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Activity theory is based on the concept of tools mediating between subjects and objects. In this theory, an individual's creative interaction with his or her surroundings can result in the production of tools. When an individual's mental processes are exteriorized in the form of tools – termed objectification – they become more accessible to other people and are therefore useful for social interaction. This paper shows how our understanding of activity theory has shaped our design philosophy for groupware and how we have applied it. Our design philosophy and practice is exemplified by a description of the BUILD-IT system. This is an Augmented Reality system we developed to enhance group work; it is a kind of graspable groupware which supports cooperative planning. The system allows a group of people, co-located around a table, to interact, by means of physical bricks, with models in a virtual three-dimensional (3D) setting. Guided by task analysis, a set of specific tools for different 3D planning and configuration tasks was implemented as part of this system. We investigate both physical and virtual tools. These tools allow users to adjust model height, viewpoint, and scale of the virtual setting. Finally, our design practice is summarized in a set of design guidelines. Based on these guidelines, we reflect on our own design practice and the usefulness of activity theory for design. [ABSTRACT FROM AUTHOR]