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HUMAN RESOURCES DEVELOPMENT PROGRAM

Working Paper 05-Clardy-01 ______________________________________

IDEO: A Study in Core Competence

Alan Clardy

Towson University

November, 2005

© Alan Clardy. All rights reserved.

This is a draft paper intended for commentary and is not for quotation.

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IDEO: A Study in Core Competencies

IDEO is a firm that specializes in product design and innovations; it also provides

services in packaging design, product research, executive training and education on innovation,

and strategic consulting services (IDEO, Inc., 2005). In IDEO’s own words, it “helps

companies innovate. We design products, services, environments, and digital experiences”

(ideo.com, 2005); with rare exceptions, IDEO does not manufacture or distribute its creations.

IDEO is headquartered in Palo Alto, California and has offices in Chicago, Boston, London and

Munich (Nussbaum, 2004). While the company is privately owned, Steelcase (the office

furniture manufacturer) has a controlling interest but allows IDEO to run independently. In

2004, IDEO had sales of $62 million, down from its 2002 peak of $72 million; in 2004, 20% of

revenues came from work in the health care field (Nussbaum, 2004). It has approximately 350

employees, and while more than half of its employees are engineers, IDEO prides itself in

employing a number of people from wide variety of eclectic backgrounds, including

anthropologists, medical school dropouts, and psychologists (ABC, 1999; Nussbaum, 2000;

Nussbaum, 2004).

In terms of both sales and employee head count, IDEO is more than twice as large as

its next largest competitor “frog design”; Hoover (ideo, inc., 2005) indicates that IDEO has six

additional main competitors, all of whom are smaller. Perhaps even more impressive is IDEO’s

resume of more than 4,000 new product development programs for a who’s who list of clients.

For example, IDEO designed a computer notebook for Japan’s NEC, a cordless office phone

for Dancall of Denmark, and the following products for American firms: the Palm V handheld

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organizer for Palm, a child’s toothbrush (Oral-B), the Neat Squeeze toothpaste tube for Crest,

Polaroid’s i-zone instant camera, the interiors of Amtrak’s Acela Trains, and a device by which

surgeons can open blood vessels (Kirsner, 2004; Kotelnikov, n.d.). Other clients include

Hewlett-Packard, ATT Wireless, Nestle, NASA, and the BBC (Nussbaum, 2004). More

recently, IDEO has been helping companies attempt to remake their corporate cultures in order

to become more innovative. In this manifestation, IDEO begins to tread on the traditional

management consulting turf of such powerhouses as McKinsey, the Boston Consulting Group,

and Bain. But unlike the more business-school, hands-off and button-down methodology of

these management consultancies, IDEO’s emphasizes hands-on learning about the customer

through a partnership between IDEO staffers and members of the client organization; this active,

immediate and fun process of engagement gives IDEO a distinctive selling proposition and niche

presence in the traditional management consulting marketplace. The fact that clients love

working with IDEO also helps (Nussbaum, 2004).

Cultural Roots and Company Distinctions

IDEO was formed in 1991 from the merger of four firms, David Kelley Design, Matrix

Product Design, ID Two and Moggridge Associates of London (IDEO, the company, 2005;

Kelley and Littman, 2001; Peters, 1992). David Kelley Design (DKD) was the business outlet

of Stanford mechanical engineering professor David Kelley. Kelley is a tenured Stanford

oddity, holding the Donald Whittier endowed chair without a Ph.D. (Nussbaum, 2004). DKD

was responsible for the Apple computer’s first mouse. More recently, Kelley was on Esquire

Magazine’s list as one of the “21 most important people of the 21st century” (Kotelnikov, n.d.).

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ID Two was an industrial design firm specializing in human factors work (Winograd, 1996). ID

Two designed the first laptop computer.

IDEO bears the imprint of Kelley, its founder, and embodies his own unconventional

character. As an electrical engineer, Kelley worked for NCR and Boeing before affiliating with

Stanford University. He formed DKD in 1978 with colleagues from Stanford. One of his first

clients – and a role model, of sorts – was Steve Jobs and Apple Computer. DKD and its

progeny IDEO are very protective of its almost counter-cultural sensibilities. Status distinctions

are avoided, employees go to the work they find interesting, the entire atmosphere of the office

is eclectic, personalized and non-rectangular, with public work areas (or “parks”) adjacent to

office cubicles. “My brother David hates rules,” says his brother Tom (Kelley and Littman,

2001). “He hates them because he knows that when you start making rules, you sew the first

seeds of bureaucracy. We reject titles and big offices because they impose mental and physical

barriers between teams and individuals” (p. 243). The culture of the workplace is honed even

more by the methodology of innovation they use (described more fully below). A keystone of

IDEO culture is learning, exemplified by an early principle of Kelley at DKD: he would not take

on projects – and business – unless they could learn something from it.

