1

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.

2

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 IDEOs 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 IDEOs

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

For example, IDEO designed a computer notebook for Japans NEC, a cordless office phone

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

3

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

Polaroids i-zone instant camera, the interiors of Amtraks 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, IDEOs 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 computers first mouse. More recently, Kelley was on Esquire

Magazines list as one of the 21 most important people of the 21st century (Kotelnikov, n.d.).

4

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

5

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 Kelleys 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, IDEOs

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

Interspersed throughout were behind-the-scenes glimpses of IDEOs 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).

6

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 oper