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Org Design for Design Orgs by Peter Merholz, Kristin Skinner

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Chapter 1. Why Design? Why Now?

AS WITH MUCH OF THE ECONOMY, September 2009 was an uncertain time for the technology sector. The markets were mostly recovered after the global financial collapse, but it wasn’t clear if this would sustain or if a double-dip recession would undo the recovery. That month, a corporate acquisition occurred that has ripple effects to this day, though not in any way predicted at the time. Intuit, the leading provider for personal and small business financial management software, paid $170 million to acquire Mint, a service that aggregated all your financial accounts into a single dashboard. Mint had been operating for only 2 years, had 35 employees, and had about 1.5 million users. Revenues supposedly had grown fast, but were never shared.

Most surprising, Mint didn’t own the core aggregation technology—that came from Yodlee. Mint’s innovation was a smooth and delightful user experience on top of that technology, which in turn created a passionate, active, and growing user base. In large part, Mint was acquired for its design, as that was the primary factor contributing to its desirable metrics. This proved to be a lightbulb moment in Silicon Valley, along with the rise of Apple at the time. Mergers and acquisitions activity for design firms and designer-led companies accelerated after 2010,[1] and every startup and tech company realized they needed a design competency in order to stay competitive.

Silicon Valley is such an idiosyncratic business environment, it would be easy for companies outside its bubble to dismiss this embrace of design. However, it’s not just next-generation tech companies that are increasing this investment. In 2012, two tech stalwarts made big moves, with GE establishing a UX Center of Excellence, and IBM announcing plans to hire 1,000 designers over the span of 5 years. Then banks Capital One and BBVA each acquired design firms. In management consulting, Accenture acquired Fjord, and McKinsey acquired Lunar. What’s going on here? By addressing this question, we can establish a framework for thinking about the impact design can have on an organization.

“The Power of Design”

As companies and their offerings get more complicated, old ways of management have successfully run their course. In the 20th century, business was dominated by “scientific management” (aka “Taylorism”) wherein workers’ activities were minutely analyzed, new practices were specified in exacting and mind-numbing detail, and independent thought on the part of laborers was discouraged, as the solution had been figured out by management.[2] With the growing capabilities of computation, the mantra of the 80s and 90s was Business Process Reengineering and Six Sigma. These were methodologies for removing waste from development and production processes, streamlining supply chains, and generally making companies more efficient. These tools worked beautifully, helping companies increase their bottom lines by reining in needless costs. Dell became the market leader for personal computers because it was better than any other company at managing a supply chain.

However, systems have limits to their efficiency. Beyond a certain point, additional streamlining efforts return negligible gains. Once a company realizes it has run out of optimizations, the only way to grow is through increasing the top line. This led to the cult of “innovation” that began in the late 1990s and continues to this day.

At first, the innovation conversation turned to science and technology as the key wellsprings of creativity. Around 2004, the conversation broadened, as indicated by BusinessWeek placing the design firm IDEO on its cover, touting “The Power of Design” (Figure 1-1). The empathetic, inventive, and iterative aspects of design practice were seen as new ways to help business break out of its overly analytical rut.

Cover of BusinessWeek, May 17, 2004
Figure 1-1. Cover of BusinessWeek, May 17, 2004

“Software Is Eating the World”

Parallel to this quest for innovation, another realization slowly dawned. As Marc Andreessen put it in his 2011 seminal essay for the Wall Street Journal: “Software is eating the world.” For decades, software was a product, something software companies like Microsoft or Oracle or Adobe produced. But then, with the rise of the Internet, a fundamental shift happened. Companies realized that, regardless of their business, software was core to their infrastructure. Every company is becoming, to some degree, a software company. A company might have been thought of as an “airline,” “hotel,” “manufacturer,” “bank,” “consulting firm,” and so on, but over time a greater and greater part of their business was dedicated to creating software to support and enable their operations. For example, GE, which until recently thought of itself as an industrial manufacturer, realized it was also the world’s 14th largest software company—the software to power all of these big machines.

