Slide Slide 11

Design in Innovation Design in Innovation Coming out from the Shadow of R&DComing out from the Shadow of R&D

Bruce TetherBruce Tether

Centre for Research on Innovation & Competition andCentre for Research on Innovation & Competition and

Manchester Business School, University of Manchester, and Manchester Business School, University of Manchester, and

Advanced Institute of Management Research (AIM)Advanced Institute of Management Research (AIM)

Slide Slide 22

Design: Innovation’s Neglected InputDesign: Innovation’s Neglected Input

• Design - little attention from Innovation Economists– Certainly neglected relative to R&D

– But what is Design?– No commonly agreed (or simple) definition (i.e., no Frascati type Manual)

– Includes Engineering design (function), Industrial design (form), Communications design (messages), etc.

– Overlaps with but not confined to R&D & Marketing

• UK Innovation Survey of 2004 – Explicit questions about design – other countries design is part

of ‘Other Preparations for the introduction of innovations

– UK CIS4 answered by 16,500 manufacturing & services firms

– Survey undertaken by ONS for DTI, response rate of 58%

Slide Slide 33

Proportions of Innovation Active Firms by Industry Engaging in Various Innovation Activities

(Weighted Analysis)

0%

10%

20%

30%

40%

50%

60%

70%

80%

Intramural R&D Extra Mural R&D Acquisition ofMachinery,

Equipment &Software

Acquisition ofExternal

Knowledge

Training Design MarketIntrodution

All Innovation Active Firms Construction, etc. Manufacturing Firms Fin. & Bus. Services Trade etc. Services

Engaging in Design & Other ActivitiesEngaging in Design & Other Activities(Weighted Analysis)(Weighted Analysis)

R&D Design

Slide Slide 44

Proportions of Innovators of Different Types Engaging in Innovation Activities(Weighted Analysis)

0%

10%

20%

30%

40%

50%

60%

70%

80%

Intramural R&D Extra Mural R&D Acquisition ofMachinery,

Equipment &Software

Acquisition ofExternal

Knowledge

Training Design MarketIntrodution

All Innovation Active Firms Incomplete Innovators Imitative Innovators Novel Innovators

Engaging in Design & Other ActivitiesEngaging in Design & Other Activities(Weighted Analysis)(Weighted Analysis)

R&D Design

Slide Slide 55

Variation in Expenditure per Employee on Innovation

£568

£465

£714

£594

£385

£833

£445£400

£70 £65 £85 £68£43

£86 £66 £56

£190£149

£220 £200

£133

£250

£158£133

£0

£100

£200

£300

£400

£500

£600

£700

£800

£900

Exp

end

itu

re p

er E

mp

loye

e in

200

4

75th Percentile 25th Percentile Median

Innovation Expenditures on DesignInnovation Expenditures on Design(Amongst firms reporting innovation expenditures on design in 2004)(Amongst firms reporting innovation expenditures on design in 2004)

Slide Slide 66

Variation in Expenditure per Employee on Innovation(amongst firms reporting some expenditure in 2004)

£4,028

£2,718

£5,417

£4,162

£2,418

£7,380

£4,000

£2,255

£362 £259£588

£333 £217

£833£426

£225

£1,250£800

£1,881

£1,250£755

£2,582

£1,321

£700

£0

£1,000

£2,000

£3,000

£4,000

£5,000

£6,000

£7,000

£8,000

Exp

end

itu

re p

er E

mp

loye

e in

200

4

75th Percentile 25th Percentile Median

Total Expenditures on InnovationTotal Expenditures on Innovation(Amongst firms reporting innovation expenditures in 2004)(Amongst firms reporting innovation expenditures in 2004)

Slide Slide 77

Innovation Expenditure – SharesInnovation Expenditure – Shares(Average distribution amongst firms reporting Expenditures)(Average distribution amongst firms reporting Expenditures)

