Why design means business

Earlier this autumn, I was proud to lead the team that launched The Business Value of Design research. The study, which analysed five years of research and interviewed 300 global companies, is the first to show conclusively that good design is one of the most vital catalysts for growth and returns that a company can employ. Off the back of the findings, McKinsey & Company has developed The McKinsey Design Index (MDI) which for the first time, benchmarks individual organization’s design strength and tells leaders what design actions to take to improve their financial performance.

What exactly do we mean when we talk about “design?” Well, much like “strategy” and “analytics,” design is a term that suffers from misuse. Design is not just about making objects pretty. Design is the process of deeply understanding customer/user needs and then creating a product or service—physical, digital, or both—that addresses their unmet needs.

Going back to the study, the most important finding was that companies that performed the best in design achieved average revenue growth that was 32 percent higher than their peers over five years. They also had a 56 percent higher shareholder return during the same period.

It was also interesting to see that companies from a wide variety of industries consistently showed financial benefits from good design: from retail banking to medical devices to consumer goods. This suggests that improving your design capability can improve your company’s financial performance - whether you are making physical products, digital apps, services, experiences or a combination of all.

One of the findings that particularly surprised us was that the relationship between design and financial performance was not linear. An extra dollar spent on design doesn’t always get you an extra dollar in revenues. Additionally, this is a game of disproportionate rewards for the top quartile – in other words, if you are going to improve the design capability of your organization, do it properly, or don’t do it at all. And while the top design actions illuminated by this study won’t shock any designers, the scale of their impact on the bottom line can’t be ignored.

Excelling at design

Our research points to four themes that set apart the companies who do best at design. Sadly, being good at one or two isn’t enough. The companies that outperformed their industry peers in terms of revenue growth and shareholder return were strong across all four dimensions.

First, design is about more than a feeling, it is based on analytical leadership. The top performing companies measure and drive design performance with the same rigor as revenue and cost.

Second, design is more than a department, it involves cross-functional talent. The top companies in our study make user-centric design everyone’s responsibility, not a siloed function.

Third, design is more than a phase, it is continuous iteration. The top performing companies de-risk development by continuously listening, testing and reworking with end-users.

Finally, for top performing companies, design is more than a product, it is a user experience. They break down internal walls between physical, digital and service design. They start with the user, not the spec, and design a seamless physical, service and digital user experience.

Taking the plunge

For the first time, this report provides quantifiable evidence to substantiate the hypothesis that has historically been difficult to prove. Now we know that companies with the best design practices increased revenues and shareholder returns at nearly twice the rate of their industry peers on an annual basis.

This allows for a more objective, fact-based management discussion on the importance of design investments within an organisation. It also provides a framework that leaders can use to guide their next steps to improve business performance.

If your business is serious about taking the lead, my advice would be to choose one important upcoming product or service design to pilot improvements on. This approach is consistently more successful than a company-wide “design culture” transformation, which can be hard to show real impact.

We see a tidal change taking place in the industry. Design is now considered to be a real business issue. Senior decision makers need to act now, or they will be left behind.

An earlier version of this post appeared on Benedict Sheppard’s LinkedIn profile.

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