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The business value of good design: McKinsey’s case study

Is there a right way to design for profitability? In a world where businesses compete for the attention of their consumers, business leaders must differentiate themselves… Let’s look at all the industry leaders, what do they all have in common? Great design in all aspects of their business.

But, can you really attribute design as a driver of growth? 

Mckinsey & Co. have delved into the largest worldwide study on how good design culture affects revenues and shareholder returns. The study conclusively showed that across all industries best design performers increase their revenue and their shareholder returns by  almost double. 

Aside from the obvious benefits commercially of designing fantastic products and services, materialising good design can be REALLY costly, timely and difficult. It is increasingly hard to stand out from the crowd, meet all the increasing consumer expectations, and balance in between the blurred lines of hardware, software, and service. Companies need stronger design capabilities than ever before.

How do you measure good design?

You may ask yourself what indexes the Mckinsey use to measure good design. How did they get to these conclusions? Well let me get started.  Over the course of five years, McKinsey tracked 300 companies – collecting huge amounts of financial data showing correlation between 12 design actions for financial gain. From this data they drew 4 themes of good design that successful companies follow. The study shows without a doubt the business value of design.

The good news is that there are more opportunities than ever to pursue user-centric, analytically informed design today. Regardless of the industry studied by McKinsey,  whether that was medical technology, consumer goods or retail banking, the results were the same suggesting that good design matters whatever your company focuses on. Luckily, 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- it is then up to the company they want to listen and learn.

The Downside…

When the study was conducted many companies had  not yet caught up with the adaptations due to its difficulty and large investment despite the enormous business potential. The  themes that the report describes don’t come as news to a lot of designers. They have a painful awareness of these problems but to tackle them, companies need a strong commitment from the leadership over an extended period of time. 

Design Actions to Take: 4 Main Themes

Across all industries, business leaders in the companies with the best financial returns answered with implicit understanding of the four themes that McKinsey researchers uncovered when asking them to describe or name their single greatest weakness. These are the four themes that formed the basis of the business value of the design scoring system Mckinsey used:

Source: McKinsey & Company

Again, these categories might not surprise people working around design, but it might for senior-level executives or others working isolated from design efforts. The level of understanding in those parts of a company greatly impacts the quality of design work through the flow of resources and information. To read the full report click here

Analytical Leadership

Design must become a top management issue in order to increase the business value of design to your business. This means that first design should  be  assessed and managed based on value and efficiency. Only once this has been done can executive decisions be made, understanding what tools and processes good design requires and is constituted from.

Involve Leaders

The participation of business leaders proves a good practice to start sowing seeds of design culture in an organization. When  you start working with a client try to access the highest level decision maker in the process, try and involve them in the design process as much as possible – If you have clients that are unwilling to participate or lack the time commitment to do so then share the experiences with them in the  most effective way possible. 

For CEOs, spending time with the customers and getting familiar with their needs first hand provides not just valuable experience and knowledge for them, it also sets an example throughout the company by placing the users first. 

Shotcaller 

Where do most design issues get stuck? On the middle management level. 

Executives make decisions based on gut feelings rather than rigorous metrics and benchmarking like they would in virtually every other segment of a business, yet the measurements hold the key to making good decisions and investing most effectively. Designers must realize the importance of involving leadership level, and provide information on all parts of the company about their work which in turn creates transparency and facilitates decision making.

User Experience

What is the first step in prioritizing user experience? Breaking down the barriers amongst the physical, digital product and service design internally is essential to embracing the user experience. Companies have to understand all the different possibilities where design can make a difference. 

Cross-platform Experience

More and more often we are faced with cross-platform services. These integrated experiences must be crafted meticulously across all touchpoints of a business. The first step in crafting these experiences is “understanding the underlying needs of potential users in their own environments”. This requires solid customer insights gathered through observation, conversation and other qualitative and quantitative types of research. These insights then become a point to reference on every meeting related to any kind of design action.

