Dean of Northwestern University's Kellogg School of Management, Dr. Dipak C. Jain has long been a proponent of educating students about the importance of design. Here he talks with Peter Lawrence, chairman of Corporate Design Foundation.

What are the market forces that stand in the way of creating customer value today?

For one, globalization and technology have changed the rules of the game in the marketplace. Competition now comes from everywhere, with technological advances enabling more products to be introduced every day. Given all of these choices consumers are more demanding and better informed than ever. At the same time, however, the quality differences between competing brands are diminishing because companies have access to the same technology. All the laptops seem similar, for example; variations are slight. So the problem that companies face is how to create a meaningful differentiation in the minds of these sophisticated customers with products and services that are becoming less and less differentiated.

How does a company create brand distinction with products becoming more alike?

More companies are using design to differentiate their products and services. By design, I don't mean just the aesthetics of the product, but the total customer experience. On the product side, it's creating a userfriendly experience with consideration to human factors, ergonomics, and so on. On the service side, it is the complete process designing a system where the customer feels welcomed, is able to interact with you, and wants to return or recommend it to others.

Drawing attention to your product is one thing, building customer loyalty is another. How do you develop loyalty?

One way is to reduce the customer's "cost of thinking" and increase the customer's "cost of switching." That's where you gain loyalty. If a product is too complicated to use, if the instruction manual is unclear, that raises the cost of thinking. When my wife goes to her favorite store, she knows the layout, which aisle to go to for what she wants. Her cost of thinking has been reduced and her cost of switching is higher. Good design factors in the cost of thinking. The product, the operating manual, the retail environment are all part of the design. The execution, the display of the content is important.

What is the biggest misconception that business students and executives hold about design?

They think that you can outsource it. They think, "Oh, you can give it to someone, and they will design it and show us the product, so I don't have to get personally involved." They don't realize how important it is for the executive to be a part of the process. The same misconception existed about marketing 10-20 years ago. When asked the definition of marketing, students and executives used to say, "Marketing is creative advertising." They didn't understand how they should go about talking to customers, understanding their needs, and then trying to anticipate those needs. But that is changing. Now we must change the mindset about design.

Can companies facilitate the design process by providing a context for the product?

I think companies need to spend time doing ethnographic research. They need to see for themselves what is happening out there, how customers actually use the product, what difficulties they have with it. Their observations may show them the points of differentiation. In essence, this lets you make customers the co-creators of your product by having them tell you what they are willing to buy.

How does ethnographic market research work?

I am not an expert in this area, but basically you create scenarios for customers, enter their world to note their behavior and reactions. These scenarios help you to anticipate what the market would look like, how the customer needs might evolve.

Can't you get the same information from consumer surveys?

Not really. There's a disconnect between what people say and what they do. In my market research course, I use the phrase "buyers are liars." Ask people what channel they watch on TV, and they will tell you PBS. But, in reality, 60% of the time they are watching World Wide Wrestling. With traditional consumer surveys, people tell you what they think you want to hear. Ethnographic research, combined with consumer surveys, will be more useful.

Do you think that designers should be involved in ethnographic observation?

Absolutely! The ethnographic observation process should be a team approach, with a designer, a psychologist and a marketing person watching the videotapes to see what is happening.

Are any companies applying the concept of customers as co-creators?

Look at a company like Dell Computer. It lets customers configure the product that's right for them. If you make the customer tell you what he or she is looking for, that to me is differentiation.

Are you applying any co-creator concepts at Kellogg?

I want to make sure that our incoming students are co-creators of knowledge. If they just sit and listen to their professors, that's one-way traffic. I would like students to get involved in creating knowledge, so they can write cases, work with professors on research projects, work on books. While they are at Kellogg, they should not think that they are here just to take 20 or 24 courses and get an MBA.

To what extent is the design of the place of education important?

