, micro-textured polymer grips, flex-tuned impact zones, sway-correcting counterbalances, and modular weight systems. Sounds like the attributes of a Formula 1 car, doesn’t it?! This $75 billion industry has guaranteed its wealthy customers that if the technology exists, it’s available to the consumer.  Now the golf equipment industry finds itself in that position of diminishing returns on all-too-incremental advances in function—revolutionary, disruptive functional innovation has caught up and golf clubs are now technically in tune with the most advanced equipment in any industry.

Not content with this stasis of function and form, it’s clear that many club manufacturers have returned to form to distinguish themselves in the market. The golf club is already, from my own artistic perspective, an extremely interesting sculpture. Completely asymmetrical, but balanced, somewhat bulbous, yet aerodynamic – a club’s unique shape is the result of a unique, singular function—striking a golf ball in optimal fashion. Add to this famous template the most creative visual exploits of an industrial designer and you get specimens of the most innovative aesthetic and form design of today’s product landscape. 

Here are a few examples of how market leaders are taking form to new heights without waiting for the next disruptive innovation in function:



Nike SQ MachSpeed Black Square Driver

Dark, refined, dangerous, and elegant in its technical expression. Color and finish are everything here—the palette (or lack thereof) maintains the club’s unapologetically dark demeanor, but the designer uses texture to break up what might be a monotonous field of satin black, only breaking it to apply eye-popping silver graphics. The broad, smooth surfaces on the bottom face are interrupted by a rich 3-dimensional feature reminiscent of futuristic body armor, a la the movie, “TRON: legacy.”  The sharp, trapezoidal angles at play here remind me of box cutter blades, and, at the sunken feature’s deepest point, the off-plane facets catch light in high-contrast to make the feature pop.

Callaway Diablo Octane Driver

This Callaway number exudes quality, ruggedness, and horsepower. The smooth silver finish is jewel-like in appearance, reminiscent of a masculine wedding band of fine metal. This finish wraps around to adjacent surfaces of the club’s front, evoking solidness and weight, as if that entire portion of the club head were cast from pure steel. The stamped and engraved style of the main logo further adds to the fine metal motif, like a blacksmith’s trademark. But the most striking elements here are the pockets of bright red, faceted angles. Their color and rough texture instantly remind me of the investment-cast and powder-coated v12 engine blocks of high-end supercars. A supercharged V12 inside a golf club! Absolutely brilliant.

 

TaylorMade Burner 2.0 Iron

Hidden beneath an orthodox façade of your typical, smooth-backed iron is an abruptly carved pocket containing one striking visual feature. Ringed in a thin red circle is a precision-lathed eye composed of multiple conical surfaces—looking exactly like what I believe the designer wanted consumers to see in this product: a freaking laser beam! Terminating in a fine pinpoint in the middle of this complex array of lens-shapes, this evil eye appears to have the capability of firing a golf ball with guided-missile precision. To add to the advanced weaponry effect, sharp structural bosses affix this laser to a woven carbon fiber club core. Surfaces emerging from underneath the club almost close in around the eye, as if shrouding it from the sight of its prey.

Images courtesy of: www.nike.com, www.callawaygolf.com, and www.taylormadegolf.com

Thursday
Jul282011

Innovation in Medical Devices versus Consumer Products—A Contrast in Priorities

When building practice specialty areas in product design and development, one must take into consideration that different industries require appropriate tailoring of innovation management skill sets.  A case in point is the difference in innovation management approaches when considering the medical device market in relation to consumer products.

 

Throughout product design and development in both sectors, Voice of the Customer market research is of paramount importance as a driver of future market success.  The landscape of failed consumer products is filled with companies that skipped this step entirely, bringing products to market in a VOC vacuum.  In some cases, consumer products in established categories that have already completed extensive customer activity research can make low-innovation product line extensions that respond to trend insights observed from changes in cultural behaviors. The stakes are significantly higher with medical devices, whereas each product requires extensive input from the myriad of customers and stakeholders - patients, practitioners, third-party payers, and internal constituents. 

 

In their July 2000 Journal of Business Research piece, “Does Customer Interaction Enhance New Product Success,” Kjell Grunera and Christian Homburg offer the following guidance to companies trying to bring voice of customer research into the development process in the right way, and, more importantly, perhaps, at the right time:  "Most important, we could support our fundamental hypothesis that customer interaction in new product development has a positive impact on new product success. Additionally, our study provides specific insights in which stages customers should be involved and we provide guidance on which customers to select for cooperation. The results encourage firms to interact with customers specifically in early and in late stages of the new product development process. A deficit in current business practice is particularly evident in the early stages (idea generation, product concept development). The study found no benefits in interacting in the two medium stages (project definition, engineering)."

 

A point of contrast between the consumer product sector and the medical device field is the application of ideation, which involves preparing a strategic understanding of the key opportunities, bringing the stakeholders together, and facilitating a brainstorming session focused on generating solutions to address the key opportunities. The main driver of difference between medical devices and consumer products is the required competencies for delivering innovation and mitigating risk. 

