ThoughtFull™ Papers

Design: The Business of Connecting Supply to Hidden Demand

There’s plenty of demand for design in the economy but the vast majority of it is unsupplied because it is hidden beneath standard business practices. 

Design enables businesses to create new value by identifying and supplying demand that is hidden. 

In 2004, Air New Zealand was competing on the standard terms of the global airline industry. The business was focused on expansion of scale, industry benchmarking, operational efficiency and brand communications. At that time, it was facing the pressure of the global jet fuel price crisis, and the market was becoming saturated with competitors all fighting to supply the same set of demands of airline travellers. 

Air New Zealand aspired not only to protect its territory but to expand growth beyond it. In order to do so, it recognised that it would have to create new forms of value for customers. So how did it emerge as the highly profitable, award-winning industry leader in customer experience? It shifted its focus to identify demands in the marketplace that the industry had long overlooked, and then designed new products, services, experiences and business systems that enabled them to supply this hidden demand. 

To manage this undertaking, they used design. The core formula for business growth throughout the past century has been restricted to the supply side of the market economy. It focuses on internal organisational systems and processes to achieve growth through cycles of scale, benchmarking, optimisation and communications. After years of repeating this cycle, most industries have become highly competent at it and also highly dependent on it. 

Eventually supply outstrips obvious demand and yields diminishing returns. Decades after the globalisation race began, the marketplace has become increasingly saturated with companies supplying the same or similar demand. With limited stable markets remaining to extend their supply, entire industries are beginning to sense a cap in their supply management capabilities to drive growth. Even companies that are not global are experiencing these limits as their industries saturate globally and competitors from around the world threaten their business.

This global saturation of supplying the same obvious demand has sparked a movement of businesses investing in design. Business leaders are now commonly realising that they must create new value for people if they are to renew their organisations and achieve their growth aspirations. For this reason many businesses, including Air New Zealand, have turned their attention to design.

Design enables businesses to create new value by supplying  ‘Hidden Demand’ 

The lack of clarity, lack of direction and frustration experienced by companies as they face the challenge of creating new revenue streams is powerful evidence of a dramatic imbalance in the market economy. It is evident that business has professionalised its ability to recreate, extend and communicate value through management of the supply side of the market economy, but this has been at the expense of its ability to identify and create new forms of value by managing the demand side. 

It seems as if we have come to operate business so disproportionately on a supply management paradigm that we have been blinded to the potential of managing demand. Design and similar strategic design practices enable businesses to manage hidden demand efficiently, enabling the creation of new value. Design focuses externally on the people a business intends to serve, as well as the natural settings in which they perform activities. This enables businesses to specify new demand, then design and configure business systems to realise the growth and profit opportunities of supplying it.

Design is the business of connecting supply to ‘Hidden Demand’ 

The impact of design in business has been restricted by its framing in design terms. Design activities become dramatically more clear to traditional business people when they are framed in terms more in line with standard business knowledge. 

For example, core to the designer is the term ‘design principle’. By simply calling it a demand principle, its meaning resonates with the business environment. This simple shift in language reminds us all that successful businesses effectively supply demand. By identifying principles of hidden demand, we are provided with a strong foundation for designing a business and system that creates new value for people. A few key objectives must be met on a strategic design project. Let’s consider them in business terms rather than design terms: 

Identification and specification of hidden demand is achieved by applying observational techniques and social sciences to understand people and their behaviour in the natural settings in which they perform activities to identify their unmet needs. The findings are organised into detailed, actionable descriptions of demand that was previously hidden. These are called demand principles. Designers often call these design principles and refer to this phase of work as design research. 

For Air New Zealand, a key demand principle was uncovered by watching parents with young families during the flight boarding process. Families with young children avoid eye contact with other passengers as they move to their seats; meanwhile, passengers hold their breath as young children walk by in the hope that they are not the unlucky neighbour of a child. Not only do the families with children experience angst, but so do passengers throughout the aircraft. Everyone is concerned about the intrusion that a child might cause in a confined space for an extended time with minimal options for making them comfortable. 

At the time, the entire airline industry was operating on the assumption that young families who could afford to travel simply did not, but this finding effectively highlighted a demand the industry had overlooked for years. It uncovered opportunities to create solutions that supplied the needs of parents with young children and all other passengers in the process. 

