Factors such as supply chains, production processes and the business environment for SMEs are having an impact on the way design businesses operate, says Mike Exon.
How do both the UK business environment and the way design businesses operate add to our understanding of the industry? It’s not an exact science, but factoring in research data with our knowledge about working models of design companies gives us a richer reading of the challenges and opportunities facing the industry. It’s a question of design economics.
To make a salient business case for design, we need to try to see the underlying operational shifts design businesses are undergoing. What is happening to supply chains in design? What is the extent of horizontal integration and collaboration? What has been the operational impact of digital business and technology on our businesses generally?
Other important factors to consider are why designers are choosing to operate in smaller or individual business units; how easy it is to migrate from freelance operations to a small business model; and how general business conditions are affecting what designers can or can’t do.
Design is becoming an increasingly fluid and fast-moving sector, where lead times to market are getting shorter. Technology has had an important effect on the supply chain, simplifying production processes, increasing volumes and reducing unit costs. Whether it’s designing, building, storing or distributing their creative output, design businesses have benefited very significantly from the digital effect over the past five years because they are early adopters of technology. On the demand side, design has easily absorbed the transformation in communications, retailing, brand building and general consumer behaviour that digital media have created.
In terms of the way design businesses integrate with their suppliers – the vertical supply chains in design – there is strong evidence of regular renewal of the production chain and supplier relationships. Rapid prototyping is now starting to follow print and production overseas, as it is increasingly outsourced to cheaper markets. The net effect is a clear, continual change to the vertical supply chain as processes are automated and commoditised.
In terms of the horizontal interactions between design consultancies, 57% say they collaborate, but do not rely heavily on project partnerships. International group networks even work counter-collaboratively by forcing their consultancies to compete for the same client project.
As far as design penetration goes, we know that corporations are becoming increasingly knowledgeable and skilled in design and are increasingly able to manage their own intellectual property from inside the organisation. Companies like Ford and Nokia, with established design arms, say they are reaching further into their organisations, integrating design with their business operations.
The ‘ad-hocracy’ of the design process is disappearing – less is left to chance, risk is eliminated throughout the production system and new processes are built in to assess viability and probability of success. Where design is a standard operating process, it is increasingly monitored for efficiency.
Because they are often configured to suit a particular industry or type of business, general conclusions are hard to make about in-house creative teams. They can be substantial in size or run by a few highly skilled individuals. Some clients are looking to rosters and existing consultancy relationships in order to externalise the cost of design. Others build in-house teams then augment them with freelance staff as workloads change. Some see the value of investing in both in-house and external design work: for big projects it can pay to flatter the design stage and eliminate risk rather than incur heavier costs further down the production chain.
Understanding the growth of freelance modes of design and the overwhelming importance of micro-businesses is critical to building our design business models. So why exactly are we choosing to work in different ways, using smaller business structures?
During a downturn you would expect spending on consultancy work to be down short-term. The drop in discretionary spend by clients, combined with general cost cutting across businesses naturally contributes to a drop in consultancy headcounts, causing the freelance ranks to swell. On top of this there are growing numbers of individuals opting to freelance as a lifestyle choice – often after relocating or returning to work after starting a family, or because they prefer to have different responsibilities to those of the agency model.
These factors have been amplified by the reduction in total numbers of consultancies due to consolidation or shutdowns. Though it is hard to trace the exact movements here, the shutdowns tend to occur in smaller, less profitable groups without the client book, forward revenue forecast, specialist skillset or brand value to be worth acquiring. For the same reasons, mergers are most likely at the upper end of the consultancy spectrum.
Another strong factor in the growth of the micro design operation over the last few years is simply the number of apparent operational advantages it can have over the SME business model. Both the employee and employer benefits of operating as a freelance professional or freelance collective have clearly encouraged many designers to choose self-employed options, but these advantages may also serve as barriers for potential start-ups adopting traditional business models (see panel opposite).
All the evidence suggests we have a strong, vibrant design sector in the UK that is adept at rejuvenating itself by embracing new modes of business and by quickly exploiting supply-side and demand-side opportunities when they arise.
Taking advantage of every opportunity it can, design is well placed to be bullish about the global market, creating better products, services, brands and experiences that are desirable, usable, buyable and feasible. If designers realise their power to generate profit, social benefit and environmental improvement simultaneously, the industry will begin to grow in new ways.
Business benefit. Or barrier?
- time flexibility: working time directives prevent businesses having long working weeks, while freelances choose their hours, take multiple clients and are remunerated accordingly
- income tax: freelances benefit from an income tax regime that allows claims on costs and capital investment incurred as a sole trader, while employers reduce their own wage and benefit bills
- VAT thresholds: freelances are exempt from charging VAT on work until they earn over £68,000
- glass ceiling: these same benefits can represent barriers to freelance designers looking to start up a traditional design consultancy business model