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Tuesday, 26 December 2006 | Levent OZLER
British Design Industry Valuation Survey
The BDI Valuation Survey, now in its sixth year, is the only industry wide survey that specifically focuses on the "UK commercial design" sector.
The survey uses a base of 4,500 commercial design firms.
Over 1500 design firms, representing over a third of the sector participated in the 2005/6 survey.
 British Design Industry Valuation Survey 2006.pdf ( 92k ) - Viewed 417 times
Top Line Results
- turnover: -6%
from £4.6bn to £4.3bn
- employees: - 8.4%
from 71,000 to 65,000
- fee income: -16%
from £4.0bn to £3.3bn
- overseas income: +19%
from £0.7bn to £0.8bn
- London turnover: - 13%
from £2.3bn to £ 2bn
Turnover
- Turnover for the industry has seen a 6% fall on last years figures, from £4.6bn to £4.3bn
- Growth this year has been in the mid-sized companies, suggesting that smaller, newer companies and freelancers are struggling.
- The fall in the £1m+ bracket represents a larger fall than the industry as a whole, down £354m, compared to the industry fall of £276m. However, they still account for some 78% of the total turnover of the industry
- Companies in the £100-£250k bracket have shown a consistent rise year-on-year for the past five years, but this year this bracket has seen a fall - down 6%. However they do continue to represent the largest group of companies in the industry
- The largest growth was among companies in the £500k to £1m bracket, seeing a rise of some 23% in turnover over last year plus an estimated 116 more companies appear in this bracket. It is not clear whether this represents a fall from the bracket above or growth from the bracket below.
Fees
Fee income has fallen by 16% which, whilst still slightly higher than its lowest point in a decade recorded in 2003 signals that something is not quite right in a sector that is purported to be crucial to UK competitiveness.
We have been aware of the commodity trap design firms have found themselves in. Investment in technology enables agencies to turn work round faster but all benefits are being passed directly to client organisations. This, coupled with designers inability to earn appropriate income from the IP it generates, does not bode well.
BDI has begun a re-classification of the commercial design sector and launched a Shared Risk Shared Reward Guide in partnership with Harbottle & Lewis LLP to try to assist design firms to change their remuneration model.
- Total fee income for the industry has fallen in 2005/2006 by some 16% from £4.0bn to £3.3bn
- Compared to the £3.1bn fee income recorded in 2003/4; 2005/6 shows a growth over that year and a loss over 2004/5. However the gap between turnover and fee income is much wider than in previous years suggesting that workload may have remained but fees are being cut.
- Mirroring turnover, falls are seen at both ends of the spectrum and again falls in the £1m+ bracket are larger than the industry as a whole
- Growth though is seen in mid-sized companies, all with double digit increases in fee income
- For the first time in 3 years, the £1m+ bracket now represents less than 20% of the number of companies in the industry suggesting that the bigger design companies have shouldered the largest losses in the past year
Employees
- 2005/2006 employee numbers are down overall by 8.4%
- Over half the industry is still made up of companies with 5 or fewer employees. However, this has been falling over the past 3 years, down from 58% in 2003/2004 to 51% in 2005/6.
- The real growth has been companies with 6 to 20 employees. This bracket has risen from 21% in 2003/2004 to 32% of companies in 2005/2006.
- For the first time since we have conducted this survey, the volume of employees in the 50+ bracket has fallen to account for just 38% of the total employment
- The major growth in employees is in companies with 6 to 50 employees, all seeing a consistent rise in volume over the past 3 years
Overseas Fee Income/Exports
- Contrary to turnover and fee income, overseas fee income has seen a rise in 2005/2006, up 19% on the last year to £0.8bn ahead of where it was in 2003/2002 when we saw the dramatic fall
- The largest growth is among companies with the majority of fee income from overseas. Whilst this only represents some 10% of companies they account for 47% of total overseas fee income
- The growth in export income shows that design firms are becoming more reliant on winning business overseas to compensate for a shrinking volume of work in the UK.
- UK Trade & Investment, through Design Partners, clearly continues to do a good job of promoting UK design talent overseas which is supporting agencies' new business success.
