Slide 1 Design in Innovation Coming out from the Shadow of R&D Bruce Tether Centre for Research on Innovation & Competition and Manchester Business School, University of Manchester, and Advanced Institute of Management Research (AIM)

Slide 2 Design: Innovations 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 3 Engaging in Design & Other Activities (Weighted Analysis) R&D Design

Slide 4 Engaging in Design & Other Activities (Weighted Analysis) R&D Design

Slide 5 Innovation Expenditures on Design (Amongst firms reporting innovation expenditures on design in 2004)

Slide 6 Total Expenditures on Innovation (Amongst firms reporting innovation expenditures in 2004)

Slide 7 Innovation Expenditure – Shares (Average distribution amongst firms reporting Expenditures) IRDARDAMEAEKTRADESMKT 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 8 Hidden Design (Weighted Analysis)

Slide 9 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 to which is difficult to isolate from other investments?

Slide 10 Design: Usually with Other Activities (Weighted Analysis)

Slide 11 Regression 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 12 Regression 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 13 Regression 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 14 Share of Sales from Innovation (2004) (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 15 Share of Sales from Innovation (2004) (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 16 Share of Sales from Innovation (2004) (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 17 Expenditure on Design & R&D (Median expenditures amongst firms in each category) 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 18 Innovation Expenditure – Shares (Average distribution amongst firms reporting Expenditures)

Slide 19 Conclusions 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 20 Recommendations Reconsider Innovation Activities listed in Qaire –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

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