IDEO enjoys something of a distinctive position in the world of commerce: everybody

loves it (Nussbaum, 2004). The praises of IDEO have been sung from its inception. Recent

guru Tom Peters (1992) claimed to be first to recognize the special virtues of DKD just shortly

before the merger creating IDEO. The cultural traits of DKD, traits that Peters thought essential

for successful companies in the emerging economy, were passed along almost entirely, as the

DKD group was kept intact as the IDEO Product Development division (Peters, 1992). It has

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been featured in the 1996 book Bringing Design to Software (Winograd, 1996) and the more

recent Harvard Business School Press volume How Breakthroughs Happen: the Surprising

Truth about how Companies Innovate (Hargadon, 2003) along with its companion piece in

the Harvard Business Review (Hargadon and Sutton, 2000). Founder David Kelley’s brother

authored the book The Art of Innovation, Learning Creativity from IDEO (Kelley and

Littman, 2001).

Perhaps the best example of adulation came from the 1999 ABC Nightline episode that

showcased IDEO. In that segment, ABC commissioned IDEO to redesign an object of

common and familiar usage – the grocery shopping cart – in five days. The cameras recorded

the process as a group of approximately 20 IDEO designers observed, studied, imagined and

finally designed a new cart, using a process called the “Deep Dive”. On day 1, designers,

working in small groups, fanned out to various locales: a grocery store, a buyer of carts for a

grocery chain; one group concentrated on child safety seats. Later than day, groups reported

back on their findings. Day 2 was spent in brainstorming ideas, selecting good ideas, and

prototyping examples. More evaluation and prototyping followed. On the last night, IDEO’s

machine shop fashioned a full-scale working model that was proudly revealed on schedule.

Interspersed throughout were behind-the-scenes glimpses of IDEO’s history, workplace, design

failures and successes, employees, and culture. This was one of the most popular Nightline

broadcasts of the year and was replayed several months later (Kelley and Littman, 2001).

This adulation seems well founded. Peters (1992) rated IDEO parent DKD as the best

firm in terms of learning from clients, outsiders, and from each other in his list of bell weather

companies (that included such standouts as McKinsey, EDS, ABB, and Johnsonville Foods).

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On most any measure, IDEO seems to be a runaway success. “Every spring, Business Week

publishes a feature story on the power of design in business and includes a cumulative tally of

firms who have won the most Industrial Design Excellence Awards. IDEO has topped that list

for 10 years running” (Kotelnikov, n.d.).

Structure and Operations

IDEO is set up as a collection of studios (14 as of circa 2004) of about 10-20 people

each. This structure was formed in a characteristically IDEO fashion around 1995. Several top

employees were designated as a “studio leader.” Then, at an all-hands meeting in the Palo Alto

office one day, the studio heads made a pitch about their interests and projects; employees then

selected the studio that would become their home base. Everyone got their first choice. (This

process was repeated several years later.) Each studio is operated on a profit and loss basis,

and studio heads are not hired from the outside but come from within. Apparently, the studios

serve like a home base for employees. [What is the compensation plan for studio leaders?]

The real innovative work at IDEO is done through project teams, however. Founder

Kelley believes strongly in the value of multidisciplinary teams (what they call x-func for cross-

functional teams) (Winograd, 1996). In this capacity, IDEO has something similar to a matrix-

like structure. Projects operate across studios, drawing people from different studios. Project

teams can have as few as three or four, or as many as a dozen members. Once projects are

finished, the teams disband and employees move to other projects. The result of this structure is

a continual circulation of personnel – and more importantly, what they have learned on prior

projects – over time. Projects are assigned to teams based on the team’s desire or excitement

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for the project. There are no position titles on business cards (IDEO, the company, 2004;

Kelley and Littman, 2001).

