Research Report Designing value and valuing design€¦ · Designing value and valuing design 1 The project team wish to acknowledge the contribution of

Designing value and valuing design:How accountants work with designers to increase product value

Research Report

Dr Myfanwy Trueman

Professor Richard PikeBradford University School of Management

Copyright © CIMA 2006First published in 2006 by:The Chartered Instituteof Management Accountants26 Chapter Street London SW1P 4NP

Printed in Great Britain

The publishers of this document consider that it is aworthwhile contribution to discussion, without necessarilysharing the views expressed.

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Translation requests should be submitted to CIMA.

Dr Myfanwy TruemanProfessor Richard Pike

Bradford University School of ManagementEmm Lane, Bradford, UK BD9 4JL

T. +44 1274 234384F. +44 1274 546866E. [email protected]. [email protected]

Designing value and valuing design 1

The project team wish to acknowledge the contribution ofCIMA in providing grant aid and support for this research, thecompanies that took part and gave us their valuable time,and our appreciation of three anonymous reviewers whohave made constructive suggestions to improve this report.

Acknowledgements

Designing value and valuing design2

Contents

Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

1. Introduction, background and research content . . . . . . . . . . . . . . . . . . . . . . . . 61.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61.2 Background and research context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61.3 Research aims and questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61.4 Literature review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71.5 How do we manage cost?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81.6 Management control systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91.7 Research design and the VIPP framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . 91.8 Companies in the research sample frame. . . . . . . . . . . . . . . . . . . . . . . . . . . . 121.9 The respondents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

2. Mapping out attitudes towards design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132.2 How accountants, designers and marketing see value in new products . . 13

2.2.1 How accountants perceive value in new products . . . . . . . . . . . . . . 152.2.2 Benefits for the company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152.2.3 Benefits for the customer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152.2.4 Value perceptions – summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

2.3 Product and corporate image . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172.3.1 Image perceptions of management accountants . . . . . . . . . . . . . . . 172.3.2 Designers, engineers and product managers . . . . . . . . . . . . . . . . . . . 192.3.3 Image and change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192.3.4 Image perceptions of marketing and sales managers . . . . . . . . . . . . 19

2.4 Process in new product development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212.4.1 Relationship between accounting and design . . . . . . . . . . . . . . . . . . 21

2.5 Product production and launch perceptions . . . . . . . . . . . . . . . . . . . . . . . . . 222.5.1 Perceptions of management accountants . . . . . . . . . . . . . . . . . . . . . 22

2.6. Perceptions of costs and measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242.6.1 Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242.6.2 Benchmarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242.6.3 Customer measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242.6.4 Financial measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262.6.5 Operational measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262.6.6 Perceptual measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

3. Key survey results and interpretation of findings . . . . . . . . . . . . . . . . . . . . . . 283.1 Key findings in relation to design attributes . . . . . . . . . . . . . . . . . . . . . . . . . 283.2 Key findings in relation to value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283.3 Key findings in relation to image . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293.4 Key findings in relation to process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293.5 Key findings in relation to production and launch . . . . . . . . . . . . . . . . . . . . 313.6 Key findings in relation to performance measures . . . . . . . . . . . . . . . . . . . . 333.7 Company size and orientation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333.8 Key findings in relation to VIPP model: new VIPI model. . . . . . . . . . . . . . . . 34

Designing value and valuing design Contents 3

4. Mini case summaries of good practice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354.1 Case A – Construction – Steel fixings and clamps for heavy construction 35

4.1.1 The company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354.1.2 Orientation and differences between design,

accounting and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354.1.3 Design attributes, differentiation and complexity. . . . . . . . . . . . . . . 354.1.4 Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364.1.5 Image . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364.1.6 Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364.1.7 Production and launch. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374.1.8 Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

4.2 Case B – Textiles – SME MR5, branded outdoor leisure apparel . . . . . . . . . 374.2.1 The company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374.2.2 Orientation and differences between design,

accounting and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374.2.3 Design attributes, differentiation and complexity. . . . . . . . . . . . . . . 384.2.4 Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384.2.5 Image . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384.2.6 Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394.2.7 Production and launch. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394.2.8 Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

4.3 Case C – Software systems –Document management for retail and banking . . . . . . . . . . . . . . . . . . . . . . 404.3.1 Respondents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 404.3.2 Attributes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 404.3.3 Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 404.3.4 Image . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414.3.5 Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414.3.6 Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 424.3.7 Launch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 424.3.8 Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

5. Conclusions, recommendations and further research . . . . . . . . . . . . . . . . . . . 445.1 Main findings and Implications for management accountants

and design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445.1.1 Design attributes: main findings and implications . . . . . . . . . . . . . . 445.1.2 Value: main findings and implications for accountants

and design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465.1.3 Image: main findings and implications for accountants

and design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485.1.4 Process: main findings and implications for

management accountants and design . . . . . . . . . . . . . . . . . . . . . . . . 495.1.5 Production and launch: main findings and implications for

accountants and design. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 505.1.6 Measures: main findings and implications for

management accountants and design . . . . . . . . . . . . . . . . . . . . . . . . 515.1.7 From VIPP to the VIPI model: main findings and implications

for management accountants and design . . . . . . . . . . . . . . . . . . . . . 525.1.8 Implications and further research . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62


Executive summary

This study examines how management accountants workingwith designers and project teams can identify, measure andcontrol design:

• To facilitate the process of innovation.• To enhance real and perceived product value.• To reduce product development and production costs.• To differentiate products from competitors.

It utilises the Trueman and Jobber (1998) value, image,process and production (VIPP) framework as a tool to analyseproduct development in UK small industrial companies. Thistool describes how design can enhance performance andbrand value. The research also explores financial, perceptualand operational performance measures from a company andcustomer perspective.

A balanced approach towards all four VIPP dimensions islikely to reflect a robust strategy for innovation. The use ofdesign ‘attributes’ (different design applications) at each levelcan enhance effectiveness and product performance withoutincreasing development or production costs. These attributescan add value to company and product brands.

The findings are based on 30 interviews with designers,marketers and accountants drawn from 16 UK small andmedium enterprises (SMEs), of which one-third were knownto have a strong design function, one-third were technology-driven, and the remainder were drawn from a random sampleused in previous research. The survey was carried outbetween August 2000 and February 2001.

Key findings

1. Using design attributes to reduce complexity anddifferentiate products is considered to be an importantcompetitive advantage.

• There may be some tension between these twoaspirations and companies may miss opportunities ifthey ignore the potential for design to enhance image,improve product development and add value to brands.

2. ValueThere is a need to distinguish between the valueperceptions of the company, customer and end user beforenew product decisions can be made. There is also a need toensure that these perceptions are in line with each other.

• Design can add real and perceived value to new productswithout increasing costs, but most people only considerdesign in visual terms such as colour, texture, shape,form and quality of finish rather than as an aid to thedevelopment process.

• If management accountants work with designers at theconcept stage of new projects, they can help establishvalue platforms and increase the price that customersare prepared to pay for each product feature and service.81% of respondents consider that customers will paymore for high quality, well-designed products.

• Close relationships with suppliers, customers and endusers can enhance perceptions of product value.Similarly, close relations between managementaccounting, design and marketing staff at the conceptstage can ensure that real and perceived benefits arebuilt into new products.

3. ImageIn most cases there is a difference between the desiredcompany image and the image perceived by stakeholderssuch as suppliers, customers, distributors, end-users andemployees.

• The tangible aspects of image such as style, fashion,aesthetics and form can be created and managed bydesign to represent powerful visual evidence of acompany’s desired image and identity. Most (92%) ofthose surveyed recognised that company image can beinfluenced by design.

• Design can be used to rebrand companies and upgradeproducts to improve market position. Any changesshould be reinforced by a comprehensive review of thedevelopment process. A strong image has to be ‘earned’and managed. It cannot be achieved automatically.

4. ProcessCross-functional teams are important, but less than half offirms surveyed involved management accountants at theconcept stage. This could result in ‘value-added’opportunities being missed.

• Management accountants may contribute more with aproactive approach, rather than adopt a reactive‘gate-keeping’ attitude towards new projects. They havethe opportunity to add value to brands by viewing designas a long-term investment rather than short-term cost.

• Care should be taken in using suppliers, customers andconsultants to enhance new product opportunities ifconfidentiality, patents and copyright are to beprotected.

• Problems may arise when SMEs outsource design if it isnot fully integrated into the value, image, process andproduction aspects of company strategy.

Designing value and valuing design Contents 5

• Design provides a focus for new products since it canhelp generate, integrate, interpret and communicate newideas. However, many people other than designersinfluence the nature and form of new products, althoughthey do not always recognise the impact of theirdecisions.

5. Production and launchDesign and re-design can increase efficiency in productionand promote effectiveness in product launch. At the sametime design is influenced by production techniques, whichcan present problems if the company outsourcesproduction to manufacturers in the UK or overseas.

• Although incremental improvements are easier tomanage than radical innovation, there should be a clearunderstanding of the extent to which new products needto be differentiated from those of competitors so thatthey can be clearly positioned in the market place.

• In-house test bed facilities can enhance R&D, even ifproduction is outsourced to reduce overheads andovercome resource limitations. Close collaboration withsuppliers and customers is essential if new materials andtechnologies are to be incorporated into new products.

• Design can reduce complexity in setup and productiontime, but care should be taken not to inhibit potential byusing inadequate technologies that restrict the scope forproduct differentiation.

• Promotion targets can be accelerated by design if thevalues of managers and customers are incorporated intothe product launch to gain maximum impact in themarket place.

6. Performance measuresMultiple measures provide a clear, robust indication ofproduct and company performance. These include financial,operational and perceptual measures of managers andcustomers. Project teams should use these measures toevaluate the relative success or failure of new products.

• Direct costs, overhead and target costs can be used totrack product performance, but if procedures are tooelaborate they can be cumbersome for small companies.They will inhibit innovation and slow down time tomarket. Nearly half of those interviewed did not feelthey had sufficient financial control of new projects.One-third of firms surveyed used target costing in thedesign process.

• Product development costs are easier to estimate andcontrol than sales promotion costs. If companies build incustomer values, this will facilitate decision-making andreinforce confidence and credibility in new products.

• An effective support service and strong customerrelations can offset development costs as well as aidinggo/no go decisions.

7. Implications for design and management accountantsDesign can add value, improve image and facilitate thedevelopment of new products. It can spearhead productlaunch, and integrate peoples’ ideas with new technologiesand new materials. Management accountants can play animportant role in firms looking to gain competitiveadvantage through involvement at each stage of the designprocess. To this end, the new value, image, process,implementation (VIPI) model developed from this researchcan be harnessed to provide a framework for continuousimprovement if management accountants develop an auditthat utilises design (Figure 5.4). For example, if theyexamine the extent to which design attributes are currentlyused for product development they can identify gaps ormissed opportunities to improve product value and image,make development and production more effective, andestimate performance measures that relate to eachattribute. Such a scheme is likely to enhance brand value,and make it difficult for competitors to copy. In this waymanagement accountants can reinforce product strategyand company performance.

Unfortunately, those in design and marketing may notrecognise that accountants can make a positivecontribution, even though there is evidence that manyhave a good understanding of design potential in newproducts. In other words, there is a need for project teammembers to encourage a proactive role for accountants indeveloping innovative new products. This is important forthe forging of links between design, brand value, andproduct performance.

All of these points have implications for the training ofmanagement accountants if they are to have a goodunderstanding of design and product value.

Dr Myfanwy TruemanProfessor Richard PikeNovember 2002


1.1 IntroductionThis report explores how management accounting canfacilitate product development and enhance brand valuethrough effective design. Chapter one examines theimportance of design in developing new products for smallcompanies, the differences in the perceptions of designersand accountants, and interactions between project teammembers that can gain competitive advantage. The valueimage process production (VIPP) model is discussed as themain research tool. The sample frame, respondents andresearch questions are introduced. Chapter two ‘maps out’current practice and attitudes towards design in the productdevelopment process using dimensions of the VIPPframework to review accounting, design and marketingperspectives. It draws on interview responses to illustrate keypoints.

Chapter three presents and interprets the key findingsconcerning design attributes, value, image, development andproduction as well as the performance measures used by thecompanies. The importance of product differentiation, theinfluence of design, and the role of management accountantsare examined along with a review of the VIPP model anddescriptive statistics. Chapter four summarises three minicase studies of good practice in design and accounting. Theseare drawn from construction, outdoor apparel and softwareindustries. It examines how each company relates to themesdiscussed in chapters one, two and three. In conclusion,Chapter five draws together some of the main issues foraccounting and design. Implications of using the new value,image, process, implementation (VIPI) framework developedfrom this research are discussed, together with how it can bedeveloped in future research. The main points aresummarised in the Executive Summary.

1.2 Background and research context‘Design affects not only the form (appearance), function(performance) and fit (ergonomics) of products but also theirperceived value and cost.’ (Nixon et al 1997)

This research study examines how management accountantsin industrial companies work with designers and how theirinvolvement in design impacts on new product performance.Nixon et al (1997) outline the challenge to managementaccountants and designers alike:

‘Accountants, new product designers and developers canwork together to improve communication, strengthenstrategic links and maximise value delivered to customerswithout increasing costs.’

The question is whether this actually happens among SMEs,which may not have the resources for an in-house design andresearch function present in large companies. Our study looksfor evidence that accountants are working with productdevelopment teams and asks whether designers or marketingpersonnel believe that accountants can provide a useful rolein the design process.

Good design, it is argued, offers significant benefit tomanagement. It can:

• improve communication and the integration of ideasthroughout the organisation

• help reduce complexity, direct costs and overheads in theproduct process

• shape the appearance, form, function and image of newproducts, services and brands

• enhance brand value.

However, much of this potential benefit may be lost ifcompanies have a poor understanding of design and if therole of management accountants in new projects is limited tomanaging costs. More recent developments recognise theimportance of non-financial performance indicators andmeasurement systems such as the balanced scorecard, anddemonstrate that these benefits should be subject toperformance measurement and hence to managementaccounting. Two relevant questions are posed:

• What evidence exists that accountants and designers sharethe task of finding ways to reduce overheads and othercosts, and work together to reduce complexity and cost inproduct designs?

• Is the accountant’s role constructive and how could it beimproved?

1.3 Research aims and questionsThis research aims to identify how management accountantscan work with designers and project teams to identify,measure and control the use of design attributes (differentaspects of design) to:

• facilitate the process of innovation• enhance real and perceived product value• reduce product development and production costs• differentiate products from competitors.

The findings are based on 30 interviews with designers,marketers and accountants drawn from 16 British SMEs, ofwhich one-third of are known to have a strong designfunction and one-third are technology driven. The remainderare drawn from a random sample used in previous research.

1. Introduction, background and research content

The research utilises the Trueman and Jobber (1998) VIPPmodel as a tool to reveal information about the approachtaken towards product development in deliberatelycontrasting companies, and the ways in which thesecompanies understand and apply different aspects of designto enhance performance and brand value (Figure 1.1). It alsoexplores a wide range of financial, perceptual and operationalperformance measures including costs and benchmarkingfrom company and customer perspectives. The researchargues that a balanced approach towards all four VIPPdimensions is likely to reflect a robust strategy for innovationand that the use of design ‘attributes’ within each dimensioncan enhance effectiveness and product performance withoutincreasing development or production costs. These designattributes can also add value to brand names, anddifferentiate products (Table 1.2).

1.4 Literature reviewFor most businesses, good design has a powerful impact oncompetitive advantage and profitability. Design offers avaluable means of differentiating products and services,particularly when it becomes difficult to sustain competitiveadvantage through technology alone. Poor design, on theother hand, can threaten the very survival of an organisation– something with which accountants are particularlyconcerned. The question which may be asked is: ‘Does themanagement accountant have any role to play in the designprocess?’ Lord Currie, in the 1997 House of Lords debate ondesign emphasised that it is a multi-skilled, multi-disciplinaryfunction:

‘Design involves not just designers and not just thoseworking for design consultancies but also engineers,scientists and all those including senior management and –dare I mention it? – Finance directors and accountants whocontribute and influence the process of innovation and newproduct development.’ (Hansard 1991, House of LordsOfficial Report, Vol.578, No 66, 3 March)

Nixon et al (1997), following on from Gorb and Dumas(1987), acknowledge the important role of what they term‘silent designers’ – those people outside the formal designprocess, including specialists from R&D, production,marketing and accounting, who can influence the nature andform of new products. These silent designers provide‘essential information and strategic links in managing designparameters.’

A consistent finding during the 1980s was that managementaccounting had not evolved very far from itsproduction-oriented roots and did not meet the needs ofmarketing management (eg. Rayburn, 1981; Wilson &Bancroft, 1983). Accountants, it was argued, should do moreto meet the changing needs of marketing executives. Therewas a cultural lag between accounting and marketing.Consequently it may be useful to discover if there is a similarcultural lag between accounting and design.

However, Ratnatunga et al (1989), in a survey of marketingand accounting managers, found that the interface in mostfirms was fairly well developed in terms of physical location,communication and information flows. Positive associationwas found between the quality of the interface and degree ofsatisfaction with the management accounting system insupporting marketing decision-making and control. Over thepast decade the move towards closer relations betweenmarketing and accounting has generally improved. Thequestion is whether the same improvement is observablebetween accounting and the design function. Lothian (1984),for example, found that finance had a lowly organisationalprofile in innovation-centred firms. Good marketing and gooddesign both necessitate:

• a corporate culture and a management style thatencourages cross-functional collaboration

• a clear understanding of customer requirements.

Where does the management accountant fit in to the designprocess? Nixon et al (1997) suggest a number of practicalways in which the management accountant can help improvethe design process as summarised and adapted below.

• Integrate with staff from other functions and gain earlyinvolvement in the new product design and developmentprocess.

• Balance the financial demands of top management withthe cost, value and quality requirements of customers.

• Evaluate new product investment proposals against a broadrange of criteria rather than narrowly-defined financialcriteria, recognising that many of the benefits are strategicand hard to quantify.

• Measure performance from new products in a balancedmanner, recognising non-financial measures and the mainstakeholders.

• Employ appropriate management accounting tools toadvise the design function of the cost parameters withinwhich it should operate. Such tools include target costingand life cycle costing. Investment evaluation of newproducts can often be handled quite effectively using DCFand sensitivity analysis methods. However, option-pricingtheory would seem to have particular relevance to newproduct development where options to delay, abandon andfollow-on are clearly of relevance (Newton and Pearson,1994).

Nixon et al conclude that ‘Management accounting can actas a powerful integrating vernacular to link customer valueneeds with organisational capabilities and shareholder valuerequirements’.

Designing value and valuing design Introduction, background and research content 7

Designing value and valuing design Introduction, background and research content8

1.5 How do we manage cost?There has been a growing recognition that most of aproduct’s life cycle cost is effectively ‘locked-in’ at the designstage. General Motors estimated that 70 per cent of the costof manufacturing truck transmissions is determined in thedesign stage (Whitney, 1988). It seems that, for someorganisations, this may be an underestimate, the true figurebeing in excess of 80 per cent, perhaps as high as 95 percent(see Blanchard, 1978; Cooper, 1995).

Traditional cost-plus pricing approaches have little relevancein such circumstances. Competitive pressures force firms todesign a market-determined target price, rather than add amargin to cost. Designing new products that match orundercut competitors’ products has become a vital elementin competitiveness and profitability. Target costing offers away of focusing product development strategy and thedesign team on the customer, bringing the challenge of themarket place back through the chain of production toproduct designers (Cooper and Chew, 1996). Aggressivetargets focus the design team’s efforts on creative solutionsand push reverse engineering and value engineering to theirlimits. In other words, target costing demands that designand development teams bring profitable products to marketat the right price and with the right level of quality andfunctionality. Accountants and other ‘silent designers’ need tobe involved in designing the sourcing, production and deliveryprocesses that will enable the company to achieve therequired profit at the target price. The key to sustainingcompetitive advantage is to design the cost out of productswhen setting initial levels of quality and functionality and tocalibrate product performance to an identified price niche(Cooper and Chew, 1996).

