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The British Design Council, with its mission “to inspire and enable the best use of design,” is keenly aware that designers and design departments are always looking for ways to build the business case for design. After all, writes Harry Rich, director of the Design Council's information and support group, “We are only too aware that companies need to justify their investment in all their business activities and measure the impact of those investments on their financial performance.” So in the late 1990s, when the Fitch design consultancy came up with an approach that assessed a company's success based on its market-share performance and use of design, the Design Council was happy to participate. Aided by investment fund managers, Fitch compiled a hypothetical portfolio of its publicly listed clients in the US, as well as the UK. The result: In both countries, the “design portfolio” clearly outperformed the rest of the market. For example, in the period from 1990 to 1995, before the bull market of the late 1990s, the design portfolio of US companies experienced growth of 350 percent, compared with less than 90 percent growth in the Standard & Poor 500 index; in the UK, the design fund achieved 77 percent growth, while the UK's FTSE 100 managed 51 percent.
A similar project funded by the Design Council applied the Fitch approach to a set of six hypothetical funds. Companies in each fund were selected on the basis of being clients of six leading British design agencies. The funds performed between 5 percent and 28 percent better than the FTSE All-Share index over the period from January 1995 to August 1999.
In 2000, the Design Council constructed another portfolio, this time from the publicly listed companies recognized within the UK Millennium Product award scheme, and their performance was measured from the end of 1995 to April 2000. This portfolio was based on a small sample of successful manufactured products or implemented services within larger parent companies, and so gave a much wider spread of sectors and design use. The portfolio outperformed the FTSE All-Share by 94 percent (buy and hold) and by 137 percent when actively managed.
A fourth Design Council-funded study was carried out by Andrew Black, a former consultant with PricewaterhouseCoopers and author of In Search of Shareholder Value. Black produced an analysis of stock market performance, as well as sales and growth performance, of UK-quoted companies over the seven years between 1996 and 2002. Author Rich gives a detailed description of Black's methodology, which is too lengthy to be reproduced here, but the results are decisive.
The group of 63 companies identified as the most effective users of design outperformed the FTSE 100 index over the full period by 200 percent, and also beat their peers during bear, as well as bull, markets.
The Design Council plans to repeat this exercise on an ongoing basis in real time in order to create a stock market “design index.” They are working with the FTSE Group and other advisors to calculate this index in order to provide a basis for investment managers to construct actual portfolios based, for the first time, on companies that make good use of design.
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