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Article Reprint

DESIGNMANAGEMENTJOURNAL

Structuring StrategicDesign Management:Michael Porter’sValue ChainBrigitte Borja de Mozota, Maître de Conférences, Université RenéDescartes

Copyright © Spring 1998 by the Design Management Institute. All rights reserved.No part of this publication may be reproduced in any form without written permission.To place an order or receive photocopy permission –(617) 338-6380 x223 Tel • (617) 338-6570 FAX • E-mail: dmistaff@dmi.org

Reprint #9892BOR26

DESIGNMANAGEMENT

JOURNALVOL. 9, NO. 2 SPRING 1998

Design Management Education: Bridges Between Practice and the Academy JNL-V9N2

EDITOR 'S NOTES

Sharing Design Management Wisdom 9892WAL05Thomas Walton, Ph.D., Editor; Associate Dean, School of Architecture and Planning,

The Catholic University

KEYNOTE ARTICLE

Education as Salad Bar 9892WAL10David Walker, Harrow Business School, University of Westminster

THE EXECUTIVE PERSPECTIVE

What Makes a Design Manager? A Conversation with the Design ManagementJournal

9892GRE18

Lee Green, Director, Corporate Identity and Design, IBM

Bonnie Briggs, Manager, Corporate Identity and Communication, Caterpillar, Inc.

John Lombardi, Executive Vice President, Creative Services, Revlon, Inc.

ACADEMIC THEORY AND STRATEGY

No More Heroes: From Controller to Collaborators 9892MOR22Lesley Morris, Education and Training Development Manager, Design Council

Jason Rabinowitz, Organization Practice Specialist, McKinsey & Co.

Jeremy Myerson, Visiting Professor, Department of Design Management, De Montfort University

Structuring Strategic Design Management: Michael Porter’s Value Chain 9892BOR26Brigitte Borja de Mozota, Maître de Conférences, Université René Descartes

DEGREE PROGRAMS

The Design Management Program (DMP) at Pratt Institute 9892AND32Robert Anders, Professor, Design Management Program, Pratt Institute

MIT’s SDM Program: Educating Technologically Grounded Leaders 9892FRE38Daniel Frey, Assistant Director, System Design and Management Program, MIT

Suzanne Weiner, Director, Engineering Library, North Carolina State

Mats Nordlund, Director, Technology, Strategy and Acquisition, Saab AB

A New Management Role: The Designer as Strategist 9892GOR43Naomi Gornick, Director, MA Design, Strategy, and Innovation, Brunel University

CORPORATE EDUCATION

Research in the Business of Design: Denmark’s Center for Design and BusinessDevelopment

9892KRI49

Tore Kristensen, Ph.D., Director, Center for Design and Business Development

Go East, Young Man: Design Education at Samsung 9892BRU53Gordon Bruce, Chair, Product Design, IDS

TEACHING PROPOSALS

Design Education: Out of the Closet and Back into the Curriculum 9892BLA59Richard S. Blackburn, Associate Professor of Management, Kenan-Flagler Business School

Barry L. Bayus, Professor of Marketing, Kenan-Flagler Business School

Learning Theory Through Practice: Encouraging Appropriate Learning 9892ASH64Philippa Ashton, Course Leader, Design Management MA Programs, Staffordshire University

26 DESIGN MANAGEMENT JOURNAL SPRING 1998

A C A D E M I C T H E O R Y A N D S T R A T E G Y. . . . . . . . . . . . . . . . . . . .

“Competitive advantage grows out of theway firms organize and perform discreteactivities... The activities performed incompeting in a particular industry can begrouped into categories... in what I call thevalue chain.” Michael Porter, The Com-petitive Advantage of Nations1

“Design: a powerful but neglectedstrategic tool.” In 1984, Philip Kotler andAlexander Rath wrote a well-known andvisionary article by this name.2 Now, 15years later, we still seek to measure de-sign as a potent strategic tool, one thatcan help to gain and hold competitiveadvantage. What is the value of design?How do we measure design perfor-mance? What do we mean when we saythat design is a strategic tool?

b y B r i g i t t e B o r j a d e M o z o t a

DR. BRIGITTE BORJA

DE MOZOTA, MAITRE

DE CONFÉRENCES,

TEACHES MARKETING

AND STRATEGY AT

THE INSTITUT

UNIVERSITAIRE DE

TECHNOLOGIE DE

PARIS AND DESIGN

MANAGEMENT AT THE

POSTGRADUATE LEVEL

AT THE UNIVERSITÉ

DE NANCY.

