Dear Gunnar, Ken and all,

Using Transaction cost analysis is probably helpful.

 First though, I think it's worth listing the discourse path:

I posed a question about design history and design studies. Carlos reacted
and asked would I trust a graphic designer who hadn't heard of De Stijl. I
commented that I paid graphic designers to achieve particular outcomes
rather than to know about history, and a couple of emails later suggested of
future design education needed to focus on designers' responsibility for
their designs to result in specific outcomes (as distinct from outputs).  As
several response indicated people didn't understand what I had written, I
posted (11 April) a simplistic example that set out the process by which
design responsibility for outcomes was linked to graphic designers
undertaking additional processes. The aim of the example was to indicate the
suggested change for graphic designers to take responsibility for and be
assessed in terms of whether their designs resulted in the intended
outcomes. The focus of the discourse since then, however, has been on
whether the example really represents the book industry, and it is being
argued that because the book industry and graphic design doesn't work
exactly as in the example, then the proposed changes cannot work.

The most recent posts by Gunnar introduce the idea of using transaction cost
analysis to review what is possible and why.  I think that is a great
approach, especially for identifying the bounds of potential solution space.
It may be designers taking responsibility for outcomes is fundamentally not
possible. I suggest it is on the basis that some designers already do that.
Ken suggests it is not, on the basis that he can't see a way of doing the
calculations. It may be the solution space includes only graphic designers
embedded in larger firms, or perhaps only single designers working
autonomously, OR, economically, it might not work at all. Transaction cost
analysis offers a tool to look at those solution spaces in economic terms.

First thought though is to be aware that the usual explanations of
transaction cost analysis often (to make explanations simpler) exclude many
economic aspects under the guise of 'all things being equal'. When comparing
different solution possibilities, however, all things are no longer equal,
and it's necessary to take into account changes in revenue, profitability,
costs, efficiencies and often, different transaction costing pathways.
Altyernatively, bearing in mind transaction costs, it is possible to compare
outcomes on the basis of increased or reduced costs and increased or reduced
profits.

Comparing two cases: 

1.	A business which is buying graphic design conventionally from
outside designers who design according to qualitative brief rather than
quantitative outcomes (i.e. we want a quieter gearbox, rather than the new
gearbox has to result in a 6Db reduction in sound at the kerb at 55 mph
compared to the existing.) Here I've used a mechanical example to avoid
distraction of wrangling about a graphic design example.
2.	Proposed change in which businesses buy graphic designs from
designers who take responsibility for the designs they submit contributing
appropriately to measurable design outcomes.

In the first case, the designer benefits economically from: lack of need to
assess whether their designs will result in particular outcomes; reduced
cost of the responsibility for losses if they do not; potentially reduced
design costs from not having to create additional designs to ensure that
some will  guarantee to achieve the contribution to the intended outcomes;
and, reduced cost from not needing the administration (including transaction
costs, of managing the process of confirming the designs will make the
appropriate contribution to outcomes.  

In the first case, the company buying the designs from the designer has
increased costs from: attempting to specify a brief that will point the
designer in the right direction in spite of the buyer wanting the design to
have specific outcomes in sales etc.; increased costs from bearing the whole
of the responsibility for finding the ways to take the outputs the designer
has produced to the brief and ensuring that everything is shaped and
adjusted around successfully using them to achieve the intended outcomes.
Other costs come from reviewing and making choices about which designer to
employ and the costs associated with choosing the wrong ones until a
preferred one is found. In the opposite case, significant other costs (or
potential reductions in profit) come from the limitation of working with the
same designer to avoid the costs of choosing between designers. Additional
costs also come from the huge historical set of kludges of design
organisation that are patching together a solution development path to take
a design to success from designers who are not necessarily producing designs
that will align with outcomes. Optimistically, these latter arrangements are
viewed by designers as the traditional way to have all organisational
stakeholders contribute to the design, rather than seeing them as a
potentially economically inefficient method developed when design research
methods and statistical business process optimisation methods were not
available to firms whose work depends on graphic designers. Obviously, there
are costs associated with this use of processes that do not necessarily use
optimal business processes.

Perhaps the biggest costs in this first case come, however,  from the time
spent by multiple executives and experts in the business contributing to the
design process to support the work of the graphic designer to help align the
graphic designer's outputs with the business's intended outcomes.

 You can build the economics of the second case by transferring many of the
roles and responsibilities spread over the design buying organisation to the
graphic designer. I suggest this offers substantial economic gains for both
design buyer and graphic designer by optimising the combined business
process.  For the graphic designer there will be considerably more work to
do. Some of this work involves design research and various forms of
potentially difficult analyses, some involves information about the business
processes of the design buyer and their costs and effectiveness. 

