Firms and markets that profit from investment in design and product development

This paper concerns a study which aimed to identify: (a) how returns from investments in design and product development vary with the types of market in which a firm operates; (b) the long-term benefits of investment in product design and innovation. The study built upon an earlier research project, which involved a survey of design and product development projects in 221 SMEs which had received some government support for design. This paper focuses on the results of a longitudinal, follow-up survey of a sample of 42 firms and projects, 8–9 years after the original study. • The firms which had grown in turnover operated in growing markets and had typically developed innovative or niche products, while the declining firms generally operated in static or declining markets in which they had many competitors. • The fast growing firms employed a statistically significantly higher proportion of RD&D staff; used external expertise for product development more often; and introduced new products more frequently, than the slow-growing or declining firms. • All the growing firms had managers with a positive attitude towards design and innovation and increased their investment in RD&D during the recession, while most managers in the declining firms had a narrow and limited understanding of the contribution of design and reduced their investment. • Since the earlier survey, performance, quality and price remain the key factors in product competition, although there is evidence of price and delivery becoming relatively more important – consistent with trends since the late 1980s in which firms increasingly have to compete on price and service as well as on product quality and design. • SME managers and designers are now aware that multiple factors should be considered when designing a product but, given the differences in the commercial performance of the products, probably not all firms were equally effective in ensuring that these factors were actually taken into account. These findings support previous research that business success and investment in design and product development are likely to be mutually reinforcing, while poor financial performance and a failure to invest can lead to a cycle of decline