IRD ARD AME AEK TRA DES MKT

All Firms* 18% 3% 44% 3% 15% 5% 12%

Construction etc.* 9% 2% 48% 4% 26% 4% 6%

Manufacturing* 24% 3% 46% 2% 9% 7% 9%

Business Services* 20% 4% 37% 4% 19% 4% 12%

Trade etc. Services* 10% 3% 46% 3% 16% 4% 17%

Novel Innovators* 28% 4% 32% 4% 10% 7% 15%

Imitating Innovators* 18% 3% 45% 3% 13% 5% 12%

Incomplete Innov.* 11% 3% 51% 3% 19% 4% 9%

Slide Slide 88

Design Activity by Sector and Type of Innovatoramongst Innovation Active Firms

(Weighted Analysis)

24%19%

35%

22% 19%

40%

23%15%

27%

16%

29%

32%

23%

33%

29%

22%

12%

10%

12%

11%

12%

11%

13%

12%

37%

55%

24%

35%

46%

16%

35%

51%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

ALL FIRMS Construction,etc.

Manufacturing Fin. & Bus.Services

Trade etc.Services

NovelInnovators

ImitatingInnovators

IncompleteInnovators

Engaged in 'All Forms of Design' No Design, but engaged in In-house R&D No RDD, but used Design for Protection No Evident Design Activity

““Hidden Design” Hidden Design” (Weighted Analysis)(Weighted Analysis)

Slide Slide 99

Design - a Complementary Asset?Design - a Complementary Asset?

• Q. How Does Design Contribute to Performance?– Advocates say design brings user perspectives, etc.

– Design Council research suggests that investments in design have large payoffs: Implies an “Invest and Win” situation

“For every £1 spend on design, the turnover of a design alert business increases by £2.25” [Design Alert = businesses known to benefit from using design]

• Q. But are Payoffs to Design really significant when used in Combination with Other Activities? – Especially in combination with R&D &/or Marketing activities

– i.e., Is Design (often) a complementary asset, the payback towhich is difficult to isolate from other investments?

Slide Slide 1010

Count of Number of Other Innovation Activities Engaged In amongst Firms Engaged in Design (Weighted Analysis)

0%

5%

10%

15%

20%

25%

30%

0 1 2 3 4 5 6

Pro

po

rtio

n o

f F

irm

s

All Firms Incomplete Innovators Imitating Innovators Novel Innovators

Design: Usually with Other ActivitiesDesign: Usually with Other Activities(Weighted Analysis)(Weighted Analysis)

Slide Slide 1111

Regression AnalysesRegression Analyses

• Modelling Innovation Outcomes (Multinomial Logistics)– i.e., No Innovations; Product Only; Process Only; Both

(also when confined to Novel Innovations)

– i.e., No Product Innovation; Imitative Product; Novel Product

– i.e., No Process Innovation; Imitative Process; Novel Process

• Independent Variables– Investments in combinations of R&D, Design & Marketing

– i.e., none, R&D only … design & marketing, … All Three

– Investments in training, acquired equipment, none of both.

– Sector, Firm Size, Firm Age, Ownership, Market Served

Slide Slide 1212

Regression ResultsRegression Results

• Findings– Investments in Design, R&D and Marketing all impact positively

on introduction of (Novel) Product Innovations

– Firms investing in combinations of these even more likely to introduce (Novel) Product Innovations – doing all 3 is ‘best’.

– Investments in only R&D or only Marketing but not only Design impact positively on introduction of (Novel) Process Innovations

– Including design with R&D &/or Marketing increases probability of introducing (Novel) Process Innovations – doing all 3 is ‘best’.

– Investing in Design, especially in combination with R&D &/or Marketing increases chances of Both Product & Process Innov.

– Same Finding also for Novel Innovations.

Slide Slide 1313

Regression ResultsRegression Results

• Interpreting the Findings– If you want to innovate, especially for Product Innovation,

invest first in R&D (amongst R&D, Marketing and Design),

– … but better still R&D and Marketing

– …… and better still is R&D, Marketing & Design.

– Design alone is Poor Choice! (but better than nothing!)