For the design buying organisation, there are potentially huge financial
savings from organisational simplification  where they can simply buy in
designs that have been developed to fulfil outcomes rather than satisfy
brief.   The use of design research and analysis methods by the graphic
design organisation (if design research and analysis fulfils its role)
offers economic advantage. Similarly, the reduction in complexity of the
design buyer's organisation in trying to cover for lack of outcome certainty
in the graphic design output also offers economic advantage. The transition
to the situation where the designer has more responsibility for outcomes
(and puts in the processes to do this) results in greater profits for the
combined organisation the basis of reduced costs (similar to Gunnar's
analysis). Of course, the graphic designer's invoices will need to be
significantly higher. Yet on this basis, the design buyer will also make
more profit. The challenge will be to identify the appropriate initial
balance of distribution of profit.

Best regards,
Terence
==
Dr Terence Love, FDRS, AMIMechE, PMACM, MISI
PhD, B.A. (Hons) Eng, P.G.C.E
School of Design and Art, Curtin University, Western Australia
Honorary Fellow, IEED, Management School, Lancaster University, UK
PO Box 226, Quinns Rocks, Western Australia 6030
[log in to unmask]   +61 (0)4 3497 5848
ORCID 0000-0002-2436-7566
==



-----Original Message-----
From: [log in to unmask]
[mailto:[log in to unmask]] On Behalf Of Terence Love
Sent: Thursday, 16 April 2015 8:56 AM
To: 'Gunnar Swanson'; 'PhD-Design - This list is for discussion of PhD
studies and related research in Design'
Subject: RE: Design Studies and Design History

Hi Gunnar,
Great explanation of the issues. There's a transaction cost explanation that
incorporates what you wrote and your extra 2 paras and also   includes my
previous suggestions as to why contracting responsibility with designer is
useful. It is supported by Deming and quality improvement. Pushed for time
today. Will write more tomorrow.
Cheers,
Terry

-----Original Message-----
From: [log in to unmask]
[mailto:[log in to unmask]] On Behalf Of Gunnar Swanson
Sent: Thursday, 16 April 2015 8:18 AM
To: PhD-Design - This list is for discussion of PhD studies and related
research in Design
Subject: Re: Design Studies and Design History

> On Apr 15, 2015, at 6:36 PM, Ken Friedman 
> <[log in to unmask]>
wrote:
> 
> A contract in which publishers pay designers if and only if projects 
> reach
predicted sales goals while designers pay publishers for any losses or costs
if sales do not reach predicted goals is a case of perverse incentives. This
model gives designers a chance to participate in the market economy in much
the same way that ordinary investors took part in the Global Financial
Crisis.


It is not uncommon to have people request spec work. Speculative work is a
gamble with much worse odds than the one in my first paragraph. If I do work
based on the promise to pay if my work is the best and I am competing
against four other designers, the price would need to be five times normal
to make sense. (If that's not obvious, see
http://www.underconsideration.com/speakup/archives/001804.html)

If a publisher accepts legal liability for a book I write, the publisher is
making a bet and needs to get paid for that. If I accept the legal
liability, I need to be paid more or my business will not be viable. (That's
what the insurance business is--making book on such risks.) A gambler who
always bets on straight odds will eventually go broke. It's why casinos and
bookies take a little extra. It's called the vig. (That's short for
vigorish.)

If I gamble that a project will make a certain amount and I don't get paid
unless it does, I need to cover that bet by being paid more--the risk plus a
vig. If I gamble that a project will make a certain amount and I have to pay
if it doesn't, I need to cover that bet by being paid more--the risk plus
the vig. If I have to do extra work to be prepared to make such a bet, I
need to get paid more--the cost of that preparation plus a profit.

If someone agrees to pay me the amount that the previous paragraph adds up
to, that client is, essentially, buying a big, fairly expensive insurance
policy. They are taking a side bet that the project will fail. (Insurance is
always, essentially, betting against yourself.)

If, on the other hand, they can get me to take the risk for free, the end
result is that I will be out of business.


Gunnar

Gunnar Swanson
East Carolina University
graphic design program

http://www.ecu.edu/cs-cfac/soad/graphic/index.cfm
[log in to unmask]

Gunnar Swanson Design Office
1901 East 6th Street
Greenville NC 27858
USA

http://www.gunnarswanson.com
[log in to unmask]
+1 252 258-7006


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