Lifting the design potential of Japanese companies

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Great design is good business. In 2018, a McKinsey analysis of 300 publicly listed companies showed that those with the strongest design behaviors grow twice as fast, and generate almost twice as much value, as their industry peers. In our previous article,1Japan’s design imperative,” McKinsey, April 6, 2022. we argued that Japanese companies could have even more to gain from an increased focus on design. We showed how best-in-class design practices are already helping some companies to revitalize their innovation capabilities and forge stronger links with their customers.

In our experience, most leaders at Japanese companies recognize that more robust design capabilities have the potential to help them address some of their most significant competitive challenges. But they don’t know how to develop those capabilities in their organizations.

A process for better design

Our research found that good design requires a holistic approach comprising four themes. Companies that perform well across all four ensure that design delivers real value to the organization (Exhibit 1). And the best way to develop those behaviors is through practice on projects. Successful organizations usually begin their design journey by picking a small-scale yet big-picture project and committing resources and effort to address all four themes together.

Four themes help companies maximize the business value of design.

Starting with a single pilot project maximizes the chance of a good outcome, and a high-profile early success acts as a “lighthouse” to inspire similar projects. Over time, good design behaviors scale across the organization until they become business as usual.

At California-based medtech company Illumina, for example, design played a key role in transforming the company from a minor player to a leading provider of genetic-analysis equipment. In the mid-2000s, the company’s then-CEO, Jay Flatley, recognized that the best technology was not enough to win in a rapidly expanding new market; instead, Illumina’s products also needed to be very easy to use. His strategy was to expose the product development team to the challenges of customers. This helped develop empathy among the company’s engineers and brought customer advocacy into the product development process. With each successive product development, Illumina established an institutional culture of customer-led design which has resulted in more than a decade of market share increases, along with big returns for shareholders (Exhibit 2).

Changing from an engineering-led culture to a customer-centric culture helped Illumina to improve its products.

This approach makes sense for Japanese companies too. Indeed, most Japanese companies are very comfortable with the idea of running pilot projects to test new innovation approaches. The details matter, however. Attempts to replicate a process that worked in a European or North American business will often fail in Japan due to differences in established practices and cultural norms.

Design-led organizations are emerging in Japan, however. Our observations and interviews suggest that this isn’t happening by accident. Each of these organizations has taken a deliberate decision to step away from age-old business processes and made a commitment to new ways of working.

Like their counterparts elsewhere, these companies started with focused, high-impact pilot projects. Every step of the way, however, these companies have tailored their approach to the Japanese context, taking specific actions to address the good-design inhibitors that we have described elsewhere.2Japan’s design imperative,” McKinsey, April 6, 2022. Furthermore, when Japanese companies build up all four good-design enablers, they tend to do so in a well-defined sequence (see sidebar, “Building up good-design enablers”).

Analytical leadership: Get design on the C-suite agenda

Major change initiatives require support and commitment from the top. In the case of design, senior leaders first need to understand the importance of linking products and services directly to customer needs. Then they need to assign ownership and create a mandate for change—and that’s where the real work begins. Few Japanese companies have a chief design officer, for example, meaning the topic lacks a voice in the C-suite. And companies don’t yet have metrics to measure the success of their design efforts or the value they generate.

The most important analytical decision senior leaders need to make at the outset of the design journey is choosing the first project. This can involve delicate trade-offs. To act as a lighthouse, a pilot project needs to be big and important enough to make a meaningful contribution to the company’s strategic objectives, but it also needs to be manageable by a relatively small team using unfamiliar approaches.

One approach is to pick a burning platform, such as a project in a key segment that is under threat from emerging competitors or technological change. Another is to target a significant growth opportunity, such as a novel product category or new export market.

Choosing high-risk, high-reward pilots like these almost automatically ensures that the pilot will receive significant management attention—and that’s a good thing. But with so much at stake, companies can also be reluctant to make radical changes to product concepts or features. That leads some to be more cautious, piloting new design approaches on noncore products first, before moving on to the higher-profile lighthouse projects that will inspire wide adoption across the organization.

Seamless experience: Invite customers into the conversation from the start

As soon as the organization has selected its lighthouse project, it is time to engage with customers. Lean-manufacturing specialists have long known that the best improvement ideas come from “gemba walks”—from the Japanese for the “real place,” meaning where the work is done—on the factory floor, talking to operators and watching processes in person. Yet despite the origin of the term, applying the go-to-gemba philosophy to customers in the field represents a significant shift for many Japanese product development teams. As the leader of one medical device company told us, “Typically, product engineers do not meet the customers: they rely on inputs from sales reps. This is because sales reps do not want to give away the relationship, and because engineers are reluctant to meet them.”