Studies, from academia or from the“real world” of design practitioners,usually answer these questions by dem-onstrating design’s economic value,thereby offering doubting managers avalid demonstration of design’s contri-bution to improving performance inareas from corporate communications tothe competitiveness of a nation. Butnone of these studies looks specificallyat the value of design for long-termstrategic thinking. For this, we are bestdirected to the work of Michael Porter.

Structuring StrategicDesign Management:Michael Porter’s

Value Chain

Adesign and business decision making—in operations, in support func-tions, and in the development of long-term strategies. This clarifies theareas in which design is a corporate asset, helps order design manage-ment research and information, and offers pathways for creating effectivedesign management curricula.

Mozota conceptualizes this diversity in a framework, builton the ideas of Michael Porter, that forms bridges between

broad range of organizational activities. Brigitte Borja deS A RESOURCE, design management has an impact on a

1. Porter, Michael, The Competitive Advantage of

Nations (New York: The Free Press, 1990).2. Kotler, Philip, and Rath, Alexander, “Design: APowerful but Neglected Strategic Tool.” 1984.Journal of Business Strategy, vol. 5, no. 2 (Fall 1984).

DESIGN MANAGEMENT JOURNAL SPRING 1998 27

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STRUCTURING STRATEGIC DESIGN MANAGEMENT: MICHAEL PORTER’S VALUE CHAIN

Strategic Thinking and MichaelPorter’s Competitive AdvantageSince 1950, the theory of corporatestrategy has developed into a complexsubject, with many currents of thought.Nevertheless, thought has tended tocoalesce around four basic views (figure1), summarized as:• The teleo-logic: The firm seen as a

system that managers can and mustgovern, animate, and organize. Strat-egy is seen as if it were a militarycampaign, with an emphasis on man-agers’ aptitude for decision making.Diversification, internationalization,alliances—all are important.

• The eco-logic: This perspectivegives a major role to the environmentor, at least, to the market. Emphasis isplaced on how well firms satisfy the

Competitive advantage grows out of the wayfirms organize and perform discrete activities. Firmscreate value for their buyers through performingthese activities. The activities performed in compet-ing in a particular industry can be grouped into cat-egories (figure 2) in what Porter calls the value chain.

The Value Chain“Every firm,” says Porter, “is a collection of activitiesthat are performed to design, produce, market, de-liver, and support its product. All these articles canbe represented using a value chain. A firm’s valuechain, and the way it performs individual activities,are a reflection of its history, its strategy, its approachto implementing its strategy, and the underlyingeconomics of the activities themselves.”3

Figure 2 depicts a generic value chain. However,the value chains of firms in the same industry willdiffer as a result of their histories, strategies, andsuccess at implementation. Also, a firm’s valuechain is embedded in a larger stream that Portercalls the value system. A company’s product eventu-ally becomes part of its buyer’s value chain.

Within this context, design, like any other corpo-rate activity, can create value on three levels:• Primary activities: Tasks belonging to the

ongoing production, marketing, delivery, andservicing of the product. These include productdesign, engineering design, package design,and retail design.

• Support activities: Tasks providing purchasedinputs, technology, human resources, firm infra-structure. These include design for office space,corporate graphic design, product design in R&D.

needs of customers and markets; concepts ofefficiency, cost, and competitiveness are key.Managers are expected to convince their variouspublics that the firm is well managed.

• The socio-logic: Many studies see the firm asa social organization that is characterized bypersonal and divisional power struggles andpolitical games. In this logic, strategy appears asan a posteriori result of the socio-economy ofthe organization.

• The ideo-logic: Stresses the mental, cognitive,and verbal processes by which strategies are in-vented. Strategy is seen as a mental construction,discourse, or temporary stage-setting.

Michael Porter’s work, developed during the past16 years, falls somewhere between the teleologicand the ecologic positions. Porter’s formulationposits industry as the basic unit of analysis forunderstanding competition. Two central concernsshould underlie a company’s choice of strategy: theindustry structure in which it competes and its ownpositioning within that industry.

Industry attractiveness and competitive positioncan both be shaped by the firm. Successful firmsnot only respond to their environment, they alsoattempt to influence it in their favor.

At the heart of positioning is competitive advan-tage and competitive scope within an industry. Thetype of advantage and the scope of advantage can beachieved through one of two generic strategies: costleadership and differentiation.

To gain competitive advantage over its rivals, afirm must either provide comparable buyer value butperform activities more efficiently than its competi-tors (resulting in lower cost) or perform activities ina unique way that creates greater buyer value andcommands a premium price (differentiation).

