The case materials consist of two portions, a written portion (which can be found in your course pack) and an online multimedia portion (which can be accessed using the link bel

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Professor Ryan W. Buell and Associate Case Researcher Andrew Otazo (Case Research & Writing Group) prepared this case. It was reviewed and approved before publication by a company designate. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2014, 2015, 2016 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800- 545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

R Y A N W . B U E L L

A N D R E W O T A Z O

IDEO: Human-Centered Service Design

Each team creates its own variation of the design process in order to solve a specific challenge, but the signature aspect of the process is that it begins and ends with the human experience.

— IDEO Partner Diego Rodriguez

Mildreth Maldonado, the CFO and chief marketing officer (CMO) of Cineplanet, Peru’s largest cinema chain, sat in her office in Lima. In a few minutes, she would walk into a conference room and join five of her Cineplanet colleagues for a presentation by a team of designers from IDEO, a global design firm. In response to a rapidly changing competitive landscape, Cineplanet’s management had hired IDEO several months before to assist with a redesign of the movie-going experience it offered its customers. During the meeting, the IDEO team would present their emerging vision for the future of Cineplanet—a vision they planned to prototype in one of Cineplanet’s most popular theaters.

Maldonado had been an embedded member of the design team since the beginning of the project. During the first four weeks, they toured Peru and Chile, visiting cinemas, conducting interviews, and observing how customers interacted with Cineplanet. This “exploratory phase” of the process had been exhilarating, confirming much of what Maldonado had long suspected while also uncovering new insights about latent customer needs. The next four weeks, however, had been more difficult for her. Maldonado and the designers settled into a project space in IDEO’s San Francisco office to reflect on what they learned in the field and to generate ideas and concepts that would serve as the foundation for their recommendations for prototyping. Maldonado was an economist with an MBA (Tuck ’03), and the mechanics of this “concepting phase” had been unlike anything she had previously experienced. The concept ideation process progressed iteratively rather than linearly and seemed counterintuitive to her at times, making it difficult for her to update and manage the expectations of her Cineplanet colleagues.

By the time she returned to Lima, Maldonado felt more at ease with the concepting process and was in agreement with the recommendations around which the team was converging. The IDEO team conducted weekly conference calls with the Cineplanet core team to refine the concepts. It also kept in daily contact with Maldonado to better understand the concerns of the other members of Cineplanet’s leadership. Maldonado and some of her colleagues participating in the project wondered if Cineplanet’s leadership team would support prototyping the concepts the IDEO team would

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recommend. More importantly, would the leadership team appreciate the magnitude of the cultural and organizational shifts that would be required to successfully implement those ideas?

The Evolution of IDEO

IDEO was cofounded by David Kelley, Bill Moggridge, and Mike Nuttall in 1991, with an initial focus on product design and engineering. Like many of its competitors in the design industry at the time, it employed industrial designers, as well as mechanical, electrical, and manufacturing engineers, who worked in teams to design and improve products for its clients. What set IDEO apart, however, was its human-centered approach, which fused empathy for the end user with prototyping and iteration to design products that served unmet consumer needs.

This distinctive, human-centered innovation process eventually garnered the attention of the national media. Most notably, in 1999, a team of IDEO designers featured on ABC’s Nightline was challenged by the show’s producers to redesign a shopping cart in four days. The widely seen segment captured the imagination of potential clients and helped fuel the expansion of the domains in which IDEO operated. Whitney Mortimer (HBS ’88), IDEO partner and global marketing director, recalled, “We got a call from a guy who was running the emergency room at DePaul University. He said, ‘If you can do that for a shopping cart, then you can do it for an emergency room. Let’s go.’”

IDEO and its clients found that the company’s human-centered approach applied to a wide range of challenges. IDEO partner Diego Rodriguez (HBS ’01) explained, “The human-centered design process obviously works for products—that’s where it originated—but the beauty of it is that it’s applicable to almost anything you might come up with as a challenge.” After 1999, IDEO continued to expand its range of industries, most notably winning food and beverage, health-care services, and financial services projects. The firm was increasingly focused on designing organizational change in addition to designing new products and services for its clients. While each office initially operated somewhat independently, in 2004, the company realigned itself around the shared purpose of creating impact through design. Mortimer elaborated:

We saw how far design could go to address new kinds of challenges facing business and society. The challenges were complex, they were human, and they were systems- based. We were starting to understand how design could have broader impact and that we needed to rethink how we talked about design. Design had been thought of as a thing that makes noise when you drop it. It was thought of as form, objects, and beauty. It still may be all of those things, but we weren’t focused on the noun anymore. We were focused on the verb, and we started talking about an approach and a mindset.