More recently, IDEO may have been set up in terms of practice areas, such as

technology-based areas, a "smart spaces" practice (for redesigning places like hospital

emergency rooms or the women's lingerie area in department stores) (Nussbaum, 2004). [It’s

not clear whether in fact this occurred or how it is different than the studio system]

The IDEO way

The Nightline segment focused on IDEO’s signature process: learning about customer

needs and experiences as the basis for innovative and rapid product design. This process,

known as the “IDEO way”, is the centerpiece method to IDEO’s madness. Three values seem

to infuse the learning and evaluation process throughout: user desirability, business viability, and

technical and manufacturing feasibility (Winograd, 1999).

The IDEO design process begins with understanding the product’s history and uses,

and observation of consumer experiences, a step owing more to anthropology than conventional

market research. Here, IDEO's staff and client partners move into the field to see how

consumers experience and use the product of interest. For example, a product development

team will shadow consumers and observe how they use a product, or how they go about

shopping, or how they experience a hospital emergency room. They take photographs of the

spaces and how people occupy them. They keep track of all the interactions consumers have

with the product or service or space. They may interview consumers and ask them to describe

their personal experiences (their stories) about using the product. In the ABC Nightline (1999)

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example, the product development team was organized into subgroups of about four or five

people each. Each subgroup pursued its own special perspective in learning about grocery

shopping carts, such as the shopping experience in the store, how children factor in, and so on.

They may also call together “unfocus groups" of diverse and extreme users of a product. For

example, on a different project, to understand how sandals were used, they formed a group that

included an artist, a body builder, a podiatrist, and a shoe fetishist. In this vein, Kelley (Kelley

and Littman, 2001) notes that one can learn more from the consumer who doesn’t follow the

instruction manual or who invents new uses of a product. “You learn from people who break

the rules” (p. 39).

Once information has been gathered, the team(s) convenes for brainstorming sessions

(what they call “brainstormers”). Such sessions, because they can be so intense, should last no

longer than one hour. There are strict rules for brainstorming, posted on walls. Rules are fairly

standard for brainstorming: Do not judge or dismiss ideas, build on the ideas of others,

encourage wild ideas, go for quantity, stay focused on the topic, and only engage in one

conversation at a time. In the ABC Nightline (1999) demonstration, the initial meeting involved

the different teams reporting on what they learned from their field visits, including abuses and

problems. Character maps are an interesting tool that can be used at this step of the process

(Winograd, 1996). These are a biographical characterization of a market segment that highlight

how different users interact with a product. Character maps "detailed personality and activity

descriptions for a small set of envisioned typical users" (Winograd, 1996, p. 167).

Step three involves rapid prototyping of ideas. This means developing actual working

models or images of their ideas. These physical representations and models help the product

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development team visualize and experience their conceptions more directly. The mockups

should be built cheaply and quickly and without obsessing over details. The purpose of the

prototype is to demonstrate a design idea, not execute it fully. Another type of technique here is

called "body storming" where different types of consumers are identified and their potential use

of the product is acted out. In the ABC Nightline (1999) demonstration, the teams developed

prototypes in line with their themes. For example, one group looked that how consumers find

price information about a product. They created a prototype scanner that was on each

shopping cart that could give price information and then demonstrated that use in a body

storming session.

Products are not the only things that can be prototyped; services and spaces can be,

too. For example, "for Amtrak, they built a full-scale railroad car out of foam core and

aluminum. The IDEO designers wanted their clients to experience what it would be like to bring

luggage through the doorways, work in the cafe car, and negotiate the bathroom while seated in

a wheelchair" (Kirsner, 2004). Similar efforts include using floor layouts for health care spaces.

Another way to give prototypical substance to the intangibles of product or service usage is by

storyboarding and scenarios. Storyboards are visual depictions of a sequence of consumer

uses, almost in a comic-book visual format. Scenarios are more verbal, text-based stories of

usage. Either way, they give a concrete illustration of usage that can illuminate hidden issues or

problems that otherwise might stay hidden until after the product has been rolled out (Winograd,

1996).

In stage four, this broad variety of ideas are narrowed down. In the ABC (1999)

project, each subgroup presented their prototypes, and all participants on the team offered

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reactions, feedback and assessments. This evaluation process helps critique ideas and narrow

them down to ones that seem to have the best solution. By involving clients at this stage of the

process, the better the chances for effective acceptance and implementation. In the ABC video,

a small group of decision makers met to select the best direction for the new cart design. Kelley

sees that his teams undergo something of a natural process of narrowing down over the course

of a project: the initially large and diverse group of participants reduces over time until near the

decision stage, a fewer number remain. “The appropriate prople remain interested in the

problem and it continually narrows down as you move towards implementation. It’s important

to have fewer people as you make decisions” (Winograd, 1996, p. 159)

Finally, the last stage involves product refinement and implementation. Here, IDEO has

a skilled workshop for actually engineering and developing their real prototype for product.