In fact the goal of target costing is to design costs out ofproducts in the design stage of a product’s life cycle, rather

than attempting to reduce costs only during themanufacturing stage. Some previous studies examine targetcost management (TCM):

‘TCM is concerned with simultaneously achieving targetcost along with planning, development and detailed designof new products by using such methods as valueengineering … TCM has multiple objectives of costreduction, quality assurance, timely introduction of newproducts into the market, and product development toattract customers.’ (Tani et al 1994)

Typically we find that, cross-functional teams drawn from theentire value chain guide the entire process. This team mayconsist of people from inside the organisation (such asmanufacturing, design, accounting and marketing) andoutside the firm (for example, customers, suppliers anddistributors). Suppliers play a vital role in target costing sothat companies will work with them to find ways of reducingthe cost of specific components. Some firms offer incentivesto suppliers to produce greater cost reductions, others engagein supply chain management – a management system thatdevelops cooperative, mutually beneficial, long-termrelationships between buyers and suppliers. There is a danger,however, that by focusing too much on meeting target costs,management can lose sight of the overall goals of the firm(Sakurai, 1995: Kato et al 1995).

Moreover studies suggest that the cost of making engineeringchanges after the design stage, increases dramatically witheach stage in the process. The conclusions to be drawn areclear – if accountants want to ensure products are producedat lowest cost, they need to set parameters and becomeinvolved at the early design stage. No doubt in someorganisations they will not be the first guest to be invited tothe new product design process ‘party’. But whether aninvited guest or ‘gate crasher’, the message seems to be‘Make sure you turn up!’

Target cost

A product cost estimate derived bysubtracting a desired profit marginfrom a competitive market price. Thismay be less than the planned initialproduct cost, but will achieved by thetime the product reaches the matureproduction stage.

Reverse engineering

A technique by which a companydisassembles a successful productmade by a competitor, to analyse thecomponents and manufacturingprocesses involved, and to estimatecosts.

Value engineering

An activity which helps to designproducts which meet customer needsat the lowest cost while assuring therequired standard of quality andreliability.

Table 1.1 Accounting and design terminology(CIMA management accounting Official Terminology (2000)

1.6 Management control systemsWith the increasing importance of new product developmentin companies has come the issue of which type ofmanagement control system is most suited to the designprocess (Cooper and Kleinschmidt, 1987). Clark and Fujimoto(1991) argue that effective product developmentorganisations are characterised ‘not only by creativity andfreedom, but also by discipline and control in scheduling,resource use, and product quality’. Firms need to find theright balance between control and freedom, precision andflexibility, and individualism and teamwork. Otherresearchers, however, suggest that control procedures couldrestrict freedom and creativity by designers (McNair andLeibfried, 1992). This view is supported by a number ofrelated studies in the R&D field (for example, Abernathy andBrownell, 1997; Birnberg, 1988), although Nixon (1998)provides a case study of a product development process inwhich financial control has a significant role.

Management control systems used in new productdevelopment may be viewed as tools to manage uncertainty,offering the information to reduce the gap between theinformation required to perform a task and the amount ofinformation already possessed (Galbraith, 1973; Tushman andNadler, 1978). Davila (2000) sought to explore the drivers ofmanagement control systems design in new productdevelopment. The findings of this study reveal that productdevelopment managers use management control systems toobtain information to reduce uncertainty. Better cost anddesign information was found to be positively associatedwith performance. Project managers relied heavily onnon-financial measures instead of on financial ones.

Designers are likely to have a different perspective on productvalue and the contribution that design can make toperformance and productivity in the formulation andimplementation of new projects. Part of the problem appearsto be that management accountants, designers, marketingand customers will all have different perceptions of newproduct roles and benefits, as well as design, but if design canbe used to add value to new products, how can this value becontrolled or measured? Further questions this raises are:

• How do accountants perceive design and measure productperformance?

• At what stage of the development process should designbe introduced and who should ‘do’ the designing?

• How do we determine the influence of design on newproducts and if this influence is positive?

• Can management accountants provide any yardsticks tocontrol this influence?

• Are there any aspects of design that are under-utilised bycompanies that might give them some advantage overtheir nearest competitors?

• How can this advantage be measured?

Much previous work has run into difficulty by using ‘design’as a generic term, provoking a continual debate as to itsmeaning (Lorenz 1995). Moreover, there is a lack ofunderstanding about which design attributes can be appliedat any particular time within the product developmentprocess (Trueman and Jobber 1998). At the same time,research into management accounting has examinedproducts in terms of brand valuation (Pike and Guilding1994), but not in terms of design influence per se. Eventhough many people would recognise design to be a ‘goodthing’ and a potentially valuable competitive tool, the widerange of applications and interpretations can lead toconfusion, misunderstandings and an inability to make fulluse of design at different stages of innovation and productdevelopment (Blair 1997). Without a full understanding ofthe relationship between design and product performance, itis difficult to prioritise effort and resources to best effect.Without a series of ‘yardsticks’ or measures to gauge theinfluence of different design attributes in developing andlaunching new products, designers, accountants and otherproject team members can only operate at a disadvantage.

1.7 Research design and the VIPP frameworkThis research has examined established, small UK companiesthat may derive considerable benefit from a strong designinput but may not have the resources to investigate designpotential that are present in large organisations (Walsh et al1992). In each organisation transcripts were made ofsemi-structured interviews with senior managers in design,marketing and finance. They were shown a list of designattributes relating to value, image, process and production(VIPP) of new products to test their understanding of designbenefits. Note was also taken of performance measures usedand the relationship between finance, marketing and design.These transcripts have provided a rich source of qualitativedata that has been interpreted in five ways:

• To map current product development practice.• To compose lists of key words that illustrate differences

and similarities in perspectives of finance, marketing anddesign.

• To make a statistical analysis of design attribute use.• To summarise case studies of good practice.• To compare results with previous research in the field.



The weaknesses of this research are fivefold. Firstly, manysmall companies do not have a resident designer, althoughthey may use design consultants or the ‘design input’ iscontracted outside the organisation. Secondly, it iscommonplace to find that managers multi-task so that oneperson, typically the MD, can represent finance and sales ormarketing. Thirdly, because resources are limited in smallcompanies, it was not always possible to see three differentmanagers (design, marketing and finance), and the timeavailable for meetings was very limited. Fourthly, it was

intended to interview customers as well, but although thiswas made possible by one of the pilot companies, in practicemany firms were reluctant for us to address possible sensitiveissues with their clients. Finally, this small cross section ofsmall companies may not be representative of UK industry asa whole. However this research argues that much can begained from an analysis of the gap between current practiceand a desired future situation where companies could makebetter use of design and accounting to develop new productsand enhance brand value.

Market research (appropriateness)Technology developments (producability)

Design added value/quality (usability)Fujimoto 1990

Project company imagePromote product benefits identity

and brandsUncles 1995, de Chernatony 1996

Multidisciplinary teamsExternal networksIntegrate design

Tidd et al 1997,Walsh et al 1992

Reduce complexityFast production time

Save materials

ROCProfit margins

Salesgrowth

New product contributionto turnover

Reduce overheads

Figure 1.1 Trueman (1999) Value, image, process, production (VIPP framework)VIPP design dimensions: dynamics

Value

Image

Process

Production

Attitudes Performance

The VIPP framework is based upon previous research carriedout at Bradford University School of Management (Truemanand Jobber 1998) and makes reference to other work in thefield.

The 16 Design Attributes (Table 1.2) and VIPP framework havebeen developed from a cross-industrial survey of 108companies that compares product development practice witha range of performance measures.

This practice is examined under hierarchical dimensionswhere ‘value’ is in a paramount position fed by ‘image’,‘process’ and ‘production’, since it is perceived to be the keydynamic for successful performance. Exploratory studies intwo small companies, which are of similar size but operate invery different markets, met with a favourable response.Senior managers were able to relate to the VIPP typology at aproduct level and strategic level where the company focuscould be assessed as external (value and image), internal(process and production) or balanced if all dimensionsreceived equal emphasis (Trueman and Jobber1998).


Table 1.2 Design attributes: Trueman and Jobber 1998Long Range Planning Vol. 31, No 4, pp 594-605, 1998

• Competitive tool• Differentiate products• Product identity• Brand creation• Product styling• Aesthetics• Product quality• Added value

• Idea generation• Idea communication• Interpret ideas• Integrate ideas• Reduce complexity• Reduce time to market• Corporate culture• Strategic activity

Table 1.3 Companies and respondents in the CIMA survey

Industry sector Code Business Management Design, Marketing Customeraccounting, engineering, salesfinance production

Construction, PL1 Steel fixings and clamps for ● (F) ● ●civil engineering heavy construction industry

PL2 Doors and handles for domestic ● ●housing

PL3 Shop fitting for retail and banking ● ●

MR8 Consultant civil engineering for ●oil and construction industries

Textiles, clothing MR3 Defence clothing and textiles ● (F) ●

MR4 Speciality, lightweight textiles ● ●

MR5 Branded outdoor leisure apparel ● ●

Furniture MR6 Office, reception andcatering furniture ● ●

MR10 Sprung mattresses and beds ● ●

Software MR7 Software systems for warehousing ●systems and customer services

MR2 Document management for ● ●retailing and banking

Chemicals MR1 Waste and water management, ● ●leak detection

MR9 Manufacture of explosives ●and propellants

MR11 Specialist contamination detection ● (F)instruments for water and food

Automobile MR12 Diesel engine and auto parts ● ●

MR13 Exhaust and braking systems ●

Total 16 companies 30 interviews 8 10 10 2

(F = female)


1.8 Companies in the research sample frameThe 16 SMEs in this research work in a business-to-businessenvironment. They range from domestic housing and civilengineering, shop fitting, furniture, textiles, defence clothingand outdoor leisure, to industrial software systems, thechemical industry and automotive parts (Table 1.3). Thecompanies represent a wide cross-section of industries andconsequently are likely to illustrate a variety of approachestowards accounting and design in new product development.

1.9 The respondentsWhere possible, interviews were conducted with tworepresentatives from each company. These were managementaccountants and designers or another representative engagedin developing and marketing new products. In one case thecustomers were interviewed as well, but access to them wasproblematic since SMEs are concerned about sensitive issuesand precious contracts with customers who are often largemultinational enterprises. Most respondents (70%) hadworked for their company for more than 6 years althoughone had only been in post for 6 months. Only three of thoseinterviewed were female and two of these were financialaccountants.

A. Questions for management accountants

Is there any evidence that accountants in SMEs work withdesigners?

What role does the accountant play in the designprocess?

Is this role perceived as useful?

How can management accountants be involved in theproduct development process to reduce costs andcomplexity?

To what extent is ‘cost’ determined at the design stage inSMEs?

What are the benefits of involving accountants in thedesign process in terms of cost control?

Can design help strategic links with key participants,facilitate communications for project teams and addvalue to new products?

B. Questions for the VIPP model to gain a betterunderstanding of design

How can the added value from design be introduced andmeasured?

How much do accountants understand the role ofdesign?

Where and when do accountants get involved in thedesign process?

Is there sufficient understanding of the differencebetween design at process and product levels?Is this important?

Which design benefits are under-utilised at value, image,process and product levels?

Table 1.4 Main questions addressed by this research

2.1 IntroductionIn this chapter we consider the potential benefits of usingdesign attributes to enhance new product performance andto reduce costs. The resulting ‘maps’ of current practice aredrawn from transcripts of interviews with 30 respondents in16 companies carried out during the period from September2000 to February 2001. It records the different approachestowards product development taken by accountants,designers and marketing manager, and presents benefitsgained by companies and customers from each designdimension. Finally, it charts a range of performance measuresused in product development practice.

2.2 How accountants, designers and marketing see valuein new products A summary of value perceptions for each sector is shown inTable 2.2.1. This illustrates differences and similaritiesbetween the role of management accountants, design andmarketing, as well as providing an insight into a wide range ofcriteria that might be used for the basis of decision makingand developing product strategy. From this table it can beseen that designers and engineers are as much concernedwith establishing the product parameters as withdevelopment strategy. Not surprisingly, they are morefocused on the operational aspects of product features thanmanagement accountants. Nonetheless they have a goodsense of return on investment and the need to match effortand resources with an acceptable financial return. Overall,there is a strong emphasis on brand value as well aslegislation for safety, quality and legal requirements. Allgroups are aware of the need to work closely with customersalthough management accountants talk more generally ofrelationships and service, while designers and engineers thinkin terms of how products are used and perform.

Some designers and engineers indicated a number of trendsthat influence new product strategy and customer valueperceptions. For instance many customers today expectsolutions rather than individual products so that items maybe ‘bundled’ together or form part of complete systemsdeveloped for specific business requirements. This indicates astrong demand for service and support so that suppliers aswell as customers gain a competitive edge.

2. Mapping out attitudes towards design


Designing value and valuing design Mapping out attitudes towards design14

Company valuesand benefits

Business customer,retailer, suppliervalues and benefits

Consumer,end-user valuesand benefits

Management accountants

Superior productsease of manufacturesave materialsreduce complexityCustomer relationsbuild new customersretain customer baseprovide a serviceconfidence, credibilitycloser to customercustomer feedbackcustomer relationsBrand valueimprove brand valueproduct longevityFinancial benefitscost recovery, ROIpayback periodszero defectsreduce overheadscontribute to turnoverfinancial returnmarket potential

Selling points/featuresreliability, qualitystandard of finishease of use/low skill requirementperformancesupport/servicesaves timesaves moneydifferentiates productstyleimage/identityBusiness benefitsimprove brand valueenhance profit margin

Value for moneyease of useproblem solvingfeel-good factorprotectioncomfortconfidencequality of lifeimage, identity

Designers, engineers,product managers

Parametersfinance fit, ROIpatents, royaltiescontribution per unittooling up coststooling life expectancyexpected/volume salesproduction capacity, fitskills fitquality fitsales channelsmarket route/stylemarket type/size/newnessmatch competitor productsBrand valuecontinuous developmentservice/supportsafetybrand reputationproduct integrityquality, best practicepeace of mind, guaranteedifferentiationappearance, packaging

Selling points/featureshigh performance low costrobust materialscustomer satisfactionsave time, maintenanceresponse speed, servicefitness for purposeBS, ISO standardsBusiness benefitsgives competitive edgemeets customer needsuniquenesslong life, product returns

Value for moneyease of installation, usemeets requirementsimproves environmentmeets legal requirementssafe, economicalincreases efficiencyreduces costssaves time and moneylittle maintenance, long life

Marketing, sales

Brand value10 year guaranteeattractive, aestheticsdifferentiated, uniquewithin budgetleading productssuperior performancenew, special featuresavailabilitydelivery timeservicereputationreliabilityreasonable priceFinancial benefitsprofit marginsprofitabilitybottom lineturnover potentialturnover contributionpercentage of salesvolumeaverage selling pricerepeat salestangible, intangible

Selling point/featuresclassic productmarket leadersproduct stylingproduct imageunique identityqualitycolouruser friendlyBusiness benefitsreduce time to marketreduce complexityeffective communicationincrease market share

Value for moneyprotectionstyling, fashionease of useproduct features, benefitsrational valuesemotional valuesmatching expectations

Table 2.2.1 Value perceptions

However, there is no guarantee that a system or package thathas been successful in one company will work as well inanother, since much depends on building a close relationshipwith customers and understanding their needs. This should betaken into account in Table 2.2.1 which is a compilation ofcomments from all survey respondents. It is unlikely thatevery company will be able to use all the variables to increasevalue perceptions of their products and services, since somemay be industry specific and not transferable. However thisanalysis provides an insight and platform for decision making.It can assist prioritisation and provide opportunities forcompanies to get ideas, inspiration and insight from otherindustries.

2.2.1 How accountants perceive value in new productsManagement accountants and finance directors see twoaspects of value from design in new projects, firstly, in respectof benefits for the company and secondly, those for thecustomer.

2.2.2 Benefits for the companyCompanies have the potential to use design to reduce newproduct complexity and cost. However accountants expressedconcern that some designers may lose sight of the ‘bottomline’ and add to complexity and cost through unrealisticproposals. For instance, one was concerned in case ‘Designers… design something that is going to cost us an arm and a legto manufacture’. In fact reducing complexity is seen as a wayto improve profit margins by using design to simplify thedevelopment process and reduce the cost of productmaterials and production. This notion is linked to the‘longevity’ of products, where a niche product can form thefinancial ‘backbone’ of the company. For example, a singleproduct has been the mainstay of one company for over sixtyyears, although it has been constantly modified and improvedduring this time, largely through reducing complexity andcosts to meet changing customer and company requirementsand to take advantage of new technology opportunities. Thisillustrates the need for constant improvements andlonger-term value creation through products and servicesthat build and retain a customer base:

‘You try and do it on building up a better relationship withthe customer. Not make a mess of the previous jobs youhave done with them on contract. As long as you don’tscrew-up on the previous job and everything turns out tobe all right, you are OK.’

A number of respondents used the phrase ‘peace of mind’ todescribe how reliable, quality products and services could giveboth the company and the customer credibility therebyestablishing and maintaining good relations. One financedirector explained how his company used products in orderto gain confidence with potential customers:

‘We sell them (to customers) on values and benefits thatthey’re going to get from using the products, so they’retold what the benefits are and they can see it, because wecan give examples.’

Value creation can be measured in a number of ways such asvalue based management, shareholder value analysis, netpresent value analysis, real options analysis, and economicvalue analysis. But there was little evidence that suchapproaches are applied to measuring or managing design inproduct development. Methods used include assessment ofprofitability, (profit margins and return on capital employed),market potential, payback periods for product developmentinvestment, as well as quality measures such as zero defects.Some accountants seemed more interested in recoveringdevelopment costs than value creation. One financialcontroller explained:

‘I am only bothered about how to recover the cash infuture products, try to recover the development costs thatcan be amortised over future jobs … We can try to recovera certain amount of our overheads.’

Another saw product value in terms of market potential andfinancial returns, while the financial director of a companyproducing fixing devices for the heavy engineering andconstruction industry incorporated financial measures withcustomer benefits:

‘The actual financial measure is done in terms ofprofitability and payback, but (also includes) the value-added to customer. Its (success is) through getting close tothe customer and getting feedback from them.’

2.2.3 Benefits for the customerSome management accountants put considerable emphasison perceived customer benefits as far as product value isconcerned. They recognise the importance of product‘reliability’ and ‘ease of use’ that can be translated intoprofitability for customers. For example, a steel clamp usedon offshore constructions owes its success to features beyondreliability. It is flexible, easy to adjust and move, and does notrequire a high level of skill to install. This negates the need forany welding that would infringe safety regulations for largeoff-shore constructions. Each of these benefits represents acost saving for contractors and can contribute to their profitmargins.

Many also recognise the importance of providing ‘peace ofmind’, service and ‘back-up’ support if problems do arisewhen products are used ‘on site’, possibly in difficult workenvironments. This reinforces the need for robust, reliableproducts that function well and have been produced to a highstandard of finish. Further, since reliable products are lesslikely to fail, customers may well be prepared to pay more ifthey have confidence in products, supplier and brand names,providing they comply with stringent safety and regulatorystandards.

Designing value and valuing design Mapping out attitudes towards design 15


At the other end of the benefit spectrum, quality andaesthetics may add value for companies and customers alikeif designers are able to differentiate products from theirnearest competitors by adding style, identity and image tonew products. These features may enhance the opportunityfor company and customers to charge more for high-classproducts and strong brand names. Most respondents (80%)observed a relationship between increased customerperceptions of value and improved profit margins, althoughthis varied considerably from industry to industry. Theseimprovements may represent only a small percentageincrease of 1% or 2% in highly competitive industries likeretail shop fitting where one financial manager warned:

‘Have you ever tried to do that with (major retailer)? Theyare in the press this weekend to say that they have comeback to all their suppliers of autumn-wear and have saidthey are taking 2% off (the price they are prepared to paythem). Tough! See you in court! They (customers) are alllooking at a better, high quality product at the same price.So there is very little opportunity (for us) to increaseproduct price.’ (PL3T1F)

Company design value benefits

Reducing complexity in products, and build longevityto enhance efficiency in production and delivery.

Develop and retain a strong customer and supplierbase, firstly through producing reliable, qualityproducts and services, and secondly from customerinvolvement in product development.

Adopt a zero defects policy and relatively short payback periods, thereby reducing overheads andenhancing cash flow.

Product quality and differentiation can improveperceived value and profit margins over time.

If a value platform is established and built over timethis will offset the resources and effort needed forproduct development, and enhance financial return.

