29 March 2006 Speech Notes

Embargoed until: Wednesday 29 March 2006 at 9.30am

Address to Design in Business Academic Forum

Telstra Clear Centre, Te Papa, Wellington

Today's forum concerns one of the major challenges faced by the New Zealand economy and the New Zealand tertiary education system. I am not referring to the immediate challenges of slowing growth or the future path of the dollar, but rather the longer term challenge of improving our productivity. In other words, our ability to extract the most value out of our human and natural resources at the least cost.

Education providers have a key role in meeting that challenge, and how well they do so will determine to a significant extent how relevant they are to the long term needs of New Zealand.

If we look back over the economic history of the last millennium, we see a series of shifts in what it was that drove the prosperity of nations. Initially, it was the wealth of one's natural resources that determined a nation's prosperity. From antiquity up to the industrial revolution, the most effective way to grow an economy was simply to invade one's neighbour or annex some colonies and appropriate their resources. So far as I am aware, none of our business schools currently devotes any time to teaching courses on how to employ this as a strategy.

Subsequently, advances in technology and trade came into the picture, and the race went to those nations who learned to benefit from the exchange of goods and who applied new technologies to making their workforces more productive and to producing goods that were sought after the world over. This accounted for the extraordinary prosperity of some rather small and resource poor nations, such as the Venetian Republic, the Netherlands, and Great Britain.

Technology and trade are still with us as drivers of prosperity, although they have been modified by factors such as the globalised supply chains, patent law and the rise of service industries, such as finance and insurance.

If we consider New Zealand's own economic history, it is clear that we have succeeded in riding some of these waves. Our exploitation of refrigeration technology in the early part of last century enabled us to become a major exporter of protein in its various forms. In other instances, however, we have to admit that we have been among those nations that get pulled along in the swell as best they can.

Most recently, design has emerged as a key enabler of economic prosperity. It has had a struggle asserting its importance. Design has been seen either as wholly driven by functionality, and hence the preserve of engineers, or as a marketing technique to make purely aesthetic changes to a product in order to convince buyers to trade in last year's entirely good model for this year's one.

One might argue that these tendencies have been especially strong in New Zealand, given our ethos of pragmatism and our suspicion of any kind of unnecessary adornment.

Nevertheless, what many New Zealand companies are now demonstrating is that design is one of the factors that create enduring brand success, a capacity to charge a premium in world markets, and sustained advantage over our competitors.

In 2003 Industry New Zealand, as it was then known, commissioned the NZIER to survey the international literature looking for studies that examined the correlation between a nation's design culture and its rate of economic growth over the long term. That survey found that, wherever the question has been studied, a strong correlation had been found.

For example, the World Economic Forum's Global Competitiveness Report in 2002 found a high degree of correlation between the use of design as an input to business and high levels of competitiveness. Not surprisingly, the countries which placed the greatest emphasis on design, such as the UK, Finland, Germany and Switzerland, were home to enduring product brands which have become household names.

Clearly the stakes are high. It is part of this government's agenda to transform our economy by methods such as:

- Creating more globally competitive firms alongside our existing leading firms;

- Achieving higher productivity, business investment, and skills levels, and encouraging more innovation in the economy;

- Assisting small to medium enterprises make the transition to exporting into high value niche markets; and

- Finding practical ways for business, workers' representatives, educators, scientists, regional authorities, and communities to work together to lift New Zealand's economic performance.

The government's Growth and Innovation Framework has been important as a catalyst for creating alignment between the efforts of entrepreneurs, scientists, tertiary institutions, economic development agencies, financiers and policy makers. In fact, one of the features that has attracted the most positive comment from overseas observers is the very idea that these parties could work together to align what they do. In most countries, it is thought that the exercise is like trying to herd cats and does not reward the effort.

That process has enabled us to make some important strategic choices, such as identifying the areas in which New Zealand has a global competitive advantage and channelling resources into those areas, rather than the scattergun approach of the past.

The framework also recognised a number of key enablers for New Zealand business and for the commercialisation of innovation. Design was one of those enablers, alongside ICT and biotechnology.

We looked closely at the examples of countries such as Finland and the United Kingdom, which already have well developed strategies for leveraging their design capabilities. We decided that a similar approach could work here, and accordingly we appointed a Design Taskforce to recommend a high level strategy.

