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By establishing the bases for understanding how industries develop, the major trends shaping the industry, and how design firms work as businesses, it is possible to develop a dynamic model of the graphic design industry that can describe the evolution of day-to-day fundamentals such as: client relationships; average profitability of design firms; the importance of awards and other forms of recognition; and the dominant business model of design firms.

The industry model proposed would be based on some facts, and some assumptions. All of the workings of the model would be transparent and logical, so that we can debate and refine it.

The beauty of a dynamic industry model is that it allows you to play "What-ifs?"

For example, what if a cadre of visibly successful design firms does not establish itself in Australia's business community within the next 3-5 years? What if the majority of clients decide to apply strategic sourcing disciplines to their procurement of design services? What if a string of high profile intellectual property rights legal cases make clients change their attitude to designers' copyrights?

For a designer who has any interest in building a legacy of influence in the world of design, it might pay to understand the forces at work in your world. Strategic scenarios offer insight into those forces.

Strategic scenarios enable you to think about how the design industry might evolve, which in turn enables you to spot opportunities to achieve your aspirations. Scenarios will also ensure that you understand the boundaries and limits of those opportunities.

So who wants to play, and what is your question?

Some fundamental concepts
about how industries work

To get us started, I have outlined below some of the fundamental concepts and trends that are shaping the design industry. This is not a complete list, just the big ones that really stand out. As we dig deeper, we can delve into some of the the other forces affecting us.

Barriers to entry

The economic (ie. financial) requirements to enter an industry have an enormous influence on the degree and nature of competition within that industry. In the design industry for example, it is incredibly cheap to set up a design "firm" and enter the industry. All you need is a Mac (rented will do), some pirated software and enough money to get a quick print shop to whip up some stationery. You don't even need to have invested in a degree or have independently verifiable proof of expertise.

The implications of such low barriers to entry is that the industry will be made up of thousands of small practices, many run by people who have no idea how to make enough money to comfortably sustain their design habit. The same industry will be populated by mercenary hacks who are just in it for a buck, and because it is more interesting than working as a low level manager in some corporation.

In this type of industry structure (typically described as 'highly fragmented'), it will be extraordinarily slow and painful for clients to learn, from experience, how to tell a good, responsible design firm from a crap one. So for designers, educated clients will be few and far between - clumsy, ignorant clients will predominate.

Regulation (or lack thereof)

Where professions have no government-imposed regulations, wild variations in quality abound, and only the survivors have an influence on the future. Clients have no legal terms of reference with which to compare practitioners. In the graphic design industry, every good firm faces the wearying task of educating every new client about the fundamental value of design, because the odds are against you finding individuals within your clients who have finally learnt the value of design.

Why hasn't the government regulated the design profession? Because it doesn't (yet) see a strong need for the protection that regulation can offer.

We don't have a union, because we are a profession. So we don't have obvious collective bargaining power to use against employers, therefore the government sees no need to protect them. We don't provide services which could be life-threatening, so the government sees no need to 'protect' its citizens against dangerous amateurs. We don't have anything resembling an industry cartel, whose members can collude to dominate the pricing and provision of services to clients, so the government sees no need to 'protect' the clients we serve.

The low barriers to entry into the design industry guarantees competition will be fierce, and the government loves that, because it delivers greater designer productivity and lower prices (more for less) to the clients that are big enough make a difference to the national economy. Finally, designers can provide no evidence of clear, quantifiable impact on the national economy, so the government doesn't have a big dollar reason to 'protect' us.

So, regulation that protects and supports designers is not likely until graphic designers become much more visible as significant generators of intellectual property, and therefore as significant contributors to the national economy. This is going to take some time to happen. Fortunately, a long range trend suggests that this will come about eventually.

Relative size of suppliers and customers

In Australia, 0.5% of businesses control about 50% of the revenues. Out of over a million businesses, a mere 50,000 control more than half the money spent on marketing, advertising and design. Therefore most clients are going to be a lot, lot bigger than their designers.

Where customers are typically much larger than their suppliers, prices are hammered down by big clients who can push their tiny suppliers around. If the prices themselves don't fall, then the clients usually demand increasing levels of service for the same amount of money. Sounds familiar?

Just in case you're wondering, it is pretty much the same in all countries that spend significant money of design services, such as US and UK.

Major external trends

Thankfully, governments and businesses are waking up to the long term value of intellectual property. As creators of intellectual property, designers stand to benefit financially from this growing awareness. However, first in the queue for government and business attention are the current owners of vast amounts of intellectual property, the media (eg. music, film, books and articles) and technology companies. From the government's perspective, it's priority is to secure financial and legal control for the owners of intellectual property. Once this priority is well under way, it can then turn its attention to the creators of those intellectual properties. Even at this point, graphic designers will be a long way down the queue of intellectual property creators, with people such as scientists at the head of the list. So salvation is coming, but don't hold your breath. One very encouraging sign is the Victorian government's recently renewed focus on design, evidenced by an industry study and the Design Festival.

Not so welcome is the inexorable influence of strategic sourcing disciplines. In the last decade, corporations (the aforementioned 'big guys') have woken up to the fact that being systematic and rigorous about supplier selection can yield even bigger cost reductions than simply bullying suppliers in an unsystematic fashion. A few years back they started with the big ticket items that could easily be compared - commodity products such as telecommunications, IT, office supplies and the like. Now they starting to apply the same disciplines to professional service providers. Some designers in Australia, notably those whose clients include government institutions, have already experienced the stress of getting on to a "preferred suppliers" panel.