 

Typically, companies in the medical device industry have stronger competencies for mitigating the higher risks involved at a financial, product performance, and regulatory level.  Therefore, the medical device industry gives far greater attention to thorough, focused ideation sessions that hold the search for innovation in balance with addressing challenges early in the process.  In contrast, ideation for most consumer products is utilized to a much smaller scale, in part, because the product’s life-span is usually shorter, necessitating faster development cycles and incremental innovation with reduced risk profiles.

 

With regard to industrial design, innovation managers should pay attention to several different types of attributes when developing products across these respective industries.  Consumer products, in contrast to medical devices, hew much closer to fashion influences, as seasonal changes in color, pattern, and textures can drive sales by tracking changes in societal behaviors.  Medical devices, rarely considered fashionable, are more heavily influenced by the features and benefits being delivered.  Industrial design in medical devices makes significant contributions to ergonomics and the user interface.  The FDA has stressed the importance of human factors in managing risk of medical error through poorly designed user interface. 

 

In some cases, the sheer engineering prowess required to achieve the functional needs of the medical device overshadows the original aesthetic goals of the product.  Good design holds both engineering and aesthetics in proper balance, adding sophisticated details that better appropriate the technical wizardry accomplished by the device’s function. Sophisticated designers therefore seek that balance in a device that not only achieves the desired functionality, but also brings to bear non-product intangible benefits of appealing to practitioner's sense of pride in their work and competitive differentiation among hospitals and clinicians that employ the device.  In consumer products, design and engineering objectives are addressed almost in parallel to increase the speed to market, reduce costs, and make sure the right product is hitting shelves at the right time.

 

 In summary, the product development arenas for medical devices and consumer products do share some similarities with regard to key innovation management skill sets, especially with regard to market research, and specifically with regard to voice of customer research. In the areas of ideation and industrial design, however, developers see a real shift in tool kit priorities, as the lower margin, higher volume sales world of consumer products tends to diminish the investment in deep-dive ideation sessions. This more cost-intensive area tends to dictate significantly higher levels of compromise in the area of industrial design as well, sacrificing the customer experience to achieve a lower price point.

Thursday
Jul142011

Voice of Customer Research—Ergonomic Evaluations

I was recently reminded of the need for solid voice of customer research through its absence in the design of a consumer product. In this anecdotal example, an ergonomic study would have gone a long way to helping a hot-selling product not only fly off the shelves, but actually stay in customer homes.

A friend had recently purchased an electric leaf blower at his local home improvement store. As most people would be, he was excited to have a reliable new tool to make his lawn maintenance a little easier and more environmentally friendly. Much to his dismay, he had to return the blower because the handle was too small to fit his larger-than-average hands and caused blisters during use.

While my friend’s hand size is in the 90th percentile of the general population, he represents at least 10 per cent of the addressable market for leaf blowers that were eliminated through lack of a proper ergonomic evaluation. The field of ergonomics overlaps between industrial design and engineering, as it involves the design of equipment and devices to fit the human body. At Trig Innovation, we bring in ergonomic considerations early in the design and 3D CAD Sculpting process through use of anthropometric tables for the target population size as a basic design constraint. Then, to make sure the design matches ergonomic fit, we provide ergonomic evaluations to study respondents from the population extremes at the 5th and 95th percentile through one-on-one interviews.

When executing this type of evaluation, we provide the respondents with multiple rapid prototype options or existing products for evaluation. While an ergonomic evaluation can be utilized as a defensive gesture, in that the study validates the design for the population outliers, it should also result in a product that is optimized to fit the greater population in-between the extremes for the broadest possible market appeal.

The results of these studies often deliver detailed feedback on fine-tuning improvements to the prototypes for production to optimize for as much of the population as possible. During the study, we can also get a sense of the degree of influence that the product’s comfort has over the purchase intent.  This feedback may help to prioritize efforts of the product development team to make improvements that match the customer’s feedback.

When a product development team considers skipping an ergonomic evaluation as part of the innovation management process, it is at the peril of their product’s market success and a tacit statement that ergonomic fit is not a factor in winning the customer’s business. In this economy, many companies are spending millions of dollars in marketing and advertising to squeeze just a little more market share and sales dollars out of each product, when they could often accomplish similar growth by designing more effectively for a broader market.

Tangents


The Trig Team


Trig® Innovation, is a nimble vessel for navigating the possibilities of innovation in product and service development. Based in the Research Triangle, North Carolina region, a global hub for science and technology, the Trig® team packs creative and problem-solving prowess into an exclusive strategy framework to propel innovation in a variety of industries. From home improvement products to medical devices, Trig® is a proven winner in industrial design, ideation, and innovation management. Our company is growing, and how we grow is a direct response to the needs of our clients. With emerging service areas like animation, video production, and brand identity, we are expanding outside of a traditional industrial design framework with a host of offerings that mesh well with our keen understanding of product and service development. Global product and brand teams, as well as inventors and entrepreneurs, know that Trig® Innovation is the right choice for integrated development solutions and interactive marketing services.