IDEO considers this group, made up of master machinists and model builders, one of its best

kept secrets; “it’s a competitive advantage that our clients have come to rely on” (Kelley and

Littman, 2001, p. 141). For example, the shopping cart that emerged from the design process

was built as a full-scale, actual working model or prototype overnight.

The IDEO Way and Core Competencies

If it’s as simple as following those five basic steps, why doesn't everybody do it? What

is remarkable in this story is the taunting gauntlet (unintentional as it may be) that IDEO tosses

before corporate America. As is obvious from the prior section, the secrets of IDEO success

are well codified and in plain view. For example, the IDEO web page (ideo.com, 2005) clearly

lists and demonstrates the standard innovation procedure that characterizes how IDEO goes

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about doing its work. That methodology has been published in Business Week (Nussbaum,

2004), reported in books (Kelley and Littman, 2001) and demonstrated on national television

(ABC). It would appear that its “core competencies” are available for any and everyone to

follow. Yet, while any number of firms have tried to conjure up the same magic, "most fail.

That's because although IDEO's magic includes its particular way of organizing, it depends as

much on the firm's dedicated strategy as a technology broker" (Hargadon, 2003). Other factors

are also involved.

Consider an analogy from recent professional football: if the book of plays from a

reigning championship team like the New England Patriots was given to a perennial losing team

like the New Orleans Saints, would the Saints become a contender overnight? In all likelihood,

no. Any a number of other factors, including player talent and experience, morale, coaching

capabilities, abilities to learn and make adjustments, and team self-confidence (to name just a

few of the more obvious factors), also contribute to the longer term success of the Patriots.1

Even so, professional athletic teams do not share their play books, as far as I know.

The IDEO Way is IDEO's playbook, and has been noted, this playbook is open for all

to see and copy. While copying has apparently been tried, it has not been successful, though

(Nussbaum, 2004). Why not? Obviously, just as the football examples suggest, there must be

something more going on at IDEO than a simple list of steps. Otherwise, the competition would

have simply copied these steps, undercut IDEO’s price and performed the same tasks in

creating comparable outputs. What other factors can explain not only IDEO's success in design

but its apparent immunity from duplication? This question can be answered in at least two

ways. First, the literature on core competencies would predict that there is an enormous

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accumulation of tacit learning that is now embedded in IDEO routines and practices. This

learning would be very hard to codify and replicate. Second, there are a number of related,

ancillary practices and conditions that surround and embed the IDEO way, supporting, aiding,

maintaining, and amplifying it. These conditions, once codified, can also be replicated to varying

degrees and should increase the chance of being successful replication and transfer.

The following is an initial listing of likely ancillary practices and conditions, drawn from

various in-house and other published reports. This list is suggestive, though, being compiled

selectively from the documentary sources written for other purposes. So, it is not clear from this

list whether in fact the practice and condition is present, and if so, how important it is. Such an

assessment can only come from a direct examination of IDEO conditions. Thus, these factors

should be taken as hypotheses, keeping in mind that certain important practices may not have

either been identified or published. One additional lesson here is that the IDEO way cannot be

separated from the larger socio-cultural context of IDEO as an organization in which it is

embedded.

The amount of tacit learning embedded as knowledge at IDEO is substantial. Tacit

learning seems to be one of two intentional goals of the project work, the other

being the creation of an innovation ready for production and marketing. The

primary vehicle for tacit learning is project work, carried out in a broad diversity of

industrial segments. Indeed, founder Kelley believed that this diversity of

experience is a strength of the firm. Two other factors are involved here. First, the

circulation of personnel among studios and across projects literally results in the

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cross-pollination of ideas. Second, learning has been captured in one type of

knowledge management procedure known as the Tech Box; it is a method for

stockpiling ideas, literally.