The approach became known as design thinking: a human-centered approach to innovation that integrated the needs and desires of users with the possibilities of technology and the requirements of business. IDEO continued to expand into new domains, including government, education, and social innovation. By 2014, its methods had evolved to include product, service, brand, digital, space, organization, and venture design.

IDEO was a privately held firm that, in 2014, was owned by several dozen partners, including founder and chairman David Kelley. It employed approximately 700 full-time staff, had relatively low staff turnover, and generated approximately $150 million in revenues in 2014. It had offices in Palo Alto, San Francisco, Chicago, New York City, Boston, London, Munich, Singapore, Shanghai, and

Tokyo.1 Some of its most famous designs included the first Apple mouse, one of the first laptop computers, the Oral B Gripper fat-handled toothbrush, the Palm V personal digital assistant (PDA),

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and Bank of America’s “Keep the Change” savings account service. IDEO was ranked 10th on Fast Company‘s Top 25 Most Innovative Companies list and 16th on Fortune’s list of 100 most-favored employers by MBA students, in addition to having won 181 Industrial Design Excellence Awards, 41 Red Dot awards, 28 iF Hannover awards, 18 Medical Design Excellence Awards, 22 Webby Awards, and the Smithsonian Cooper-Hewitt National Design Museum’s National Award for Product Design.

Embracing Ambiguity as a Team: Cultivating the IDEO Culture

As IDEO grew, it reorganized itself in response to its broad array of projects and the diversity of the talent it employed. Ilya Prokopoff, an IDEO partner, described the company’s progression: “We think much more intentionally now than we did when I started 17 and a half years ago about so many things—client relationships, the quality and consistency of our work, the talent development process, and how we plan for the future. We’re much more mindful today of where we’re going.”

This intentionality was most apparent in the thoughtful way IDEO crafted and reinforced its culture. Practically every facet of the company—from the design of its organizational structure and physical spaces to the way it hired, trained, organized, and managed its employees—was aligned with supporting and reflecting IDEO’s values and building a vibrant, distinctive culture. Rodriguez explained, “We value the ability to embrace ambiguity. You have to be comfortable with starting with a blank sheet of paper—and even relish it. You will have moments of doubt where you’re not sure what to do. But because we believe so strongly in creativity and the design process—that there’s a way of solving complex problems—we help each other, support each other, and collaborate.” As Rodriguez elaborated, IDEO’s culture was a critical enabler of its process. “Knowing how the design process works is very different from actually being able to practice it. A lot of the things that make IDEO shine are largely tacit, such as our culture. For that reason, we’re not afraid to talk about how IDEO ticks because actually making it work is a whole other ballgame.”

IDEO had a very flat organizational structure. The desks of partners and senior leaders were interspersed among those of junior designers, which promoted a spirit of openness and accessibility. The layout of IDEO spaces engendered interaction. Project spaces were arrayed around the perimeters of large central areas, and some featured a “front porch” that facilitated sharing between teams. Employees were encouraged to express themselves, which extended to the design and personalization of their work environments. Walking through an IDEO office, one might encounter a seven-foot-tall sea monster costume, an oversized origami sculpture, a Nordic fish lamp, or collections of past products and design prototypes. Posters of IDEO’s core values and sticky notes from brainstorming sessions covered the walls. (See Exhibit 1 for a list of its core values.)

IDEO’s leaders were passionate about finding exceptionally talented people, in a variety of domains, who would stimulate and enrich the firm’s culture. In 2013, the company received more than 17,000 applications for 60 jobs. In particular, when seeking to hire a new designer, managers often looked for individuals who met a T-shaped profile. “A T-shaped person is someone who is world class in at least one thing—the vertical stroke of the T—and fluent in many other things—the horizontal stroke,” described Rodriguez. “That combination is what we rely on. The beauty of IDEO is that we can take almost any group of T-shaped designers, and so long as the right skill sets are in the room, we know that they’re going to come up with something remarkable.” “T-shaped people are our special ingredient,” said Mortimer. “Without them, you have really smart people who are rock stars of whatever field they come from, but they can’t collaborate.”