Software, by its nature, dwells in abstractions, and making sense of those abstractions proves difficult for most people. Recognizing this, software is one field with relatively decent investment in design, under the guise of “human–computer interaction,” “interaction design,” “interface design,” or even “usability.” As design is seen as a best practice in software development, and more companies invest more in their software capabilities, it follows that more companies begin investing more in design.

The Consumerization of All Software

Not only is there more software being created, there’s also a growing requirement that the software be good. “Good” is a squishy term, but in this context it means it’s no longer sufficient for software to simply “check off all the features.” Feature parity was an acceptable strategy when software was a less mature discipline, but now software competes not just on function, but experience as well. As software users work with more software tools, they become sophisticated, learning to appreciate software that works well, and denigrate software that doesn’t.

For a while this affected only consumer products, where individuals had the power to choose what to buy. Enterprise software design remained terrible for a few reasons: the person buying the software was usually not the person using it; the people using it had no alternative; a belief that bad design could be overcome through training; and a sense that work shouldn’t be fun or pleasant, and that software should reflect such seriousness. However, the market for enterprise software has evolved. Companies realized the productivity drag of poor software, and users, as their sophistication grew, were less willing to put up with bad design. Enterprise software companies found themselves losing customers because of their poor design. This “consumerization of IT” has accelerated as people who have been steeped in digital technology since childhood (read: “millennials”) have entered the workforce, and they have higher expectations from technology than those who preceded them. This means some of the biggest investments in design are happening on the enterprise side, such as IBM’s plan to hire 1,000 designers, nearly all dedicated to enterprise software.

Everything-as-a-Service

Traditional software could be thought of as a product—when it was finished, it was shipped, put in boxes sold on shelves, or directly installed on machines. In a networked world, software is never finished, and is continually optimized, enhanced, and deployed. This shift has been so fundamental that software companies associated with boxes on shelves, like Microsoft and Adobe, now generate revenue through subscription models, where customers don’t own the software, but license access to it.

The always-on, networked, and continually modified nature of software has altered the dynamic between seller and buyer. It is now a continual relationship, and accordingly, every company is becoming not only a software company but also a services firm.

Apple is still seen as primarily a hardware products firm, but much of its success is due to intelligent incorporation of services, starting with the Apple Stores in 2001 (inspired by the white glove service received at top hotels like the Four Seasons[3]) and continuing with the iTunes Music Store (which enhanced the experience of iPod, and also allowed Apple to place the iTunes Trojan Horse on millions of computers), the iOS and OS X App Stores, and most recently Apple Music. With the Internet of Things, whole categories of consumer electronics (e.g., pedometers [Figure 1-2], thermostats, smoke detectors, security cameras, refrigerators, televisions) become Internet-enabled. With their data in the cloud accessible from everywhere, these products have evolved into always-on services.[4]

The fitness tracker Jawbone UP3 has no display. The device has no value without its app, a cloud-based service storing the user’s data and providing personalized insights. The physical product is simply a part of a larger service ecosystem. (Photograph by Peter Merholz)
Figure 1-2. The fitness tracker Jawbone UP3 has no display. The device has no value without its app, a cloud-based service storing the user’s data and providing personalized insights. The physical product is simply a part of a larger service ecosystem. (Photograph by Peter Merholz)

If the company was not a services firm already, this requires a fundamental shift in how a company thinks of and interacts with its customers. In a product world, where people purchased goods through an intermediary (i.e., retailer) and there was no connectivity, companies had only a vague sense of who their customers were, and only if their customers did things like fill out registration cards. Now, to use these products, customers create accounts, and the service tracks their behavior in detail. Companies have a responsibility to better know and serve these customers on an ongoing basis.