Michael Porter’s place in the various theories on strategic thinking. Adapted from Cahiers Français dela Documentation Française: Les stratégies d’enterprise no. 275. A.C. Martinet, 1996.

Andrews, LCAG,

BCG

PORTER

Teleo-logicThe finalized organization

Socio-logic Relations between actors

Eco-logic Environment or market

Ideo-logic Cognitive and mental

Ansoff

Chandler

Lindblom

Hamel Pralahad

Williamson

AldrichFreeman

Mintzberg Weick

Figure 1

3. Porter, Michael, Competitive Advantage (New York: FreePress/Collier, 1985).

28 DESIGN MANAGEMENT JOURNAL SPRING 1998

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STRUCTURING STRATEGIC DESIGN MANAGEMENT: MICHAEL PORTER’S VALUE CHAIN

used to identify the sources of differentiation—product performance and aesthetics, of course, butalso less-direct effects, such as a more efficient userinterface or easier maintenance for products—andmeans savings on company communications andmanagement costs.

Design that contributes to improved perceivedcustomer value in various industries can then gener-ate the macroeconomic differentiation so valuablefor competitive advantages between nations. Sus-taining this competitive advantage requires voluntarypressure and depends on making strategic decisionsthat can help formulate a design strategy.

The Value Chain as Teaching Tool:DMI Case StudiesThe Design Management Institute’s library of casestudies provides a great variety of materials on howdesign creates value in different companies, fromErco to Apple to Crown Equipment. In 1995, DMIcreated a “case study map”4 to help academicschoose appropriate case studies for their courseareas. The study also investigated the stage of thenew product development process, in each case, atwhich design was integrated.

Using this material to research the variables mostrelevant to the value-chain concept, I ranked 47design and management variables according to theirdegree of occurrence for use in my postgraduatecourses. The results of this study show that thefollowing management concepts were the mostfrequent:• Market positioning• Corporate image• Product strategy• Interface with other functions (R&D, marketing,

manufacturing)• Project management

4. Freeze, Karen, Case Study Issues Map, (Design ManagementInstitute, 1995).

• Activities that support the value system ofthe industry: These include all tasks that affectthe firm’s environment. They relate mainly tosuppliers and distributors.

These three levels offer a framework for a value-creating system of design management.

Design as StrategyPorter’s theoretical background changes the way weperceive the strategic value of design. Traditionally,researchers link design to strategy only when anorganization has enough experience with design forit to have been adapted at board level. Under thevalue-chain concept, we can structure research intoand education for design management as a three-level value-creating process. Rather than stressdesign’s usefulness at the top level of the value chain,we can stress design’s strategic value even at the lowestlevel— in other words, at the level of operationaldesign management. Thus our three levels become:• Operational design, or design creating value

for the company’s primary activities. Design isstrategic because it creates customer valuethrough differentiation perceived by the market.Design is an economic competence.

• Functional design, or design creating valuefor the company’s support activities. Design isstrategic because it creates value through coordi-nation of functions (especially if it improvesthe new product design process). Design is amanagerial competence.

• Anticipative design, or design creating a visionfor the entire value-chain system. Design is stra-tegic because it adds value through anticipationof changes in the firm’s environment, whetherinternal or external. Design is a core competency,a psychological competence.

Strategy guides the way an organization performs allits activities and arranges its value chain. A firm’svalue chain is an interdependent system or networkof activities connected by linkages into which design

has to penetrate. Linkages require activitiesto be coordinated, whether they change thenew product development process or im-prove the coherence of a corporate image.From a strategic viewpoint, a more carefulmanagement of linkages can offer decisivecompetitive advantage throughout thevalue system, as when design helps bycreating interdependencies among a firmand its suppliers and distributors.

The value-chain concept is a usefulresearch and academic tool for understand-ing the sources of cost advantage throughdesign’s impact on manufacturing andafter-sales costs, as well as costs of productdevelopment and marketing. It can also be

Introducing design (in boldface type) in Michael Porter’s value-chain concept

Figure 2

Firm infrastructure

Human resource management

Technology development

ProcurementSU

PP

OR

TA

CTI

VIT

IES

Inbound Operations Outbound Marketing After saleLogistics (manufacturing) Logistics Sales service

P R I M A R Y A C T I V I T I E S

Margin

DESIGN MANAGEMENT JOURNAL SPRING 1998 29

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STRUCTURING STRATEGIC DESIGN MANAGEMENT: MICHAEL PORTER’S VALUE CHAIN

• Competitive environment• Management of teams• Technological change• Global marketingThis pragmatic approach gives relevant manage-ment guidelines for measuring design performanceaccording to the value-chain concept:• Design in principal activities: market posi-

tioning and corporate image; product strategy.• Design in support activities: project manage-

ment; management of teams; design interfacewith other functions; technological change.

