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Ideo, Silicon Valley's Most Influential Design Firm, Sells A Minority Stake

The 25-year-old design consultancy sells an undisclosed stake to a group of creative businesses owned by Japan's Hakuhodo DY Holdings.

Amid "pendulum swings" in the design landscape, Ideo, the global consultancy known for its human-centered approach, has become part of Kyu Collective, a group of businesses in the creative industry owned by Tokyo-based Hakuhodo DY Holdings. Kyu purchased a minority stake in Ideo—the dollar value and percentage is undisclosed—which joins DK, Red Peak, Sid Lee, SY Partners, and C2 in the collective.

The deal will allow Ideo to take on bigger, more systemic design challenges because the company can call upon the knowledge base and creatives within the collective, Ideo CEO Tim Brown says in a phone interview. "This idea of being able to collaborate more broadly across the creative sphere—across different creative talents that can come together to tackle problems—is exciting for us," he says.

Ideo's news is symptomatic of a shifting landscape that has prompted many design consultancies to reassess their business strategy. In the past few years, companies from Google to Capital One have begun investing heavily in design. A common approach is to scoop up design talent and bring it in-house as opposed to hiring independent, outside firms. Some argue that this has led independent firms to stagnate and has contracted the market for the businesses of design while design in business remains strong.

For example, IBM, recently invested $100 million to beef up its UX consultation business. Last year the white-shoe consulting firm McKinsey purchased Lunar, one of Silicon Valley's oldest design firms. And the year before, industrial design star Yves Béhar sold a 75% stake in his firm, Fuseproject, to a Chinese marketing group.

"This is a pendulum swing that we’ve seen over and over again," Brown says about how design consultancies fit into a bigger picture. "I’m tremendously excited to hear about design being valued from all aspects of business, whether it’s all of Silicon Valley and the visually driven companies around the world or whether it’s these different forms of professional services firms that are bringing design in. There has always been and will always be a real need for organizations that can bring creative problem solving to wherever it’s needed."

  1. 01/06
    By becoming part of the Kyu Collective, Silicon Valley design consultancy Ideo hopes to take on more systemic challenges, such as aging, which it did in 2014.
  2. 02/06
    As part of that project—independent from the Powerful Now aging project—Ideo developed the Goofy Foot walker, which takes inspiration from a skateboard.
  3. 03/06
    With the city of L.A., Ideo reimagined the election system by designing a new voting booth and process.
  4. 04/06
    The new process marries the ease of a digital interface with a paper ballot for security.
  5. 05/06
    In Peru, Ideo retooled a private school system.
  6. 06/06
    The project deployed design thinking to recast the curriculum, teaching strategies, buildings, operational plans, and underlying financial models.

The complex systems that Ideo wants to address as part of the Kyu deal include employment, education, health care, and taxation—areas Ideo has tackled in the past. Last year, the design consultancy unveiled a new machine to improve the L.A. voting process. In 2015, Ideo and SY Partners (also a member of the Kyu Collective) launched the Powerful Now, an initiative to rethink aging. In 2014, Ideo redesigned a school system in Peru.

Brown describes the move as Ideo following the evolution of where design thinking is best applied next.

"Back in the 1980s, when I was first getting into product design, there was a big boom in companies bringing design in-house because they realized they had a lot of products to design and what happened was those of us who were independent started to look to what the next set of design problems might be," he says. "When [Ideo cofounder] Bill Moggridge coined the term 'interaction design' in 1985 and started talking about applying design skills to the digital arena, nobody was doing it and nobody even thought of it. It’s taken 30 years to reach peak design, and I think we’re in 'peak design' in the digital sphere today—everybody understands how important it is. These kinds of waves succeed each other, and I think the next wave are these systemic challenges. For that, I firmly believe we need independent, creative problem solving to take them on."

Kyu Collective is about 18 months old and is composed of branding, advertising, marketing, and digital agencies. With Kyu, Hakuhodo DY Holdings—which is one of the largest advertising holding companies in Japan—began acquiring international companies to diversify its revenue stream beyond its shores, states a 2014 report from the Wall Street Journal. Ideo brings an innovation and design element to the group. Each company operates independently, but the idea is that joining under the Kyu umbrella fosters interdisciplinary collaboration and brings strength in numbers.

"To create the platform to grapple with the big issues, we’ve got to get an unfair amount of talent into our business," Michael Birkin, Kyu's CEO, says. "When we set up Kyu in 2014, we decided to do things differently. We felt very much that in the next few years we’re going to see a lot of change in how systemic problems are solved, and we felt that the creative industry needed to look at a different model [to do so]." Birkin believes that to successfully solve the challenges that will become relevant in the next few years, it's important to lay the groundwork for the right type of organization. Under Kyu, the companies are able to learn from each other and adopt a multidisciplinary approach.

Having Ideo as part of its collective certainly helps Kyu establish a stronger footing internationally and achieve a higher profile. Moreover, this demonstrates how Birkin believes the advertising field is also morphing with the times to become much more strategic. "I'm very attracted to firms that have a maker mentality," Birkin told Advertising Age in 2014 in the wake of its Sid Lee acquisition. "I feel there's a shift in the attractiveness of service providers, away from advisors to doers . . . Generations coming through aren't persuadable just on advertising, and we've got to go deeper than that. We want to get our hands dirty in terms of understanding products, and technology linked to product is where it's all going."

Since Kyu is still in its nascent stages, it is still establishing its footing. The Powerful Now is one of the first big initiatives the collective is undertaking.

For Ideo, being able to call upon the resources of fellow collective members gives it a more formidable presence alongside larger companies with deep pockets that are getting into the "systems" innovation game, such as Google's Sidewalk Labs. Ideo declined to comment on its profit and revenue over the past few years, but it stands to reason that joining Kyu and bolstering its systemic problem-solving services opens the door to new clients that might not have called upon Ideo's expertise before.

This is not the first time Ideo has sold a portion of its business. In 1996, the furniture company Steelcase, a longtime (and current) Ideo client, became the majority stakeholder in Ideo. The influx of capital helped to build Ideo beyond what its resources at the time allowed. About 10 years later, Steelcase sold its shares back to Ideo to offer its partners a "more of an emotional and meaningful stake in the firm," Brown says. He calls the Kyu stake "different circumstances and a different situation" but sees it as a long-term relationship.

"Creative leadership is in great demand and our business reflects this," Brown says. "Businesses, governments, and the social sector continue to need a place to turn for the most inspired thinking, the latest learning, and the deepest skills across a broad range of creative activities. Companies growing their internal design capacity is an indication of design's increasing impact. At the same time, our experience has been that companies still need external creative capacity and expertise to help tackle questions of the future."

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