Tapping into the
business value of design PART I
Design, whether it’s of products or
experiences, is not only about aesthetics but also about specific actions taken
to boost revenues and customer engagement.
Simon London speaks
with McKinsey partners Ben Sheppard and Hyo Yeon about new research that
demonstrates the dramatic impact that specific design actions have on the
revenue growth of companies that are considered top performers in design.
Podcast transcript
Simon London: Hello, and welcome to this edition
of the McKinsey Podcast, with me, Simon London. Today we’re going
to be talking about one of the fuzziest words in the business dictionary:
“design.” Perhaps it’s clear to designers, but for the benefit of the rest of
us, what actually is design? As an executive, when and how much should you
invest in it? And if you do, how should you organize, measure, and manage your
design capability? To discuss the issues, I caught up with Benedict Sheppard, a
London-based McKinsey partner who has led some recent research into the
business value of design. We were joined by Hyo Yeon, a New York–based McKinsey
partner and also a practicing designer.
Hyo and Ben, thanks so
much. Welcome to the podcast. Thanks for doing this.
Hyo Yeon: Thank you.
Ben Sheppard: Delighted to be here. Thank you.
Simon London: I’m going to start with a very
simple question. When we’re talking about design, Hyo, what are we talking
about?
Hyo Yeon: There are three core elements to
design. One, obviously, is the craft, the doing of design, which is closer to
artisanal, beautiful, creating artifacts, creating experiences. The next is the
end product, a product or a service, or, in my world, a digital experience. All
of those things are actually design. The third, which is design thinking, many
people are familiar with, is the method by which we tackle problems or
challenges. And it’s not just design problems. It’s any kind of problem that we
can crack with a design-thinking methodology. So those three things come
together.
Simon London: So it’s like a craft, a process,
and then an end product, but it doesn’t have to be a physical product. It could
be a service or something like that. Would you agree with that, Ben? Is that a
good summation?
Ben Sheppard: Absolutely. Those three come
together in that they’re all trying to do one thing. They’re all trying to get
under the skin of understanding users and then create or design something to
meet their needs. I do think design is one of those terms which means many
things to many people. It’s one of those terms that’s abused and misused like
agile and big data. One of the things that we are very keen to make sure is
that design isn’t boxed in as being seen just about physical products or just
about a material finished aesthetic.
Simon London: It’s often asserted, I think,
implicitly by us as well, that design is more important today. Is that true?
And if so, why is it true?
Ben Sheppard: We would argue that design has
always been important. If your company isn’t making great products or services,
then frankly, what is it doing? What I do think has changed over the last few
years is that it’s getting harder to do great design and stand out from the
crowd.
There are a couple of
reasons for that, some of them internal, some of them external. Externally,
you’ve got rising consumer expectations set by the likes of companies such as
Amazon that leak into every field of life, whether it be consumer or business.
You’ve got a world where marketplaces are evermore global and therefore
companies are being compared to more competitors than ever before, making it
hard to stand out.
Then, of course, you’ve
got the internal piece, which is design used to be seen as a very discrete
field. As design has evolved, it’s become more cross-functional. Physical,
digital, service design have all converged. And that’s great for the end user.
But from an organizational point of view, that’s very challenging, indeed, to
manage. And because all these different forces have come together at once, it
means that that act of making stand-out products and services that really
delight customers is harder than ever before for many companies out there.
Hyo Yeon: I think all of this points to
something that is important to talk about, which is design is not one product
or one touchpoint or one channel, even. It’s the whole end-to-end journey of a
user or a customer. All of that needs to be looked at in one holistic way in
order to solve for any point in that journey, including all of the players in
the ecosystem and looking at the beginning, middle, and end of how they experience
a particular service or brand or product is the way to solve for and create
really awesome design.
Simon London: Let’s get to the meat of the
research. Ben, if you don’t mind, describe what we did.