Companies that communicate effectively willenhance brand value perceptions in target marketsand with other stakeholders.This should be based upon research into brandstrengths, with reference to rational as well asemotional product and service benefits.

There should be a clear understanding of the valueand positioning of products in the market placecompared to nearest competitors.

Products and services should be reviewed over timeto develop a balanced brand portfolio, and addperceived value to the company brand name.

Customer design value benefits

Added value can be built into products and services tostrengthen customer relationships as well as productperformance.

Products should be reliable and flexible with inbuilt costsavings for customers so they can increase their profit margins.

Problem solving, safety and technical support services shouldbe in place, possibly on site for customers who work in hostileenvironments.

Attention should be given to style, aesthetics, fashion andimage for different retail markets, so that consumers will seeadded value from purchasing and using new products.

It is vital to focus on customer benefits and solutions inaddition to product performance. In fact products and servicescan be bundled together to solve customer problems.

Products and services may represent value for money from acustomer perspective but it is important that companiesdevelop a clear understanding of what these values andbenefits represent at the outset of new projects.

Table 2.2.2 Potential value benefits from design for company and customer

The profit margin is more generous in the outdoor apparelindustry where margins of 20-30% or more are notuncommon. For instance:

‘It varies from product category to product category. A (topquality product), for example, we sell at £300 verysuccessfully. I would say that most of our competitors canget this to about £250 for a similar product. So there’s asignificant gain … Normally I’d say a typical premium for(one of our products) would be between 10-20%.’(MR5T1M)

However, there is a difference between the perspective of thebusiness customer and the end-user. Problems can arise fromthe subjectivity of consumers and the need to produce arange of products to suit different market segments.

A company manager pointed out that at the bottom end ofthe range it is all about price and value for money. Yet theultimate goal may be the development of a superior productthat outperforms those of competitors. This can provideadded value to customers and end users, particularly if itrepresents a large-scale investment. For example, the financemanager of a software development company commented:

‘I am not sure exactly how they (customers) would assessvalue. I’m not directly related with the customers, but interms of their business need, obviously we must providebenefits to them … our products should add value towhatever they’re doing … we’re providing solutions … andwe’re solving problems.’

Nonetheless some management accountants did not see anylink between design and the process of adding value. Onefinancial controller told us, ‘We do not do design’, eventhough the company employs a full time designer tointerpret customer orders.

2.2.4 Value perceptions – summaryMany of the findings reflect a need to achieve a balancebetween the perceived and actual value that can be gainedby using design attributes in product development. There isalso a need to match effort and resources to potentialfinancial returns for customers as well as companies.Management accountants as well as designers and engineersrecognise the need to work closely with customers, althoughnaturally the latter are more focused on product performancein addition to price and operational costs. However manyvalue perceptions are based on non-price factors, making itdifficult for companies to assess the price that customers areprepared to pay for each product feature and service(Table 2.2.2).

2.3 Product and corporate imageCorporate image is influenced by value perceptions, quality,customer relationship and product performance. Firms needto know if their image matches claims of superiority,reliability and competence. Similarly, they should be aware ofhow design can link a positive image or brand with highquality products and a strong position in the market place.Table 2.3.1 summarises the responses from accountants,designers, and marketing managers.

2.3.1 Image perceptions of management accountants As some of the management accountants explained, animage cannot be created purely by clever advertising but hasto be earned through superior product performance andeffective support services. It is more difficult to maintain asustained effort over time since it only takes one poorproduct or unfortunate business deal to damage companyimage and reputation. One manager noted the need for twolevels of message communication, firstly to convey ‘goodvalue for money’ to the end-user, and secondly to provide‘the best service for retailers’. Many financial managers areaware of the need to improve their company image, or createa new one when entering new markets, and the need topromote new products.



Table 2.3.1 Image perceptions

Management accountants

Designers, engineers,

product managers

Marketing, sales

Product image

Shape

Style

Finish

Materials

Unique identity

Originality

Benchmark

Modern, up to date

High quality products, services

Attractive appearance, materials

Fashionable

Product presentation

Safe, economical products

Performance benefits

High performance

Correct design

High technology

Own brands

High quality, safe, secure

Latest technology

Technological superiority

Differentiation

Ethical, high standards

Unique fabrics

Product benefits

Fashionable, young image

Functionality

Performance

Guarantee

Company image

Company size and age

Market leader or follower

Leading edge products

Innovative, forward looking

Up to date

Website presence

Famous associations (celebrity)

Advertising profile

Professional, efficient, reliable

Avoid failure

Credibility, trustworthiness

High competence, track record

Technical knowledge, expertise

Problem solving

Customer service and support

Customer relations, loyalty

Match customer and company

perceptions

Match image and target market

Consistent appearance

Originality and style

Formality and procedure

Competitor comparison

Reputation, performance

Expertise, problem solving

Company reports, brochures

What customers see, signage

Literature, brochures

Historic and forward vision

Specialist

Market leader, position

Core identity

Loyal customer following

Marketing style, trends

Credibility in macroenvironment

Integrity, planning

Choice, service, value, price

Competitor comparison

Solid, reliable

Similarly, a stream of new products helps to strengthen anestablished company brand, if customers perceive theproducts to be ‘up to date’ and ‘innovative’. Clearly, beingmarket leader and with high quality products will have apositive effect on image and brand value. Yet images can bedeceptive. One company found they had given customers theimpression of a large organisation through their website,which sells products throughout the world. Customers areoften surprised to find a relatively small company. But asmarket leader it can charge a premium price for products that‘solve the problem’. In this way customers perceive an imageof reliability, competence, technical knowledge and a supportservice that reinforces brand value. The financial controllermade the following observation about customer:

‘They know that when they’re buying products they arerecognising the fact that they are buying the backing aswell. They buy the safety factor and the knowledge thatthe product will do what it’s supposed to do.’ (PLIT.2.10)

Consequently there is a constant need to ensure that highstandards are maintained throughout the process, from theinitial order to maintenance and support during installationand use.

2.3.2 Designers, engineers and product managersBy contrast the designers, engineers and product managersfocus on how products and company image are positionedcompared to their competitors. This image positioninginfluences customer perceptions. One design managerexplained how they had recently carried out a large survey ofcustomers to see if their company ‘image and performance’matched customer expectations. Although the response wasfavourable, many believed that these products wereexpensive. As a result of this survey the price of products wasnot reduced but more effort went into ensuring that theservice and technical support was exemplary.

Company reports can also enhance image and pride is oftentaken in the presentation and quality of these documents.But this can present a dilemma for a small company anxiousto cut overheads. A product manager in the defence industryexplained that there are problems in retaining a qualityimage if customers wanted the cheapest products, butexpected the best quality and performance.

2.3.3 Image and changeAn image change can strengthen a brand portfolio. Suchchanges may be on a small scale, such as new signage withina company, or a fundamental re-design of products and arepositioning in the marketplace. There is a tendency forcompanies to promote brands, rather than build relationshipswith customers. One company made sure that all customerwebsite links incorporate the company logo to overcomeproblems of consistency in image promotion. If the logo iswidely recognised and used on brochures as well as all otherinternal and external communications, there is a visualcontinuity that reassures customers.

At the other end of the scale, a firm in the office furnitureindustry had redesigned, repositioned and repackaged itsentire product range, as well as the company’s image. Thisnew identity and strategy had played a large part inrevitalising the business, allowing the company to retainexisting customers and develop new ones. In this case designhad been used as the central platform on which to drivethrough the changes. Moreover a constant revitalisation ofthe image and products has been achieved by regularlyinvolving young design students in competitions for newproduct ideas, overseen by the company design and salesmanagers.

2.3.4 Image perceptions of marketing and sales managersNot surprisingly, marketing and sales managers see companyimage very much in terms of position in the marketplace.They note whether the company is the market leader orfollower, and whether the business serves a specialist niche orseveral markets. One described his company image as a blendof ‘history’ with a ‘forward vision’ utilising technology andopportunities. He believes it to be fairly unique since it is 100years old, and observed that image has a direct influenceupon customer perception and expectations, both of whichcan be controlled by design:

‘The design, the presentation of the product – exclusivelydefines (company) image. If for example Ferrari made a citycar, it would affect the image of Ferrari. People would say‘We don’t understand this’. If Ferrari made a sports car(customers would accept it). But if Skoda made a sports carpeople would say, ‘It can’t be a sports car because it’s aSkoda.’ (MR4T2)

The correlation between design, new products and companyimage is evident in the bedroom furniture company wherevisual impact is particularly important and reflects newfashion trends:

‘We influence image by designing new products,prototyping the shows..(if) the customer likes them (newbeds) then they will put them on their shop floor. We’reinfluenced by images, by the macro-environment as well asindustries outside our own. It could be anything from theIdeal Homes magazines to textiles and trends inupholstered furniture and so on, so it’s a number of things.’(MR101)



One sales representative explained that company missionreinforces image to provide ‘great choice, great value, greatprice and great service’. But problems arise if products areaimed at different market sectors. For example the imagepromoted for a warehousing product is of a ‘high impact,rapid deployment and a real, tangible, financial benefit’,whereas the marketing of software systems presents a‘serious consultancy, knowledgeable about business processesand IT to solve problems’. The latter is aimed at people in‘dark blue suits with red ties, looking very smart’ whereas theformer was designed to be attractive to warehouse operativeswearing protective but comfortable garments, with a focuson ‘technology and functionality’. These two very differentimages are built into the company website:

‘The only broadcast medium we have is the website andthat has just been completely changed to a very functional,clean, simple, no frills, no gimmicks. And that’s beenreceived very well, even though it looks a little dated insome respects, its very clear. People can find their wayaround it.’

and:

‘The vast majority of our staff have contact with ourcustomers and therefore have an influence on the(company) image. So we need to control ‘people attitudes’,and we’re driving towards having an identity, a singleidentity.’

This portrays (a) the perceived company image as ‘Diffuse,low key, not leading edge, reliable and expensive’, whereas (b)the desired identity that they want to promote is; ‘A leadingedge environmental organisation that is R&D driven, with aproblem solving orientation – flexible and international’.However, difficulties can arise from its diverse business, andbecause the company is seen as generalist rather thanspecialist. Yet good design can help promote a consistent,reliable image across a number of markets, particularly interms of production, service and quality.

It is important for company image to be created andmanaged over time, and to understand the role thatdesign can play in this process.

The link between a high quality product image and a highquality company image should be built into new productstrategy.

SMEs need to promote their image at two levels, (1) forcustomers who maybe retailers or suppliers(2) for the consumer or end user.Consequently they need to convey messages aboutproduct benefits to satisfy the requirements of both.

Product and company position in the market place islinked to image. The desired image, (e.g. marketleadership, technical superiority, problem-solving ability,expert knowledge, technical support), should be clearlyindicated.

The image should relate to customer perceptions of thecompany and its products.

Company image can be enhanced by design and shouldbe matched to customer perceptions of brand value.

Product performance and after-sales service enhancecompany credibility and image. The relationship betweenthese dynamics should be understood.

Companies should differentiate themselves and productsin the market place and can reposition or renew theirimage by design.Image change should encompass ‘internal customers’(employees) views, as well as visual appearance ofcompany premises such as signage, decor and colourschemes.

Companies should be aware of the difference betweentheir ‘desired’ image and the 'actual' image held bycustomers and competitors in the market place.

Image should be controlled and influenced by design tomaintain a long-term competitive advantage for thecompany.

Table 2.3.2 Image – summary

2.4 PROCESS in new product development

2.4.1 Relationship between accounting and designContact between the accounting and design functions ismainly informal and irregular. Less than half of theaccountants interviewed had much involvement withdesigners, although most had informal contact in newprojects and product development. However there was oftengreater involvement if major customers were in the publicsector. One financial manager observed the continuousnature of product development and the need for closecommunications between everyone involved:

‘It’s an ongoing process. We are communicating all thetime. The way we work is that we look at designs togetherwith the managing director himself ... (as well as) buyersand others. It may be 3 or 4 people involved in a designbecause at the end of the day we have got to come upwith a product with the right design for the market place;we have several teams and projects at any one time.’(PL2T1)

Several managers described the difference between informaland ongoing meetings, as opposed to monthly or even yearlyformal occasions to review the performance of new products.Although formal meetings are more likely to includerepresentatives from different parts of the company,sometimes the costing and analysis is delegated to less seniormanagement accountants who may be allocated specifictasks. Yet within most small companies there is a likelihoodthat managers will meet informally, and since somemulti-task, they gain a wider perspective of new productstrategy. However, other companies form a close relationshipin response to seasonal requirements, for example:

‘They are coming up with their concepts of new products. Ifit were the summer trekking trousers, and trousers are justpart of the summer range. It’s actually putting togetherthat range as a business proposal, say – ‘This is what wehave to invest in. This is the return expected to get out of itover this period of time’. That is the purpose of them(accountants) being involved at that stage.’ (MR5T1)


Different perceptions and contributions will strengthenthe development process. Whatever the involvement ofaccountants, their financial decisions will have a stronginfluence on the nature and form of new products.

Close contact between project team members mayenhance the process, and speed up time to market usinga 'simultaneous engineering' approach.

Problems exist for financial accountants in public sectorslike the defence industry, if their role is reduced to projectscreening only, to ensure that taxpayers’ money is wellspent. This may prevent them from taking a proactive,creative role.

Companies may benefit if management accountants arecentral to the creative process and ensure that differentdesign attributes are fully utilised in new products. Thiscan influence financial returns at each stage of thedevelopment cycle.

The scale and scope of new products can be enhanced ifcompanies adopt a long term approach rather than limitprojects to short-term financial return

Close contacts between management accountants,design and marketing are important for new productsuccess.

There is a need for formal and informal contactthroughout the development process.

Outside contacts can make a significant contribution tothe development of appropriate new products and thegeneration of innovative new ideas. But these contactsmay infringe new project confidentiality, intellectualproperty and copyright.

Project teams may have group meetings, but otherchannels of communication span organisations andcountries. Managers can maintain contact by e-mail,websites, fax and telephone, but such communicationsshould augment rather than replace key stage, face toface meetings.

The role of financial accountants is important for newproduct success. It can be central to the process (puttingtogether business proposals), or screening ideas(funnelling). But many play a limited role in resourceallocation or only an annual review of expenditure andaccounts.

Table 2.4 Process – summary

Different perceptions and contributions will strengthenthe development process. Whatever the involvement ofaccountants, their financial decisions will have a stronginfluence on the nature and form of new products.

Close contact between project team members mayenhance the process, and speed up time to market usinga 'simultaneous engineering' approach.

Problems exist for financial accountants in public sectorslike the defence industry, if their role is reduced to projectscreening only, to ensure that taxpayers’ money is wellspent. This may prevent them from taking a proactive,creative role.

Companies may benefit if management accountants arecentral to the creative process and ensure that differentdesign attributes are fully utilised in new products. Thiscan influence financial returns at each stage of thedevelopment cycle.

The scale and scope of new products can be enhanced ifcompanies adopt a long term approach rather than limitprojects to short-term financial return.

Close contacts between management accountants,design and marketing are important for new productsuccess.

There is a need for formal and informal contactthroughout the development process.

Outside contacts can make a significant contribution tothe development of appropriate new products and thegeneration of innovative new ideas. But these contactsmay infringe new project confidentiality, intellectualproperty and copyright.

Project teams may have group meetings, but otherchannels of communication span organisations andcountries. Managers can maintain contact by e-mail,websites, fax and telephone, but such communicationsshould augment rather than replace key stage, face toface meetings.

The role of financial accountants is important for newproduct success. It can be central to the process (puttingtogether business proposals), or screening ideas(funnelling). But many play a limited role in resourceallocation or only an annual review of expenditure andaccounts.

Table 2.4 Process – summary


A similar policy has been adopted by the financial manager ofa software systems firm who also attends formal monthlymeetings with project managers for the purpose of making abusiness and financial analysis of proposed new products. Heexplained that although he could not make a contributionabout the technical nature of products his expertise infinance was crucial when deciding which products to develop.Here a ‘funnel’ system has been adopted for screening thepotential and promotion of new products as well as thedevelopment of case studies and analysis of former products:

‘I suppose (promotional activities are) what we would call a‘funnel’, which would be the prospects (of new products). Alist of prospects go forward and we can measure at any onetime how many people (potential customers) we believeare in the funnel. So we can factor these in terms of thelikelihood of a potential sale. We measure crudely how bigthe funnel is at any one point in time. I guess that is oneaspect of the design.’ (MR2T2)

Consequently, it appears that if financial accountants have aproactive rather than ‘gatekeeper’ only approach, they willmake a positive contribution towards new projects, and mayeven have a direct impact on the development of a productportfolio. From this survey it is not clear how these closecontacts are forged. In some cases there is a supportivecompany structure, although it would appear that much hasto do with the personality and interests of those involved. Italso appears that in some cases design is used as a fulcrum todrive through changes and integrate product development.

2.5 Product production and launch perceptions

2.5.1 Perceptions of management accountantsA number of the companies did not manufacture productsin-house, but outsourced production, working with suppliersor contractors to reduce complexity and cost. Oneaccountant explained:

‘We look at re-designing products when they become aproblem for us. We had problems with one in Germanythat was very hard to make, so we asked ProductDevelopment to redesign it.’

She described the use of design to simplify productconfiguration for ease of manufacture by reducing thenumber of parts or, in some cases, dividing the product intomore than one part in order to make it cheaper to produce.To this end the company out-sources production to reduceoverheads. Similarly a furniture company outsourced theproduction of new handles and features, but tested newproducts in-house to underwrite quality control andreliability. This testing achieves ‘peace of mind’ for thecompany as well as customers and adds product value. But,by outsourcing production the company is able to provide arange of products for their customers that might not havebeen possible if they were limited to in-house production.These themes of technology and complexity present aconundrum. If a whole range of criteria has to be met, towhat extent do components ‘stand alone’ on the one hand, orbecome part of an integrated whole on the other?:

‘With some of these systems we’re looking at integrativesystems where each component helps towards the wholesystem. So we can sometimes reduce complexity by nothaving so many different items, but that can increase thecomplexity because we’re trying to produce fewer items,but (then) you have to build more complexity into eachitem.’ (MR3TC.11)

Here design is particularly important in reducing complexityand production costs, as well as updating products, andmaking use of new materials. However new materials tend tobe increasingly expensive, so it is important to develop amore cost effective production process that avoids wastage.Consequently, there is a close screening of manufacturingcompanies to see which provides the most cost effectivepotential. This illustrates the need for close co-operation andcarefully constructed joint ventures:

‘We often go to them (suppliers) and ask them if theircomponent range can meet our need. Can they adapt theircomponents? Are they prepared to work with us ratherthan for us? We discuss our concepts with them and see ifthey can put any added value to their components whichwould be of help to us.’

Consequently good design can be used to reduce complexityand overheads but in a number of different ways, and atdifferent levels:

1. At product level – fewer product parts saves productiontime.

2. Production process level – a simpler production processreduces labour costs and saves (costly) time.

3. Performance level – easy to use products increasecustomer benefits and in some cases may simplifyinstallation.

Finally the production process itself influences new productsby limiting the form, shape and materials used.


Launch issues

Advertising effectiveness. Design can create brandawareness and communicate messagesabout new products and services. Press reviews in tradejournals and sponsorship can be more effective thanblanket advertising.

Step launch. Companies should consider two steps toproduct launch, firstly to company employees and salesrepresentatives, and secondly to external customers likeretailers, suppliers or end users.

Launch timescale. Development and launch timescalescan be influenced by marketing push/pull issues such asseasonal changes, the scale of project and whethercompanies are engaged in design for mass production orindividual products. Design can influence launch.

Production issues

Reduce complexity. Design reduces productionoverheads by simplifying products and processes. It alsocan make products easier to use.

Product testing to support design adds quality, reliability,functionality and visual appearance, increasing real andperceived brand value.

Single or integrated products. To meet customer needsand overhead costs, companies may find that a series ofproducts is more cost effective than individualassignments. Both approaches will influence design policyand company performance.

Up to date and improved products. Design can updateand improve products. It can make new materials andnew technology ‘user-friendly’.

Differentiate products. Design can be used to makedistinctive products and differentiate them from theirnearest competitors. This makes it more difficult forcompetitors to copy.

Product range and innovation. Design can createproduct variety to meet different target customer needsthereby increasing market potential and spreading risk. Itcan also be central to developing innovative new productsthat are first in the market.

