Procter & Gamble’s standing toothpaste tubes. The Palm V personal digital assistant. Bank of America’s “Keep the Change” program. For decades, the innovative wares invented inside IDEO were considered the leading edge of product design. At the core was the idea of “design theory,” an approach to developing new products or services that puts customer needs, instead of business or engineering needs, first. The design agency, founded in 1991, eventually grew beyond pure product design to, for example, revamp Ford’s EV factories.
But, in recent years, the storied design agency has faced a crisis. Companies brought design in-house, copying IDEO’s approach without needing to hire the agency. Executives pressured design teams to deliver results. Other companies saw design as a costly distraction amid an even costlier push to adopt AI. Last year, job postings in product design fell by 18%, and graphic design by 57%, according to Fast Company.
Before IDEO’s current CEO, Mike Peng, took over the agency last year, it had reportedly cut a third of its workforce, closed its Munich and Tokyo offices, and seen its revenue decline to less than $100 million, from $300 million four years prior.
Human-centered design defined the San Francisco-based agency’s approach for almost four decades, shaping its pitch to boardrooms and its approach to products. But with AI threatening to change what it means to be innovative in the first place, Peng isn’t sure that’s enough anymore.
“Customer centricity, the thing that IDEO has always stood for, just seems like it’s table stakes now,” Peng tells Fortune. “Just saying that you’re customer centered alone isn’t enough. So many companies, over 50%, already believe they are customer-centered.”
Peng’s response is to revamp IDEO’s value proposition. Instead of designing individual products or services, he wants the agency to teach clients how to design products on their own.
“The type of projects IDEO is involved in now feels a lot bigger than just these one-off projects,” he says. “They’re very much in the ‘teach the person how to fish, not just fish for them’.”
What’s happening with design in Asia?
Peng first joined IDEO in 2006 and spent a decade in Japan, helping launch the firm’s Tokyo office. He left in 2020 to become chief creative officer at Moon Creative Lab, a venture studio backed by the Japanese company Mitsui, where he worked on new businesses in health, wellness, and digital transformation.
While he’s currently based in San Francisco, he’s still paying attention to design trends across Asia.
In China, IDEO is tapping the trend of the country’s companies “going global,” breaking out of the domestic market to serve a global customer base.
“It used to be that so much of the work we did was for multinational companies that were trying to make it in China,” Peng recalls. “But the majority of projects now are helping Chinese companies in China, and helping Chinese companies break through and go global.”
Several Chinese brands are starting to get a foothold overseas. Chinese-made EVs are already garnering interest from drivers due to their advanced features and user experience; Chinese consumer appliance companies, like Roborock and Dreame, are also investing in home robotics. Even Chinese consumer brands, like Mixue, Luckin Coffee, and Pop Mart, are starting to break into markets like the U.S.
Peng sees a different story in Japan. “One of the toughest challenges Japan is having is how it breaks into North America,” he says. “There’s not really a solid understanding of what it’s going to take to break through into some of these markets: the speed, the talent, how much you need to invest, the cultural differences.”
The typical approach, dispatching a small team to build an innovation lab in Silicon Valley and hoping the insights flow back to headquarters, has rarely worked. “They really need to think about new models to be able to break through in North America,” Peng says.
How to be innovative
Last month, IDEO released its first Innovation Quotient, based on a survey of more than 250 product and innovation executives across media, technology, healthcare, and consumer goods. The results suggest that workplace design culture and financial performance are linked: Companies in the top quintile of IDEO’s IQ score generated 50% higher profits than the average firm.
Yet while more than half of companies claimed they were customer-centric, only about 30% of surveyed leaders strongly agreed their teams had the autonomy to experiment or effectively balance short- and long-term goals, and just 21% said they consistently tested ideas with customers.
Peng thinks companies will spend years using AI for efficiency gains before they realize that the technology has far deeper implications. “We replaced steam power with electricity, yet the belt-and-shaft model of the factory lasted for 30 years because no one thought we could redesign what a factory was.”
But once companies have gotten the efficiency gains from AI, what comes next? “My hunch is that it’s organizational transformation,” Peng says. “What is a new business organization structure going to be like? How is it going to work? With the surplus of human creativity and energy we gain through efficiency, what should we them on?”
AI remains the most urgent question for any firm in the design business. Design software companies have been hit hard by the AI scare trade, as investors worry that AI will soon be able to handle creative tasks in minutes. Shares in Autodesk, which mainly serves industries like construction and architecture, have fallen by almost 20%.
The risk AI poses to design, in Peng’s view, isn’t that it will replace designers, but that it will make everyone’s output look the same. “Everyone is going to have access to the same technologies, and everything is going towards the average” he says. “If companies are going to innovate, they’re going to need to find that edge that’s going to help them compete and help them outperform. I don’t think models are going to be able to do that right now.”
“The act of finding that edge is, to me, a very human activity,” he adds. “IDEO has always been about designing for the human in the loop; it’s just that the loop we’re talking about is much more in the broader ecosystem.”
