Design Thinking and Value Creation
Recently someone asked me to explain the relationship between design thinking and value creation.
Design thinking, or human-centered design, is the five-step process to solve complex social problems that has been popularized by IDEO, Stanford Design School and Roger Martin. The process is described well in this process image from Stanford Design School.
For a more detailed description of design thinking, this resource from Stanford is a practical place to start
Defining value creation is a bit more challenging. Economists define value as utility, which is technically correct but not terribly useful. Suppose we thought of value as simply “making a better future”, “servicing new needs” or as Sam Altman at Y Combinator might describe it, “something fundamentally new” or “10X better”. When you look at value this way one realizes that creating value, the “better future”, is the “why” of Simon Sinek for invention, innovation and entrepreneurship. When one starts a scientific research project, builds a prototype or creates a big company, the reason should be to create a better future for every customer and society. When you look at value through this bigger lens, to me it is much easier to see how design thinking creates value.
In 1985 Michael Porter at HBS introduced the concept of value chain analysis. The sign of a good concept or technique, I think that value chain analysis is more popular today than when Porter introduced it. Part of the popularity of this form of analysis is that it can give insights into business model, which after customer experience is probably the defining term in the entrepreneurship of the 21st century. Simplifying Porter’s concept, value chain analysis looks at the supply relationships, the distribution relationships and the customer relationships. Supply relationships capture all the processes to create a product or service. Distribution relationships describe all the processes to sell the product and deliver it to the customer. Lastly, the customer relationship is what now is commonly referred to as customer experience. In examining the processes in any one of the three parts of value chain analysis, one quickly realizes that certain parts are commodity-like and add no real value. Trans-Pacific freight might be such an example. On the other hand, certain parts, particularly as we get closer to the customer, are where the customers are seeing value and the company needs to focus. Reducing customer friction around trust issues might be an example. Good management focuses on the parts of the value chain where they create value — satisfy new needs or create a better future — for the customer and outsource as many of the other processes as possible. These processes that the company keeps — the real value creation — is where one applies design thinking.
Wherever you create value for the customer (based on the value chain analysis) is where the challenge is the most critical to create more value. Design thinking provides a systematic way to further understand the customer’s problems and needs, discovery the opportunity to create new value for the customer and build a better future for society. So to begin the article, maybe we should have said, what is the relationship between design thinking, value creation and value chain analysis. In the end it all comes back to creating value for the customer and design thinking is a good approach to the problem.
Note: This approach works equally well with startups or more mature companies. Detail the value chain, identify the opportunities to really create value for the customer, apply design thinking in those areas to create a better future. Test, test, test.