The internet is another mega-trend exerting both positive and negative influences on the design profession. On the positive side, the globe-spanning nature of the internet has enormously expanded a small design firm's access to clients well beyond their immediate locale. It has also enabled independent operators to collaborate on large projects more efficiently and effectively, thereby gaining access to clients and project previously too big to contemplate. On the other hand, it has become even easier for any old hack to set up shop. And the quid pro quo of that expanded access is that clients have even more choices for design service providers, and information upon which to base those choices.

Moore's Law of technology price reductions [the cost of microprocessors will halve every 18 months] guarantees that hardware prices will continue to fall, making it even easier to enter the design industry in the future. The global IT hardware industry massively increases the amount of processing power every year, making software companies desperate to create products that can use all of that power. So the software companies target many traditional 'craft' skills for automation, eg. type-setting and typography, thus driving the entry of amateurs and the popular client misconception that owning Photoshop, Indesign and Illustrator makes them a designer too.

Oh yeah, if you think the software companies are going to stop at 'craft' skills, think again. In the last 5 years, 'decision support' software has exploded, eg. supply chain optimisation, CRM, business intelligence, etc. This type of software is squarely aimed at automating what was previously low to mid-level 'thinking' work. Logically, at some point in the future, an aggressive upstart competitor to Adobe is going to say, "to hell with the designers, let's go straight to the corporations with some 'design wizards' that can help a low level production person do layout according to 'best practice' rules."

I have no idea when this will happen, but it does seem inevitable. Have a look at this recent thread on the AGDA Forums:
http://agda.therefor.com.au:8081/AGDAForum/viewtopic.php?t=157

To end the review of mega-trends on a bright note, there are more and more big companies trying to use design to create competitive advantage. Look at the car industries in Europe and the US. In Europe, Renault is staking its future on its ability to design distinctively different cars. It is very interesting to note that Nissan (partly owned by Renault) has also started to work on its designs, eg. 350Z, the new Maxima. BMW is in the process of relaunching all of its car series, and it has been gratifying to note how much of the coverage has focused on Chris Bangle's designs. In the US, both Chrysler and General Motors are experimenting with bold, striking designs.

All of this is evidence that car companies see design as a crucial weapon. And since these are among the biggest companies in the world, many other types of companies will start to notice the value of distinctive design. However, before you get too excited, you would have noticed I emphasised the words, 'trying to use', which are not the same as, 'have successfully used.' Only time will tell whether distinctive car designs can actually drive superior business performance (eg. more market share, higher profitability) - the initial signs are promising, but it is still, unfortunately, too early to claim a conclusive relationship between design and commercial success.

Well, that's a start. Do these forces and trends make sense to you?

I know that the forces and trends above do not paint a pretty picture, but do not despair. In an industry undergoing such stresses and changes, both opportunities and traps abound. The trick is being able to tell one from the other. We'll get to that soon.

"Andrew, great designers are sought after species, in my experience clients willingly pay for their creativty, committment and who they are as people. Your references to 'hacks' seems the be an underlying fear that they will multiply and consume the design industy forever. Compromising your talent is the beginning of the metamorphis into a hack."

"As an expat I have been running my own freelance business in N.Ireland these past 10 years after graduating with A Design BA in Ozz, At this point in time the following is how I feel. You build up a client base, you need to put on staff, you need more work to pay overheads, you turn over more so you pay more tax, you buy more machinery/hardware to offset tax, you end up playing catch up and then creativity is replaced by 'production only mentality on jobs' as you now need to feed your 'machine' instead of your initial ambition of trying to create cutting edege design and push the boundaries."

"I agree with Terry. If you compete on price, you'll always be on the losing end. Take the time to find a point of difference. You can explore new materials, techniques and skills that will broaden your horizons and ultimately separate you from the 'hacks'."

"Terry, I completely agree with your point about the need for real business skills in studios. Re your point about the "5 forces only scratching the surface," I would actually argue the contrary. It is the nature of fragmented industries to be characterised by firms with insufficient business skills, because many of the firms simply don't make enough money to ever acquire those skills (either through education or by taking on someone with the right skills). By laying out the forces at work, I am hoping that designers will understand that the industry will not change of its own accord, but will require some "heavy lifting" of the type you suggest.

Cheers, ALPT"

"I agree with some of what you say - but working through Porters 5 forces is really only scratching the surface of 'market forces' in play in the design industry market space. The issues run much deeper for people running design businesses.

Now we've established that we all play in a very fragmented industry then why not think outside the square - after all you're all meant to be creative. There will always be potential clients who are price-sensitive - do you really want to deal with them? In my experience - I don't think so.

What you need to start thinking about is your own personal competitive advantage. Why do the same thing over and over and expect a different result? Change something. Improve your skill base.

One of the most fundamental issues in the design business is the lack of business skills of the owners/directors of design firms. Design studios only grow to the level of business and management competence of the people who own/run them.

This has to change.

There has been a move over the years to blame clients (they don't understand design) and blame the rest of the design industry (I'm up against these hacks). Sorry - we all have to take responsibility for the way the industry is.

Ever notice the big/successful/visible studios generally have one common element - a director/owner/partner with business skills. Having a design qualification is no longer enough if you are serious about running a good design business."

"I totally agree! I am a tertiary qualified graphic designer who has 3 years of commercial industry experience. Like nearly all designers I have a freelance operation on the side. I am however, constantly up against all these hacks with little or no design skills that undercut on price and skill to the detriment of REAL designers. I am also pissed off that big companies that I design for want to pay a pitance for my designs based on an hourly rate only and not taking into account intellectual copyright. They want a cheap logo not realising the hard work, the creative flair involved; and the fact that a good logo will stand a company in good stead for at least 10 - 15 years."

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andrew@lam-po-tangcom