Adaptive Path Blog

This will be my second recession in a design consultancy.

My first was in the early 2000’s, and while some argue that one was mild, the combination of tech crash, general recession, and a generation of business leaders who had spent most of their professional lives in a long run of wild exuberance made things pretty unpleasant for those of us in design and product development. Interestingly, this time around the business response is qualitatively different. Over the past few months, and even in the last couple of weeks as the emotional trauma of the financial meltdown has subsided, the response feels more measured, as if people had learned from the time before.

Unfortunately, the instinctive reaction to cut costs across the board is still around. Some companies are doing that and others are tempted, even though there is plenty of evidence telling us this is not actually the right thing to do. Bruce Nussbaum gave even us a prescient reminder of the mistakes we shouldn’t make right now – mistakes that essentially amount to walking away from providing great products and experiences, mistakes that are a voluntary dive into commoditization.

But what is the evidence supporting this advice, and is there a layer of subtlety that helps us understand exactly how and where to spend our precious cash reserves?

The Great Depression was actually the birthplace of many companies that became market leaders, precisely through this sort of investment. Henry Luce, who co-founded Time magazine in the boom times of the 20’s, launched Fortune magazine in 1930, the beginning of the depression. He recognized that people wanted to experience business news in a way very different than the dry, black and white, facts and figures journals of the day. He gave them insight to the people, thought and issues behind business, and delivered it as a sensual, visual, literary experience. And he commanded a price premium – one dollar an issue.

A few years later, in 1936, the middle of the depression, Luce began publishing Life. The beginning of photojournalism in the United States, Life drew together reporting and publishing tools that already existed, but by using them in a different manner, crafted an entirely new and compelling way to experience the news.

This sort of success is not merely anecdotal, and not limited to the Great Depression. In a study of the early 90’s recession, McKinsey & Co discovered that successful leaders (businesses that started and remained in the top quartile of their industries) did so in part by increasing their R&D spending dramatically – more than double their pre-recession spend. Successful challengers followed similarly contrarian strategies, and displaced former leaders who did not, taking their places in the top quartile. In fact, the challengers grew their businesses by 10.4%, while their former peers declined by 15.0%.

Of course, simply being contrarian and spending your way aimlessly through a recession is not the recipe for success. The McKinsey study gives us some guidance, and Kellogg Professor Andrew Razeghi puts greater detail to it with data from the PIMS study, which tells us that bearing the costs of innovation and meeting user need generally ends up benefiting the business, while the cost of fixed capital tends to hurt the business.

So how can we give people new and better things that they want, without significant investments in new equipment? Experience design, and a coherent Experience Strategy.

In fact, that was one of the main insights on our recent project with a big-box retailer; not that they needed to make new investments, but that they needed to choreograph and orchestrate their current components in such a fashion as to extract new and greater value from them. The magic, of course, is in the details of that orchestration.

If the value of getting experience design right is magnified in a recession, then the cost of getting it wrong can be catastrophic.

Starbucks founder Howard Schultz recognized exactly this problem when he wrote, “Stores no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store.” Excessive expansion and unfocused innovation had stripped Starbucks of the third-space experience that their customers valued, placed them in competition with McDonalds and Burger King, and set them up for costs of around $330 million as they try to regain what they lost.

So what are we seeing that makes me say that this recession feels different than the previous?

Companies are still looking to engage in experience design projects – good projects, properly funded and with realistic goals. Reflecting the nature of the times, they are being careful with their money. They’re spending the time to understand exactly what the project plan entails, they want to know that they are picking the right partner to work with, and they are lining up the internal commitments and connections that they will need to make the project successful.

The companies that are doing this are investing wisely, and I think they will be the ones that come out ahead when this recession ends, just as the other 21 since 1900 have ended.

This entry was posted on Wednesday, November 5th, 2008 at 1:49 pm and is filed under Business Value, Experience Design, Experience Strategy, Management, ROI/Business Value, The Big Picture. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.