DESIGN SPECIAL The
business value of design PART I
How do the best design performers increase
their revenues and shareholder returns at nearly twice the rate of their
industry counterparts?
We all know
examples of bad product and service design.
The USB plug (always lucky on the third try). The experience of rushing to make
your connecting flight at many airports. The exhaust port on the Death Star
in Star Wars.
The
business value of design
We also all know iconic designs, such as
the Swiss Army Knife, the humble Google home page, or the Disneyland visitor
experience. All of these are constant reminders of the way strong design can be
at the heart of both disruptive and sustained commercial success in physical,
service, and digital settings.
Despite the obvious commercial benefits of
designing great products and services, consistently realizing this goal is notoriously
hard—and getting harder. Only the very best designs now stand out from the
crowd, given the rapid rise in consumer expectations driven by the likes of
Amazon; instant access to global information and reviews; and the blurring of
lines between hardware, software, and services. Companies need stronger design
capabilities than ever before.
So how do companies deliver exceptional
designs, launch after launch? What is design worth? To answer these questions,
we have conducted what we believe to be (at the time of writing) the most
extensive and rigorous research undertaken anywhere to study the design actions
that leaders can make to unlock business value. Our intent was to build upon,
and strengthen, previous studies and indices, such as those from the Design
Management Institute.
We tracked the design practices of 300
publicly listed companies over a five-year period in multiple countries and
industries. Their senior business and design leaders were interviewed or
surveyed. Our team collected more than two million pieces of financial data and
recorded more than 100,000 design actions.1 Advanced regression
analysis uncovered the 12 actions showing the greatest correlation with
improved financial performance and clustered these actions into four broad themes.
The four themes of good design described
below form the basis of the McKinsey Design Index (MDI), which rates companies
by how strong they are at design and—for the first time—how that links up with
the financial performance of each company (Exhibit 1 IN THE ORIGINAL ARTICLE).
Our research yielded several striking
findings:
1. We found a strong correlation between high MDI scores
and superior business performance. Top-quartile
MDI scorers increased their revenues and total returns to shareholders (TRS)
substantially faster than their industry counterparts did over a five-year
period—32 percentage points higher revenue growth and 56 percentage points
higher TRS growth for the period as a whole.
2. The results held true in all three of the industries we
looked at: medical technology, consumer goods,
and retail banking. This suggests that good design matters whether your company
focuses on physical goods, digital products, services, or some combination of
these.
3. TRS and revenue differences between the fourth, third,
and second quartiles were marginal. In
other words, the market disproportionately rewarded companies that truly stood
out from the crowd (Exhibit 2 IN THE ORIGINAL ARTICLE).
An
elusive prize
In short, the potential for design-driven
growth is enormous in both product- and service-based sectors (Exhibit 3 IN THE
ORIGINAL ARTICLE). The good news is that there are more opportunities than ever
to pursue user-centric, analytically informed design today. Customers can feed
opinions back to companies (and to each other) in real time, allowing design to
be measured by customers themselves—whether or not companies want to listen.
Lean start-ups have demonstrated how to
make better decisions through prototyping and iterative learning. Vast
repositories of user data and the advance of artificial intelligence (AI) have
created powerful new sources of insights and unlocked the door for new
techniques, such as computational design and analytics to value. Fast access to
real customers is readily available through multiple channels, notably social
media and smart devices. All of these developments should place the user at the
heart of business decisions in a way that design leaders have long craved.
What our research demonstrates, however,
is that many companies have been slow to catch up. Over 40 percent of the
companies surveyed still aren’t talking to their end users during development.
Just over 50 percent admitted that they have no objective way to assess or set
targets for the output of their design teams. With no clear way to link design
to business health, senior leaders are often reluctant to divert scarce
resources to design functions. That is problematic because many of the key
drivers of the strong and consistent design environment identified in our
research call for company-level decisions and investments. While many designers
are acutely aware of some or all of the four MDI themes (Exhibit 4a IN THE
ORIGINAL ARTICLE), these typically can’t be tackled by designers alone and
often take years of leadership commitment to establish.