Table 2.5 Production and launch perceptions: summary


2.6. Perceptions of costs and measuresThe measures used by respondents to prioritise and evaluateproduct and company performance are different fromperceptions of brand value, even though there are overlapsbetween these two perspectives. Measurement andprioritisation are familiar to most managers since they arelikely to use such tools in everyday practice. The measuresused by respondents in this research have been divided intosix categories (see table 2.3.2):

1. Costs, including overheads incurred in productdevelopment and launch.

2. Benchmarks for evaluating product and companyperformance.

3. Customer measures as distinct from company measures.4. Financial measures, including sales, profit margins and

investment returns.5. Operational measures such as time to market and product

life cycle.6. Perceptual measures such as visual appeal, features and

customer feedback.

2.6.1 CostsThe approach to cost management varies considerably. Somecompanies focus on direct and production costs of newproducts (including materials and any new technology used),while some apply a percentage of company overhead costsand others use a combination of methods and include capitalinvestment and staffing. For example, a civil engineeringcompany estimated costs according to staffing and theequipment used.

‘We think of it in terms of the capital costs of theequipment if (the project) needs equipment or staff tocarry out the work. We use accounting data because weknow how much our staff cost and we can get thatinformation from the accounting section.’ (MR8T1.16)

Clearly, these ‘cost’ decisions are vital in determining whethersufficient funds exist for projects to go ahead or not. Onebrand director saw costs as a combination of materialsrequired and manufacturing time with target costing andreverse engineering. However, he did not see a role for designto manage the process or reduce costs. By contrast, thedefence industry carries out a detailed cost audit using ‘valueengineering’ that relies heavily on financial accountants anddesign.

‘We do a cost audit. We do an appraisal of value for money,whether we can do things more cheaply, or whether itneeds to be done at all. We’re certainly involved in the finalcosts and how much (it) will be. I think it’s designed in, thebits we will be doing, the specifications on how things aregoing to be made and that’s going to affect the cost.’(MR3T1.17)

2.6.2. BenchmarksBritish and European accreditation quality systems ISO 9000,9001 and 9002 are widely used in the research sample ofcompanies. However, one firm that makes apparel for theoutdoor leisure industry prefers to use its own quality systemsince it has a strong brand name and does not need ISOquality kitemarks. Their value platform is based on a qualityassurance manager and the company has gained fullrecognition for quality products in the market place, settingindustry standards. The brand development director explainedthey could charge three times more for products sold to thedefence industry outside the government procurementsystem. Although he conceded that if this market increasedsubstantially, it might be necessary to adopt ISOaccreditation:

‘We have rather a lucky situation because we don’t supplyto general procurement. You probably know that generalprocurement is a very much lower cost denominator. Wemake a specialist product and the specialist forces such asthe Royal Marine Commandos or the SAS or Dutch RoyalMarine Commandos, the Navy Seals from America – theyhave budgets to buy whatever they want.’ (MR5T1.16)

2.6.3 Customer measuresSome companies regularly record informal and formalfeedback from customers as well as sending outquestionnaires. Close customer liaison, particularly at theproduct testing stage, is more likely to result in productsmeet customer expectations. For instance, project teamsworking on new, lightweight fabrics, focus on realisticproposals that may form ‘core’ or ‘niche’ products:

‘We may design a fabric on paper that’s going to be a verylow weight. When we finally weave it, because of theconstraints in our machinery, it doesn’t achieve the(desired) target weight. In that case we look at the result. Ifthe consequence is a one-off, it is caused by a productdefect or is it a core parameter of that product? In otherwords it will never achieve (what was required). In thatcase we have to sit with the customer and share theinformation because, whereas our expectations may be toachieve one level, his expectations may be to achievesomething slightly different. He may be satisfied with that.’(MRT1.19)

Another approach is to estimate exactly how much eachfeature is worth to the customer in terms of financial,operational objectives as well as to gain a competitiveadvantage for the company. To this end, one finance managerexplained that they benchmark exactly how much eachfeature is worth to the end user. In this way they cancalculate the price that customers are prepared to pay forproducts, particularly if they require any unique or specialistfeatures that might prove difficult or expensive to produce.

Customer perceptions can be crucial to gauge theappropriateness as well as nature of promotion for newproducts. The views of the customers were elicited from twodistributors in the construction industry. One measures thelength and quality of relationship he has with the company,the standard of service received, delivery time and theavailability of products. He described a good relationship thathas been built up over a long period with opportunities forstaff training at the company. However there are problemssince the standard of product delivery was ‘generally poor’ aswell as a time delay of more than 36 hours, compared withcompeting companies that can deliver inside 24 hours. Healso complained that products for large projects were oftenout of stock. In contrast another customer for the samecompany appeared to have a much more positive experienceincluding product discounts and opportunities for improvedprofit margins.


CostsOverhead costsDevelopment costsInvestment costsResources, labour costsTooling-up costsTooling life expectancyMaterials costsProduction costsQuality, testing costsPromotional costsInstallation costs

Financial measuresSalesFinancial fitDistribution, sales capacityReturn on salesReturn on investmentRecoup investmentContribution per sold unitExpected volume salesGreatest volumePayback periodProfit marginGross marginMeeting financial targetsMeeting budgetsSave moneyProfitability

BenchmarksProduct life expectancyProduct life cycleProduct fitProduction fit, capacityResources fitSkills fitMarket fitMarket typeMarket sizeMarket shareMarket growthRetaining customersCompetitors productsISO 9000, 9001, 9002Accreditation schemes

Operational measuresProcess qualityTime to marketProgressSave time and maintenanceSave materialsProduct longevityProduct lifeNumber of products developedProject classification

Customer measuresCustomer benefitsResponse speedTechnical supportHands on support on siteFlexibilityStrength and reliabilityEase of use

Perceptual measuresVisual appealLooks good, sexyAestheticsCustomer feedbackBenchmark featuresPeace of mindIntegrityService quality, consistency

Table 2.6 Costs and measures of performance


2.6.4 Financial measuresFinancial measures can be described as fundamental formaking ‘go’ and ‘no go’ decisions in product development.However, a range of measures provides a more balanced,long- term assessment of product potential, and assists thebuilding a balanced portfolio. For example, a brand directorsees financial measures as ‘sales, margin and contributionversus plans (targets)’. Measures can also include repeatratios, flow models, sales, value contribution levels andvolume. The accounting team in defence procurement play acentral role in financial management and driving the businessforward.

This raises the issue about degrees of control and whethercost restrictions should be applied continually, or at setmilestones throughout life of a product. There are also issuesof creativity and innovation that may need to be checked butnot stifled by financial measures and audits that do not havea long-term investment focus. Here the water treatmentcompany admitted some deficiencies in their financialanalysis:

‘I think like many organisations we fall short in terms offinancial returns, particularly the speed of financial returns.I’ve often argued that if an organisation realised how muchhard work it was to bring something new to the market –how long it would take, how much it would cost – nobodywould ever start anything!!’ (MR1T1.26)

2.6.5 Operational measuresThere is a continual need to monitor and review thedevelopment and production processes used by companies.One brand manager described a failed attempt to streamlinedesign and product development and the success rate of newproducts because it became too unwieldy.

But a financial director was able to describe the importanceof cross-functional teams in reducing lead times:

‘Over the last few years we have been particularlysuccessful in ensuring the success of new products, which iswhy we have introduced the cross functional teams … toensure that we do the correct market research. We do thecorrect design and work with operations people to ensurethat we can get the product out at the right price, and wedo the correct commercial evaluation.’ (MR5T2.14)

Furthermore, regular checks and balances can strengthendevelopment processes as well as improve quality andefficiency. This process may have more impact with anexternal perspective. Although there are stringentrequirements placed upon procurement companies, there areconsiderable benefits to be gained from an external audit.

2.6.6 Perceptual measuresPerceptual measures are influenced by appearance (colour,style, fashion and aesthetics) and have a big impact on sales,but perceptions are difficult to measure. One brand directoradmitted that they are not always successful in meetingtarget market aspirations in this way. He pointed out thatstrong brands influence consumer perceptions if they areseen as the industry standard for quality and reliability, evenif competitors have products that are technically superior.Customers associate this with reliable performance whereascompanies aim for zero defects and less costly demands oncustomer service. Faulty products and services are associatedwith loss of money and status for customers and brands.

Perceptual measures are used to evaluate whether theproduct and performance is as good as, better as or worsethan that of the nearest competitor. One software companymanager considered that his company performance to bebetter than ‘the average’ competitor in meeting strategicobjectives. The finance manager for the same company had adifferent perspective. He considered that compared withnearest competitors the company was worse ‘because wereally haven’t sold ourselves well in the past’. He explainedthe need to establish credibility and generate new sales.


Operational measuresOperational measures are fundamental to developmentprocess. Many companies employ cross-functional teamsto work on new projects to reduce complexity anddevelopment time. Each team member may measureproduct development and performance differently.

Some companies use consultants to gain an objectiveview and long term perspective.

Financial measuresSome financial performance records may be infrequent.Profitability is linked to different products and targetaudiences.

Commonly used measures are sales, profit margins andmeeting targets. However some companies include repeatratios, flow models, volume, value added and contributionto turnover.

Some firms use a cost audit throughout the developmentprocess, but an audit that is too stringent may stiflecreativity and innovation. Companies involved ingovernment procurement experience this problem.Incessant checks can exaggerate product lead time.

Poor financial control may lose opportunities in themarketplace.

Perceptual measuresInternal customers (company employees) are importantin creating brand value. As customer demand for serviceincreases, beliefs about brand values are influenced by thebehaviour of company personnel.

'Peace of mind' is a perceptual measure that relates tocompanies and customers. It is built on efficient, reliableprocesses that overcome problems in productdevelopment, delivery and performance. If products andservices fail this will damage brand equity, particularly ifcompetitors are perceived to be more reliable.

CostsCost measures range from direct costs of productdevelopment to percentage of company overheads,including capital costs and staffing.

Design can influence costs like production time andmaterial savings but the impact is difficult to predictaccurately.

BenchmarksLegal benchmarks include quality assurance measures(e.g. BS 5750, ISO 9001, 9002 and 9003), or rely onschemes developed by the company and in-house testinglaboratories. But, for public sector organisation,government legislation can inhibit profit margins, if firmshave to produce high quality at low prices.

Internal benchmarks include meeting demand, salesvolume and sales targets to direct, analyse and prioritiseperformance. They may be linked to milestones,discounted cash flow models and achievement levels, likenumber of units sold.

Customer measuresCustomer feedback and perceptions can be assessed at aformal and informal level supported by periodicalquestionnaires as well as regular face to face meetings.

Some customers are closely involved in productdevelopment, ensuring 'realistic' expectations matchcompany capabilities. Detailed specification reviews canovercome technical problems and assess appropriatenessof new products for target markets.

If companies understand customer beliefs and valuesabout product features, they can improve profit margins.

Customers may be influenced by length and standard ofservice, delivery time and product availability as well asquality. This raises issues about service consistency overtime.

Table 2.7. Summary of six performance measures

3.1 Key findings in relation to design attributesThe sixteen design attributes listed in Table 3.1 werepresented to all respondents who identified the mostimportant in new product development. Most could notrelate to all attributes on the list, but did recognise the visualaspects of design, such as aesthetics, fashion and styling. Theysaw a connection between design, product quality and addedvalue, but few thought that design could generate, interpret,integrate or communicate ideas, or be used as a competitivetool or strategic activity.

Overall they believed that design is valuable in two key areas,firstly to differentiate products from those of competitors,and secondly to reduce complexity in the productsthemselves, in production or in service delivery. These twodimensions are important because they reflect a conflict ortension between the need to innovate and differentiateproducts on the one hand, and the need to improve efficiencyby reducing complexity on the other. They also raise issues ofperformance benefits and market position since both can beaffected by differentiation and complexity policy. Herebenefits are seen as performance outcomes and marketposition is related to competitors and target market(Figure 5.1).


Often cross-functional teams will make decisions about suchissues and overcome these tensions, since different forms ofexpertise are required. For instance management accountantsare well equipped to assess cost and performance benefits;designers and engineers to evaluate differentiation andcomplexity issues; and marketing managers to establish brandstrengths and position in the market place.

This matrix relates to the classic ‘productivity-innovation’discussed in Chapter 2 and the ‘formula’ that successfulproducts should be ‘usable, producible and appropriate’advocated by Fujimoto (1990). Furthermore, this researchargues that each part of the matrix can be enhanced bydesign and that prioritisation monitored by managementaccountants working alongside designer, engineers andmarketing.

3.2 Key findings in relation to valueWe have discussed how reduced complexity can add real andperceived value to companies, customers and end users. Forthe company and customer this value can be translated intoimproved profit margins, whereas for the end user it is morelikely to be associated with solutions to problems. These inturn may result in savings in time, money or improved qualityof life. Similarly product differentiation and quality areassociated with improvements in added value, profit marginsand return on investment (ROI), if ‘value platforms’ matchtarget markets and position in the market place.

However too much emphasis on quality and differentiationmay result in products that are inordinately expensive toproduce without a justifiable ROI, unless they are associatedwith benefits in the customer value chain. In fact the notionof value chains reinforces a need to establish clear valueplatforms and decisions about whether products are ‘standalone’, ‘integrated’, ‘bundled’ or part of an augmented service.To this end many respondents saw a need to for newproducts to enhance brand equity (Figure 5. 2). Establishingperceived and actual brand value, as well as a strong positionin the market is not easy and relies upon a series ofrelationships with employees, customers, and end users aswell as suppliers and shareholders. Consequently, there is anurgent need to manage and control these dynamics, with anongoing review of product portfolios and performance. At thesame time, market research and strong customer relationscan reinforce brand value and provide protection againstadverse publicity. Here design can be used to enhanceproducts and company in terms of image, styling, aestheticsand fashion – particularly where there is a need forappropriate, up to date products and practice. This visual(physical) evidence, presented by well designed products, willenhance company credibility and reassure stakeholders if it isin line with their expectations.

3. Key survey results and interpretation of findings

Table 3.1 Design attributes – priorities of respondents

Most easily identified by respondents• Design to reduce complexity• Design to differentiate products

Identified by many respondents• Design in product styling• Design in aesthetics, fashion• Design and product quality• Design and added value• Design and product identity• Design and brand creation

Rarely identified by respondents• Design to generate ideas• Design to communication ideas• Design to interpret ideas• Design to integrate ideas• Design as a competitive tool• Design to reduce time to market• Design and corporate culture• Design as a strategic activity

Adapted from Trueman and Jobber (1998)

In fact this research found that 81% of those interviewedconsider that customers will pay more for high qualityproducts, thereby providing an opportunity to increase ROI aswell as profit margins. Two fifths of respondents estimate thepotential increase to be between 2-20%, and one fifth thinkan increase of between 30% and 40% is a reasonable pricethat customers are prepared to pay. At the same time, 78%believe that customer value perceptions are constantlychanging over time:

• Consequently there is a need for a continual review of thesituation if companies are to improve ROI and profitmargins by establishing and maintaining a goodunderstanding of the customer value platform, andenhancing it by design.

3.3 Key findings in relation to imagePrevious research using the VIPP framework (Trueman andJobber 1998), found that company image is associated withstatus and identity as well as product performance, in termsof sales-growth. However a poor image with negativecustomer value perceptions will diminish brand equity.Furthermore, at customer level it is important to distinguishbetween the image promoted by companies to customers,and that promoted to end users, since each will have a set ofexpectations and requirements on which to evaluate thatimage. Business customers see benefits in price bargainingand throughput, whereas end users focus on appearance,styling and fashion, and ease of use, often paying more forhigh quality products. The projected image at each level isimportant because companies depend upon customers topromote their products and services to end-users (Figure 5.3).

Much depends on company and industry as well as marketsize. In some SMEs the company and product name are oneand the same brand. But larger companies may own a wholerange of brands that project different images at differenttarget markets and have their own, independent strategicbusiness units. However, customers as well as end users maybe confused if the same company and brand conveys a wholerange of different images to the same target market. Thisindicates a need for consistency along each channel ofcommunication if brand awareness, recognition and equityare to be enhanced. Here the internal customers (companyemployees) are important for image cohesion and toreinforce brand messages (Balmer & Soenen 1999). Thisnotion is comparable to the 7 P’s of the services marketingmix where people, process management and physicalevidence reinforce product, price, promotion and place. Theneed for consistency is also advocated in product marketing(Jobber 2001).

The integration, interpretation and communication of brandimage can be enhanced by design, but each level has tomatch industry, company and customer expectations. Toillustrate this point, a number of managers gave examples ofcontextual mismatches, often relating to poor positioning ofproducts that would result in customer confusion and anupset of value platforms. An example might be Ferrari startingto operate in the cheaper, small city car market, or producingpoorly designed car doors that fitted badly. Consequently,there is a need to make sure that product image is consistentwith brand strategy and clearly positioned alongsidecompeting products. To this end design can be used todifferentiate products and promote a distinct image.

In fact there is a need to review corporate and product imageperiodically, particularly if companies and brands have beenin the market for a long time. These image reviews are a realtest for design to retain the core essence or identity of thebrand as well as showing visual evidence of change inresponse to customer needs and technological progress. Allthese issues have to be addressed if the appropriate image isto be adopted and reflect brand value and companycredibility.

As far as image is concerned, half (52%) thought the imagepresented by their company is better than that of the nearestcompetitors. One quarter (26%) saw their company image assimilar to competitors, and 22% believed it to be worse.Furthermore, most (83%) acknowledge that image can beinfluenced by design and many (61%) consider that newproducts reflect a new image. They (74%) also pointed outthat the success of new products relies to a great extent onthe image presented by previous products:

• Company image descriptors are not clearly understood andthere may be gaps between the ‘desired’ and ‘actual’ imagein the market place. This indicates a need to become morefamiliar with design and how it can enhance image throughvisual evidence and build a corporate identity.

3.4 Key findings in relation to processThree important factors for successful practice were found inprevious research at the PROCESS level. These aremulti-disciplinary teams, external networks and thedevelopment of integrated design. Each factor can enhancethe contribution that new products make to companyturnover. This new research focuses on the nature andstrength of relationships between management accountants,designer-engineers and marketing within the productdevelopment process.

Designing value and valuing design Key survey results and interpretation of findings 29

Designing value and valuing design Key survey results and interpretation of findings30

Moreover, involvement with suppliers, customers and outsideconsultants can have an impact on process efficacy. In factmore than half of the respondents (58%) believe there is astrong relationship between management accountants anddesign in their company, and another quarter (26%) considerthis relationship to be quite good. Only 21% saw a weakrelationship and the rest are unsure, or think that thesituation does not apply to them since they do not have anin house design facility. This would suggest that somecompanies miss opportunities to gain a competitiveadvantage if they have weak relationships betweenaccounting and design staff working on new projects and areunable to make full use of design attributes (benefits). Theseteam relationships help to overcome the complexity versusdifferentiation issues (Figure 5.1), and can build brand equity(Figure 5.2). In other words, there is an assumption that thecloser and stronger the relationships, the more likely it is thatnew products will perform successfully in the market place.As discussed in 3.3, strong relationships are also likely toenhance brand equity and company image.

The sample was split between those who used externalconsultants (52%) and those that did not, but most (92%)believe that suppliers are very important in developing newproducts. Quality systems are widely used (88%), and there isa strong belief in the correlation between quality and realand perceived added value in new products. However, half(52%) use management accountants at the concept stage ofnew projects even though most (79%) carry out a cost auditat this point. Almost all (92%) recognise that 60% or more ofproduct costs are designed-in at the concept stage. One fifth(20%) use target costing but half of the sample (30%),admitted to having only limited financial control.

• External consultants can underwrite decisions about newproducts, particularly where market opportunities areconcerned. The early involvement of managementaccountants can make a positive contribution since 60% ormore of product costs are designed in at this stage.

