Previously there was no way I could read all the information that was submitted, and I lived with a constant sense of nagging guilt.  With the new reports designed by 2nd Road, I could take a few minutes over a sandwich before a key meeting and feel that I was fully across the strategic issues that needed to be discussed.

Second Commissioner, Australian Tax Office

Shaping a New Social System

The client was the Australian Tax Office (ATO), and the events took place during an extended consulting period from the early 1990s and the early 2000s. Importantly, our clients were senior management, not middle or functional management. We worked with the commissioner (the head of the ATO) and the top three levels of management below him. We were not working to do graphic design on the annual plans or to design a website. We were applying design to an organization’s major directions and reshaping not only the organization itself but also the entire national taxation system.

Two questions arise here. Firstly, why was a major economic organization like the ATO interested in such extensive change, and secondly, what attracted it to design thinking? During the late 1980s, the ATO’s business model began to collapse. For half a century it had been the centralized processing house for all Australia’s taxation returns; while this offered apparent control over the tax system, it condemned the organization to an unsustainable model of in-house processing and controls. Thankfully, its leaders confronted this challenge and decided to reshape the business around self-assessment. In essence, they committed the organization to becoming market-facing, not techno-centric.

This would prove to be a decision with far-reaching consequences. Within this new paradigm, the ATO realized that it faced a world of wicked problems and that external stakeholders (i.e., the taxpaying community) would determine its success or otherwise—not just its technical competence. In this mindset, senior management was open to new thinking and problem-solving methodologies. First they embraced the learning-organization methods popularized by Peter Senge and then design thinking. Both methodologies were attractive, but design seemed more practical and relevant.

Leaders Experience Design Thinking

Following the early move to a market-based logic, the ATO decided to reshape its structure around markets rather than around functions. We worked with the senior leader to design and set up the first major part of the organization called Withholding Taxes—in effect, business taxes—which was responsible for collecting 70 percent of Australia’s tax revenues. This undertaking was clearly not an exercise in industrial design or any other area of traditional professional design—rather it was a design thinking task. It involved inventing a new structure, not analyzing an old one. It was a case not of improvement but of innovation.

So we had to turn these leaders into designers. We did this by a process called strategic conversations—in essence, a fast-tracked design workshop that enables senior leaders to apply high-level design thinking to strategic problems. Most approaches to strategy are highly analytic, but we argued that real strategy is much closer to design than analytics, an idea first argued by Jeanne Liedtka. Leaders have to conceive and shape a new thing—and only they can judge how good it is. This task is closer to design than quantitative analytics. We run these workshops with design facilitators who take the leaders on a journey of Socratic dialogue. The facilitators ask critical questions that guide the inquiry of the group, but the group actually has to make the argument and the outcome through dialogue. As they discuss, they are exploring, speculating and synthesizing—in effect using language to make new worlds. Our designers then capture this dialogue and fill the walls with visualizations that capture the emerging ideas and arguments.

This experience created a strong body of senior managers who had tasted the art and the joy of shaping a new social system—in fact, of being designers. Thus they had discovered a creative side to their managerial selves, and they had learned that there was no right answer to how they should organize their people. Most pertinently, they had learned two things that are intrinsic to design thinking: comfort with ambiguity and designing the logic of the organization from the customer backward

Around the same time, the government instituted a Tax Law Improvement Project (TLIP). The tax law is the main product platform of any taxation administration. It defines the conditions of the market and the obligations of taxpayers. But this product had become complex and unapproachable by ordinary people; hence it had become the domain of legal experts, not the human beings it was governing. This technical arrogance threatened the usability and the credibility of the tax system. We worked with the lawyers who were redrafting the legislation to design a human-centered model for the revised legislation. This pushed design beyond graphics into high-end information design, which was fed by plain-language principles and people trained in English literature. Importantly, we introduced the user into the process. This was a breakthrough.

In association with a team from Carnegie Mellon University led by Richard Buchanan (who is now a professor of design, management and information systems at Case Western), we introduced protocol analysis as a way to map the cognitive pathway of a reader trying to understand this complex information. We designed alternative drafts that expressed provisions in different ways so that we could test our design hypotheses. The changes were dramatic; we redesigned legislation around people and their comprehension processes. Comprehension is a complex process— especially when the information is complex and covers a specialist field like tax law. Hence we designed the information at several layers; we began at the sentence level, with grammatical rules for simplicity, and we embellished this with scenarios and examples. However, comprehending a major body of information requires more than grasping sentences—the real cognitive experience occurs at the level of architecture (what is the overall structure of the information?), navigation (where do I find what I want?) and conceptual acquisition (what are the meanings of the categories in this system?). To design this level of the information, we ventured into diagrams and other large-scale innovations, such as introducing purpose clauses at the start of each provision.