That strategy calls for a greater awareness of design disciplines in assisting companies to be innovative. It also calls for the tertiary education sector to dovetail its efforts with those of industry, so as to support an emerging design culture and provide a stream of talented business leaders with an understanding of the importance of design.

Cabinet agreed to support all the initiatives recommended by the Design Taskforce with an allocation of $12.5 million over four years. NZTE was charged with leading the implementation of the Design Strategy, and TEC has responsibility for implementing the education initiatives.

The design strategy was effectively launched in March 2005 at the Better by Design Conference held at Auckland's Sky City Convention Centre. The event was intended as a launching pad to international success for ambitious, design led companies and featured experts from New Zealand and around the world.

Other elements of the strategy are being implemented progressively. For example:

- As of August 2005, 18 companies had completed design audits and another 26 were applying to enter the auditing programme. This programme allows businesses to build on their understanding of the value of design and start to take practical steps to increase their design capability.

- The programme "Design Project Number 1", which assists businesses to carry out their first design project, was made available to the first tranche of audited companies in December 2004. To date two companies have been accepted into the grant scheme: Design Mobel and Phil & Ted's. Current funding levels allow for 12 companies to participate per year.

- A design management and strategy education programme, entitled "Profit by Design" has been developed by The Icehouse (affiliated with Auckland University Business School). The programme consists of a two-day Foundation course, followed by Master Class workshops. TEC have contracted The Icehouse to run the programme for two years, with the first course delivered in August 2005.

- TEC has successfully developed and piloted Student Design Internship and Graduate Design Internship programmes, and the internships are currently being rolled out nationwide. There are currently three companies participating in the programme: OBO, Lexicon and Formway Furniture. To date there have been four internships.

The task of this forum is to put even more flesh on the bones of the design strategy. Indeed, what you are charged with doing is applying some design thinking to the tertiary sector, to consider what a tertiary education system needs to look like and how it needs to perform to create a new generation of New Zealanders seeking either to pursue careers in design or to incorporate design into their understanding of how business works.

That means broadly three things:
- First, to provide more commercial content in design education. That is, making sure that students connect their discipline with the evolution of value in business. We need designers who understand that design is not merely one step in the value chain, but a skill that can inform decisions all along that chain. They need not only to understand that, but also to be able to converse with those involved with marketing, operations, business strategy and so on.

- Second, to ensure that business and professional graduates have a good understanding of the value of design and how to work with designers in value creation. Our past and current systems have produced quite different sub-cultures amongst engineers, accountants, managers, marketers and designers. These are the butt of many workplace jokes; but there is a serious need to develop a new workplace culture that works with greater flexibility and spans disciplines.

- And third, to upskill existing chief executives and senior managers in design appreciation, in how to manage it as a resource and in how to develop design led strategies and applications.

These are not easy issues to deal with. I trust that at this forum you will start to grapple with some of the difficulties. From my perspective several important ones spring to mind.

The first is how to reconfigure established qualifications in order to promote inter-disciplinary study that incorporates design and other business disciplines. The government has for some time been encouraging better collaboration amongst tertiary providers so that students can access more flexible programmes of study. Mixing disciplines in the way I described earlier can create headaches, alongside some very stimulating cross fertilisation. We need to find ways of making it easier for individual tailoring of study to become the norm rather than the exception.

Alongside of this is the need to bring the tertiary education workforce with you. As I can attest from my own experience, faculties comprise a mix of personalities, some of whom can fully engage with the challenge of implementing something like the Design Taskforce's strategy, while others prefer to remain happily engrossed in the slow accretion of knowledge in their specialist subject. Both orientations are important in forming teams that can provide a stimulating learning environment, although managing that mix is not as easy task.

I should also point that getting meaningful industry input requires painstaking work on both sides, building relationships, testing ideas, learning from mistakes and so on. It is not an easy task to marry the timeframes of businesses (which are focused often on this year's bottom line) with those of tertiary providers (which are driven by the structure of multi-year qualifications and long term research programmes).

I am not citing these difficulties in order to discourage you; but rather to emphasize the importance of the work of this forum, and its ongoing nature.

Design is not a one-off exercise. It is a set of disciplines to be carried out repeatedly and in some cases daily. Nevertheless, it is a competency that needs to pervade a generation of world class New Zealand businesses, and tertiary providers have a major part to play in making that happen. We have come a long way from greaseproof paper wrapped butter. Now we must build on our successes, both broadening and deepening the understanding of the importance of good design.

Thank you.

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