Taking engineers to meet customers and watch products being used can be revelatory. In most organizations, engineers are used to a technology-first view of product development, in which they focus on delivering a predetermined set of features at the right quality and cost. Working with customers and experienced ethnographic researchers, by contrast, encourages them to think first about how the product meets the real-world needs of those customers. That can lead to all sorts of innovation, from the deletion of unnecessary or overly complex features to the selection of different technologies that better address customer needs.

For pilot projects, the output of these initial customer observations and conversations should be a clearly defined and prioritized set of needs, which will provide the foundation for all subsequent development activities. One leading Japanese consumer electronics company, for example, requires engineers to demonstrate how every product feature addresses specific customer needs.

Cross-functional talent: Bring stakeholders together

Armed with customer insights, senior leaders next need to build the right team to execute the project. Critical is the identification of one or two leaders within the organization to become standard bearers for design approaches. The right person for this role is somebody who has a high level of expertise in the organization’s existing product development processes, as well as the communication and leadership skills to engage and motivate colleagues. Their first job will be to articulate a vision for design within the organization, explaining why it matters, what it offers, and how a design-led approach will be different from what has gone before. One Japanese CEO suggests a strategy that has worked in their company: “The best way to change the mindset of engineers is to find engineering leaders who believe in [the] design approach. They will have the most influence on junior engineers.”

The team that the design leader engages should also be carefully selected. Its members should be people with an appetite for change and a sense of urgency. It should also be cross-functional, including both engineers and representatives from other functions. Marketing personnel can often play an effective role as proxies for customers, helping teams to prioritize needs and test the value of early ideas. Similarly, manufacturing and procurement specialists can provide early input into the cost implications of those ideas. Together, this combination of perspectives helps teams to focus their effort on the features and concepts that are likely to have the highest impact.

To emphasize the break from the old ways, it is useful to bring the team together in a nonstandard environment. Companies can establish a “design garage” away from their usual engineering facilities, for example.

Continuous iteration: Build an agile culture

Out of respect for peers, Japanese companies are reluctant to challenge early ideas once they have been agreed upon. The problem with this is that early ideas are just that: early. They need maturation into better ideas, which means combining and evolving ideas to make them stronger. There is also a tendency among those Japanese companies that do early testing with customers to only do it once. The likelihood of reaching an optimal solution in only one cycle of refinement is very low. Two or three rounds of customer feedback should be considered the minimum to reduce risk of costly failure at launch.

An organization’s pilot projects should make early testing with customers the norm, with teams willing to share models, low-fidelity prototypes, and basic minimum-viable-product iterations. Once again, this contact with customers can be revelatory. Companies that pursue this approach quickly see that early failure saves them time and money in the long term, and that continuous feedback is the fastest way to turn promising ideas into great products.

Effective design teams plan their activities around regular cycles of testing. Following the example of the software development sector, they divide their work into sprints focused on the features or product attributes they want to test next. A dedicated product manager maintains a backlog of ideas and issues, and action on those items is prioritized or deprioritized as the project progresses.

This fast-moving, flexible approach requires the design team to think, and work, in new ways. At the most successful companies, design teams are encouraged to consider themselves as mini-businesses, with the freedom to make decisions and take risks and with a sense of ownership of their products. That doesn’t mean senior leaders should step back altogether, however. They will play a critical supporting role, such as by ensuring that the core design team receives the support it needs from other parts of the organization.

Design teams are encouraged to consider themselves as mini-businesses, with the freedom to make decisions and take risks.

Scaling good design enablers

Pilot projects are the essential first step on every organization’s design journey. Japanese companies are usually comfortable with the piloting approach to test and refine new processes and technologies. Scaling from pilot to business-as-usual is a much bigger step.

To make that transition, companies should ensure that their pilots become true lighthouse projects, with results that are seen and understood by the wider organization. The organization’s leaders have a critical role to play here, communicating the impact of successful projects and explaining how those results were achieved.

Those leaders also need to recognize that a series of successful pilots marks the beginning of the organization’s design transformation, not its end. Once they have proved the value of the new approach, and created excitement and pull from the rest of the organization, leaders must be ready to support that demand. They can do that by helping to craft new standard operating procedures that incorporate good design practices, by developing new governance structures to monitor and encourage the use of those procedures, and by putting staff with design skills and experience into roles where they can support and influence their colleagues. A design-led organizational transformation is a long-term journey that requires strong leadership commitment, courage, and rigorous change management skills.

This article has shown how Japanese companies can learn and master best-practice design behaviors. At its core, it involves engaging directly with customers to understand their needs, translating those needs into ideas, and iterating prototypes with customer feedback. Just as Japan mastered process innovation, Japan has the potential to master a new level of good design. It has powerful reasons to do so: creating products that better meet customer needs could significantly boost Japanese competitiveness.

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