• Situation is complicated by these being additional investments, not substitutes

• In general, ‘elite innovators’ seem to be able to master and integrate investments in several different activities, on which they spend more per activity than firms that spend on only one or two activities

Slide Slide 1414

Manufacturing Firms

6775 71 73 69 69 65 61

0%

20%

40%

60%

80%

100%

All Firms (None) R&D DES MKG R&D MKG DES +(R&D/MKG)

R&D DESMKG

Novel Innovation Imitating Innovation Significant Improvements Unchanged

Share of Sales from Innovation (2004)Share of Sales from Innovation (2004)(Manufacturing Firms: Mean Share of Turnover amongst Product Innovators)(Manufacturing Firms: Mean Share of Turnover amongst Product Innovators)

Firms spending on combinations of R&D, design and marketing tend to earn a greater share of their turnover from innovative products than firms spending on none or only one of these activities. Spending on all three is associated with the highest share of income from innovative products

Slide Slide 1515

Financial and Business Services

63 67 67 6571

61 58 58

0%

20%

40%

60%

80%

100%

All Firms (None) R&D DES MKG R&D MKG DES +(R&D/MKG)

R&D DESMKG

Novel Innovation Imitating Innovation Significant Improvements Unchanged

Share of Sales from Innovation (2004)Share of Sales from Innovation (2004)(Financial & Business Services: Mean Shares amongst Product Innovators)(Financial & Business Services: Mean Shares amongst Product Innovators)

Firms spending on combinations of R&D, design and marketing tend to earn a greater share of their turnover from innovative products than firms spending on none or only one of these activities. Spending on all three is associated with the highest share of income from innovative products

Slide Slide 1616

Trade and Leisure Services

68 70 7278

69 68 65 61

0%

20%

40%

60%

80%

100%

All Firms (None) R&D DES MKG R&D MKG DES +(R&D/MKG)

R&D DESMKG

Novel Innovation Imitating Innovation Significant Improvements Unchanged

Share of Sales from Innovation (2004)Share of Sales from Innovation (2004)(Trade and Leisure Services: Mean Shares amongst Product Innovators)(Trade and Leisure Services: Mean Shares amongst Product Innovators)

Firms spending on combinations of R&D, design and marketing tend to earn a greater share of their turnover from innovative products than firms spending on none or only one of these activities. Spending on all three is associated with the highest share of income from innovative products

Slide Slide 1717

Expenditure on Design & R&DExpenditure on Design & R&D(Median expenditures amongst firms in each category)(Median expenditures amongst firms in each category)

£170 £2

20

£160

£150

£340

£710

£330

£770

£600

£390

£180

£1,1

80

£0

£250

£500

£750

£1,000

£1,250

All Firms NovelInnovators

ImitatingInnovators

IncompleteInnovators

Exp

endi

ture

per

Em

ploy

ee

Design Only R&D Only Design & R&D

In all cases, firms spending on both design & R&D spend more on these two activities than the sum of spending on R&D and design by firms that spend on only one of these activities.i.e. Design appears to complement not substitute for R&D

Slide Slide 1818

Expenditures on Innovation and Number of Activities Engaged in

All Firms

Manufacuturers

Fin. & Bus. Services

Trade etc. Services

Novel Innovators

Imitating Innovators

Incomplete Innovators

£250

£375

£500

£625

£750

£875

£1,000

1 2 3 4 5 6 7

Count of Innovation Activities Engaged in

Exp

end

itu

re o

n In

no

vati

on

per

Act

ivit

y

Innovation Expenditure – SharesInnovation Expenditure – Shares(Average distribution amongst firms reporting Expenditures)(Average distribution amongst firms reporting Expenditures)

Slide Slide 1919

ConclusionsConclusions

• Design appears to make an interesting contribution– Yet badly neglected by Scholars of Innovation

– Difficulty here is inconsistency in what is meant by Design

– Fewer firms (explicitly) engage in Design than R&D (or Mktg)

– And considerable design effort remains ‘Hidden’

– Spending on design tend to be a small % of Total Innov. Expd

• Design is often a Complementary Asset– Impact on Innovation is greatest when used in combination with

other activities – especially R&D and/or Marketing (all 3 best)

• In general, ‘Elite Firms’ manage several different activities, c.f., other firms spend little on few activities

Slide Slide 2020

RecommendationsRecommendations

• Reconsider ‘Innovation Activities’ listed in Q’aire– Research

– Design and Development

– Ancillary Design (for packaging, promotion, websites, etc.)

– Other Marketing of Innovations

– Training

– (& acquisition of Machinery & Equipment, Software & IP)

• Also asking whether these were done in-house, bought in, neither or both

Slide Slide 2121