IDEO has made a science of accumulating junk. . . . . Six IDEO offices in

scattered locations have cabinets known as Tech boxes in which designers have

placed a shared Treasury over 400 materials and products: tiny batteries,

switches, glow-in-the dark fabric, flexible circuit boards, electric motors [and so

on.] . . . It became a status game as people at IDEO competed to contribute

cool new stuff. . . . Each tech box is now maintained by a local curator and

each piece is documented on IDEO's intranet. Designers can find out what

each product or material is and who knows most about it inside and outside

IDEO. Engineer Christine Kurjan, head curator of IDEO's Tech Boxes, hosts a

weekly conference call with the local curators in which they talk about new

additions and the uses to which items are being put in new projects. (Hargadon

and Sutton, 2001, p. 160-161)

[The only mention I’ve seen so far of a more formalized knowledge management

system, like the one reported for Arthur Andersen (Davenport and Hansen, 1998), is

the intranet system just noted. The presence, structure and operations of this intranet

system could be a potentially very important factor about which I have essentially no

information now.]

For Hargadon (2003), the key to IDEO's success goes beyond its "Way" to its position

as a "technology broker". Consider this problem, presented to IDEO by a bicycle

manufacturer: they wanted a water bottle that could be used easily by bicyclists.

IDEO's solution was a bottle with a spill-proof nozzle that did not need to be opened or

closed. Rather, by squeezing the bottle, the nozzle pops open, and then closes when

released. This solution had been developed five years earlier by a different team that

had used a similar solution for a shampoo bottle that could hang upside down in the

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shower. That bottle application came about after working with a medical products

company in the design of an artificial hearts. Thus, technology brokering really involves

transferring technologies from one setting and use to another. IDEO seems to be

particularly well suited in this regard because of their wide-ranging experience with more

than 50 different industries developing more than 4000 new products. In short, IDEO

has a particularly strong history of learning about technology applications and usages.

Tacit learning is also enabled by the configuration and lay-out of IDEO’s workplace and

office spaces. Like a college campus at its best, IDEO offices afford spaces for both

serendipitous meetings as well as for more private work. In the office architecture used,

informal communication and work visibility are high. Three principles – or metaphors –

in space design seem to be operating (Kelley and Littman, 2001). First, the workspace

should be like a greenhouse that incubates innovation, providing the right kind of

“climate” and nutrient soil for performance. Office equipment is mobile and modular,

allowing easy reconfiguration and movement. Second, the plan seems to center on

neighborhoods with their own parks. For example, a studio may have a set of office

cubicles located around an odd-shaped desk in a central public area (the park). On the

table sit prototypes, blueprints, sketches and so on, available for any and all to see.

"IDEO's studios are laid out so that everyone sees and hears everyone else's design

problems" (Hargadon and Sutter, 2000, p. 162), making it possible for engineers

working on other projects to overhear conversations, realizing they can help and

offering ideas. Third, there are clubhouses in the neighborhood. Not strictly space per

se, clubhouses are the play times of teams and departments where they can engage in

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non-work activities like going to a movie or a ball-game. IDEO considers its office

space architecture to be one of its greatest assets (Kelley and Littman, 2001).

In addition to the internal transfer of technology, IDEO has also developed linkages with

a network of vendors, suppliers, and manufacturers that are themselves innovative, easy

to work with, and very knowledgeable. Thus, IDEO’s competencies involve more than

their internal innovation procedure to include a position in a network of innovators and

developers.

The climate of operations at IDEO comes from the top. Founder David Kelley and his

brother Tom, now General Manager, seem to have clearly defined values that are

consistently communicated to the staff. That is, the values are authentic expressions of

their character, not some carefully crafted, artificial vision or value statement. These

values seem to characterize the culture of IDEO. One value seems to be having fun

and playing. A second is allowing employees freedom and discretion in their work.

Learning would be an obvious other value. Kelley also appreciates that risk,

messiness and failing are normal in the context of innovation. For example, Peters

(1992) reported the FLOSS philosophy of design Kelley articulated for DKD: Fail

sometimes, be Left-handed, get Out there, be Sloppy, be Stupid. In the ABC (1999)

video, the slogan "Fail often to succeed sooner" is noted as a neat sacrosanct norm of

practice. In short, IDEO seems to have a culture that is very strong and very much

aligned with the nature of the business: innovation.

Another key value of IDEO is speed, minimizing the time between conception and sale.