Designing solutions for demand involves generating, configuring and envisioning solutions for people based on the demand principles. The solutions often extend through the overall experience of interacting with a company, its products, its services and various touchpoints to improve its relevance and fit into the daily lives of customers and potential customers. 

In this stage, delightful optimised customer experiences are envisioned. Designers refer to this as experience design. For Air New Zealand, we facilitated idea-generation sessions where employees and consultants collaboratively focused on creating and developing ideas that solved the discovered demand. One idea that emerged was SkyCouch, an economy seat and service proposition that could be configured to meet the needs of a family. Countless sketches of ideas were developed based on ideas that served the demand principles well. To further explore them, a dedicated design lab called Hanger 9 was established. Ideas were then prototyped as quickly as possible to gain a detailed sense of how they would best serve the newly discovered demand.

Designing a supply system is a business configuration activity. It considers a business to be a modular system that can adapt to serve demand, rather than a rigid, unchangeable supply structure. In this stage, a business is configured to enable a company to supply the improved product, service and overall experience that was envisioned in the designing for demand stage. 

Designers call this business design or business model design. The airline industry has allocated seats on an individual basis for many years but SkyCouch required that they be purchased in blocks of three, the number of seats needed to unlock the improved experience which had just been designed. This posed an operational problem: such a system did not exist and therefore needed to be designed from scratch. To accomplish this, the Air New Zealand team generated ideas of how to solve this challenge, then developed low-fidelity prototypes of both the back-end and front-end systems. 

Validation of the designs reduces risk and prepares the designs to be introduced into the company’s supply management machine, where it can eventually be scaled and optimised. This is achieved through iterative cycles of rapid prototyping and testing of the designs. Prototypes are tested in real or simulated contexts with real users to ensure that the designed user experience satisfies the demand principles and that the business system enables the designed user experience. 

In this stage, Hanger 9 was converted into a scaled prototype of the interior of a Boeing 787. This space was used to simulate flight experiences for actual users in order to gather accurate feedback on how well the solutions they had designed positively impacted the experiences of users. The space enabled Air New Zealand to test, observe, measure, improve and validate the designs of seating, services, experiences and business operations including SkyCouch and the newly designed seating allocation system. 

Most importantly, they were able to do so prior to the new designs passing staunch FAA approval requirements and without incurring the cost of retrofitting an aircraft or rolling out massive software system implementation. Armed with validating feedback from testing the prototypes, the implementation teams were able to make strong, aligned decisions as they began converting the prototypes into reality. 

Design delivers differentiated, scalable growth opportunities. The outputs of strategic design are products, services and experiences that are highly relevant, highly differentiated and highly scalable. They are low risk because they are constructed on a firm foundation of demand knowledge, which assures their relevance with customers. They are highly differentiated because the demand that is being focused on internally probably remains unknown to competitors, which then enables unique and differentiated forms of brand communication. They are highly scalable because the first supplier has a head start in the race to scale supply for the newly discovered demand globally. 

From the moment it was launched, SkyCouch was a hit with young families but it also became a valuable differentiator for other groups such as business travellers and couples without children. With Air New Zealand having exclusive rights to the patent, no competitor could offer the same experience. 

Businesses which are capable of extending supply for obvious demand while also creating new value by supplying hidden demand are capable of endless renewal and growth. Design enables companies to create new value efficiently by managing hidden demand as a source of renewal, which feeds the existing capability present in most organisations to scale and optimise supply once it is operational. Supply and demand are the yin and yang of the market economy. When managed independently of each other, each has only a finite ability to create growth and prosperity. When they are interdependent, supply management and demand management facilitate unlocking renewal and growth in the economy while enabling companies to achieve heightened and sustainable levels of growth, profit, differentiation, agility and innovation. Unprecedented wealth, prosperity, and access to goods and services have been ushered in by the professionalisation of supply management. One of the next great opportunities for business is the professionalisation of demand management through strategic design. 

The Bottom Line

Design empowers businesses to create new value by uncovering and supplying demand that remains hidden. It enables businesses to achieve heightened and sustainable levels of growth, profit, differentiation, agility and innovation.