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. 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).
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).
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). 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.
Exhibit 3 IN THE ORIGINAL ARTICLE
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), these typically can’t be tackled by designers alone and often
take years of leadership commitment to establish.
Exhibit 4a IN THE ORIGINAL ARTICLE
By Benedict Sheppard, Hugo Sarrazin, Garen Kouyoumjian, and Fabricio Dore
CONTINUED IN PART II
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