Since corporate clients may drag their feet after the presentation of a consultant’s

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report, IDEO insists that members of the client company participate in virtually all

phases of the research, analysis and development process. When the development

cycle is finished, clients are ready to go; another time-consuming step for obtaining client

buy-in is avoided. “Unlike traditional consultants, IDEO shares its innovative process

with its customers through projects, workshops, and IDEO U, its customized teaching

program” (Nussbaum, 2004). In the ABC (1999) video, Kelley points to a meeting

with new clients, noting how they haven't been "trained" yet in IDEO's ways.

The performance unit at IDEO is the project team, or what they call “hot groups”. The

membership of these groups is drawn from across the entire organization, and

participation seems to be recruited rather than assigned. There is a defined team leader,

and the teams have both clearly stated goals and specific deadlines. [While no

information yet on the last point, it would be hypothesized that IDEO has mastered skills

in forming, leading and operating temporary project teams. How are team leaders

picked? What kind of power do they have? Another hypothesis would be that team

leaders have little position power (and probably don’t need it, anyway) but would have

personal power, perhaps in the form of technical expertise, but more likely in the form

of facilitative and interpersonal power.] Kelley indicates that a “strong, fair leader”

often naturally emerges to guide a group. The distinguishing characteristic of such an

effective leader is an indifference to a specific outcome; that is, the leader is primarily

driven by the desire to facilitate the group’s process, not to achieve a specific type of

outcome (Winograd, 1996). [As this is true, leaders are followed because they are

perceived as being good at facilitating group process; that is, personal power comes

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from group facilitation skills. Finally, it is likely that when team members join the teams,

the members already have high motivation and high self-confidence. Some amount of

these qualities would be hired, and some would be inculcated through the IDEO

employment experience. So the problem team leaders face is not to manage motivation

but to channel high talent and energy.] The IDEO way becomes the default structure

for running the team; this blueprint or game plan would be known by all members, which

would make teams almost self-directing.

Kelley (Kelley and Littman, 2001) notes that many innovations occur because of

chance or unexpected events, like the water bottle for cycling. Thus, he notes another

IDEO value of “looking cross-eyed” or seeing things in new or different ways. Using

metaphoric thinking and searching for solutions in new and different fields is an example.

Gathering information from a plethora of sources is part of this; IDEO subscribes to

more than 100 magazines of various kinds. In this same vein, Kelley recommends an

attitude of humility and openness to new ideas. [Whether such an attitude does in fact

exist and how it is manifested would need to be researched.]

According to Peters (1992), Stanford University has an elite product design program in

its Mechanical Engineering Department. Early on, the DKD and then IDEO offices in

Palo Alto were apparently very close (within six blocks?) to the university. Given

Kelley's position at both Stanford and at DKD as well as the proximity of the two

locations, DKD and presumably IDEO benefited from a ready supply of trained

personnel that could easily be prescreened and recruited on campus. [I don’t know

what percentage of employees was recruited this way. Nor is it known the other ways

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by which people are recruited or attracted. The entire recruiting and selection process

would be very useful to know.]

Beyond the mix of industries served, diversity is appreciated in another way as people

with a variety of backgrounds are hired. That is, a technical, scientific and/or

engineering background is not essential for being considered for employment. [If true,

this point raises a number of questions: (1) how are staffing/manpower needs identified;

that is, how are decisions made about what kind of background (technical or not) to

request? How are job specifications determined? (2) Is there a manpower planning

process in place? (3) Is there any formal training process, perhaps outsourced through

a university, to increase technical abilities in non-technical personnel? (4) Is there any

type of sorting process in using skills on projects, such as: are liberal arts majors given

the lead in the consumer sensing steps and the technical people, in prototyping?] Kelley

(Winograd, 1996) indicated that he (or more likely, IDEO) has had luck teaching

artistic types engineering and technical basics.

Co-founder and IDEO general manager Tom Kelley believed that by hiring people he

liked and respected, two things would result: people would have fun at work and also

be more productive. The hiring process involves interviews with a dozen people.

[There are a number of issues here: (1) is there a HR department or function that

manages or oversees the hiring process? Who is in charge of hiring? (2) How well

defined is the hiring process: are applicant criteria clearly stated, and if so, what are

they? (3) Do they use any more formalized testing procedures? (4) Since it would

appear that employee character and natural ability are so important (vs. credentials and

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experience), it would be hypothesized that IDEO follows more of a strategy for hiring

for the organization rather than hiring for the job. True? (5) How is the interview

process coordinated; how are a dozen interview results combined? (6) How structured

is the interview process; are the people doing interviews trained? Alternatively, do they

rely on hunches and impressions?] When interviewed, Kelley indicated a clear

appreciation and even preference for people who can operate creatively and flexibly

(Winograd, 1999). Indeed, he seems to believe that engineers may have a trained

incapacity: by virtue of their training in applying very specific techniques, they often

focus on fixing specific glitches rather than imagine entirely new approaches. Likewise,

he values people who feel free to wander and explore, while not being chained to a

preset, linear schedule. As these examples suggest, personality dispositions may be

major considerations in the selection of employees.