A premium was placed on identifying collaborators among potential recruits. “I look for life experiences which involve achieving some meaningful goal by being part of a team,” explained

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Rodriguez. “And whether it was a championship soccer team or an awesome band—or even an awful band—the important thing is that you enjoyed the experience of creating with other people. Many people at IDEO will report significant life experiences in sports and/or music.” People were

encouraged to seek help from all of their coworkers, including those at the very top of the organization.2 Likewise, the firm’s leadership often sought assistance from all qualified individuals, regardless of

seniority.3 “I believe that the more complex the problem, the more help you need,” said Tim Brown, IDEO’s CEO. “And that’s the kind of stuff we’re getting asked to tackle, so we need to figure out how

to have a culture where help is much, much more embedded.”4

IDEO’s culture of helping was structured into its employees’ schedules. Staff sometimes had gaps between projects and spent that time assisting their peers with projects unconnected to their own work.5 This allowed teams to tackle assignments from many different perspectives, as IDEO’s employees came from a wide array of backgrounds, including psychology, linguistics, and business,

among many others.6 They underwent both formal and informal review processes to ascertain their contribution to the firm’s culture of helping.

Teams were thoughtfully assembled from available employees on a project-by-project basis. IDEO leadership considered multiple factors, including expertise, skill sets, personalities, growth aspirations, development needs, and the cross-pollination of perspectives. “It’s not an equation—this method of pulling together the perfect team. It’s an intensely human process,” explained Rodriguez. He continued:

Each project is a chance for people to get feedback and talk about where they want to go with their careers. David Kelley has a teeter-totter diagram he draws. On one end is a heart, and on the other is a dollar sign. The balance between the two is not something we’re trying to resolve in the moment, but we do aspire to balance it over time. We may have had someone work on a project that wasn’t exactly their cup of tea. So on the next one we’ll try and create an extra special experience to balance out the heart side a bit more. We’re trying to help people have the most fulfilling design experience they can.

When possible, project leaders and potential team members were engaged at a very early stage so that they could help shape the scope and design of a project. Rodriguez explained, “Being part of the team putting together a project means that you’re going to be even more interested in working on it. And then, basically, we’re giving you a chance to shape your work reality.”

When IDEO and Cineplanet began exploring a possible collaboration to reimagine the movie-going experience for the emerging middle class in Peru, Scott Paterson, an IDEO project leader with a background in art and architecture, joined Prokopoff to participate in the early conversations. Together with the Cineplanet management team, they scoped out the project. Paterson and Prokopoff worked together to identify other designers who could join the project team. Greg Burkett, Emily Eisenhart, and Rosaria Mannino, IDEO designers with a complementary set of skills, were scheduled to be available, and expressed interest during conversations with Paterson about the project. All four eventually boarded a plane bound for Peru in early February 2014.

Peru’s Rising Middle Class

Peru was located on the western coast of South America, to the north of Chile, south of Ecuador and Colombia, and west of Brazil and Bolivia. (See Exhibit 2 for a map of Peru.) It had an official population

of 29.8 million people in 2013.7 Lima, the country’s capital and largest city, was home to an estimated 8.7 million people.8 With a GDP of $203.8 billion, Peru was categorized as an upper-middle-income

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country by the World Bank.9 Between 2002 and 2012, it had the fastest-growing economy in Latin America.10 (See Exhibit 3 for a chart of GDP growth in selected Latin American countries.) Between 2003 and 2013, average wages grew by 7%, while the percentage of the population that lived on less

than $2 a day simultaneously decreased by 28%.11 Total consumer spending, which grew from 30.7 billion solesa in 2008 to 41.5 billion soles in 2014, became one of the country’s driving economic

factors.12,13

Following the resolution of the pervasive social and political unrest of the 1990s and early 2000s, Peruvians felt much safer attending public venues. Middle-class families suddenly felt physically and financially secure enough to begin visiting concerts, sporting events, and movie theaters. Peru’s growing middle class (approximately 60% of the population in 2014) spent more money and demanded more services.14,15,16 Lizandro Vargas, a Universidad de Piura professor, stated that Peruvians “now have internet access, cable TV, and spend large sums of money on entertainment, going out to eat, films, and other ways of leisure, [a trend that] may be observed [in] every age span; those who have the money will invest in technology and spend it on entertainment.”17