Figure 3. 1 Forming a balanced team

Role of managementaccountant• Reactive – gate-keeping,

screening• Proactive – creative targeting• Add brand value

Balanced team• Successful products• Reduce lead time

Customer, suppliers• Role in product opportunity

and development

Team strengthsStrong/weak relationships • Management accountants• Design, engineers• Marketing

Nature of meetings• Formal, informal• Regular, irregular• Weekly, monthly• Annual accounts

However processes can be affected by company size andstructure as much as product development policy, sincepeople are more likely to see each other regularly, albeitinformally, in smaller companies. The nature of relationshipsbetween project team members and determinants forsuccessful project outcomes is complex so that it is difficultto build successful project teams (Figure 3.1). Therefore thefollowing points should be considered:

• The nature and structure of the role of accountants,designers and marketing managers in project teams shouldbe reviewed, as well as the frequency and formality ofmeetings. Strong relationships may ensure ‘fit for purpose’products and speed up product development, using‘simultaneous engineering’ to reduce time to market.

• The role of management accountants can be proactive toenhance brand equity. They may inhibit the developmentprocess if they extend it unduly through over scrutiny orinhibit creativity if their role is only to screen newproducts.

• Customers, suppliers and external consultants may formpart of the product opportunities and developmentprocess, but care should be taken to protect intellectualproperty, patents and copyright.

• Accountants, designers and marketing managers should beaware of their direct influence on the new productdevelopment (NPD) process and the potential for design toenhance brand value and image as well as to facilitateprocess, production and launch. They should also be awareof measures that can be used to control and direct designin new projects and updates.

Finally, if management accountants have weak relationshipswith design and marketing, they are unlikely to understandthe opportunities and potential of design to develop newproducts, to integrate ideas or to enhance brand value.

3.5 Key findings in relation to production and launchProduction and launch perceptions relate to complexity anddifferentiation (Figure 5.1), and the need for efficiency.


Figure 3. 2 Production and launch dynamics

SuppliersNew opportunities• New materials• New technologies• New equipment

InnovationNew opportunities, problemsNew products, services

LaunchPromote and distribute• Communicate• Distribution channels

End usersNew opportunities

ProductionProduct level• Differentiate but fewer parts• Efficient, quality but speedy

ConsultantsExpert users

CompetitorsNew opportunitiesPossible joint venture?

CustomersNew opportunities


The driving factors are to cut down overheads by reducingproduction time (production, engineering focus) and productlead time, as well as gaining early market entry (marketlaunch focus). However, this procedure can be exacerbated byproblems in new materials and technology, dependent onsuppliers, as well as complex procedures for dealing withinnovative products and new markets, dependent oncustomers, distribution and communication/promotionchannels (see Figure 5. 2).

Consequently, many innovative products and services arelikely to be incremental, rather than radical changes, oftenthe same product with new materials or colours todifferentiate it from competitors. At another level, productsmay be similar, but new production technology can make

further savings and improvements. Here strong links betweendesign, engineering, marketing and finance can helpovercome production problems.

From a launch perspective, companies need to consider twosteps or stages in communicating new opportunities andbenefits of new products, firstly at customer level andsecondly at end user level. This affects communicationvehicles such as trade fairs, journals, press releases andreviews as well as company websites. It also raises issues ofmarket push and pull strategies, launch sequence, time-scale,any seasonal market demand and scale of operation. Thesecommunications strategies can be directly influenced bydesign.

Figure 3.3 Resource management and measurement dynamics

Direct costsDevelopment costsProductionMaterialsPromotion

ResourcesControlOperational measuresTime to marketNumber of productsdeveloped and launched

InnovationPerceptual measuresPeace of mind, solutions,well-beingInternal customer (employees)

TargetsBenchmarksVolume sales, quality assuranceCustomer measuresBenefits, feedback, NPD involvementFinancial MeasuresProfit Margins, Repeat ratios

Indirect costsCompany overheads

3.6 Key findings in relation to performance measuresIt is not surprising to see that performance measures varyfrom company to company and business to business.However, performance perceptions vary according to theperspective of different managers within the same company.Moreover financial measures, such as annual profit and lossaccounts are at least one year behind current productdevelopment strategy and target objectives. Therefore, to geta clear, robust understanding of performance a policy ofmultiple measures is important.

This research has adopted six groups of measures thataccommodate the views of customers as well as companymanager. Although perceptual measures bear someresemblance to the value perceptions discussed earlier (3.2and chapter 2), this section examines costs and benchmarksas well as customer, financial, operational and perceptualmeasures. Some operational measures such as time tomarket and number of product developed may be linked toprocess issues (3.4), and financial measures include profitmargin, repeat ratios, and customer perceptions (Figure 3.3).

The clearest difference between companies is whether theyinclude indirect costs (overheads) or only direct costs in theirassessment of product performance and return oninvestment. Another distinction is the nature of targetsemployed. For instance, are targets built into financialmeasures, or a range of yardsticks such as benchmarks,customer feedback, and perceptual measures? Previousresearch found that those companies using a variety ofmeasures tend to be more successful and have a long-termstrategy compared with those that use only one or twomeasures, typically sales and profit margin (Trueman andJobber 1998).

One of the strongest indicators of measurement to come outof this research is the importance of perceptual measuressuch as ‘peace of mind’ for customers as well as companies.These are linked to operational measures such as resourcedeployment, control, and the need to include the perspectivesof company employees. Two thirds of the managers who tookpart in this survey (67%) took the view that their companyperformance was better than that of nearest competitors,one fifth (21%) thought their performance was similar, and13% saw it as worse. The findings were more guarded forproduct performance in that two thirds (70%) of respondentsbelieved that their products outperformed those ofcompetitors and a quarter (26%) performed believed thatthey performed as well as competing products. On the otherhand, most (83%) believed that the products reached theaspirations and targets set at the beginning of new projects.

• This suggests that most companies in the sample areperforming well although managers are realistic aboutcompany and product performance as well as their abilityto meet targets.

In terms of productivity, 20% of those interviewed developedmore than 50 new products over the past five years, half(58%) produced less than 30, while one third (37%),developed less than 10. Half the sample (50%) take less thana year to develop new products, whereas nearly one third(30%) take between three and five years.

• This is in part indicative of company size, thepreponderance of niche markets, and the size of projects.Some companies in this survey work on very large scaleproducts such as oil platforms or software systems for largeorganisations, so it is not surprising that one third takebetween 1- 5 years to develop new products although half(50%) take less than a year.

3.7 Company size and orientationMost of the companies (12) have less than 400 employees,and only one has more than 500 employees. The sample isfairly evenly divided as follows: 6% less than 100, 19%between 100 and 200, 22% between 200 and 300, 19%between 300 and 400, 6% more than 400 employees Interms of company orientation, half (50%) of thoseinterviewed consider their company to be sales or marketdriven, 17% see a production focus, and a further 17% findan emphasis on design. Of the remainder, 11% believed it tolean towards either finance or R & D and the remaining 6%did not know.

• Some respondents indicated a distinct change inorientation over the past few years often from a sales orproduction focus to marketing and design. It also pointsthe need for a balanced orientation that blends VALUE,IMAGE, PROCESS, IMPLEMENTATION (production andlaunch) as well as for a range of performance MEASURESto make the VIPI strategic model.

Full survey results are presented in Appendix B.



3.8 Key findings in relation to VIPP model: new VIPI model The previous discussion in this chapter has examined theconstituent parts of the VIPP model but with the addition ofsome ‘Launch’ issues and a fresh look at performancemeasures. However, there appears to be a need for somechange in structure to strengthen its use as a diagnostic tool,particularly for management accountants. The researchfindings provide a fresh insight into designing new products,and the development of a new model that combinesPROCESS with PRODUCTION, and introduces anIMPLEMENTATION dimension so that VIPP becomes VIPI(Figure 5.4). Some of the key points are itemised below.

1. Perceptions at PRODUCTION, PROCESS and IMAGE levelreflect upwards towards VALUE and have a cumulativeaffect upon brand equity.

2. Performance measures include benchmarks, operationaland perceptual targets such as value for money, and peaceof mind, as well as financial assessment.

3. At VALUE level ‘relationships’ and ‘network control’ are asimportant as direct and indirect costs.

4. At IMAGE level there is a need to establish a clear ‘marketposition’, which in turn can be affected by visual evidence,performance, credibility and consistency.

5. At PROCESS level there is a need to incorporatemanagement accountants into ‘cross-functional teams’.They can perform a creative ‘proactive role’, using the newVIPI framework as an audit to add value and brand equity;rather than be limited to product screening and annualaccounts.

6. At IMPLEMENTATION level (PRODUCTION and LAUNCH),there is a need to save materials, reduce overhead costsand speed up production time. However productionefficiency must incorporate product quality.

The advantage to be gained from this new model is that itcan be harnessed for continuous improvement, with eachdimension feeding upwards towards product and brandVALUE. Such improvements can be enhanced by designattributes and driven by management accountants if they areable to develop an audit linked to the VIPI framework andadopt a proactive role towards project teamwork.Furthermore, the company will have a competitive advantagesince this scheme to enhance perceived VALUE is somethingthat competitors would find difficult to copy.

The next stage in this research applies the research findingsto three companies in different industry sectors. They arepresented as mini-case studies of good practice.

1. Construction – Case A, Steel fixings and clamps for heavyconstruction.

2. Textiles – Case B, Branded outdoor leisure apparel.3. Software – Case D, Document management for retail and

banking.

4.1 Case A – Construction – Steel fixings and clamps forheavy constructionInterviews were held with the product development managerwho is a designer and has worked with the company for nineyears, and the finance director, a management accountantwho has spent five years with this firm. Two customers werealso interviewed. They have dealt with this company’sproducts for over ten years, distributing them to the heavyconstruction industry.

4.1.1 The companyHas been in business for over sixty years and is considered tobe the ‘world leader in steelwork connection’. The company’smission is to ‘Provide innovative alternatives to traditionalconnection methods’ and its strengths lie in ‘vast experience,strong technical and engineering skills and the latest methodsincluding computer aided design and finite element analysis’.Its products have been categorised as ‘steelwork fixings,cavity fixings, rail fixings, support systems, floor fixings andpressure valve clamps’ and sold worldwide.

This company is a member of the Steel Construction Instituteand has BS EN ISO 9001 quality accreditation. Its keymarkets are structural engineering, civil engineering, buildingservices, process and plant engineering, mechanical handling,and transportation. The advantages and benefits of theproducts are clearly presented in the company product guide.These include ‘peace of mind’ and ‘cost savings’ as part of thevalue platform. The company has an in-house design teamand leading edge testing equipment and employs less than100 people. It has received a Millennium Product Award fromthe Design Council.

4.1.2 Orientation and differences between design,accounting and marketingAn obvious difference between finance and designperceptions is seen in the strategic orientation. The financedirector considered the company to have a sales drivenorientation, whereas the product development manager(PDM) believed it to be design driven. The finance directoracknowledged these differences and observed:

‘Designers will see things in a completely different way –accountants will see it from which makes the most money,which makes the most products, not necessarily the grossmargin, but the greatest volume. Marketing will see it fromones (products) they can actually sell. Designers will just beproud of the ones they invented themselves. Which isnatura.l’ (PL1T2.6)

He made a distinction between the marketing function andthe marketplace and observed that most of the best ideas fornew products came from the latter, not necessarily theformer!

4.1.3 Design attributes, differentiation and complexityProduct differentiation is regarded as strategically importantin order to gain and maintain competitive advantage. ThePDM described this as follows:

‘If you are going to charge a little bit more for your productvisually, aesthetically, quality- and engineering-wise, youhave to differentiate yourself from everybody else, and thisall ties up with brand creation … and brand strength. Weare in a market now which is very mature. We have been inthe business for the last sixty odd years. The brand is verystrong and we have to be sure that everything we bring outis also strong.’

4. Mini case summaries of good practice


Advantage

• Guaranteed loadings, safety factor

• No need for specialist skills or equipment

• On-site adjustability

• No need for power on site

• No damage to protective coatings

• No hot work permits needed

• Safe in hazardous environments

• Ergonomic designs, with installer in mind

Benefit

• Peace of mind in specifications or use

• Reduction in labour and hire costs

• Reduction in costs of remedial work

• Reduction in installation costs

• Less corrosion – peace of mind

• Reduced project costs

• Reduced installation time and labour costs

Table 4.1 Case A – Value platform – from company product guide

Designing value and valuing design Mini case summaries of good practice36

He is seen as a key person in planning and decision making innew projects:

‘People … recognise (our company brand) for whateverreason. It’s all part of brand strategy. Then all the others(companies) follow on and it varies in its order ofaesthetics and product quality. All this has to tie in with thestrategic activity of the business. That’s why the head ofthe design team also sits on the business committee andalso the strategic planning committee.

As the sales and marketing strategy has to change, theproducts that we deliver for our sales engineers to sell intothose markets may also have to change. And if we have astrategy of aiming for a high load, heavy engineeringmarket, where the products are technologically veryadvanced and more expensive than any other productcurrently out there, it’s no good the development teampursuing light weight service suspension systems.’(PL1T1.8)

Consequently, there is a need to focus and positionaccurately in the market. This need to differentiate andenhance profit margins was echoed by the finance director:

‘We have some very competitive products where price isthe overriding factor and we have to get it right to theactual penny. But with other products, where there is nocompetitor for that product, we charge sometimes £10 forone fixing, and it doesn’t look like a £10 fixing, so you’reprobably looking at a premium of 30-40% that somebody’swilling to pay.’ (PL1T2.4)

4.1.4 ValueValue platforms and customer benefits have been worked outvery carefully (table 7), particularly in terms of product costsand benchmarks where a form of reverse engineering isemployed. To this end the PDM describes the advantage theyhave in their in-house testing equipment where competitors’products are analysed before they start working on newprojects. Subjective value perceptions appear in the productguide: ‘The most important thing our customers are lookingfor is peace of mind’. This is extended to bring peace of mindfor the company too:

‘It may mean spending a little bit more than a competitor’sfixing but having the peace of mind that they (products)are without failures, and the job and project or building’sservice life would benefit without using duff products.’ ‘Ifyou are working on a scale of 0-100, I would say perceivedvalue is probably up in the 90’s because it comes back topeace of mind. It comes back to the benefits that aparticular design is bringing so that we can justify paying alittle bit more for the product.’ (PL1T1.9)

The financial director reinforces this peace of mind factor:

‘When they (end users) are buying products they arerecognising the fact that they are buying the back-up(support service) as well. Buying the safety factor and theknowledge that the product will do what it is supposed todo.’ (PL1T2.10)

4.1.5 ImageThe company has carried out surveys of customerperceptions to see if they match the desired company image.Although we were not given the results of these surveys itwas clear that it was perceived highly in the heavyengineering and construction market place, even though theproducts are expensive and our own interviews withcustomers showed some inconsistency in product availabilityand delivery. As far as the financial director is concerned, theperceived image is one of an innovative company:

‘We have a massive variety of products on the market.When something new comes along, they’ll sell the brandnew product but, but they’ll still sell the 70 old products, soit doesn’t change their perception of (our company) otherthan they see it as a company that’s constantly movingforward, but still retaining the products that work.’(PlT2.10)

4.1.6 ProcessThere appear to be strong relationships between project teammembers. The product development manager explained:

‘With the accountants we have formal meetings once amonth. At the meetings there are production engineers,business directors, marketing managers, purchasingmanagers and we discuss the viability of said project interms of the cost of taking the product to market and thecost associated tooling up to produce that product. Thisdoes involve the accountants because that then becomes acapital expenditure, whereby the tool is becoming an assetowned by the business which shows on the accounts. Wehave to justify a payment of that capital amount over sayfour years and also the return-on sales of the product.’(PL1T1.1)

Sometimes customers are included in these meetings,particularly if the project is radically different from previousproducts, will solve new problems or enter new markets.

4.1.7 Production and launchTeamwork is important and cross-functional teams areassigned to new projects. Moreover the finance directorseems to have a clear understanding of production dynamics:

‘We look at redesigning products when they become aproblem to us. We had one in Germany that was very hardto make so we asked product development to look atre-designing it for us.’ (PL1T2.13)

Ways of reducing overheads are explored, often by sourcingparts from outside. In contrast, the PDM focused ontechnology, materials and the logistics of productperformance compared to competitors. He observedproblems where products appeared stylish and attractive butwere technically inappropriate and therefore not ‘fit forpurpose’ the market place:

‘In the vehicle design industry, looking into heavy plantmachinery excavation equipment, by doing this parametricanalysis, a particular excavator was lower costs than all theothers. And for some reason it had an extra 3 metres ofreach with the digging arm and yet it weighed less thanthe others and had a narrow wheel track. It was worked outthat it would fall over and yet as a specification it lookedwonderful. The manufacturer was contacted and thatparticular piece of paper was redrawn and modified. Usingthat methodology it was found that a third party, (ourcompany) knew more about the particular piece ofequipment than the manufacturer because they did nothave the facilities (to test the product).’

This illustrates the differences between a new ‘idea’ or‘invention’ and an ‘innovation’ which can be defined as a newidea that is adapted or designed to be profitable and ‘fit forpurpose’ in the market place.

4.1.8 MeasuresThe PDM was able to describe a range of performancemeasures including technical benefits, response speed, on sitetechnical support service as well as process efficiency andquality. He stressed the importance of projecting an image ofquality and reliability since this all built towards giving thecompany credibility, an improved profit margin andcompetitive advantage. He gave an example of how excellentservice in the car industry could influence customer loyalty aswell as build brand equity, leading to improved profit margins:

‘The guy that services your car that costs you a little bitmore money but when you get it back it is in beautifulcondition. And you feel that assured-ness that the work hasbeen carried out to perfection and care has been taken.’(PL1T1.10)

This attention to detail was also mentioned by the financialdirector. She stressed the importance of market research andcustomer and end user liaison to make sure that productswere fully tried, tested and appropriate. But the twomeasures most used to assess financial performance wereprofit margins and the ‘top line’. However, she observed theimportance of differentiation to achieve successfulperformance in the market place.

4.2 Case B – Textiles – SME MR5, branded outdoor leisureapparelInterviews were held with the product development directorand finance director. Both are in the 40-50 year age band andhave been with the company for eleven and eight yearsrespectively.

4.2.1 The companyThe company has a very strong brand name and is a UKmarket leader in the outdoor apparel industry. It has beenestablished for 35 years having been set up originally by twoexperienced climbers. During this time it has maintainedclose links with leading outdoor enthusiasts to reinforcemarket position, retain credibility, and enhance brand equity.It became part of a larger group in 1993 but has retained it’sown brand name and identity. It has a reputation as aninnovative company, working with suppliers such as W.Goreand DuPont with the latest materials and technology todevelop new products. Furthermore, the Design Council gavethis firm a Millennium Product Award for a new, high-techrucksack. The target audiences are walkers, mountaineers,climbers, skiers, mountain bikers and trail runners, as well aspeople who may aspire to fit into these categories.

Keynote research observed that overall sales in sports clothesand footwear declined in 1999 but still represents 14.6% ofall clothing and footwear purchased in the UK, estimated at£3.65bn in total. In this market, ‘outdoor-wear’ remainspopular following a trend towards a healthy lifestyle andpersonal activity rather than competitive and team sports.This puts the company in a strong position but there is fierceoverseas competition in this global market.

4.2.2 Orientation and differences between design,accounting and marketingThe finance director considers this company to be financiallydriven although he pointed out:

‘We are not production led, we’re not sales led so it’sprimarily marketing. We are a brand and therefore we haveto market that brand in the right way.’

This observation is reinforced by the brand developmentdirector who believes the company’s orientation is splitbetween marketing and design.

Designing value and valuing design Mini case summaries of good practice 37


4.2.3 Design attributes, differentiation and complexityThe company differentiates itself by being innovative,working with suppliers and sponsoring famous customers tohelp design, develop and launch new, distinctive products. Inthis way it is able to retain its brand leader position and makesure that new products are reliable and increasingly meetcustomer needs, particularly in hostile weather conditions.Strong brand recognition, identity and awareness has beenbuilt up over the years and is reinforced by featuring leadingoutdoor activists in promotional material to ‘top up’recognition with each new generation of end-users in themarket place. One retailer observed:

‘Customers are interested in products that are in demandfrom the consumers. Customers are retailers. They are alsointerested in reducing time to market. They’re interested inreduced complexity, because these are all things that keeptheir costs down. And they’re interested in things thatcommunicate to the public easily, without them (retailers)having to do lots of work’. ‘We will communicate ourproduct principles via our designs.’ (MR5T1.5)

This illustrates an opportunity for design to create andmaintain product style, fashion and identity, reducecomplexity in production and to communicate with thetarget audience.