There appears to be a performance appraisal process that involves a 360 degree

process. Evidently, employees are evaluated by 3 people, two of whom they select for

a peer review process (Kelley and Littman, 2001). [More details about this process

are unknown, including whether there is any post-project review or assessment by team

leaders, as might be found with audit teams.]

Fun seems to be an integral part of the IDEO culture, where pranks are common

(Kelley and Littman, 2001; Kotelnikov, n.d.). Play is a legitimate form of expression,

and even a means of working, at IDEO.

Brainstorming is a way of life. In its earlier form at DKD, anyone could convene a

brainstorming session at any time (Winograd, 1999). "Others, no matter how busy they

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are, pretty much drop what they're doing and attend" (Peters, 1992, p. 169). Both the

ability to organize a brainstorming session as well as participation seem to be norms

strongly etched into the IDEO culture. In brainstorming sessions with clients, group

productivity is measured by IPH or ideas per hour. The standard is 100, sketched on a

piece of paper (Kirsner, 2004)

In situations like these where very creative and independent people are interacting to

generate ideas, assessments and critiques, the question of ego could be a natural

concern as people consider: “Will I be recognized as smart and effective? Will I be

given credit for my work? Will everyone appreciate my contribution?” The potential

“grab for recognition and glory” could turn interactions into competitions and conflicts,

rather than cooperation. Taming those natural impulses becomes an important issue

which IDEO seems to have mastered. According to Kelley (Winograd, 1999), egoistic

demands for idea ownership are not a problem at IDEO. Because of the group

process, either everyone thinks the idea was his or hers, or they can’t identify who the

author was. If there is an ownership issue, it belongs to the person who posed the

question (called the brainstormer). Thus, it would appear that the group/team process

diffuses concerns about ownership, while the accountability system seems to reside de

facto ownership with the person initiating the project.

[This issue raises one additional concern: how does IDEO handle low performers?

Given the nature of the work process where employees may both self-select for

participation into a project or be recruited into a project, it may occur that some

employees are simply not picked. Given the likely kinds of employees recruited, more

21

traditional performance problems of poor motivation or becoming a “free rider” seem

unlikely. The open space set-ups make it likely that the studio groups will monitor on a

de facto basis the work done by all. The more likely performance problem would be an

employee who simply just does not work out, either because of interpersonal problems,

ego needs, and/or simply being slow to adapt and learn. How often does IDEO have

to terminate employees? The amount or frequency of termination would be a strong

indicator of the success of the recruiting, selection and orientation process used. How

does IDEO know when someone is not performing acceptably? What is the

accountability system in place? How do they handle the separation process?]

IDEO and Core Competencies: Lessons

On several different measures, IDEO seems to be a superior performer on an ongoing

basis. In other words, IDEO seems to have a sustainable competitive advantage. Since IDEO

has no manufacturing facilities or equipment of any note, the fixed asset portion of its balance

sheet should be relatively small, making it unlikely that the source of its sustainable competitive

advantage would be hard assets. Instead, the source of its advantage would be the intangible

capabilities found in its people, its culture and its history. These sources of advantage would be

considered core competencies.

On the surface, that intangible capability seems to be represented by the IDEO Way.

This is a series of well-defined steps, plus the various sub-routines and methods within each

step, for carrying out the process of innovation. This capability is an open book, available for all

to see; as such, it could presumably be copied by any competitor. Some observers claim that

22

such copying has been tried – unsuccessfully. This leads to the conclusion that while the IDEO

Way may be a necessary condition for IDEO’s sustainable advantage, it is not sufficient. Thus,

in this case, the codification of a production process tells only part of the story of IDEO’s core

competencies. That is, there is a deep structure of linked conditions that creates the platform on

which IDEO is successful.

