There has been an ever-brightening spotlight put on design and its business value over the past decade. That attention has been earmarked by the sweeping successes of companies who invest in it. I’m not talking about just brand and interface, but a broader definition of design. I’m talking about design as informed planning and deliberate decisions regarding how something looks, how it works and how it makes you feel.
Now more than ever before there’s an electric bustle amidst the startup scene where design is considered critical, often playing an instrumental role in driving success. But it’s not just startups that are reaping the rewards. Small and large, new and old, companies around the globe are attaching themselves to the importance of user experience, becoming agile, moving design as styling to design as strategy, and cultivating user-centred ways of operating. China’s wildly successful Alibaba is about to go public in the US and is expected to raise more than the Facebook share sale, by putting the shareholders last in their customer-first value system.
The very best businesses are wielding the potential of design thinking to disrupt and differentiate with great success. They’re raising expectations for beauty and utility, empowering people and creating efficiencies in ways that were just recently science fiction.
You only have to look as far as the uptake that Xero’s accounting software is seeing, or the global impact Uber’s ride-sharing service is having, to garner some appreciation for the power of design both in form and function. Their efforts are a stark reminder that the need for design isn’t just to make things look pretty, or even improve usability. Design is delivering value through competitive advantage, increased productivity and ultimately profitability. An evangelist for that business reality, co-founder and Head of Design at Xero, Philip Fierlinger, says, “we’re not a software company. We’re a user experience company.”
The effect of design on company performance and the stock market
As mentioned in my recent article “What UX isn’t”, a 2013 study revealed that design-led companies have outperformed the S&P 500 by an immense 228% over the past 10 years. That number was arrived at by tracking the value of the only 15 companies amidst the S&P that met a strict criteria, including the embedding of design leadership at senior levels and utilising design as an innovation resource. The names of those 15 companies are largely unsurprising, being Apple, Coca Cola, Ford, Herman-Miller, IBM, Intuit, Newell-Rubbermaid, Nike, Procter & Gamble, Starbucks, Starwood, Steelcase, Target, Walt Disney and Whirlpool.
In another S&P comparative analysis, Watermark Consulting created two stock portfolios based on Forrester Research’s Customer Experience Index, comprised of the Top 10 and Bottom 10 publicly traded companies ranked on it. From 2007 to 2012, a six-year period that spans recession and recovery periods, the Top 10 customer experience leaders outperformed the S&P with close to triple the returns, at a cumulative total of +43%. The Bottom 10 generated a negative cumulative total return of -33.9%.
Over in Britain, the UK Design Council told us in 2013 that design is linked to profit, and that for every £1 spent on design, businesses see a £4 increase in net operating profit. Back in 2004, the UK Design Council published another report, which found that design-aware companies analysed on the London Stock Exchange from 1994-2003 outperformed FTSE 10 and FTSE All Shares indexes by more than 200%.
Inspired by that 2004 report, the founders of experience design agency Teehan + Lax created the UX Fund in 2006. In that fund were 10 chosen companies who possessed a history of innovation and demonstrated care in the design of their products, such as Google and Netflix. They invested $50,000 of their own money and saw a maturation of +39.3% in the first year alone. By 2011 it had matured a huge +101.8% before the holdings were sold.
I asked agency co-founder Geoff Teehan what the fund might look like now, in 2014. He told me it would be up approximately 205%, but even that would be a conservative estimation as it doesn’t deal with multiple splits.
The effect of user research on design outcomes
Braden Kowitz, a design partner at Google Ventures, recently published an article on The Wall Street Journal on the subject of becoming great at design by listening to your customer. In it he cited one of the Internet’s most popularly misappropriated Henry Ford quotes, being “If I had asked people what they wanted, they would have said faster horses.” He insinuates that those questions must be asked, and if the answer really was “faster horses,” the interpretation of that insight should be that people feel that getting around is too slow.
Understanding real problems and then designing the right solutions, instead of speculated ones, should make obvious sense to everyone. Yet, common pitfalls continue to be solutions designed by the people who build them without consideration of real users, solutions designed based on the anecdotal ideas of management, solutions designed to match competitors, or solutions designed for new technology with no other reason than “it’s now possible”. Echoing this sentiment was the late Steve Jobs, “you’ve got to start with the customer experience and work back toward the technology — not the other way around.”
O2 learned that the hard way, as version 3 of the “My O2” app was designed from a technical rather than a user perspective, consequently being received poorly by the British telco’s customers. When later turning to a new “Customer-Centred Design” process that began with user needs research, future versions went on to save O2 millions of pounds in through reduced support call volumes. Rogers, one of Canada’s largest telecommunications companies, started an intranet redevelopment project by first observing usage and quantifying how long it took staff of to complete tasks. After addressing learned inefficiencies with a new design, employees were saving on average 22 minutes per week, enabling productivity gains worth in excess of $10 million per year. Then there’s Microsoft, who by testing Bing link colours decided on a very specific shade of blue that created an additional $80 million in annual revenue.
While it may seem like all of the required research for informed planning would slow delivery time and increase cost, in fact being user-centred from the very beginning of every design process greatly reduces substantial rework, reveals revenue opportunities and lowers customer support volumes. Tom Gilb famously stated in his timeless reference text, titled “Principles of Software Engineering Management”, that the rule of thumb in many usability-aware organisations is a that a $1 investment in usability returns $10 to $100. He writes that once a system has been released it costs 100 times as much to fix relative to prior.
There’s no longer any doubt about it, the evidence has well and truly mounted. The value of design has grown so bright that it’s now unavoidably blinding. For those who recognise its importance and act upon it, there’s the potential for transformative outcomes that amass advocacy, improve performance metrics of all kinds and propel bottom lines upward. For everyone else, this poignant remark of Ralph Speth, Jaguar CEO, is worth contemplation, “if you think good design is expensive, you should look at the cost of bad design.”