Double-Edged Sword of User Empowerment

However, it’s not just about “becoming a service.” Even if you were already a services firm, the underlying technology, the very reason that every company can now be a service, enables a new reality about delivering services: it is more complicated than ever.

Before the mid-1990s, if you wanted to interact with a company, you did so in person, by phone, by fax, or through postal mail. Since then, there’s been an explosion of digital touchpoints: initially the Web and email, and then online chat, social media, and mobile apps.

Networked software not only meant new ways to communicate—it also provided new means for customers to act. Pre-Internet, if a services firm like a bank used software, it was primarily as an internal tool used by a trained professional. Anything customer-facing, such as the software in ATMs and telephone banking, was limited to basic functions. The desktop Web then allowed businesses to avail customers of the power of these formerly internal systems.

Customers were willing to adopt these complicated tools because they appreciated having greater direct control. Companies encouraged this because it helped reduce labor costs. However, internal users could be expected to be using such tools for hours a day, whereas external users were more likely to use them for minutes a week or even a month. Creating something understandable to a non-expert for such relatively little use required deep rethinking. And as competitors achieved feature parity, customers chose services not just because of the capabilities provided, but also the quality of the user experience. This led traditional service industries (finance, retail, travel, hospitality) to closely follow consumer tech companies (such as Apple, Yahoo, and Netscape) to be among the first to build significant in-house design organizations.

The dichotomy between complexity and simplicity is exacerbated by the rise of mobile phones. By providing a new point of access, their very existence increases complexity. However, design for mobile needs to be more streamlined and straightforward to fit within its constraints—smaller screens, slower processors, and less precise pointing devices.

Design Can Be So Much More Than “Problem Solving”

Business in the industrial and information ages of the 19th and 20th centuries was dominated by the analytical approaches typical in scientific management and engineering. Such reductive approaches are insufficient for tackling the complex challenges companies now face. This has led to greater investment in design for the following reasons:

  • Squeezing greater efficiency has run its course, and design’s generative qualities are seen as a means to realize new business value.

  • Given software’s abstract nature, design is required to tether the experience to something people can understand; with networked software, this challenge is exponentialized.

  • The shift from products to services, with umpteen touchpoints by which someone chooses to interact, places greater reliance on design for coordination so as not to overwhelm the customer.

These challenges explain corporations’ willingness to spend on design, but if we focus only on known problems, we limit the potential impact that design can have on a company. While design is often associated with problem solving, the irony is that this view represents the same reductionist mindset that created the challenges that design is being brought in to address.

Problem solving is only the tip of the iceberg for design. Beneath the surface, design is a powerful tool for problem framing, ensuring that what is being addressed is worth tackling. Go deeper still, and you discover that the core opportunity for design is to inject humanism into work. The best designed products and services don’t simply solve problems—they connect deeply with people. When design is combined with social sciences like anthropology and sociology, and other creative disciplines such as writing, there exists the possibility of creating a powerful expression of the human experience. As Steve Jobs said:

Design is the fundamental soul of a man-made creation that ends up expressing itself in successive outer layers of the product or service.[5]



[1] As shown in KPCB’s #DesignInTech Report 2016 (http://www.kpcb.com/blog/design-in-tech-report-2016).

[2] To better understand the 20th century’s mania for efficiency, Wikipedia’s entry on Scientific Management (https://en.wikipedia.org/wiki/Scientific_management) is a great place to start.

[3] Jerry Useem, “Apple: America’s Best Retailer,” Forbes, March 8, 2007, (http://archive.fortune.com/magazines/fortune/fortune_archive/2007/03/19/8402321/index.htm).

[4] Mike Kuniavsky’s notion of “service avatars,” explored in his book Smart Things (Morgan Kaufmann, 2010), addresses this shift in detail.

[5] Steve Jobs, “Apple’s One-Dollar-a-Year Man,” Fortune, January 24, 2000, (http://archive.fortune.com/magazines/fortune/fortune_archive/2000/01/24/272277/index.htm).

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