- The majority of overseas fee income continues to come from Europe and North America
- Some change has occurred in destinations of overseas fee income; Germany, Netherlands, Ireland and Italy have all risen up the top 10 this year
- A small increase is shown in the companies now exporting to two markets.
Regions
- London remains the largest design region in the country accounting for a third of all companies
- The market share across all regions has remained relatively static with only East of England showing a drop from 10% to 8% picked up by the East Midlands moving up from 5.4% to 7%.
- The design capabilities of the regions will become increasingly important in order to meet the delivery targets of RDAs who are implementing the Design Council Designing Demand programme.
- A better understanding of the size, disciplines, sector experience and strategic capabilities of design firms located in the regions needs to be gained.
- BDI has carried out a South East of England study commissioned by SEEDA to support its delivery of Designing Demand.
Design Disciplines
In June 2006 BDI began a re-classification of commercial design firms to separate strategic design consultancies from design agencies from design studios. Additionally all design disciplines were revised to take account of a new skill set emerging in service and proposition creation.
- The top 5 disciplines remain branding and graphics, multimedia/new media, packaging, exhibition and events and design/innovation management
- The biggest rise has been in design/innovation management, up 6% from last year. This reflects the move of product design and proposition creation disciplines closer to the innovation space and to industry
- The largest fall has been in multimedia/new media, down 4% from last year
- The BDI revise of design disciplines reflects an emerging skill base and aims to enable buyers to more easily identify the specialists from the generalists.
- The increasing importance of social issues and the designers' role in that area is an opportunity for growth for those design firms who genuinely seek to specialise in social and environmental issues.
The re-classification is:
Strategic Design Consultancy - those firms who drive strategy;
Design Agency - firms who visually translate client strategy and
Design Studio - those firms who are more production led.
This re-classification is not a reflection of creative ability but of business offer.
The classification was added to the BDI online design directory and to the Valuation Survey questionnaire in June 2006.
The re-classification of the commercial design sector has only just been introduced and thereby these results cannot be taken as a true picture at present.
In relation to the three commercial design classifications, our own experienced estimate is that strategic design consultancies represent 10% or less of the design capability in the UK.
The majority are likely to be design agencies at around 70% and the remaining 20% are likely to be production led graphic design studios.
Sectors
- Business to business continues to show growth as it did last year, up some 6%. This may also reflect a heightened awareness and engagement of the emerging service design and proposition creation disciplines.
- The service sector itself continues to feature strongly particularly for branding and graphics firms.
- Manufacturing has dropped significantly with 31% of companies claiming sector experience in 2004 down to 17% in 2005
- The top five sectors have changed from last year seeing business to business taking 5th spot from the public sector
Professional Structure
- Whilst these results only represents 611 (out of a base of 4500 design firms) it none the less gives an indication of the design industry commitment to professional structures.
- 60% of those responding to the survey opted not to answer these questions. Either the respondent did not know the answer or a high percentage of design firms are without the basic professional structures in place.
- There is clearly a lack of importance placed on IP protection which is also reflected by the design sectors inability to earn appropriate remuneration from the IP it generates.
- Only 13% of respondents state a sustainability policy, which is very disappointing particularly given that this is not a cost or size issue
BDI professional documentation includes heads of agreements, full legal contracts and other professional practice tools designed specifically for the design industry. These are available to all members.
These results would indicate that a large percentage of design firms feel unable to or are not willing to face professional practice issues.
The Creative Industries Sector Skills Council and its partnership with the Design Council sought to address professionalism within the sector. It appears that their task might be larger than they had anticipated.
Remuneration
- For the past two years BDI has been encouraging design firms to explore alternative remuneration models.
- In particular the product design, service design and proposition creation disciplines have an easier IP generation model to explore licensing and royalty remuneration models.
- High end branded packaging firms also have a good opportunity, particularly with high quality, niche products and start-up brands.
- Instead of just cutting fees to accommodate start-ups and SMEs, niche brand design firms should be charging fee plus royalties. To do otherwise is actually investing in the company but without any reward for that time and skill investment.
British Design Industry Valuation Survey 2006.pdf ( 92k ) - Viewed 417 times
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