TLIP was restricted to a communication scope, but later the government initiated changes to the substance of the law in A New Tax System (ANTS). This was the largest change to the tax system in Australia’s history. It left the ATO with the task of designing the administrative systems that would make the new laws work. The organization seized the opportunity to reshape many key features of the taxation system to bring it into the 21st century. With the commissioner, we created a Corporate Design Forum where about 20 major changes (e.g., new tax file numbering systems) were debated and designed in one-day workshops by the senior people in the organization over a two-year period. These Corporate Design Forums were open facilitated workshops where ambiguous matters were visualized and prototyped. Here the objects of design were not posters or toasters, but large-scale administrative systems. The task was a design task, not an analytic one, because there was no preexisting subject matters for us to work on; we were not trying to uncover a problem that lacked definition. The subject was indeterminate and could take any shape that we forged.

A System That Human Beings Can Use

Despite these advances, not all leaders in the ATO advocated design thinking or believed in its central importance. The needs of the user were still subordinated to the technical mastery of the organisation—until the biggest aspect of the new tax laws hit a major roadblock that caused outcry among the public. The key feature of the new tax system was a shift to a Goods and Services Tax. This was a politically significant move and a very controversial one, so the government wanted its implementation to go well. The ATO was faced with a huge task to manage the change and had to perform under tight time pressures to get the system working for the new financial year. It involved layers of administration ranging from law to administrative arrangements to computer systems and new forms. All seemed to go well until the public actually tried to complete the forms. It proved confusing and difficult—and many small-business people made big mistakes in their returns, and found themselves to be noncomplying taxpayers facing significant penalties. Like a bushfire, the public reaction was swift and deadly; radio talk shows and newspapers were full of complaining taxpayers who saw the new system and its form—the Business Activity Statement—as a symbol of Big Brother and an unsympathetic government. If this was a minor system, this reaction may not have mattered, but it was not. This was the public face of the biggest change to the tax system in decade. The leaders of the ATO and Treasury found themselves at the center of a public storm—and their political masters did not like this.

The commissioner asked us to diagnose the customer experience, and then also to diagnose what the organization had done wrong. He specifically wanted an external consultancy to conduct the review since he felt that his people would be too defensive. His department had spent over a million dollars on market research in the form of focus groups as part of the development process, but clearly this had led them nowhere. We explained that this was not the same as design research where we would investigate the customer’s experience, not just their opinions—and in particular we would use observation-based research to find out what a day in the lives of the taxpayers was like. Most importantly, the commissioner gave us a full day to conduct a workshop with his top 20 people and himself.

We chose to do this by immersing the leaders in two personas and their pathways through the system. The climax of the day was an exercise in which we had the participants to try to fill in the Business Activity Statement for one of our personas (with her permission, of course). The result was cathartic; not one of the top leaders could complete her form! This confronted them with a dreadful truth; they were developing systems that human beings could not use—and that were threatening the public’s confidence in the whole system. From that day, the organization’s leaders saw the customer experience and design as key strategic elements, not just as tactical expedients.

This sea change was then institutionalised into the practices of the organisation

We set up a Design Centre, and the ATO began to develop a design capability that was led from the top of the organisation. Since that day, the ATO has invested tens of millions of dollars in building this capability.

So over a period of a decade, design thinking penetrated this huge government agency. During that time we convinced them that design was a core capability of the ATO—they were in fact designing huge administrative systems, not just managing them. The object of their design was not artifacts or communications but experiences mediated by large systems and informed by significant political intent. Importantly, no design school on the planet taught anyone how to design tax systems, and thus there were no readymade design consultancies or practices to fall back on—unlike Apple, the ATO could not turn to an IDEO or a frog design for cool design to. The only approach was for us to bring them design thinking that could be applied to large intangible systems that only they as tax experts could design. This meant a large-scale education and dialogue program that educated people about design—but more importantly that positioned design thinking at the top of the organisation, not as a functionary role of middle management.

Stretching design to work on larger technical and social systems

Buchanan calls this area of stretched design third- and fourth-order design. These new horizons of third- and fourth-order design map out a broad landscape where design thinking offers a new art of problem-solving that complements the analytic approaches that dominate problem-solving today, and where the objects of design move beyond graphics and physical products to include such intangibles as information and knowledge, systems and interactions, experiences and identity, and communities and cultures.