4.2.4 ValueThis company clearly demonstrates the importance ofteamwork and building strong relationships with customersto enhance brand equity although the introduction of aproject team structure is quite recent. The productdevelopment manager meets customers at least three timesa month. These close relationships should promote acommon focus and the likelihood of shared values andpurpose for the business. However, the company valueagenda such as ROI and profit margin is certain to bedifferent from that of the end-user value perceptions.Consumers are as likely to consider benefits such as warmth,durability, weight, wind and rain protection and comfort asprice.

The finance director noted a problem in promoting andtargeting some leading edge products at the ‘top of therange’. These may have to be a ‘limited’ edition only, to meetthe needs of a small field of elite activists, who might‘disown’ new products that are perceived as too ‘mainstream’.Consequently, such products could have good profit marginsbut poor ROI since relatively few would be made. However,they would help to retain the ‘leading edge’ image of thecompany and brand name. Furthermore, the technology aswell as style could be adapted in some way for the massmarket, possibly in the following season. The company,customer and end user will all wish to promote an image ofquality, style and fashion that can be influenced by designand aesthetics, standard of finish and service.

4.2.5 ImageThe product development manager saw a strong link betweendesign, reputation and company image. He described this as‘Extreme high quality, safe and secure’, as well as ‘High tech,ethical and technical quality’, and went on to explain theimportance of design in attaining this image since it directlyrelated to customer perceptions of product benefits.However, there is a difference between the ‘premium brandsector’ and ‘fashion brands’:

‘There is no point in us coming out with T-shirts that have(the company name) written all over them but are of nofunctional use because that’s what the brand is. The brandis a functional brand and it’s primarily known for itsfunctional attributes.’ (MR5T1.9)

Similarly the finance director describes how the companypromotes its image to committed outdoor activists, as wellas ‘social strollers’:

‘(Our products) are used by those people who take theirsport seriously, so they are the people who do climbing at avery serious level, or do four seasons walking, who areserious committed walkers. Therefore the people we use inour advertising for example (famous climber), who are thepublic’s eye, very serious professional climbers, so that’s thetype of product they would wear. So they influence theimage as well.’ ‘Climbing is a very small segment, butpeople do aspire to it, so they tend to have this view ‘Wellif famous climbers wear this stuff, it must be good.Therefore I want to look and pretend to be like them evenif I’m not’.’ (MR5T2.7)

Both saw that image could be influenced by anyone withinand outside the company:

‘The whole company influences the image in terms of itsmarketing activities, communications with its customersand its retailers. The technical side of the companyinfluences the image in terms of making sure there is aflow of appropriate technical developments to platform thebrand.

And then the product developers and managers willinfluence it by making sure it’s a bloody good productwhen it’s designed and put together. I think the thing is thecompany knows exactly what image it wants to portrayand everyone has their part to play.’ (MR5T1.8)

4.2.6 ProcessThere are quite close relationships between accounting,design and marketing and the company does usecross-functional teams. The finance director explained:

‘I would meet with the marketing director at least onceevery two weeks. And in terms of meeting with thedesigners and the product managers, I would meet themonce a month, but my management accountant wouldmeet (them) more frequently than that.’ (MR5T2.1)

However, they have more recently implemented a ‘productteam structure’ into the organisation to improve focus. ThePDM explained how this works:

‘My relationship with the designers is strong because I havea direct input into the design process. I control elements ofthe design process. (But) I very rarely deal with themanagement accountants within the business becausemost of my dealings would be with the Financial Director.He would then ask the management accountants to sortthings out for me. I don’t really have meetings with thisteam. All my meetings are with him. My purpose inmeeting with the designers is to discuss new technologies.It would be to review progress of designs for the seasonaldevelopment programmes and to discuss fabrics.’(MR5T1.2)

Suppliers are involved in developing new products, oftenwhere new woven or knitted fabrics are concerned. Here thefocus for the finance director is on obtaining better fabricsfrom a technical viewpoint as well as ‘better priced’ fabrics toincrease the likelihood of cost effective new products. On theother hand, the PDM is keen to develop fabrics that areunique to the company so it can have ‘exclusivity’ (patent) onthe products for at least two years. Both approaches requireclose cooperation with the suppliers who gain from theirassociation with a company that is recognised in the trade asbrand and market leader.

4.2.7 Production and launchThe company uses design consultants in research anddeveloping new product ideas, often using CAD systems tomake sure the concept as well as production aspects arefeasible. Suppliers are used heavily when changes are neededin production techniques to cater for new materials andtechnology. In each case, design can be used to saveproduction time and avoid material wastage:

‘Where you have something up to 170 or 180 minutes ofproduction in one garment. Lots of minutes to produce agarment. And production engineering can significantly cutdown the labour content and cost time of a product. Thedifficulty comes when you actually try to balance out thecosting of the product versus the desired attributes andfunctionality of the product.’ (MR5T1.14.)

However, the PDM stressed the importance of reinforcing theperceived image and market position as well asunderstanding brand elasticity when it came to launchingnew products:

‘Every attempt to take the organisation away from its core,customer, heritage and identity has not worked. If you havea strong, loyal customer following and you move youroffering (product) a little bit then you can communicate toyour customers and they’ll go with you. If you move it toofar your customers will say, ‘That’s not what we want from(this company).’ (MR5T1.10)

4.2.8 MeasuresThis company does not use standard quality assurancemeasures such as ISO 9000; instead it uses its own standardsand takes advantage of the strong brand name. In financialterms it uses sales, profit margin and ‘contribution versusplans’, but it also keeps a careful control on product lifecycles. According to the PDM, design and marketing play animportant part in ensuring successful performance. Howeverthere is no guarantee of success:

‘By doing our planning properly, by designing properly andensuring we market properly and sell effectively. (But) weare not always successful. We have new products that don’twork.’ (MR5T1.16)

In terms of operational measures, the company’s strategy canvary from developing between 25 and 80 new styles eachyear, although many of these will be marginal or incrementalimprovements on previous products. However, the PDMconsidered the development time of around 18 months to betoo slow and the company was anxious to speed up time tomarket, although commercialisation rather than developmentwas seen as the biggest hurdle. There have also beenattempts to evaluate which products were most successfuland why this was so, but to date these have not provided anyuseful answers. There is some agreement that overall thiscompany is perceived as being more successful than thenearest competitors. The finance director explained thecurrent strategy to improve product performance:

‘Over the last few years I would say that we haven’t beenparticularly good in ensuring the success of new products.This is actually why we have introduced the crossfunctional teams, to ensure that we do the correct marketresearch, the correct design and work with operationspeople to make sure we get the product out at the rightprice, and we do the correct commercial evaluation ... Thenquite simply, you measure the success in terms of whetheryou’ve sold to the people you said you wanted to sell to.’(MR5T2.14)



4.3 Case C – Software systems – Document managementfor retail and bankingThe company has been established for twenty years andspecialises in developing software for the retail and bankingsectors. It has recently undergone a fundamental change ofownership since it was taken over by a venture capitalist in2000. The focus is on business to business communicationsso that these IT systems can communicate with each otherautomatically, without people being involved in the process.The company also develops document discovery and retrievalsoftware so that information can be stored and accessed inan efficient way within organisations and via the internet:

‘Our product is very good at providing a big engine for anorganisation, for its documents. So it can be internal (only),but it can also be powerful over the internet.’ (MR2T1.5)

4.3.1 RespondentsThe general manager of the product division was interviewedas well as the finance director who is also company secretary.Both had been with the company for more than 11 years andwere in the 41-50 age bracket. The general manager considersthe company to have a market orientation whereas thefinance director believes it is driven by technology. Heexplained:

‘Previously we’d been a solid, technical service provider – acomputer software developer. (We had) a very low profileup until that point, until March/April this year (2000). Wehave started ... by recruiting quite a number of seniormarketing people and we’re still recruiting. As I say we willturn our business basically from a technically orientatedbusiness into a marketing led, orientated business.’

These developments result from a change in company status,from a subsidiary of a large corporation to an independentcompany supported by a venture capitalist:

‘Two things (orchestrated change. Firstly) the change ofownership, – we are no longer a subsidiary of a largecorporation. We had 85% of core business and thereforecalled the shots. This is now head office, no oneshareholder has governance. And secondly (we have) aventure capitalist on board. He’s very keen that we brand,market, sell ourselves. He was so astonished that we hadpeople, strong IT graduates, which is unheard of in England.We had 70 people on site. We had a lot of good things tosay (for the company), we just hadn’t said it.’ (MR2T1.3)

4.3.2 AttributesTensions between complexity and differentiation wereevident. The reduction of complexity was seen largely fromthe viewpoint of the customer since these software productscould enhance the efficiency and speed up time to market fornew products and services:

‘The benefits (are) in terms of cost and efficiency, so itreduces the cost of the customer business processes andincreases the efficiency of those processes. Particularly thecost (and efficiencies) of interaction with other companies.This could be in the order of £200,000 per month bygetting rid of older, previous manual filing systems thatwere very time consuming.’ (MR2T1.6)

From the company perspective there is a need fordifferentiation, product identity and brand creation as well asquality products, all of which may be enhanced by design.

4.3.3 ValueThe company sees value in terms of costs relating to productdevelopment, marketing and selling set against the likelyrevenue from customers. The product development managerdescribed this as ‘our business calculation’. He gave anexample of a product that may take £50,000 to develop, butwould have to generate a certain number of ‘additional sales’in order to justify the initial resource investment. He alsoexplained that market research is carried out to assesswhether proposed new products will increase sales revenue,asking whether the proposed products actually wanted bycustomers, and if so how much they are prepared to pay forthem. Much of this depends on how customers see the valueand benefits of these products and services:

‘Well the things that really add value, once they havebought the product, are the ergonomic features. We haveto decide which things work well, to run smoothly.

For example, if the administration of our product is welltimed, then they (customers) will not be spending a lot oftime managing the product. If things are well automated, itcan save them time and costs. So I suppose automation ofimportant capabilities is important to the customer interms of design. Good automation and good flexibility tointegrate with a customer’s existing IT infrastructure is veryimportant. We are very good in that area. For example ifthey’re using Microsoft desktops, our product integratesvery well. So it’s very low training costs, very lowmaintenance costs and these kind of things.’ (MR2T1.7-8)

Consequently, value perceptions can be viewed at a numberof levels – but the current emphasis on marketing and targetaudience is likely to encourage a stronger focus on customerbenefits.

4.3.4 ImageThe finance manager who is also company secretary saw thecompany image as indistinct from product image. Hediscussed the desired image as follows:

‘I suppose the image that we want and should have wouldbe of a highly competent, highly technical, highly currentpiece of software developed by highly competent, highlycurrent, highly technical people.’ (MR2T2.2)

As yet, this image has not been achieved. The past reputationof the company may have been seen as ‘too technical’. Inother words, there may be problems if software providers inthis industry are perceived as having a ‘technology’ ratherthan ‘customer benefits and solutions’ focus. This is mirroredin the company’s strategic business realignment towardsmarkets and problem solving, using conventional platformssuch as Microsoft, rather than purely leading edgetechnology. Furthermore, the new image is to adopt a higherprofile in the market place.

In contrast, the general manager in the product divisionbelieved that a new image has already been communicatedto the market. He saw the company as having an ‘innovative,state of the art quality’, with a ‘versatile, flexible attitude’.This new identity is promoted by senior managers, whoseprimary task is to promote marketing and steer the corporatedirection and image. He described how this image can beaffected by satisfying customer needs but believed that thebiggest impact is ‘money spent on the marketing activity’.However, he acknowledged that product and company imageare closely related and that product performance as well asreliable support services have a big impact in the long term.Moreover, he stressed the importance of continual researchand development:

‘A software product cannot stand still. It must always beseen to have a strong leading edge. And if you tell peopleyou’ve stopped developing the product but will (still)support it, they will be very nervous to buy it. They want tobuy a product that they perceive as evolving.’ (MR2T1.13)

But he warned of problems arising from unreliable products:

‘If people have a poor image of previous products, it will bealmost impossible to sell new ones and vice-versa. If theyhave a strong image it’s easy to sell.’

Delivering on time is also seen to be a critical factor in thisindustry in order to build company reputation and credibility.The finance manager observed that it was important todeliver on time since the software industry has a poorreputation in this respect. In fact meeting delivery deadlinesis a particular company strength. He also stressed theimportance of developing a clear brand image linked toaccurate positioning in the market place in terms of nearestcompetitors:

‘We need a brand. We need to inform the market placewhat we are involved in, who we are, what we are andwhat strengths we have – how strong we are in terms oftechnologies in our business. We regularly beat big namedcompanies in bids – but nobody knows about it!’

However, the business could be seen operating in a numberof different markets. This could help to build customerrelationships:

‘We’re positioning ourselves in various markets. It’s quitefeasible that you could break the company up into bitswhich focus on different areas, and each could have theirown different brand.’

So it can be seen that, although there is still a differencebetween the desired company image and customerperceptions, the new market focus is likely to enhance thatimage providing it is constantly reviewed and managed as abrand.

4.3.5 ProcessThe processes used by this company reinforce brand valueand company image since they are designed to ensure thatquality systems are in place, even if product developmenttakes longer to complete. The finance manager illustrated thiswith the following comment:

‘We have a very rigorous software quality system, muchmore rigorous than a lot of our competitors. It takes a bitlonger but guarantees the quality of the outcome productsolution and helps us in timetabling the budget to come inon time. From that aspect I think our fairly rigorous internalprocesses help the design of the product to get to thecustomer on time.’ (MR2T2.5)



His role includes bank assistance, finance assistance, writingcase studies for local government grants and raising funds ingeneral for new projects. However, the general managerbelieved that he had a weak relationship with the financemanager in developing new products. This may be because ofthe way in which operations are structured as well as theneed for finance director to spend time in his role ascompany secretary.

Not surprisingly the general manager made a differentcontribution. He is involved in idea generation alongsidemarketing staff, customers, external consultants and designengineers who discuss technical parameters. Yet thoseresponsible for visual design and aesthetics are not involvedat this stage. He also takes part in product screening withmarketing and finance managers to establish likelydevelopment costs, outline business plans and identifymarket potential. Next, concept testing involves customersand possibly visual designers, who follow on with productdevelopment, testing, launch and commercialisation. Mostexternal consultants are market analysts such as industryexperts, ‘vendors’ and customers. It is not only thecomposition of product development teams that issignificant but also the way in which designers approach newprojects. To this end he stressed the importance of designmethods and the influence they have on new products:

‘The approach you take to designing and the method fordesign have a big influence on what emerges. So forexample, if designers were not using object orientatedtechniques, they would create a completely differentdesign and probably not as good a design as someone whohad a good understanding of object-related developmenttechniques.’ (MR2T1.18)

Consequently, the processes used are tried and tested – withthe flexibility to include specialists from outside the companywhere necessary. They are quality driven and thorough sothat new products are more likely to be robust and work well.

4.3.6 ProductionIn terms of using design to reduce complexity, he explainedthat this was fundamental to software design from atechnical rather than aesthetics viewpoint:

‘Typically you’re breaking the overall product or targetproduct into a series of components which are as simple aspossible. We’ve worked together to do the full job and thenfor each interface between these components you try todesign the simplest that can do the job. And then for eachof these components you take and apply the same processand break it down into sub-components. We tend to useobject-orientated development techniques in particular.Good design leads to simplicity, which for a givenfunctionality, a set of key features, the simpler the productthe better in every way.’ (MR2T1.16-17)

The finance manager pointed out a danger in reducingcomplexity without considering product robustness. He sawgood design as a combination of these two factors to delivera quality software system:

‘It (the process) doesn’t (only) reduce complexity butensures robustness of the product and its very prescriptivethe quality system. And if it says ISO 9002 you take it asalways approved, but it is a very prescriptive anddescriptive process.’ (MR2T2.6)

However, in terms of overheads he pointed out that 80% ofthe costs in product development and installation are peoplerelated since software development is very labour intensive.Production and other overhead costs are minimal bycomparison. At the same time any changes in customerspecification made possible by technological advances haveto be built into contracts so that terms can be re-negotiated.This allows for continual incremental improvements as wellas radical innovation. But the general manager saw overheadsin a different light when maintenance costs are included Heconsidered that development and maintenance costs couldbe estimated ‘fairly accurately’ and that a combination ofthese two elements formed the main costs of new products.

4.3.7 LaunchHe observed the importance of being able to measure andcontrol promotional activities to gauge campaigneffectiveness, and conceded that design can have a bigimpact in product launch:

‘The spend on promotional activities can be measured. Theeffects for certain marketing activities you can actuallymeasure on the number of leads per month before andafter the campaign. So you can get some feedback. Sothings like a mailshot can be measured very accurately. The(design attributes) have a big impact on the response topromotional activities. It is an important part of branding,of catching people’s attention. For example, if you send outa mailshot and it looks like every other mailshot it will goin the bin. You need something to lift it out of the crowd.’(MR2T1.15)

In other words, the company recognises the importance ofeffective communications and how these can be built uponvalues, brand image and the development of a distinctidentity built on positioning and a high profile in the marketplace.

4.3.8 MeasuresAfter acknowledging that ‘good design leads to simplicity’,the general manager saw a need to understand the costsinvolved in measuring and unravelling complexity: altogetherhe explained ten ways in which products can be measured.

Table 4.2 Ten performance measures used by Case C

Quality systems e.g. BS5750. Quality adds brand valueand strengthens company. The quality system used bythis company has been sold to other companies.

Reduce errors. Grows out of quality and allowsvalidation, testing and managing errors before productsgo to customers.

Market analysis to predict sales. Market research isdone to justify new developments and investment costs.

Time and budget management. This is a strength sincethat facilitates meeting targets and deadlines. (Whilecompetitors spectacularly overspend and increasebudgets!)

Product development time and life cycle. Mostproducts are developed in six months to a year.

Peer review of product development. Typically fourpeer review meetings are carried out during concept anddetailed design stages of the project.

Feasibility study. Two people carry out a feasibilitystudy and report over a period of two months at theconcept stage.

Business plans. Large projects have cost projections anda business plan. Very large projects would utilise a teamof management accountants.

Target functionality and costs. An estimating teambreaks down the task into a series of components. Thecost of each component is estimated by two or morepeople and a consensus is made when major differencesoccur between their predictions.

Skilled workforce. Successful products and costmanagement depend on a highly skilled workforce andtherefore there is a priority on recruitment and training.

He explained:

‘We have put a lot of effort in trying to measurecomplexity – its extremely difficult. We’ve been involved incollaborative research projects with universities and triedto apply a complexity matrix. I suppose that even after thatI am a bit sceptical about whether it can be a cost-effectivetechnique for us.

I think (the problem is) partly because of the relativelyshort cycle of use (in software products). If we werebuilding a product which was going to have a 10 or 20 yearlife then you could justify the measurement. But in practicea matrix that formally measures complexity is I think, nobetter than the judgment of a good designer.’ (MR2T1.17)

There were other forms of measurement that may be moreapplicable such as the cost of maintenance. However, eventhis is problematic:

‘You can track the cost of maintenance from a financialpoint of view, but again it’s not a scientific measure. It’svery much led by the number of users and the way inwhich it’s being used.’ (MR2T1.18)

These points were substantiated by the finance manager, buthe noted that although the development process is wellcontrolled and rigorously organised, the sales, revenue andincome are much more difficult to predict:

‘We have a fairly extensive experience of what it costs todevelop software – all types of software – from our ownpractical experience. So the new development plan orbusiness plan would be a fairly accurate estimate of what itwould cost to develop the software. We’ve got that fairlytied down. It’s the sales, the income, the revenue side,that’s the difficult bit as always. We’ve also got quite highafter sales (service) of what it costs to develop. (Typically)it would take a team of two senior leaders, one projectmanager, half a dozen senior developers and half a dozentrainees. In our business that’s the cost (of softwaredevelopment).’ (MR2T2.8)



5.1 Main findings and Implications for managementaccountants and designWe have examined how management accountants inindustrial companies can work with designers and othermembers of project teams to develop new products and howtheir involvement may impact upon product performance. Ofparticular interest has been how the VIPP (value, image,process, production) and VIPI (value, image, process, andimplementation) models can be used as tools to facilitatethis procedure. The research has revealed ways in whichproject teams employ design in new product development, toenhance process effectiveness, product integrity and brandvalue.