Top-quartile companies in design—and
leading financial performers—excelled in all four areas. What’s more, leaders
appear to have an implicit understanding of the MDI themes. When senior
executives were asked to name their organizations’ single greatest design
weakness, 98 percent of the responses mapped to the four themes of the MDI
(Exhibit 4b IN THE ORIGINAL ARTICLE).
Unpacking
the MDI
In the remainder of this article, we’ll
describe the four clusters of design actions that showed the most correlation
with improved financial performance: measuring and driving design performance
with the same rigor as revenues and costs; breaking down internal walls between
physical, digital, and service design; making user-centric design everyone’s
responsibility; and de-risking development by continually listening, testing,
and iterating with end users.
More than a feeling: It’s analytical leadership
The companies in our index that performed
best financially understood that design is a top-management issue, and assessed
their design performance with the same rigor they used to track revenues and
costs. In many other businesses, though, design leaders say they are treated as
second-class citizens.
Design issues remain stuck in middle
management, rarely rising to the C-suite. When they do, senior executives make
decisions on gut feel rather than concrete evidence.
Designers themselves have been partly to
blame in the past: they have not always embraced design metrics or actively
shown management how their designs tie to meeting business goals. What our
survey unambiguously shows, however, is that the companies with the best
financial returns have combined design and business leadership through a bold,
design-centric vision clearly embedded in the deliberations of their top teams.
A strong vision that explicitly commits
organizations to design for the sake of the customer acts as a constant
reminder to the top team. The CEO of T-Mobile, for example, has a personal
motto: “shut up and listen.” IKEA works “to create a better everyday life for
the many people.” And as Pixar cofounder Ed Catmull told readers in a McKinsey Quarterly interview, to “wow”
movie-goers continually, his company encourages its teams to take risks in
their new projects: Pixar considers repeating the formulas of its past
commercial successes a much greater threat to its long-term survival than the
occasional commercial disappointment.
It’s not enough, of course, to have fine
words stapled to the C-suite walls. Companies that performed best in this area
of our survey maintain a baseline level of customer understanding among all
executives. These companies also have a leadership-level curiosity about what
users need, as opposed to what they say they want. One top team we know invites
customers to its regular monthly meeting solely to discuss the merits of its
products and services. The CEO of one of the world’s largest banks spends a day
a month with the bank’s clients and encourages all members of the C-suite to do
the same. Through personal exposure or constant engagement with researchers,
executives can act as role models for their businesses and learn firsthand what
most frustrates and excites customers.
Many companies, though, acknowledge a
worrying gap in understanding at the top of their organizations.
Less than 5 percent of those we surveyed
reported that their leaders could make objective design decisions (for example,
to develop new products or enter new sectors). In an age of ubiquitous online
tools and data-driven customer feedback, it seems surprising that design still
isn’t measured with the same rigor as time or costs. Companies can now build
design metrics (such as satisfaction ratings and usability assessments) into
product specifications, just as they include requirements for grades of
materials or target times to market.
The value of such accurate insights is
significant—one online gaming company discovered that a small increase in the
usability of its home page was followed by a dramatic 25 percent increase in
sales. Moreover, the company also discovered that improvements beyond these
small tweaks had almost no additional impact on the users’ value perceptions,
so it avoided further effort that would have brought little additional reward.
CONTINUES IN PART II
By Benedict
Sheppard, Hugo Sarrazin, Garen Kouyoumjian, and
Fabricio Dore
https://www.mckinsey.com/business-functions/mckinsey-design/our-insights/the-business-value-of-design?cid=other-eml-alt-mkq-mck-1810&hlkid=3e6b7a194cde4f8ab3f8484c73826bac&hctky=1627601&hdpid=e472413a-7de4-4ed4-a341-c40f007886c5
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