The analysis of these supporting conditions presented above was drawn from multiple

public sources, most of which were not written by or for organizational scientists. Some of the

sources were IDEO principals, some were academics, industry observers and reporters, some

where unknown sources off the internet. Despite the diversity, a common story was told. In its

own way, these sources do provide some sense of triangular confirmation. Their reports of

what would appear to be “factual” descriptions of IDEO were reassembled into the account

presented in this paper. I was able to pull these sources together and compile this report in a

relatively short time (five days). These reports produced a set of “deep” factors or structures

that seem to be critical for IDEO’s sustainable advantage, including organizational structure,

culture, tacit learning, physical layout, team management and operations, and human resource

practices. The authenticity and relative importance of these various factors have not been

studied directly for this paper. Further empirical investigation would be necessary to test these

observations.

However, what’s interesting in these reports is as much what is not being said as what

is. In particular, the elements of the HR process regarding recruiting, hiring and performance

appraisals are sketchy at best; I was not able to find any information to date on the

23

compensation system. Given the dependence of IDEO on the qualities of the people it employs,

understanding the operations of the HR system is critical.

The full listing of factors consolidated here – the IDEO way plus all the additional

factors noted – provides a more complete playbook than the IDEO way itself. As such, it

provides a more complete model of what makes IDEO successful. This point leads to this

question: if the full package listed in this paper were copied, how much closer would the imitator

be to replicating IDEO’s core competencies? Alternatively, how much additional performance

would be added by the supplementary factors, over and above the performance that results

from simply following the IDEO way by itself? If the IDEO way explains, say, 30% of its

success, and the additional factors explain another 10%, we would still be a long way from

identifying IDEO’s core competencies. On the other hand, if the additional factors added

another 40% to the explanation, so that 70% of IDEO’s success could be explained – and

copied, we would be well on the way to locking down core competencies. Making such a

calculation in a field experimental trial would be impossible, though. Indeed, such an approach

may be guilty of a reductionist fallacy, as if it were possible to isolate each separate factor for its

unique contribution. While separate features may be noted, it seems that the power of IDEO’s

core competencies lies in the fact that they are all part of the whole; here, the whole may be

indeed be greater than the sum of its parts. So, core competencies, at least in the IDEO

manifestation, are likely to be a total system of beliefs, practices, operations, structures and

conditions that nurture an organization of high team performance under a regimen of learning,

exploration, trial and error, and play. It is probably the total configuration that is basis of core

competence, not any one single factor or even set of factors. The components of that

24

configuration can be identified and its essential features described, but each factor is probably

not as important by itself as how the ensemble plays together.

To the extent that this is true, the implication is that core competencies cannot be copied

item by item but rather have to be implemented as a culture change, a change in the system of

beliefs, practices, operations, and so on. On the other hand, the principle of equifinality would

apply, too. That is, it may not be essential to copy all the elements of a culture of core

competence. There can presumably be different ways to get to the same end (an organization

operating with core competencies). Thus, in the final analysis, what may be most important is

the ability to identify sustained superior performance as the goals and work towards that goal,

rather than copying specific practices from an exemplar.

Endnote

1 This same basic principle could be extended to such consistent NFL franchise powerhouses in

the past as the Greenbay Packers (under Vince Lombardi), the Pittsburgh Steelers under Chuck

Knoll, the Dallas Cowboys under Jimmy Johnson, the Washington Redskins under Joe Gibbs,

and the San Francisco 49'res under Bill Walsh. For several consecutive years, each of these

teams was able to dominate the league. (One interesting question here is what happened that led

to the decline of each of these dynasties. I believe in all cases, the decline was due to a loss of

both player and coaching personnel. If so, it was the loss of star personnel that was decisive

which means that the teams were not successful in replacing key personnel.) Another interesting

variation here has to do with sports that are not so set-play dependent, such as basketball or

soccer. Again, examples of the Boston Celtics (both the Red Auerbach regime and the Larry

Bird era), the Los Angeles Lakers (under Bill Riley), the Phil Jackson era with the Chicago Bulls

25

in basketball, and the Brazilian national team in soccer come to mind. In these cases, the

availability of a play book probably plays less of a role in success. In short, sports franchises

are probably very good sources for study of core competencies in organizations. The NFL may

be particularly good because of the policy of team parity (reducing entrenched or legacy

advantages) between franchises. (This of course contrasts with baseball’s inability to reach this

condition as exemplified by the seemingly never-ending dominance of the New York Yankees.).

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