Redesigning American Business

Don't panic about competition from China. Just look at how the U.S. design industry evolved -- and flourished -- despite outsourcing

By Bruce Nussbaum

China is scaring the heck out of America. Manufacturing and the jobs associated with it are disappearing as producers of everything from furniture to precision tools shut down and outsource to China. Worse, high-paid service jobs in engineering, accounting, and software writing appear to be next (see BW, 12/6/04, "The China Price").

It's one thing for manufacturing, which is only 15% of the U.S. economy, to wither. It would be quite another for 85% of the U.S. economy to suffer the same fate. Economic theory has been telling us that as long as we continue to move up the value-added chain, going from manufacturing to services, America will prosper. But China -- and India -- seem to threaten that theory.


  Before we lapse into total despair, let's take a look at the profession that has been hit hardest by China's emergence: Product design. After all, designing things is problematic when everything gets manufactured abroad. And for a while, it did look as though design would disappear in the U.S. as manufacturing moved to China. But it didn't. Design is thriving here, and the profession's evolution holds key lessons for American businesses and policymakers.

From 2000 to 2003, product-design jobs in America shrank dramatically. Many small shops closed, and all the major companies had sharp layoffs. The design work went overseas along with the manufacturing work. No wonder then, that China began churning out thousands of product designers, who were paid a fraction of their U.S. counterparts' salaries.

American design couldn't compete -- unless it became something else. And it has. In recent years, designers have taken the values and skills honed over decades of working on products and applied them to creating new information, services, experiences, and just about everything associated with the "things" produced in China and Asia. Cell phones are made overseas, but the graphics, packaging, ads -- the products' personality -- are being designed by U.S. outfits.


  Some of the most important design books published in the past three years bear this out. Take a look at Creating Breakthrough Products: Innovation from Product Planning to Program Approval by Carnegie Mellon's Jonathan Cagan and Craig Vogel, The Art of Innovation by Tom Kelley, general manager of IDEO, and The Experience Economy, by Joseph Pine and James Gilmore. The message is the same: Design in America isn't about form but innovation, in the guise of new products and services.

Designers are teaching CEOs and managers how to innovate. IDEO, ZIBA Design, and other players run workshops to help business people better understand and meet their customers' desires. Companies are creating "chief design officer" slots, and designers are helping corporations build their own innovation centers. The hot design firms in the U.S. today call themselves "design innovators," not "product designers" (see BW, 5/17/04, "The Power of Design").

They pitch themselves to businesses as a resource to help with a broad array of issues that affect strategy and organization -- creating new brands, defining customer experiences, understanding user needs, changing business practices. And yes, if corporations want a nifty look for something manufactured here or abroad, American designers still do that, too.


  Schools such as the Illinois Institute of Design, Carnegie Mellon, the Art Center College of Design in Pasadena, Calif., and the Design Research Institute at the University of Cincinnati are focusing on teaching innovation strategies, service innovation, consumer experiences, and the like. Stanford is even building a new design school that brings together business, engineering, and design to embody the field's new focus.

Bottom line: China scared the design industry, but the profession found higher-valued services to sell and is now more important than ever to Corporate America. Many small design concerns have gone under in the past four years, but others have evolved and grown even stronger.

This shouldn't surprise us. Britain went from a manufacturing to a service-based economy long before the U.S. started down this road. And Britain as a whole has succeeded in making the switch. Even as its industrial core was being hollowed out over the past two decades, its economy has grown at an annual rate of close to 3% (the U.S. growth rate), vs. about 2% for Continental Europe. Its unemployment rate is close to ours as well.

The Continent has retained much of its manufacturing base. But to what end? France and Germany have a combined growth rate of around 2% and an unemployment rate of 9%.


  China is clearly giving the U.S. a run for its money. But America has been here before. In the '70s, much handwringing concerned OPEC controlling all the oil -- and all the money in the world. I know. I wrote a cover story about it for BusinessWeek. In the 80s, Japan was said to be beating the U.S. to a pulp, taking over industry after industry with no end in sight. I know. I wrote a cover story about that, too.

Maybe China will succeed where OPEC and Japan couldn't in subordinating America economically. But I don't think so. Once we worried about where our food came from. Now we don't. Once we worried about where our commodities came from. Now we don't. Today we worry where our manufactured products come from. I'm betting that soon, we won't. What will matter is how we put the pieces together, how we create new experiences for consumers.

The design profession shifted its core competencies from drawing to thinking, from styling to innovating, from shaping things to visualizing new business paradigms. That's a path worth considering for America.

In addition to being editorial page editor for BusinessWeek, Nussbaum also covers design

Edited by Patricia O'Connell

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