• Design as vision: global marketing; competitiveenvironment.

In our experience of teaching postgraduate courses,this concept has been effective for sparking ani-mated discussions of design management casestudies and for reinterpreting management theories.It also helps integrate design into managers’ andstudents’ cognitive structures.

Information in the Value ChainInformation plays a preeminent role in any firm’svalue chain. Porter insists on the importance ofchance and discovery, which create discontinuitiesthat can reshape an industry. Management informa-tion is key to helping firms deal with the unpredict-able, the conflicting, and the frustrating. A designmanagement information system (DMIS) providesdata for each task and ratios for control in the designfunction, and it is a valuable tool for the achieve-ment of design management excellence.

The DMIS is a feature of organizational design,but it is not the responsibility of the design func-tion. It is the responsibility of top executives and ofcomputer specialists, who have the task of designing

mation. It has two functions: first, to produce in-formation; second, to manage information on atechnological, economic, and social level. Conse-quently, the information concept is two-sided: Itoffers information as a process (communication)and information as a result (content). From a designpoint of view, both raise interesting questions.• Information as a process: What actions, in

what order, must we take in order to be in-formed? All functions, including design, shouldhave easy access to information. Design shouldbe concerned with the way in which design in-formation is circulated and with the way inwhich design management gets access to perti-nent information within the organization andfrom the external environment.

• Information as a product: For instance, whattypes of information are the responsibilities ofgraphic design in the company? What docu-ments do they work on? What information isnecessary for the design process? What informa-tive role does product design play in innovationmanagement?

Here again, Porter’s three-part value chain providesa model for structuring a DMIS and improving thepractice of design management. Information is anactivity that can add value on all three value-chainlevels (figure 3).

OPERATIONAL INFORMATION SYSTEM:

DIFFERENTIAL DMIS

Design managers have to establish standards ofperformance for each task in the design department,gather the information required for the perfor-mance of each task, and carry out the monitoring ofthat performance. In addition, the chain of authority

an architecture for the multidimensionalinformation flows going into and out ofthe organization.

It is a real competitive advantage tohave the capacity to convert design datainto revenues, costs, profits by customer,by product, by function, and by geogra-phy. It gives the design function visibilityin the decision and financial system andmakes the design manager an integratorwith cross-company visibility and a ca-pacity to influence others.

A DMIS makes design managersaware of information flows through thedesign department and, by extension, theinformation flows through the organiza-tion itself.

An information system can be eithera communication system among actorsor a management system that trans-forms elementary data into useful infor- The design management information system (DMIS)

Figure 3

Information Differential Influential Antipicitative

INSIDE/ Production project JournalINSIDE Design process

Design tasks Meetings Business data

INSIDE/ Customer invoice Financial data Advanced design concept OUTSIDE Supplier order Annual report Distributor Advertising

Products brochureCorporate identity

OUTSIDE/ Supplier invoice Client claims Database press INSIDE Customer order Sales reports Technological watch

Shareholders & bank Client surveys Strategic scanning Image audits Design schools & competitions

Design Information System Creating Value

30 DESIGN MANAGEMENT JOURNAL SPRING 1998

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and responsibility for carrying out each design taskand for dealing with variations in performanceshould be clearly set out. Operational informationis thus necessary for the everyday mechanical func-tioning of the design department and for mosteffectively differentiating the company’s productsfrom those of its competitors. This information canbe broken down into three types:• Information to control all design tasks—

methods associated with the creative process(internal flow).

• Information needed by the design function toperform departmental tasks—information onquality, marketing, production, R&D, corporatecommunications, strategic goals, audits, andmarket research.

• Information concerning general business activ-ity; customer orders, invoicing and financialsystems— information coming from financingand investment policies.

SUPPORT INFORMATION SYSTEM:

INFLUENTIAL DMIS

Information for support activities is developed inorder to influence organizational behavior; in fact,that is what keeps the organization together. Designmanagement is a primary actor in the production of

such information and in its diffusion during thestrategy implementation process.

This information, when formalized, is shapedinto documents—product brochures, annual re-ports and journals, brochures, and the like—by thedesign department. This is a task that goes beyondthe simple production of documents. Most designdepartments, for instance, do not think of graphicquality in terms of information flow except in termsof, say, coordinating the graphic identity manual.Improving the efficiency of the corporate identitymanual, however, would be thinking in terms ofdocument processing and of the efficiency of inter-nal information flows.

