The care of dementia patients presents a large challenge for caregivers and family members. Whether it is at home or in institutional care, patients have problems with spatial and environmental cognition. It often leads to abnormal behaviors such as a route recognition problem, wandering, or even getting lost. These behaviors require caregivers to keep an eye on the movement of the cognitively impaired elderly and the safety of these movement processes, to avoid them approaching dangerous areas or leaving the care environment. This paper used qualitative research methods (i.e., participatory interviews, case studies, and contextual observation methods) in the demand exploration phase and quantitative research methods in the product’s technological verification phase. In this study, we implemented a three-stage service design process—demand exploration, demand definition, and design execution—to analyze the care status and route recognition obstacles of elders with dementia, to identify hidden needs as a turning point for new product innovations in care management and guidance security. This study summarizes six service needs for care management and guides the surveillance and safety of elders with dementia: (1) offering indoor user-centered guidance, (2) providing the instant location information of elders with dementia to caregivers, (3) landmarks setting, (4) assistance notification, (5) environmental route planning, (6) use of a wearable device as a guide for indoor route guidance. Based on the potential deficiencies and demands of observation, the care management and guidance security system (CMGSS) was designed. The experimental results show that the use of ultra-wide band positioning technology used in the indoor guiding system can accurately guide the behavior of patients to the right position, provide accurate information for caregivers, and record their daily behavior. The error range of this technology was not only within 42.42 cm in indoor static positioning but also within 55 cm in dynamic positioning, even where wall thickness was 18 cm. Although the device was designed for institutional care, it can also be applied to the management and care of general home-based patients.