Ben Sheppard: What we did is look at the
performance of 300 publicly listed companies over a five-year period. In that
five-year period, we were interested in two things about those companies.
First, their financial performance: How did they do in terms of revenue, in
terms of profit, in terms of shareholder return?
The second thing we
were interested in is, “What are the design actions that those companies took
over that same period?” The design action could be putting someone in the
executive board who has a responsibility for design or it could be changing
people’s bonus structure to tie to design metrics, not just financial metrics.
What we ended up with was a database which we believe to be truly unique. It
contains two million financial data points, 110,000 design actions. And, of
course, the question we then had is, “Well, is there any correlation between
those two?”
Simon London: Now, how much of the information
about design actions came from publicly available data like earning statements,
these kind of things? Or how much of it came from getting real access to the
guts of what the companies have done?
Ben Sheppard: This is really going behind the
curtain with these organizations. Therefore, one of the things that we’re not
able to do is release the names of those companies because they’ve given us
this privileged access, which has allowed this data to happen for the first
time.
There have been other
reports, which have been done with outside information before. However, I don’t
think, speaking with our own clients, they’ve been granular enough or rigorous
enough to actually lead to different behavior by senior management. What we’re
hoping we’ve done for the first time is create a quantitative analytical look
at what truly drives business performance from a design perspective.
Simon London: And just give us the top-line
results?
Ben Sheppard: If you only remember one thing,
it’s that good design is good business. The numbers are dramatic here. The
revenue growth of top design performers was almost double that of their
industry peers. The shareholder return growth of top design performers was 70
percent higher than their industry peers (Exhibit 1).
Exhibit 1
PLEASE SEE THE ORIGINAL ARTICLE
These are dramatic
numbers. McKinsey does a lot of social-science work, looking for correlation
between organizational actions and financial performance. This is some of the
most dramatic that we’ve seen in the last decade. So that’s the top-line
message.
The second thing that
came out of the research was that good design is good business, across a very
broad set of industries. We looked at three. We looked at consumer packaged
goods. We looked at medical devices. And we looked at retail banking. We chose
those quite purposefully because we were interested to understand, “Is product
design different from service design? Is that different from digital design? Is
only one of these tied to improved business performance?” (Exhibit 2).
Exhibit 2 PLEASE SEE THE ORIGINAL ARTICLE
The results
categorically say, “No, this is about design overall. It’s about understanding
your customers. It’s about creating a great solution for them. And it doesn’t
matter whether that’s physical, digital, or service.” The third and final
insight was that this is a game of disproportionate rewards. An extra dollar
spent on design doesn’t necessarily mean an extra dollar of output. This was
really a case where, if you do design fantastically well, you stand out from
the competition, then you are disproportionately rewarded in terms of revenue
and certainly disproportionately rewarded in terms of the market.
And that makes sense
from a user perspective. Frankly, no one cares if your product is the 32nd best
or the 31st best. The user’s going to be looking at the top two or three and
comparing them. If you’re not in that space, then you’re out of the game.
Simon London: Now the question is for
top-performing companies that are really good at design, what do they do
differently?
Ben Sheppard: We looked at hundreds of design
actions that these companies were taking. Time after time, four themes kept on
rising to the surface as the design actions with the best correlation with
improved performance (Exhibit 3). The first one was around design being more
than a feeling. It was about analytical leadership, making sure that you
treated design with the same level of rigor that you might treat revenue or
cost when discussing it in the boardroom.
Exhibit 3 PLEASE SEE THE ORIGINAL ARTICLE
https://www.mckinsey.com/business-functions/mckinsey-design/our-insights/tapping-into-the-business-value-of-design?cid=podcast-eml-alt-mcq-mck&hlkid=0b3c2f7973a54b379bbf00ba81599465&hctky=1627601&hdpid=073f4507-5c6a-4a86-b222-b20b884a8009
CONTINUED IN PART II
No comments:
Post a Comment