Increased disposable income allowed Peruvians to spend more money on entertainment, and going to the movies became one of their favorite pastimes.18 The number of Peruvian movie theater customers

doubled between 2006 and 2012.19 In 2013, a record number of 35 million movie tickets were sold in Peru, an increase of 13% over the year before.20 Peruvian behavior was emblematic of a larger Latin American trend, where aggregate box-office revenues increased by 73% between 2008 and 2012, making it the fastest-growing movie-watching region in the world. (See Exhibit 4 for a breakdown of

global box-office growth.)21 Movie theater companies raced to meet demand. In 2013, Peru counted 69 movie theaters that held 473 individual viewing rooms.22 By 2015, those numbers were expected to

grow to 87 and 600, respectively.23 By 2012, 76% of all movie theaters in the country were found in the

capital.24 However, as demand increased in the provinces, cinema companies began to dedicate a higher percentage of their growth to cities and towns outside of Lima.25

Cineplanet

In 1998, three Peruvian friends completed their MBAs at the University of Pennsylvania Wharton

School and decided that they wanted to return to their home country to found a startup.26 After conducting research into several domestic markets, they noted the number of moviegoers had declined from 15 million in 1981 to 3 million in 1995 and concluded that their country’s entertainment sector was significantly underserved.27,28 In 1999, they founded Nexus Film Corp. and bought Cineplex, a

movie theater chain that operated three cinemas in Lima.29 The company’s name was changed to

Cineplanet in 2000.30 In 2004, Cineplanet expanded into Chile under its Movieland franchise by acquiring four cinemas from Cencosud, but also decided to rename its Chilean operations Cineplanet in 2012. It opened two additional Chilean cinemas (Costanera and Concepción) that same year. In October 2013, Cineplanet further expanded its presence in Chile by acquiring a cinema complex from Cine Hoyts, a Santiago-based cinema company.

Cineplanet quickly became the largest cinema company in Peru in terms of number of theaters,

tickets sold, and net income.31 In 2013, it accounted for 40% of all trips to the cinema in the country. In addition to its status as market-share leader, Cineplanet was a leader in technology and service innovation among Peruvian cinemas. In 2008, for example, it became the first cinema company in Peru

a The nuevo sol was the official currency of Peru. It was also referred to as the “sol” (“soles” in the plural). As of August 2014, one sol traded for 0.35 U.S. dollars.

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to offer 3D movies to its customers. As a response to a perceived demand for higher-quality amenities and services, it introduced its Cineplanet Prime movie theaters into the Chilean market in July 2012 and into the Peruvian market in February 2013. Prime moviegoers in the San Borja movie theater could expect to pay 40 soles, as opposed to 20 soles for adult general admission or 25 soles for 3D general admission.32 In return, they were offered larger, ergonomically designed, reclining seats; a larger

screen; food and beverage service; individual lamps and tables; and a full bar.33 (See Exhibit 5 for a picture of the Cineplanet Prime seats.) In 2014, Cineplanet became one of the first cinema companies in Peru to begin converting its analog projector systems to a digital format. However, despite Cineplanet’s position as a market leader, it still sought opportunities to improve.

Cineplanet’s Redesign Goals

Cineplanet’s management hoped to offer new services to the country’s growing middle class in order to allow it to further expand into what it considered an underserved market. Furthermore, it perceived the Peruvian middle class’s growing demand for services as an opportunity and impetus for innovation. “Consumers are becoming much more sophisticated,” said Fernando Soriano, Cineplanet’s CEO. “We are doing extremely well, and this is exactly the time when we should invest. Look at Blockbuster. They didn’t invest in their company when things were good and they went out of business. We don’t want the same thing to happen to us.”

Company leaders wanted to pursue a differentiation strategy and keep Cineplanet ahead of its competition. “We are conscious of the fact that we don’t sell movies, popcorn, or soft drinks. We sell an experience,” said Soriano. “Are our services sufficiently attractive for consumers to choose us? That is why we chose to work with IDEO. How do we get the client to want to come to the cinema, and not just for those products? We have to change the thought process of the people who go to the cinema simply for the movies.”