If you ask me, that makes or breaks an experience. The design of the physical space creates a sense of community. Graduates take away from Kellogg not just an MBA degree, but the friendships they create with people, the networking. You need a place that facilitates interactions. The community that emerges from here encourages them to come up with new ideas. It helps make them more innovative because they think collectively.

How is Kellogg marketing itself?

We believe in continuous innovation, so we keep updating our curriculum. Our MBA students can be viewed as products in which we add value to make them more attractive to the corporate sector, i.e., customers. My predecessor Don Jacobs (dean for 26 years) invested in the James L. Allen Center Executive Education Program to create products and customers simultaneously. He felt that if executives learned new critical-thinking and analytical skills from Kellogg professors in one to three hour sessions, they could imagine how much an MBA student could learn over a two-year period. Also, when executives come to the Allen Center, they tell us the issues they are facing. We expose students to these issues through research projects. It becomes a continuous feedback loop.

Doesn't Kellogg invite students to suggest programs?

Yes, we take a very "customer-centric" approach to running a business school. After the fall of the Berlin Wall and opening of Russia in 1989, students suggested that we start a Global Ventures program where a few of them would go to Russia, study the market conditions, and write a report on the challenges and business opportunities opening up there. They developed a ten-week course outline, where different guest speakers came to Kellogg to lecture on Russia. Then during spring break, the students did field work in Russia under the direction of their professor. Since 1990, the course has expanded to include some 13-14 countries. About half of the business school participates every year.

Don't you have a similar program in the technology sector?

Yes. It's called the Tech Venture Program. Under the direction of two professors, students meet with Silicon Valley companies and write case studies. The ten top projects are then published in a book, "Kellogg on Tech Ventures." After the first book came out, Bill Gates ordered a copy for every Microsoft employee. The success of that publishing effort led us to apply it to our Global Ventures program as well.

What is the reason for publishing student research?

We need to make education tangible, otherwise it is only tentative. Companies can read these case studies. Anyone who wants to go to Vietnam can learn first-hand student accounts of what they think the issues are. Kellogg School of Management is noted for its academic excellence and this reputation gives brand credibility to work produced from here.

How do you go about bringing a multidisciplinary experience to Kellogg?

For one, we offer the Learning by Experience and Action Program [LEAP], where second-year students work on projects with actual companies. The project involves a design part, a pricing part, a market segmentation piece, and a finance part, so students do a full project for a company, just like a consulting assignment. The course becomes interdisciplinary because you have to apply everything that you have learned.

Is design taught to MBA students at Kellogg?

We have an integrated design course, of which five weeks are on industrial design and five on graphic design. Design is very much a part of the marketing curricula, and in the new products and services course, which I used to teach, we touch on design. Design is part of the Master of Manufacturing Management program, in which students from Northwestern engineering and Kellogg work together in a sequence of courses.

You've spent most of your career teaching marketing. What do you believe is the essence of successful marketing?

To me, it lies in clearly understanding your customers' needs, not just existing ones, but future needs or what I call "latent needs." Successful organizations anticipate those needs better and go about creating the right customer values and sustaining them through innovation. Today no company, no matter how successful, can afford to be complacent. Even if you have 90%, 100% of market share, you still have to innovate continuously.

Kellogg is ranked by Business Week as the top U.S. business school, by a Wall Street Journal / Harris Interactive survey as one of the nation's top five MBA schools and by Economist Intelligence Unit (EIU) as among the world's best. What are you doing to sustain that?

I have been focusing on the Kellogg School "brand," and what we stand for. We are continually innovating to find new sources of differentiation. One area that I am working on is moving from teamwork to this whole area of leadership. On the student side, I want to promote team leadership. On the faculty side, I want to promote thought leadership, fostering the nation's thought leaders. On the corporate side, I want to focus on market leadership; how companies become the market leaders. At Kellogg, we strive for a culture of balanced excellence, one that equally appreciates rigor and relevance in all that we do.