Research First

Here at Pine we never do design without research. Research is important as it examines and uncovers the users’ true needs (if done right). Every design decision thereafter is driven by the findings of the research, putting the users front and centre. Businesses can create more value by looking and treating the customer journey as an integrated, end-to-end experience with specific conversion points and funnels rather than fragmented instances of interaction with your product or service. This wholistic view and approach will enable a company to invest correctly in design and step out of their own ecosystem by partnering with services from differenct backgrounds across differnet business fronts.

Cross-functional Talent

In the McKinsey report, overcoming the isolation of different functions within the organization showed one of the strongest correlations with top financial performance. What this means is that as designers you have to open up to other departments and parts in the company, and at the same time those departments have to accept user-centricity as their responsibility as well.

Stakeholder Isolation

A BIG NO! When working with a client, always try to involve all kinds of stakeholders in design from business leaders to development and operations. The diversity of thought, disciplines, and personalities helps growth of ideas. By including different stakeholders it plants the seeds of design culture in an organization.

Design affects various distinct parts of a business. From the classic human-machine interaction to psychology and the development of new business models. Designers who thrive in these situations are those who can work and relate to many different functions and at the same time retain in-depth knowledge and practice in their own design skills. 

It guarantees the ability to make as big an impact as possible.

Retaining Talent 

What are the incentives that drive your top design talent? The most obvious big bonus career paths are not the norm for the most talented designers. They work on projects that they care about, and see that they get to the market as fast as possible. They are driven by tackling challenges and want to share their passions with their peers through articles, conferences, and other community-building channels. They also value good workplace culture characterized by diversity and fun, so think about what  you are willing to do to keep your talent. 

According to McKinsey, the top 2% of employees make exponentially greater contributions  in all businesses. Unsurprisingly, top performing companies had some kind of incentive system in place in order to keep their best designers. They generally linked these incentives to design performance measured and evaluated by analytical leadership, as mentioned in the first of the four themes.

Continuous Iteration 

Essential no.1: Speed To Market

It is essential to adapt to agile practice if you want to practice good design. This means that you have to shed the fears of releasing to market with a less than perfect product, sharing your developing stages with users, and use these as opportunities to learn. The more you learn, test, and iterate with users helps reduce risks early on and discover great opportunities as well as breakthrough products. Remember nothing is too raw to test. 

This is a tangible business value of design. Keeping the users’ underlying needs in your viewport helps realize and tackle first when new needs emerge or to increase our resolution of understanding of the current ones.

Diversify Sources 

The best results of continuous interaction come about when combining multiple sources and types of information upon which to base your design decisions. What this means is that when considering user research there must be a combination of qualitative research – like ethnographic interviews mixed with qualitative methods like large survey sample sizes for a conjoint analysis. Then we must take into consideration financial concerns and competitor research to draw on the best informed decision. If all these data points are not researched and connected to the risk of executing otherwise great design work, it ends up not generating revenue, and cost grows proportionally higher. 

In order to combat inefficient decisions designers have to share their work as early and as often as possible as well as strive to get as much feedback as possible. Shielding early mockups from others for too long does not lead to a great product. On the other hand, product release cannot represent the end of their design efforts either. 

Start Measuring the ROI of your Design! 

So how can you transform your company, and the whole organization into a top-quartile, high McKinsey Design scoring company? McKinsey advises starting small on a single project. Use that as a pilot and make a hard commitment to sticking to the points above. There are organizations which are better fit to seamlessly transition while others may find it harder to implement these changes in their organization.  Ultimately, every organization has to find its own way to adapt to a new design attitude. The learnings from trial-and-error make up an essential part of that. If you were wondering where your company stands on the McKinsey design index, you can take a 30-minute survey that will tell you exactly that and download the original report as well  here.

Laura Brazay

Laura Brazay

Digital branding specialist with experience in social media strategy, and a background in Business Administration, who sees life in the full spectrum of colours. I spend my free time taking long walks exploring the city with my pup.

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