Hello, 

 

Transaction costs seem to offer useful insights into understanding and
improving design practice, design research and design education that go
beyond what is available from more conventional ways of viewing design.  

 

First, from experience I've found that for analysing anything to do with
design, the following three definitions seem more helpful than others:

 

A 'Design' - 'instructions how to make or do something'

 

To 'design' - 'making a design'

 

A 'designer' - someone who makes designs

 

The above three definitions appear to address all the problems and
limitations of other definitions of design, design activity, designer and
design process (a 'design process' being a 'process for making a design').
They provide a sound basis to integrate all the human, rhetorical and
technical factors that relate to design activity and they offer a clarifying
foundation for the integration of 'research into design activity' and
'research whose focus is on users, culture and interpreting designs'.  The
three definitions apply across  all the hundreds of fields of design
activity and define design activity as different from other associated
activities. They provide a solid conceptual basis for design theory-making
and research. As far as I can see, the above three definitions  do this
better than any of the other several hundred design definitions I've
reviewed. 

 

Back to 'transaction costs'. Ken recently provided a great detailed
description of  'transaction costs' and of their role in understanding the
design and production associated with mass customisation. I'd like to build
on Ken's post and extend it to illustrate other aspects of the usefulness of
transaction costs  in researching and making theory about design activity.
The approach seems to enable a deeper understanding of the ways design is
growing and which ways forward are more fruitful.

 

Clarifying the ideas of 'transaction' and 'transaction cost'. The concept of
a 'transaction' extends to any act involving in a change in value. The
'transaction costs' are those additional costs that are incidental yet
necessary to a transaction. Wikipedia provides a helpful description:

 

'A transaction cost is a  cost incurred in making an economic exchange
(restated: the cost of participating in a market). For example.consider
buying a banana from a store; to purchase the banana, your costs will be not
only the price of the banana itself, but also the energy and effort it
requires to find out which of the various banana products you prefer, where
to get them and at what price, the cost of traveling from your house to the
store and back, the time waiting in line, and the effort of the paying
itself; the costs above and beyond the cost of the banana are the
transaction costs. (http://en.wikipedia.org/wiki/Transaction_cost )

 

I suggest the reasons for how and why design activity occurs, and how it
will be done in the future, are primarily linked to transaction costs. These
incidental yet necessary a costs of transactions seem to be the primary
drivers of  how designers design, the development of design methods, the
development of design solutions and evolutions of design trends and
technologies, the pathways of design research, the development of design
theory, and the evolution of parallel fields such as design history; across
all the hundreds of design-related fields.

 

An example: is the development of the ways that designers use
representations to convey the 'information about how to make or do
something', i.e. the physical form of the design. Designs usually comprise
symbolic drawings with supplementary notes. This 'transaction' of 'creating
a design' (making the physical form of the information)has a range of
'transaction costs' associated with it. These include:  making the design
using materials that will last, making copies of the information, amending
the design during the design activity (i.e. modifying  or remaking the
physical drawing and notes), using the partially-completed design as a
memory aid or other support to thinking, accessing information and already
well developed designs of others, gaining design skills, amending a design
at a later date after problems have been found and improvements identified,
making different physical forms reflecting  differences between concept
design activity and the making of final detailed designs. 

 

The aim of reducing these transaction costs drives the choice and changes of
design techniques relating to making designs in many ways that can be seen
by reviewing the changes over time. Using easily-erasable pencil drawings
reduces transaction costs in conceptual design stages. Tracing final designs
using difficult-to-erase ink offers reduced transaction costs when  designs
are finalized, especially for longevity of storage and for making later
changes more difficult and obvious. The transition to computer-supported
design activity via software became viable because it provides significant
transaction cost reductions in terms of editing designs (until recently, its
benefits for conceptual design have been negligible). The considerable
advances in automation of design activity (e.g.by Adobe software) became
viable and is now regarded as essential because it reduces transaction costs
associated with semi-automated access to expertise about good design
outcomes and surrogate access to specific skills for addressing particular
design briefs. Following on this path, it is possible to easily speculate
how transaction costs can be reduced further by technology. Obvious
potential pathways include: software making suggestions on the basis of the
whole available design knowledge in the world ; methods of predicting the
behavior of design outcomes (i.e. how things will change as the result of a
design being actualized); improved design team communications; surrogate
automated design team members (e.g. automated robotized usability design
specialist available to a design team); automated production of designs
without involvement of human designers; and automated evaluation of designs.