Management planned to increase Cineplanet’s growth rate over the coming years. As of 2013, the company operated 24 theater complexes in Peru that served 13 million customers and operated another 7 in Chile that served 2.6 million customers. By 2016, it planned to construct 18 additional complexes in Peru and 5 more in Chile to serve a total of 30 million clients in both countries. “Most of our prior decisions were based on assumptions that we made about the customer or about what would work best from an operational point of view,” said Maldonado. “Now that we are a mature business, we’re entering another phase of growth for the company where we’re focusing on what our customers say they really need. I think we’ll find a lot of new opportunities from this new point of view.”

Cineplanet’s management also wanted the redesign to go beyond simply introducing new products and services. It planned to institute significant cultural changes within the company. “In terms of methodology, our culture is highly operational. We’re trying to learn how to approach and learn from our customers. We need to change how our staff members are talking to customers and how they serve them,” explained Maldonado. “This is not a onetime project. It’s just the beginning of something new inside the firm.” With that in mind, Rafael Dasso, the president of Cineplanet’s board, decided to join Maldonado and Soriano as a part of the core team, as well as Alvaro Sedano, chief programmer; Veronica Vallarino, chief of marketing; and Hernan Carranza, chief innovation officer at Intercorp’s Innovation Lab, Cineplanet’s strategic partner.

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Implementing IDEO’s Human-Centered Design Process at Cineplanet

When the IDEO designers landed in Lima, they joined Maldonado, who became an embedded member of the project team. Together, they launched into IDEO’s design process, which began in an exploratory manner before transitioning iteratively and organically into “concepting” and prototyping.

Exploratory Phase: Inspiration and Research

The first phase of any IDEO project was exploratory in nature. Through observation and synthesis, project teams researched a broad array of topics associated with their brief before identifying and focusing on the narrower set of relevant data they would ultimately use to create and test possible design solutions. This conscious broadening and narrowing effort was repeated in some form in all three phases of IDEO’s design process, as designers would fluidly alternate between divergent and convergent thinking. Through divergent thinking, designers sought to multiply options and create a broad set of choices. Then, through convergent thinking, they would funnel through the possibilities, eliminating options and making choices. As CEO and president Tim Brown explained, “The process of the design thinker looks like a rhythmic exchange between the divergent and convergent phases, with each subsequent iteration less broad and more detailed than the previous ones.”34

Empathy and “human-centeredness” were central to IDEO’s design process.35 The exploratory phase’s first step involved intensive research of and interaction with consumers, industry experts,b

extreme users,c analogous examples,d and a variety of other sources in order to gain inspiration and insights into a product’s or service’s current and potential uses, benefits, and pain points.e Its designers

constantly sought to place themselves and their clients in the end-users’ shoes.36 In practical terms, this often meant watching users interact with a product in real time and picking up on problems that would

be impossible to gauge from a purely theoretic or analytical perspective.37 Rodriguez described the importance of empathy:

In essence, what you do in the human-centered design process is go out into the world to gain empathy for somebody else’s existence. All of us have a different story, so it’s really important to understand what’s happening in someone’s life and how your design solution might change it for the better.

The IDEO team began the Cineplanet project a week and a half before traveling to South America. They conducted research on Peruvian and Chilean cultural practices, investigated how people in Peru and elsewhere spent their leisure time, and learned about movie-going experiences around the world in order to have a base to work from when they arrived in the country. Once in Peru, they also sought

b IDEO considered individuals with in-depth knowledge of an economic sector to be industry experts. For example, team members on the Cineplanet project conducted extensive interviews with experts in food, movie distribution, and cinemas. Interviews with Cineplanet company experts were referred to as “looking in,” while interviews with outside experts were referred to as “looking out.”

c Extreme users were individuals who either were particularly passionate about products or services or used them in manners that diverged significantly from their designed purposes, often employing workarounds. Their needs, desires, or behaviors were amplified relative to those of mainstream users.

d When conducting analogous research, designers examined examples of how organizations in different sectors solved issues relevant to those faced by the product or service they were designing. For instance, the design team on the Cineplanet project sought inspiration from hotel checkout systems and e-commerce websites when hypothesizing dif

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