This investigation is important because it reveals the extentto which these activities occur in SMEs that do not have thesame resources as large companies to design and researchnew products. All companies, whatever their size, share thesame need to produce a continual stream of new products inan effective way if they are to continue to compete in globalmarkets. This research argues that design attributes provideopportunities to improve product performance in thosemarkets.

The weaknesses of this research are fivefold. First, many smallcompanies do not have a resident designer, although theymay use consultants or design agencies. Secondly, it iscommonplace to find that managers multi-task so that oneperson, typically the MD, can represent finance and sales ormarketing. Thirdly, because resources are limited in smallcompanies it was not always possible to see three differentmanagers (design, marketing and finance), and the timeavailable for meetings was limited. Fourthly, it was intendedto interview customers, but although this was possible in apilot company, in practice many firms were reluctant for usto address potentially sensitive issues with their clients.Finally, this small cross section of small companies may notbe representative of UK industry as a whole.

The chief value of this study is that it:

• Provides a fresh insight into the role of managementaccountants and designers engaged in productdevelopment in a wide range of industries at SME level.

• Identifies tensions and priorities for decision-making innew product development.

• Offers examples of good practice that can be applied inother companies and industries. The illustrations andquotations from respondents give a clear understanding ofmany key issues in new product development andinnovation in the 21st Century.

• Reveals that respondents can relate to the VIPP model at anumber of different levels, proving it to be a useful tool forresearch and analysis.

• The VIPP model has been refined to create a new VIPImodel. This is more rigorous for research purposes and willfacilitate the development of new products and services inpractice.

5.1.1 Design attributes: main findings and implicationsAll companies have been in business for at least ten years andthose in the summarised mini-case studies have been tradingfor more than twenty years. 70 per cent of the respondentshave been in practice for over 6 years so that they arefamiliar with the company and its business. Most managersconsider that the two most important design attributes forsuccessful innovation are to reduce complexity, and todifferentiate products (Figure 5.1). Other tangible aspects ofdesign such as quality, fashion and aesthetics may add valuesince they are associated with an increased profit margin, butmost managers are not aware of the role that design can playto enhance teamwork and the development process bygenerating, interpreting, integrating and communicatingideas.

If cross-functional teams include accountants and financemanagers they will be in a better position to exploit design.Management accountants can assess performance benefitsfor the company and customers, whereas designers andengineers can evaluate differentiation and complexity issues.Finally, marketing managers can establish the nature ofproduct in terms of customers, competitors and marketposition.

Although there are industry and company variations, mostsee a need for product differentiation. The construction andsoftware companies view this as key to brand creation andstrength in mature markets, whereas the furniture andoutdoor apparel firms see this in terms of fashion, identityand visual appeal. Reducing complexity is linked withproduction and process efficiency as well as integrated,robust products that are fit-for-purpose.

5. Conclusions, recommendations and further research

There is a danger in over-simplifying products if they can beeasily copied by competitors. Moreover, too much emphasison production efficiency can over-rule potential visual appealand the development of a strong identity. Consequently,there is a tension between complexity and differentiation inmaking decisions about new products. A further tension existsbetween the desired position in the market and target returnon investment (Figure 5.1).

Attribute implications for management accountants anddesign:

• There is a need to make judgments about the trade-offbetween complexity and differentiation at an early stage innew projects.

• Cross-functional teams should normally include a designerto aid decision-making and idea generation, as well as theinterpretation and integration of ideas.

• The full range of design attributes should be considered sothat companies can communicate new ideas to customersand add value to their brands.

Designing value and valuing design Conclusions, recommendations and further research 45

Figure 5.1 Drivers of complexity and differentiation in new products

Financial benefits(management accountants)Improve profit marginCompanyadd valueProduct – testing, quality,reliability, stand alone vsintegrated, augmentedproduct, service

Product performance

Differentiate (design, engineer)Brand – visual appeal, status, aesthetics,fashion, stylingProduct – innovation, range, balancedportfolio

Reduce complexity (design, engineer)Reduce overheads and direct costsIncremental efficiency improvementsProducts – reduce parts, save materialsProcess – reduce time to marketProduction – reduce timePerformance – ease of installation, use

Market position(marketing)Product – Position vscompetitors, market leader,follower

Designing value and valuing design Conclusions, recommendations and further research46

5.1.2 Value: main findings and implications foraccountants and designIt is important to distinguish between company valueperceptions as well as those of customers and end users. Forthe company, this may mean reduced time to market, cuttingoverheads and improved profit margins; for the customer amore efficient distribution processes; and for the end user anuncluttered, easy to use and stylish product that meets theirrequirements.

Figure 5.2 Relationships, value and brand equity

Good relationships enhance brand equityFace to face contact – Cross-functional teams

Formal and informal meetings – Core, peripheral rolesOvert and covert design – Short or long-term policy

Outside consultants

RelationshipsEmployeesManagement accountantsDesigner/engineersMarketingPush/pull strategy

Brand equityProduct image andcorporate reputation

CommunicationsEffective communication brand strengthsPress reviewsMessages and promotion at:• internal customer(employee) level• customer level• end user levelDesired identity vs Company imageControl vs Creativity

PerformanceCreative value for businessValue for moneyMatch customer expectationsNon financial benefitsBrand platform

Reliable productsand servicesPerformance

End user

SupplierCustomer

Much perceived and actual product value is based oncustomer relationships and understanding product valuechains. The establishment of a clear value platform will aiddecision-making and enhance brand value. Theseconsiderations incorporate service and the ‘augmentedproduct’ (benefits that come as part of the product package),as much as the product itself. This raises four questions:

• What are the main benefits at company, customer andend-user level?

• How much are each prepared to pay for these benefits? • What influences the value perceptions of customers and

end users in relation to these benefits? • How can design and visual evidence enhance perceived

value?

However an over-emphasis on quality and the need todifferentiate may result in products that are inordinatelyexpensive to produce with no justifiable ROI. Moreover,values and benefits such as ‘peace of mind’ may be difficultto identify and measure, yet they are used by a number ofcompanies and customers to indicate confidence, credibilityand reliability. Such benefits are associated with productquality, standard of finish and the use of leading edgetechnology as well as after sales support.

However, it is important to identify clear value platforms andproduct benefits for customers and end users beforeembarking on IMAGE and identity.


Reduced complexity can add perceived and real value toproducts. These values will be different for the company,customer and end user.

A clear understanding of stakeholder benefits and thedevelopment of a value platform can aid decision-makingin new projects as well as providing a focus forcommunications with customers and end-users.

Building strong links with customers and end users canreveal how much they are prepared to pay for eachproduct benefit, as well as enhancing brand valueperceptions.

Accountants and designers require a good understandingof perceptual measures such as 'peace of mind' and 'valuefor money' that will have a strong influence on sales andbrand equity.

Design can enhance product value in many ways, butmost managers consider it in terms of visual appeal tocreate desirable, quality product that are reliable and 'fitfor purpose'.

Visual tools such as product colour, texture, shape, form,quality, standard of finish and style, are key factors thatwill differentiate products and influence purchase choice.

Table 5.1 Value implications for management accountants and design


5.1.3 Image: main findings and implications foraccountants and designCompany image is not only associated with status andmarket position, but also with product benefits and brandvalue (as discussed above), all of which have a directrelationship with image. There is a difference between thedesired and actual corporate image since the actual imagecan be affected by performance, communications and visualevidence, all of which can add or detract from publicperceptions and brand value (Figure 5.3). Most respondentsare aware that image and corporate identity can be createdand controlled by design since the tangible aspects – thosethat are visible – involve aesthetics, style, fashion, form andall criteria associated with the appearance of a company andits products. Consequently, it is not unusual to involve adesign agency or consultant to evaluate these criteria.However, there is little understanding of the potential fordesign to interpret, integrate and communicate companyvalues, strengths, image or identity.

Only a few companies are consciously aware of a need toensure that product and company image should be aligned tobrand strategy, although several stressed the importance of

projecting a consistent image. Some descriptors thought tobe desirable and projected to all stakeholders are as follows:

• Innovative and constantly moving forward.• High quality, well designed and reliable products.• Strong design, fashion and aesthetics – particularly in

textiles and furniture industries.• Leading edge technology and ethical issues.• Versatile, flexible and highly competent staff.

Some companies had used design to rebrand and repositionthemselves at a higher quality position in the market place.This new image is normally associated with a revision ofproducts and promotional techniques. Respondents were alsoaware of events outside the company that can damage itsimage, such as a constant delay in product delivery.Consequently, PROCESS and PRODUCTION need to be givensufficient attention. There is little point in controlling VALUEand IMAGE if business operations do not live uprequirements. Nonetheless, a strong design influence canmean that an image and brand can be managed and regularlyupdated to meet company and market expectations.

Figure 5.3 Image and positioning (with reference to Balmer & Soenen 1999 ACID test)

Market position• Competitors• 7 P’s marketing mix• Core brand essence

Desired image• Corporate identity• Competitive advantage

Brand strategy• Stakeholders• Shareholders

Actual imageBenefits and performance at:• customer level• employee level• end-user level

Communications• Consistency• Credibility• Visual evidence

5.1.4 Process: main findings and implications formanagement accountants and designPrevious research in this area stressed the importance ofcross-functional teams, the need for external networks andan integrated design policy, and these findings are reinforcedby this research. Much appears to rest on the strength ofrelationships between management accountants, designersand marketing managers. There is an assumption that closerelationships are more likely to produce good products thatwill perform more successfully in the market and make asignificant contribution to company turnover, but despite thisless than half of those management accountants interviewedhad strong relationships with project teams.

The role of management accountants in the design processcould be reactive, focusing mainly on gate keeping, productscreening and monthly accounting, or proactive by creativetargeting to add brand value. Both are important, butoveremphasis on the former may lead to missedopportunities to gain competitive advantage. Managementaccountants should be aware of the opportunities presentedby design to generate, improve and develop new products.

Furthermore, design and quality systems can be used toreinforce image and brand values so that brand equity isprotected and enhanced.

Customers, suppliers, external consultants and professionalproduct users may form part of project teams to provideinsight into new opportunities, thereby enhancing thedevelopment process, particularly where new technologiesand materials are concerned, but care must be taken toprotect confidentiality and copyright in new projects.However process, in terms of procedures, has not formed amajor part of this research. Instead, it has focused on howdesign attributes enhance the development process bygenerating, interpreting, integrating and communicatingideas. In practice few companies use design at the outset ofnew projects to generate ideas. In this study design isfrequently seen as something that takes place outside thecompany where consultants are used to influence productappearance and styling. Many managers had not consideredit to be a means of enhancing the development process, orthat they themselves had an influence on the design andform of new products.


There is a difference between the desired and actualimage, which can be affected by product and companyperformance and any stakeholder within or outside thecompany.

The tangible aspects of image such as aesthetics, style,fashion and form can be created and managed by designand represent powerful visual evidence to underpindesired company image and brand value.

Companies want to be seen as innovative, movingforward with technology and producing quality, reliable,well-designed products. However, they should also beethical, flexible and have highly competent staff.

Design can be used to re-brand companies and upgradeproducts to improve market position, but this newposition should be underpinned by a review of processesand production.

Table 5.2 Image implications for management accountants and design

Cross-functional project teams are important, butmanagement accountants are involved in fewer than halfthe companies. This means that opportunities to gaincompetitive advantage may be missed.

A proactive approach by management accountants tonew product development, rather than a reactive orgate-keeping approach, can add value to brands.

Customers, suppliers and consultants may greatlyenhance product integrity, but care should be taken toprotect confidentiality, patents and copyrights.

Many SMEs outsource design and do not consider it to bea company issue, even though this has considerableinfluence on the nature, form and development of newproducts.

Table 5.3 Process implications for management accountants and design


5.1.5 Production and launch: main findings andimplications for accountants and designProduction and launch are seen as ways in which companiesdeliver or IMPLEMENT new products in the marketplace. Herethe issues of complexity and differentiation re-emerge, but ina different light. Product differentiation assumes a newdimension since design can increase production efficiency aswell as the effectiveness of market launch, but this procedureis exacerbated by the logistics of using new materials andtechnologies so that much depends upon building stronglinks with suppliers. At the same time, good marketingpractice linked with customers, distribution andcommunication channels is all important if innovative newproducts are to be successful in new as well as existingmarkets. Not surprisingly, incremental rather than radicalinnovation is easier to manage although all new productsneed clear differentiation if they are to succeed.

Many small companies outsource production to reduceoverhead costs and provide flexibility in product sourcing,although there can be considerable benefits in having a small‘test bed’ for trying out new concepts and productionvariations. This facility can underwrite product quality andreliability. Similarly, on-site resources will allow companies togain a better insight into the problems and opportunitiespresented in production and enhance product integrationthroughout the process. To this end, close suppliercollaboration is fundamental when using new materials andtechnologies.

Some companies see redesign as a way of overcomingproduction problems. This can make a strong impact on‘tooling-up’ and reduce production time and may also saveon materials. One company redesigned a product so that itcould be made in one stage rather than two to reducecomplexity and save time; another described the importance

of designing clothes in straight lines to overcome tight curveproblems. This raises the issue of how much products can bedesigned as ‘stand alone’ or part of integrated ‘bundles’ ofproducts to solve a complete range of customer problems forany one activity.

However, in production there is a focus on balancing costsagainst design features and product function to provide goodquality without too much expense. At the same time newmaterials and technologies are likely to require considerableinvestment, but there is a danger that creative and innovativenew product design can be ‘hemmed in’ by existingtechnology such that outsource or invest decisions will haveto be made. In labour intensive industries such as softwaredevelopment, where 80% of costs are people related, designis seen from a different perspective since it can reducecomplexity and make new technology more accessible.

As far as LAUNCH is concerned, most companies see designas important for product advertising and promotion.However, most respondents see blanket advertising as awaste of money and prefer targeting with product reviews inspecialist magazines and journals. Some make use ofsponsorship, such as a famous climber for the launch of newclimbing apparel. Similarly trade fairs form a fundamentalrole in product launch and to stimulate brand awareness andto retain or gain customers.Launching products is often viewed in two stages, firstlywithin the company (predominantly for the salesdepartment), and secondly for the benefit of customers.However, much of this depends upon the nature of business.Where products such as software systems are commissionedby customers, the launch becomes an installation. Here thecost of providing an ‘after installation support service’ is builtinto the project.

Design can increase efficiency in production andeffectiveness in product launch.

Incremental improvements are easier to manage thanradical innovation. But clarity about productdifferentiation requirements will avoid unnecessaryexpense in production.

Outsourcing production can reduce overheads andincrease flexibility but in-house ‘test bed’ facilities allownew concepts to be tested. These resources underwritequality and reliability, and facilitate ‘reverse engineering’on competing products.

Supplier and customer collaboration can be essential forthe incorporation of new materials and productiontechnologies.

Design can overcome problems by reducing complexity,tooling and production time. But care should be taken notto inhibit potential by using inappropriate technologiesand restricting product differentiation capacity.

Design can reinforce target promotion although companypersonnel and customers should be incorporated intoproduct launch to gain maximum impact.

Table 5.4 Production and launch: implications for accountants and design

5.1.6 Measures: main findings and implications formanagement accountants and designMultiple measures are important to get a clear, robustunderstanding of product performance. This research hasidentified six categories of measurement:

• Costs – costs of development, overheads and resources.• Benchmarks – life expectancy, predicted life cycle, skills fit,

market fit.• Customer measures – benefits, response speed, technical

support.• Financial measures – sales, ROI, profit margin, contribution

to turnover.• Operational measures – payback period, time to market,

number of product developed.• Perceptual measures – visual appeal, aesthetics, peace of

mind, customer feedback.

A number of companies make decisions about products onthe basis of direct development costs without includingoverheads. Some use target costing, others reverseengineering to establish a competitor platform at the outsetof new projects. Value engineering is practised to producebest quality at lowest cost, particularly in the production ofprotective clothing for the defence industry, but there is atendency for over rigorous procedures to slow down time tomarket and inhibit opportunities to innovate. In other wordsan over-regulated process can become unwieldy andcumbersome, extending development time to unrealistic orunworkable proportions.

Some managers pointed out that sales, promotion andrevenue – issues outside the company – are very difficult toestimate, whereas product development costs within theorganisation are easier to control. At the same time, anumber of companies are able to incorporate customermeasures into the evaluation process and some SMEsperiodically send out questionnaires to augment informalfeedback. Close association with customers provides aninsurance policy to improve confidence, credibility and loyaltyas well as to gain valuable information for productdevelopment and new opportunities. These associations alsoallow companies to establish how much features and benefitsare worth to customers and end users, and calculate the priceeach is prepared to pay.

From a customer viewpoint, these associations can bemeasured by the length and quality of relationships as well asservice standards, delivery time and product availability. Froma company perspective they can be set against the costs ofdevelopment and support services and financial benefits likesales and profit margin. Such financial or ‘bottom line’measures are fundamental in controlling go / no go decisionslinked with cost audits throughout product development.However although relatively short payback periods andstrong financial returns are key to survival, there is a need fora long-term investment strategy if the company is tocompete successfully over time.


Multiple yardsticks such as costs, benchmarks, customer,financial, operational and perceptual measures are morelikely to give an accurate picture of product and companyperformance than financial accounts alone.

Target costing appears to be linked with strong productperformance whether or not companies use direct costsor include overheads. However, if procedures are toorigorous they can be cumbersome and inhibit innovationas well as slowing down time to market.

Company development costs are easier to estimate andcontrol than sales promotion. But measuring customerperceptions can facilitate the procedure and reinforceconfidence, credibility and loyalty.

Length and quality of customer relationships can be setagainst costs of development and support services. Theyare directly linked to go/ no go decisions early in thedevelopment process, as well as profit margins. Theserelationships should be built into a long-term strategy.

Table 5.5 Measurement implications for accountants and design


5.1.7 From VIPP to the VIPI model: main findings andimplications for management accountants and designThe research has examined the constituent parts of the VIPPmodel with the addition of some LAUNCH issues and a freshlook at performance MEASURES. It has been amended toincorporate PRODUCTION and LAUNCH within the conceptof IMPLEMENTATION, resulting in a new VIPI model (Figure5.4). This new framework provides a clearer guidance insuccessful new product development.

This new model can be harnessed to continuousimprovement, with each dimension feeding upwards towardsproduct and brand VALUE. Such improvements can beenhanced by design attributes and driven by managementaccountants if they are able to develop an audit linked to theVIPI framework and adopt a proactive role towards projectteamwork. Furthermore, there is a benefit in devising ascheme to enhance perceived VALUE since it is somethingthat competitors would find difficult to copy and will presentcompanies with a competitive advantage (Table 5.6).

Value relationshipsCustomer, supplier

Employees, end user

Image and market positionCustomer feedback, desired identity

Fashion, style, competitors

Process and teamworkNetworks

VIPI audit

ImplementationEfficiency, qualityCommunication

Delivery

Value measuresValue for money, ROI, profit marginsReduce direct costs and overheadsPeace of mind

Image measuresVisual evidence, credibilitySalesgrowth

Process measuresCreative cost controlNumber of products developedTime to marketContribute to turnover

Production, launch measuresIncremental improvementsReduce parts, materialsReduce overheadsProduction, launch speedReach target markets

Figure 5.4 New VIPI model and performance measures(Trueman and Pike 2002)

Value

Image

Process

Implementation

�

�

�

5.1.8 Implications and further researchAll of the above factors can be enhanced by design. It can beused as a tool for responsible decision-making by addingrelevance and quality to enhance product value. Design canbe used to manage the product development process andmake it more effective but opportunities may be missed ifproject team members are unaware of design benefits. Thereis a need to understand how design can generate, interpret,integrate and communicate ideas, reduce complexity anddifferentiate products.

The integrity of new products relies on close relationshipsbetween finance, marketing and design, as well as customersand suppliers. Similarly, external consultants and productionengineers in small companies can play an important role inmaking the best use of new technologies. Corporate strategycan reinforce corporate image and identity, but without a realunderstanding of good design it is not possible to create orsustain real brand value.