Each of the above new advances in design practice is driven primarily by
their effect in reducing the transaction costs of design activity rather
than anything specifically to do with improving design outcomes (although
this may also occur). For each there are implications about future design
practices and design education and a redefining of the way design activity
is conceptualised and theorized about.

 

The next example draws on the understanding that the  concept of
'Transaction' is reflexive in that a large transaction can contain smaller
transactions and a transaction may cause transaction costs for a different
(usually larger) transaction.

 

An example of the use of transaction costs in understanding design  is to
focus on the role of design activity as part of  business activity, i.e. the
transaction cost issues relating to the role of design input in a business
organisation. Businesses make and sell products or services. Creating,
making and selling a new product combines many activities that come together
as a transaction. One transaction cost of this larger 'new product
transaction' is the 'making of the design' that will be used to create the
products/ services that are made and sold. Obviously, businesses would like
to reduce and avoid this transaction cost of design activity if possible.
There are various strategies for reducing or eliminating the transaction
costs due to design whilst still having new products to make and sell.
Strategies that reduce transaction cost of design activity include
computerised interpolation and extension of existing designs; computer-based
arbitrage of design elements from differing design fields; redirecting the
cost of design and design activity elsewhere (e.g. customer-choice design);
mergers between design organizations to reduce organization count and
improve their economies of scale to enable reduced prices (this will result
in less designers being needed); use of long-term platform technologies;
increased standardization to enable increased computer automation;
transferring responsibility to (say) marketing departments to create such a
well defined design brief that the design work is reduced (the finite
automata solution). 

 

Viewing design activity as a transaction cost of a larger business process
offers some sobering insights for the design field and also brings to light
new kinds of opportunities for competitive advantage in that situation. For
design educators it points to an educationally different perspective on how
and why designers might design.

 

Following on from the above example, is to focus on the transaction costs
due to the  failures and less than optimal outputs of design processes.
There are several obvious dimensions to these forms of transaction costs:
costs of product safety failure; costs of product economic failure;
additional costs of products over and above what was  expected; loss of
value from motivational graphic design that doesn't motivate as much as
wished or motivates in the opposite direction (think smoking  warnings);
paying for responding to legal challenges; cost of the contribution of
insurance relating to design-based risks; cost of compensation; paying for
design work to be redone; paying for rework costs in manufacturing designs
that are difficult to make; and loss of commercial competitiveness due to
poor designs. 

 

The insights from  this kind of  transaction cost example are particularly
interesting and significant for those fields of design in which design
educators and practitioners have not yet developed ways of quantitatively
predicting the behaviour of commercial and world outcomes resulting from
individual designs. The above transaction cost analyses suggest there will
be significant pressure for changes in these design fields. Remember,
businesses will act and choose in ways that reduce transaction costs. If
designers cause situations that result in unnecessarily higher transaction
costs then businesses will find other ways to address the situation to
reduce the transaction costs. This may be by avoiding using designers or it
may be by selectively using the designers that have changed their practices
or have been education to do so. Whatever, over even a short time scale,
this suggests design practices are in most cases likely to be shaped more by
transaction cost issues than traditional design practice factors or 'design
thinking'.

 

To recap, it is emerging that the concept of transaction costs is an
alternative and potentially more useful way to understanding the development
and future of design activity than conventional approaches. In particular,
it appears to offer more benefits than traditional approaches of historical
analysis focusing on design eras, trends, influences and the works of
designers.

Best wishes,

Terry

===
Dr. Terence Love, FDRS, AMIMechE, PMACM, MISI
Love Design and Research
Tel/Fax: +61 (0)8 9305 7629
Mobile: +61 (0)434 975 848
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