Where is our industry headed?
The Australian design industry is not known for introspection. We talk to clients about ‘discovery’ and ‘insights’ but don’t do it for our industry.
The peak bodies for design are meandering around in the industry of the early 90s. Can’t blame them. We get the industry associations we build (deserve).
In the USA, AIGA researches and publishes industry information; the UK Design Council does an annual financial state of the industry; while the DBA works with Up to the light to produce an annual What clients think survey.
In Australia the DBC researches the performance of Australian agencies to develop benchmarks. Our recent colab with Andy Wright of Never Not Creative fame has produced the Happier Healthier Creative Business Canvas which holds Australia’s only design industry benchmarks.
What we know is budgets are deflating, job satisfaction is dropping, whilst the number of new graduates is booming. What does the future hold?
Too many graduates, too few jobs
The weakest point in our industry is the low barrier to entry. It’s a problem that increases with digitisation of the sector. We are now at a place where a graduate with little experience and limited skills can register a business and present as a competitor.
Unfortunately, many clients can’t tell the difference between these and a small established agency. The end result; a decline in design standards and acceptance.
This trend is alarming when you consider the number of design graduates entering the market EACH year.
There is very little available data on graduate numbers but if you consider there are at least;
- 138 undergraduate design degree courses,
- 84 VET design courses, and approximately
- 45 UX, UI, CX design courses, and
- a myriad of private short courses
If each is graduating on average 20 students per year we have over 5,000 graduates per year. Admittedly some of these are international students but with an industry employing about 60,000 people you can see why these new entrants are draining the industry viability.
The industry is expanding. And declining
The majority (59%) of design businesses actively trading are non-employing which is similar to the national proportion (61%). Of the businesses that employ, 85% have less than 5 people.
In the past decade we have seen the number of design agencies increase by 25% and the total revenue decrease by 10%. In short we are becoming less productive; billing less per person.
Productivity is defined as output per worker or per hour worked. Factors that can affect labour productivity include workers’ skills, technology improvements and management practices.
We have seen the average revenue per employee decrease by 35%.
We’ve also seen real wages decrease by 19% in the last decade.
We observe productivity is a key issue in design agencies. The work from home move has made it harder to gauge true productivity levels.
According to the Australian Institute of Health and Welfare:
Most people in paid employment who had increased the amount of time they spent working from home at the start of the pandemic reported little change in productivity.
Anecdotal reports to the DBC show supervision and management tasks have become more complex because of WFH. We suspect this is having a detrimental impact on business productivity, revenue and profits.
Agencies are getting smaller. The DBC database of approx. 5,500 Australian design businesses shows that staff numbers in many have decreased since 2019.
We are seeing outliers who go against these trends but when you put all the data together things are not looking good.
What’s the answer?
Let’s step back and take a broader view.
The design industry is nestled within Australia’s vast service sector, a critical part of the national economy. This sector, which is responsible for 79% of the added value and 88% of employment, largely covers services outside the realms of mining, agriculture, and manufacturing. As in most mature economies, the service sector’s expansion is fuelled by a shift of spending towards services and away from goods, thereby increasing the sector’s proportion of economic activity.
Yet, despite its significance, certain segments of the service sector, like design which is labour-intensive and reliant on face-to-face interactions, are facing challenges. These include persistently low productivity growth and minimal capital investment. In Australia, the service sector’s productivity growth has been notably sluggish, making it one of the least productive among developed nations since the turn of the millennium.
Challenges in measuring design productivity
The crux of the issue is in the nature of design services. Unlike tangible goods, the effectiveness of design work is often only known once a project has finished, and its quality can be difficult for clients to gauge beforehand. For design agencies, capturing concrete effectiveness data poses a challenge. Our Design Maturity research showed that even businesses who were mature design users did not measure the effectiveness.
The path to increased productivity
Increasing productivity in the design sector hinges on embracing innovation and improving training. Insights from the Australian Workplace Industrial Relations Survey highlight that labour productivity growth is more pronounced in workplaces that integrate training with innovation. While innovation alone can enhance productivity, its impact is significantly increased when combined with employee training. Moreover, for remotely operated workplaces, training is particularly effective, helping them bridge the productivity gap.
The design industry itself has not been all that innovative because agencies rely on software providers to do the innovation.
Training is rarely included in a design agency’s budget.
The standard design business model is not being challenged by many agency owners.
Business confidence
Our research shows that service business confidence has been sitting at an all time low level for a few years. Business owners are not confident that consumers will buy from them. A recent discussion with a friend in the advertising industry uncovered some alarming facts. All of the major media businesses are well below their budgeted advertising targets. Major advertisers are not spending like they once did.
This all spills out into the design industry because marketing and advertising are the first areas to be cut in slow markets.
Wrap up
The design industry needs a multifaceted approach to overcome productivity challenges and capitalise on the opportunities of a service-dominated economy.
By developing innovative business models, fostering continuous learning and technological advancement, the industry can achieve higher productivity levels and produce more sustainable businesses.
So who is responsible for what?
Innovative business models are the domain of business owners. You have the control to build a model to suit your needs and solve the problems your clients face. More of the same won’t cut it.
Continuous learning is an individual’s responsibility and mandatory to stay relevant. A business owner can facilitate learning but the designer has to instigate and follow it through.
Technological advancement is more than jumping onto the latest app. Very few design business owners fully utilise business management programs to analyse their performance and improve it. That’s a start point.
Contact Greg if you would like to learn more about using the design value chain to create competitive advantage for your clients
Greg Branson
Want more?
Here’s more information on the Australian design industry:
- What do clients look for in a design studio
- Defying the status quo.
- Designing a studio culture.
Want more information like this delivered to your inbox every Wednesday? The Design Business Review is Australia’s only online design management magazine. It’s professional development information written specifically for Australian designers by Australian designers. Best of all, it’s free.