This work has analysed and presented a wealth of qualitativedata to provide a fresh insight into the role of managementaccountants within the product development process. Itprovides examples of good practice to aid decision-makingand the effective use of design. Use of the VIPI frameworkand design attributes allows companies to gain an insight atproduct and strategic level. Further in-depth research isnecessary to gain a clearer understanding of the relationshipsbetween accounting and design in terms of brand value,corporate image, and process efficiency and implementationeffectiveness if companies are to achieve a long-termcompetitive advantage. Finally there are implications for thetraining of management accountants if they are to gain agood understanding of design and product value.


Perceptions at IMPLEMENTATION, PROCESS and IMAGEreflect upwards towards VALUE and have a cumulativeaffect upon brand equity.

Performance evaluation is broadened to includeoperational and perceptual measures as well financialaccounting. These include customer perspectives such asvalue for money and peace of mind.

At VALUE level the importance of ‘relationships’ and‘network control’ have direct and indirect costs.

At IMAGE level there is a need to establish a clear ‘marketposition’. This can be affected by visual evidence andperformance, credibility and consistency.

At PROCESS level there is a focus ‘cross-functionalteams’. Management accountants in these teams cantake a limited ‘reactive’ role in product screening andannual accounts, or a creative ‘proactive role’ using thenew VIPI framework as an audit to add brand value.

At IMPLEMENTATION (PRODUCTION and LAUNCH)level there is a need to save materials, reduce overheadcosts and speed up production time. It is also importantto balance production efficiency against product qualityto meet company and customer value requirements.Strong customer communications in product launchcannot be overestimated.

Table 5.6 Key points in the VIPI model


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Designing value and valuing design Bibliography 55

CIMA Research questionnaire 2000

Company and respondent details

Name

Company

Nature of business

Age band | 20-30 | 31-40 | 41-50 | 51+ | Time in company | 0-5 | 6-10 | 11+ years |

Position | Male | Female |

Job category: | Accountant | Design | Project manager | Marketing | Customer |

Nature of job / role

Describe frequency of meetings with the following (please tick as appropriate)

formal informal daily weekly monthly occasional never

Designers

Accountants

Project managers

Marketing

Customers

How strong would you say is the relationship between designers and accountants? | Weak | Fair | Strong |


Appendix A

Part 1. Value perceptionsrefer to previous products A, B, and new product C

Please choose 2 very different past products (A and B) and one currently in development(C)

1.1 How would you describe these products in terms of values and benefits? (please tick as appropriate)

Product name Product features Customer benefits

Product A

Product B

Product C

1.2 a. How do customers assess value in new products?

b. How does the company measures value in NPD?

1.3 What aspects of design are most likely to add value to new products?

(before seeing design attributes list)

a. For the company? For the customer?

(after seeing design attributes list)

b. For the company? For the customer?

1.4 a. Does an increase in customer’s perception of product valuelead to an opportunity to increase product price? | Yes | No |

b. How much are customers prepared to pay for a high quality, well designed, reliable product?

1.5 How does increases in perceived value relate to company profit margins?

1.6 Do perceptions of product value change over time?

a. Have your value perceptions of product A and B changed over the past 5 years | Yes | No |

b. In what way have they changed?

c. What has influenced these changes?

1.7 How can you best measure the value of new products?

Designing value and valuing design Appendix A 57

Designing value and valuing design Appendix A58

Part 2. Image perceptions

2.1 Describe the image projected by

Product A

Product B

Product C

a. Who influences this image?

b. In what way is this done?

2.2 a. Does the perception of product image differ for designers, accountants,project managers, marketing and customers? | Yes | No |

b. If Yes in what way does it differ?

2.3 a. What kind of descriptors are used to identify product image?

| brand | colour | shape | texture | style | standard of finish|

| materials used | originality | identity | appropriateness | new/old |

b. In what way can these descriptors be measured?

| brand | colour | shape | texture | style | standard of finish|

| materials used | originality | identity | appropriateness | new/old |

2.4 a. What kind of corporate image does the company present?

b. Who or what is likely to influence this image?

c. In what ways can the image be influenced and controlled?

2.5 a. How does the company image compare with that

projected by the nearest competitors? | Worse | About the same | Better |

b. How does your company performance compare

to the nearest competitors? | Worse | About the same | Better |

c. How does your product performance compare

to nearest competitors? | Worse | About the same | Better |

2.6 How does company image relate to product image?

2.7 a. How does company image relate to customer perception of product value?

b. How is image associated with product benefits?

2.8 a. Do new products reflect a new image? | Yes | No |

b. How much do they rely on the image

presented by previous products? | Not at all | A little | Important | Very important |

c. How much do new products rely on company

image for successful launch or sales? | Not at all | A little | Important | Very important |

2.9 How can image be influenced by design?


Part 3. Process perceptions

3.1 How much do these people work independently, part of a team or both? (please tick as appropriate)

Independently Team Both

Designers

Accountants

Project managers

Marketing

Customers

3.2 At what stages of NPD are designers, accountant, project managers, marketing and customers involved?(please tick as appropriate)

Stages in NPD Designers Project Accountants Customers Marketing Externalmanagers staff consultants

Idea generation

Screening

Business analysis

Concept testing

Product development

Product testing

Launch/marketing mix

Commercialisation

Others

(please specify)

3.3 a. What kind of external consultants do you hire?

b. Do you use suppliers in NPD?

3.4 a. How can promotional activities for new products be measured?

b. Can design (attributes) affect or control these activities?

c. In what way?

3.5 a. How do design attributes enhance product value?

b. How can design attributes promote company image?

3.6 How are NPD ideas communicated internally and externally?

Designing value and valuing design Appendix A60

Part 4. Production and launch perceptions

4.1 a. How would design be used to reduce complexity in production?

4.2 a. Is design used to realise savings in variable inputs? (e.g. raw materials) | Yes | No |

b. In what way?

c. How can these savings be measured? (please tick as appropriate)

Product A Product B Product C

Financial

Functional Aesthetics

Operational

4.3 a. How are production overheads measured for NPD?

b. Is design and development process separated from production?

4.4 What is the role of designers/production engineers in NPD?

4.5 How do production methods influence design?

4.6 What influence do technology and materials have on design?


Part 5. Measurement perceptions

5.1 a. Does the company adhere to any quality systems?

b. How do quality systems help add value to the product?

5.2 How does your company ensure success of new products and how is this success measured?

5.3 a. What influence do you have in NPD?

b. How would you describe your influence? | Weak | 15% – 30% | 30% – 45% | 45 – 60% | Strong |

5.4 With reference to NPD, do you actually achieve what you set out to achieve? (e.g. quality, functionality etc)

5.5 a. How many new products has your company developed in the past five years?

b. How many of those have you been involved in?

c. How long does it take on average to develop a new product?

5.6 a. How is the design process in NP monitored?

b. How is ‘product cost’ at the design stage managed?

c. Is the accounts team or accounting data used at this stage?

d. Does your firm undertake ‘cost audit’ at the design stage?

e. Which of the following cost-management techniques are employed?

| Target costing | Reverse engineering | Others (Please specify) |

5.7 Studies suggest, approximately 90% of product direct costs are ‘designed in’ i.e. they cannot be managed by carefulmanagement in the manufacturing stage. What percentage would you think applies to your organisation?

5.8 How would you describe the orientation of your company?

| Financially driven | Marketing oriented | Design orientated | Others (Please specify) |

Thank you very much for participating

Would it be possible to speak to any of your customers? | Yes | No |

Can I ask your secretary for details? | Yes | No |

Do you want copies of results? | Yes | No |

Do you want to take part in future research? | Yes | No |

Are you interested in events at the Bradford University | Yes | No |


Appendix B

Frequency results February 2002

Number and type of companiesSixteen SME companies took part in this research, thirteen in the main survey and three in the pilot study betweenAugust 2000 and February 2001.

B.1 The 16 companiesThe business interests of these companies includes construction and heavy engineering, shop fitting, watermanagement, software development, textiles, furniture and chemicals with the majority of companies working in abusiness to business environment.

Industry Sector Management Design Marketing Customersaccountants engineering sales

Construction 25% PL1 1(F) 1 0 2

PL2 1 0 1

PL3 1 1 0

MR8 0 1 0

Textiles 18% MR3 1(F) 1 0 0

MR4 0 1 1

MR5 1 0 1

Furniture 13% MR6 0 1 1 0

MR10 1 0 1

Software Systems 13% MR2 1 1 0 0

MR7 0 0 1

Chemicals 18% MR1 0 1 1 0

MR9 0 1 0

MR11 0 0 1(F)

Automobiles 13% MR12 0 1 1 0

MR13 1 0 1

Total 8 10 10 2

Companies 16 – Respondents 30 F=Female

Number of employees in each company

Frequency Valid percent

Valid < 100 1 6.2

100-200 3 18.7

200-300 5 21.7

300-400 3 31.3

400-500 3 18.7

> 500 1 6.2

Total 16 100.0

Designing value and valuing design Appendix B 63

66

19

1931

19

B.2 Number of employees

6% less than 100

19% 100-200

31% 200-300

19% 300-400

19% 400-500

6% 500 +

7

33

27

33

Respondents

7% Marketing

33% Finance

27% Design

33% Customers

B.3 RespondentsInterviews were conducted with30 senior managers, 27 male and3 female, more than half (52%)in the 41-50 age band, and over70% had been working for thecompany for more than 6 years.Their positions in thesecompanies are split evenlybetween finance (8), marketingand sales (10) and design (10)with the addition of two (2)procurement managers incustomer companies.

Relationship between designers and accountants


Valid Strong 11 57.9

Fair 6 31.5

Weak 4 21.0

Varies dependingon the project 1 5.3

Total 19 100.0

Missing System 11

Total 30

B.4 Relationship betweendesign and accountingOver half of those responding tothe question (58%) indicated astrong relationship betweenaccountants and designers.However a further 11 could notcomment on this because theydid not have an in-house designfacility.

Designing value and valuing design Appendix B64

B.5.1 Increase customer perception of value provides opportunity toincrease price


Valid Yes 21 80.7

Dont Know 1 3.8

No 4 15.3

Total 26 100.0

Missing System 4

Total 30

B.5.2 Percentage increase customers are preparedto pay for quality products

Amount prepared Frequency Valid percentto pay

Valid 1% to 10% 5 20.0

10% to 20% 5 20.0

20%-30% 3 12.0

30% to 40% 2 8.0

> 40% 1 4.0

Don’t Know 6 24.0

variable 3 12.0

Total 25 100.0

Missing System 5

Total 30

Customers willingness to pay more for quality products

B.5 Value perceptions81% of respondents believed thatif customers perceived high valuein their products, this wouldprovide an opportunity toincrease price.

Freq

uenc

y

5

4

3

2

1

01%-10% 10%-20% 30%-40% > 40% Don’t know requirements



Valid Directlyproportional 20 80.0

Not related 2 8.0

Don’t know 3 12.0

Total 25 100.0

Missing System 5

Total 30

B.5.3 Does an increase inperceived product value relateto increased profit margins?82% of respondents thought thatimprovements in product valuethrough good design are directlyrelated to improved profitmargins.


Valid Yes 21 77.7

No 6 22.2

Total 27 100.0

Missing System 3

Total 30

B.5.5 Do perceptions ofproduct value change overtime?78% of respondents believe thatproduct value perceptions changeover time.

‘Value perception of the activity jacket has changed. The price has actually reduced because there has been a largeincrease in the availability of fleece products within the market. You can now – there was a time whereby the only fleeceproducts you could buy were from outdoor retailers and now you can buy them from Gap, Marks and Spencer, Argos –and anywhere. So the price of these products has come down from an average price of about £65 to an average price Iwould say in the marketplace now of about £30-£35 and that is the average of all the units sold in the UK. Our activityjacket started life at £70 and has come down to £59.95 and we still sell very large volumes. So you can see, incomparison with the average price in the market, it’s a very high price, but it is of better quality than most of the othersin the market.’ (MR5T1M)

B.6 Image perceptionsOver half (52%) of thoseresponding consider that theimage presented by theircompany is better than thatpresented by their nearestcompetitor and one quarter(26%) consider that their imageis about the same, but just underone quarter (22%) rated theircompany image as worse thattheir competitors.

B.6.1 Company image compared with nearest competitors


Valid Better 14 51.8

About the same 7 25.9

Worse 6 22.2

Total 27 100.0

Missing System 3

Total 23


Do new products reflect a new image?


Valid Yes 18 72.0

No 7 28.0

Total 25 100.0

Missing System 5

Total 30

B.6.2 New products and anew imageIt is interesting to note that 72%of those responding believe thatnew products reflect a new imagewhereas more than one quarter(28%) disagreed with thisstatement.

How much do new products rely on image presented by previousproducts?


Valid Very important 14 58.3

Important 8 33.3

A little 0 0.0

Not at all 2 8.3

Total 24 100.0

Missing System 6

Total 30

B.6.4 How much do new products rely on company image forsuccessful launch or sales?


Valid Very important 10 41.6

Important 8 33.3

A little 2 8.3

Not at all 4 16.6

Total 24 100.0

Missing System 6

Total 30

B.6.3 Do new products rely onimage generated throughprevious products?92% see the image or reputationearned by previous products asimportant or very important forsuccessful launch and sales.Similarly 75% note that theimage presented by theircompany is important or veryimportant for new productsuccess.

‘Yes, extremely important I think. If people have a poor image of previous products, it will be almost impossible to sellnew ones and vice versa, if they have a strong image it’s easy to sell ...’ (MR2T1GM)

‘No, I don’t think so. We don’t have a family or product range to base our success on. I don’t think there’s any particularcustomer loyalty there as yet, the market hasn’t developed yet.’ (MR2T2F)

‘If you get a poor image of product or company, it’s a very major obstacle to selling.’


Can design help to promote company image?


Valid Yes 23 92.0

No 2 8.0

Total 25 100.0

Missing System 5

Total 23

B.6.5 Use of design attributesto promote company image Most people (92%) regarded theuse of design as important inpromoting company image.

Use of external consultants in the product development process


Valid Yes 11 52.0

NO 10 47.6

Total 21 100.0

Missing System 9

Total 30

Use of suppliers in developing new products


Valid Yes 22 91.6

No 2 8.3

Total 24 100.0

Missing System 6

Total 23

Use of design to realise savings in variable inputs


Valid Yes 22 100.0

No 0

Total 22

Missing System 8

Total 30

B.7 Process and production

B.7.1 Use of externalconsultants and suppliers innew product developmentAbout half (52%) of thoseinterviewed used externalconsultants to develop newproducts but a most 92% didinvolve suppliers in this process.

B.7.2 Design to reduceoverheadsAll of those responding believedthat design can make savings invariable inputs such as rawmaterials.


Is design and development process separated from production?


Valid Yes 14 77.7

No 4 22.2

Total 18 100

Missing System 12

Total 30

Do production methods influence design?


Valid Yes 12 66.6

No 0 0

Missing System 18 100

Total 23

B.7.3 Production and designNot all the companies in thissample are involved inproduction. Of those that are, thedesign and development processis often separated fromproduction. Nonetheless many(67%) recognised that productionmethods had an influence onproduct design.

How much do companies adhere to quality systems?


Valid Yes 22 88.0

No 3 12.08

Total 25 100.0

Missing System 5

Total 30

Do quality systems help add value to new products?


Valid Yes 19 86.3

No 3 13.6

Total 22 100.0

Missing System 8

Total 30

B.7.4 Design and qualitysystemsThe majority of companies (88%)used quality systems and 86%acknowledge that these addperceived value to new products.

‘I think that the biggest area where quality system adds value is in validation, testing, managing errors – that helps toreduce the number of errors before it (products) go to customers.’ (MR2T1GM)


Is the accounting team used at the concept stage of NPD?


Valid Yes 11 52.4

No 10 47.6

Total 21 100.0

Missing System 9

Total 30

B.8 Strategy and measurement

B.8.1 Teamwork, audits and thedevelopment processTeamwork is commonplace inNPD and one half (52%) of thosequestioned use accountants atthe concept stage of newprojects. Many respondents(79%) undertake a cost audit atthe concept stage and 89%monitor the design process.

B.8.3.1 Company performance compared with nearest competitors




Worse 3 5.6

Total 18 100.0

Missing System 12

Total 30

B.8.3 Measures andperformanceFor most people the performanceof products and the company issynonymous. 89% rate theirperformance as better than thenearest competitors and onequarter (28%) a similarity inperformance. Only threerespondents believe companyperformance to be worse and onethought that productperformance was worse.

B.8.2 Do firms undertake cost audits at concept stage?


Valid Yes 15 78.9

No 4 21.0

Total 19 100.0

Missing System 11

Total 30

Is the design process monitored in new projects?


Valid Yes 15 88.8

No 2 11.7

Total 17 100.0

Missing System 13

Total 30

‘We do a cost audit ... that call I had earlier when someone was saying – what’s your investment appraisal? We do anappraisal of value for money, whether we can do things more cheaply, or whether it needs to be done at all sort ofthing.’ (MR3T1F)


B.8.3.2 Product performance compared with nearest competitors




Worse 1 4.3

Total 23 100.0

Missing System 7

Total 30

B.8.3.4 Number of new products developed by thecompany in the past 5 years


Valid 1-10 7 36.8

11-20 3 15.7

21-30 1 5.3

31-40 3 15.7

41-50 1 5.3

> 50 4 21.1

Total 19 100.0

Missing System 11

Total 23

Do you achieve what you set out to achieve in new products?


Valid Yes 14 83.4

Not always 3 17.6

Total 17 100.0

Missing System 13

Total 30

B.8.3.3 Achieving targets82% of those responding to thisquestion achieved their productdevelopment targets and thenumber of new productsdeveloped over the previous fiveyears ranges from less than 10 tomore than 50.

‘You measure (performance) with the customer and retaining the customer. You can’t measure their market sharebecause some will spend a fortune in one year and nothing next year.’ (PL3T1)

‘There have been several comparative studies recently in which we have come out ahead of competitors, so we believewe have a very competitive offering.’ (MR2T1GM)


B.8.3.5 Time taken to develop new products


Valid 0-1 years 10 50.0

1-2 years 3 15.0

2-3 years 1 5.0

3-4 years 2 10.0

4-5 years 4 20.0

Total 20 100.0

Missing System 10

Total 30

Cost management technique used

Frequency Percent

Valid Target costing 6 20.0

Total cost 1 3.3

Benchmarking 1 3.3

Reverse engineering 1 3.3

Target functionality 1 3.3

None 9 30.0

Total 20 66.6

Missing System 11 36.6

Total 30 100.0

Half of the sample (50%) take upto one year to develop newproducts whereas nearly onethird (30%) take between threeand five years.

27

50

5

9

9

B.8.3.6 Cost management techniques

Frequency

27% Target costing

9% Total cost

5% Benchmarking

50% None

9% Target functionality

Target costing is the most popular method of cost management in NPD, although one company used benchmarking andanother worked on total costing. One third of those interviewed (30%) didn’t use cost management techniquesalthough the same number recognised that 90% or more of a products direct cost are ‘designed in’ during thedevelopment process.


Company orientation


Valid Don’t know 1 5.6

Marketing/sales 10 50.0

Production oriented 4 16.7

R&D 2 5.6

Financially driven 3 5.6

Design 4 16.7

Total 24 100.0

Missing System 6

Total 30

B.8.3.7 Company orientation50% of those interviewed believethat their company is market orsales driven, 17% design orproduction orientated, 6%finance or R&D driven.

41

8

13

19

174

Company orientation

4% Don’t know

41% Marketing/sales

19% Production

8% R&D

13% Finance

17% Design


B.8.3.8 What percentage of product direct cost is ‘designed in’at concept stage?


Valid 60%-70% 1 4.5

70%-80% 0 0.0

80%-90% 8 33.3

90% or more 13 54.2

Not applicable 2 8.3

Total 24 100.0

Missing System 6

Total 30

36

50

9 5

Percentage of product cost designed in at concept stage

5% 60%-70%

36% 80%-90%

50% 80% or greater

9% Not applicable

March 2006

The Chartered Instituteof Management Accountants26 Chapter StreetLondon SW1P 4NPUnited Kingdom

T. +44 (0)20 7663 5441F. +44 (0)20 8849 2262E. [email protected]

CIMA (The Chartered Institute of Management Accountants) represents members and supports the wider financial management

and business community. Its key activities relate to business strategy, information strategy and financial strategy. Its focus is to

qualify students, to support both members and employers and to protect the public interest.

ISBN 1-85971-571-0

REF:TE030V0206

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