Such documents come from decisions madeafter an elaborate analysis of the results of question-naires, surveys of clients, and customer claims.Designers are affected by documents that generatedesign projects—customer surveys, image audits—and they should integrate design policy into thequestions asked and information gathered in orderto help in the consensus-building process duringnew product development.

The marketing and communications depart-ments also receive valuable information throughcustomer claims and sales reports. What part shoulddesign management take in the organization of

The URGA Motorcycle: A Case StudyDesign students are like entrepreneurs: They generate newmarket visions through their projects. Take, for example, theURGA motorcycle, which was conceived by a team from theInstitut Supérieur de Design in Valenciennes, France, andheaded by Philippe Tamisier. Starting from the paradox thatmarket sales in motorcycles are stable, whereas the demandfor motorcycles is high, Tamisier changed the whole vision ofthe market. He revolutionized the architectureof the product, starting with the idea that thebike should be conceived as if it were a globalsystem of transportation and pleasure encom-passing the bike itself, its user, and its security,as well as outfit, helmet, and luggage. TheURGA cycle offered space for luggage, helmet,and outfit where other motorcycles store gas:The rider could store his or her riding outfitand helmet rather than carry theminto the office.

Developing this prototype and product formstimulated innovations in multiple links of thevalue-chain system. For instance, the strategy ofthe luggage specialist, who had difficulty seeingthe value in hidden luggage, was threatened bysuch a concept. Meanwhile, management atHewlett Packard, which was developing LEDsales for the automobile market, changed their

strategy after seeing the URGA bike. Until then, they haddirected their LED efforts toward automobile distributors;after learning of the URGA concept, they began to directlycontact design studios for developing LED sales rather thanrely on automobile distributors only. As Tamisier said, “Whatis important is the sociological watch that enables concepttransfer from other universes. The URGA concept of practicaland fun already exists in the automobile industry.”

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these documents? Or on the diffusion of marketinformation? The information captured in thesedocuments is potentially crucial for excellence indesign management.

The information flowing during committee andother internal meetings is also influential informa-tion. These meetings are important for strategyformulation and for cohesion of personnel. Manyone-to-one meetings, in fact, lead to decisions fromwhich action flows. Many meetings and documents,as well, take place partly to rationalize decisions thathave already been made. Designers have a place inthis symbolic, but necessary, legitimizing of admin-istrative action through information design.

Innovative organizations know the importance ofgenerating innovative ideas. These ideas come frommarketing, R&D, and design, but also from anyperson in the firm—if he or she is encouraged tooffer them. Incorporating the necessity to be in-formed of all ideas can be a good way to developdesign integration and to stimulate the consensusprocess that has to take place around any idea.

ANTICIPATIVE INFORMATION SYSTEM FOR DMIS

In order to analyze its business context, competition,and technology and to understand its global envi-ronment, an organization refers to databases, jour-nalistic and expert sources, and specific studies—allfundamental for prospective and strategic decisions.

Organizing a “technological watch” and doingstrategic scanning in order to see in advance certainchanges in a company’s environment is basic forstrategic diagnosis—especially where information oncompetitors, patents, and technologies is concerned.

Design managers need this information tonurture the creative process for advanced conceptdesign. These concepts can also valorize designthrough publicity in the specialized press and tradefairs. Look, for example, at the automobile industry.

Environmental scanning is a key issue for strat-egy. It is also key for strategic design management.Being able to classify design trends, to anticipate and

transform sociological changes into ideas and designknowledge, reinforces design as a competitiveadvantage. Some design firms specialize in this ac-tivity, often issuing “trends” documents. Designschools and design competitions that attract youngdesigners play an important role in this kind ofstrategic thinking.

ConclusionMichael Porter’s value chain offers a usefulframework for synthesizing research on designmanagement and structuring design managementknowledge. Design managers and those who wantto promote design as a critical component ofcorporate strategy will do well to study the value-chain model. l (Reprint #9892BOR26)

Suggested ReadingsPorter, Michael E. Competitive Advantage—Creatingand Sustaining Superior Performance. New York: TheFree Press/MacMillan, 1985.

Borja de Mozota, Brigitte. “Challenge of DesignRelationships: The Converging Paradigm.” InManagement of Design Alliances, eds. Margaret Bruceand Birgit H. Jevnaker. New York: John Wiley &Sons, 1998.

A classification of published research on designmanagement under Porter’s three-level system, aswell as basic concepts for marketing and strategicresearch, can be obtained from the author at theaddress below.

Brigitte Borja de MozotaMaître de ConférencesUniversité René Descartes Paris 548 rue Michel AngeParis, 75016FRANCE