Measuring the value of design
Before I start this reading this, let me propose the following. Let’s all try to forget everything we think and know about design and its value (ROI). And let’s address this question on first principles with the added benefit of living in today’s date — an age when we have the world’s information at our fingertips. So, imagining that today is day zero. How would you go about addressing this topic?
Well, let me suggest that the first thing we need to do is to understand if we are even asking the right question.
The first principle I would like to depose is that measuring design by ROI is the wrong metric. Why? Because of the essential flaw of what it means to be a good manager.
The innovator’s dilemma. Because good businesses do not fail because of bad management. They fail because of good management — at least as far as Wall Street is concerned. Since the constant chase for ROI only guarantees the boom and doom of sound companies when they are at their most profitable. Unable to recognize and adopt disruptive innovations.
Take the classic example of Netflix versus Blockbuster video. Since there is not a single sane CEO that will enter or acquire a money-losing opportunity that directly undermines their ability to continue to report record-breaking profits. Just to save the company from themselves in a distant and uncertain future in which — they most likely will no longer be the managers of it. But unfortunately, leading the company to failure is not the worst outcome possible that comes from the philosophy of managing for ROI.
Because when managers reward profits over product, and people — the culture changes to one driven by the wrong incentives. Resulting in corruption. When making the quarter becomes more important than making your customer happy you are no longer measuring the right value that your company offers.
At this point, you may think I’m being unfair because hindsight is 20/20. So, allow me to predict the next casualty of managing by ROI. General Electric.
Why do I say this? Well, two reasons — given that Neutron Jack is the ROI guy. First, his management policies of only rewarding the business lines with the number one or two positions in market share. And secondly, when he later did the same thing to his people with his rank and yank scheme.
Now compare him with Steve. Because at some point of this presentation, I’m supposed to tell you to put product over profits first — just like “Apple does”. This way we can end this article early and go back to Twitter. Unfortunately, we are living in the age of personal mobile and connected devices, so the answer is a little more nuanced than that. But since we already talked about the innovator’s dilemma — and I hope that wasn’t new to you. Because if it was… I highly recommend you to check all the worked that HBS professor Christensen has to offer. But now if I may I would like to introduce you to Aggregation Theory — and I also hope this is not new to you either.
The short but very important version of this is… that in a flat world powered by the internet the value of products and services occurs to those who can offer an integrated user experience. The ones that can aggregate and own the customer relationship just like, Google, Facebook, and Amazon. Because the profits — the value capture no longer happens at the supply chain level it happens at the consumer level. To the players with zero customer acquisition and marginal cost. But to better understand this, let’s take a look at this practical example.
See how rent-seeking actors are no longer part of the value chain… and this aggregation is happening at all levels regardless of industry. And if you think you are safe — think again because remember what Jeff Bezos said (your margins are my opportunities).
But let’s take a break here and do a quick thought experiment… by commenting let me know which one is the better company of the two. Amazon or Walmart.
Now evaluating this image let me ask you the same question. Who is better Amazon or Walmart?
Now looking at this new piece of information that shows that since 2008 Amazon has only paid 1 billion dollars in taxes. So now who still thinks that Amazon is the better company? Now one last time what if I told you that Walmart in the last ten years has built and paid for the construction and operations of 64 children’ hospitals — against just the one from Amazon. Does that would change your mind and believe now that Walmart is the better company of the two.
Very good it is always good to see some behavioral sciences at work in real-world scenarios. Given these conditions before we move forward and talk about what is the value that design brings to the table. Let’s agree about what design should be first…
It should be Ancestral. This by itself is an entirely independent talk by Alan Cooper. But the bottom line here is that we need to stop thinking we are building a better world with our tech — but instead we just need to make sure we leave the place better than how we found it. (Just like we do when we go camping).
So, the reason I chose this topic for today’s discussion was the recent argument between Jared Spool and Alan Cooper about the value of design. Because we are at risk of solving today’s problems with ideas from the seventies.
Now if you subscribed to Jared ideas that everyone is a designer exercising their intend by influencing a few sets of business’ KPIs you have a good foundation.
On the same note if you are a Coopertier that believes that the culture of the company trickles down to the value of their management and their brand perception — you are also halfway there.
Because while you can put a price on good design you can also design for the wrong incentives.
Quick poll: Tell me if you work for a company that regards their customer support operations as a cost center. Or tell me if your company sees their support team as a revenue driver. See that was the same idea but with two different conclusions.
Spoiler alert the right mindset is believing that the value of design should get rewarded by the revenues that it produces.
Now for the tactical chapter of this presentation, I’m going to share with you my favorite methods of how to measure the value of design.
Number one, communication:
- Internally, are we all on the same page?
- Do we have a shared understanding?
- Externally, how are we communicating with our customers?
- How is our brand being described by our users?
- Are we being valued by features or by benefits?
So how do we measure this? For a better than nothing solution — start with NPS. But if the conditions are just right, go with the Gallup’s customer engagement survey, known as CE11.
In order to get the buying from our managers, we as designers need to make a pivot in our mental models and stop living in the land of service mapping and start prioritizing the business results that our experiences produced.
The best example I have seen of this… is this map that tracks the customer journey across the service experience — matching each key touchpoints to their respective KPIs. But let’s slow down this process and go about it step-by-step.
Step 1 the Audit. Not only the content and features. But audit who owns them, how are they being tracked, and what are their current and expected values.
Step 2 the tech and tooling. Make sure that your systems are working and are set up properly. And again who is in charge of them and its reporting. A typical stack for me looks similar to this.
However, be advised that performance/speed is one of the most important aspects of higher conversions. So, try never to sacrifice the user experience for the sake of the data. Like this example of the USA Today .com site with and without the GDPR restrictions.
Step 3 fix all the bugs. Take care of all the low hanging fruit first. Because if the product is not working, there is no way to capture or measure its value.
Step 4 conduct a heuristic evaluation. Implement best practices first before you start experimenting with new creative ideas.
Step 5 research and testing. Have a scientific approach and an experimental mindset. Don’t make assumptions for your users. Let them show you their own environment and unmet needs for themselves.
Step 6 do a competitive analysis. Your competition does not have the answers to your questions. But if they are leading the market is because they are solving their customers’ problems with a better or clearer value proposition so learn from them.
But be advised and only study the right type of competition even if you believe it to be across different markets. Because now and in the future everybody competes with Amazon. While the rest of us are just borrowing Google’s and Facebook’s users.
Now you may be asking this to yourself. Okay, so what do I measure then? Simple!
Revenues, Revenues, and Revenues. Take for example a tool like a cohort analysis. This tells you if your customers are returning to use your site and giving you more repeat business.
Can you expand the account value of your current customers? Or are you losing their business at the time of renewal?
How valuable are your customers to you? How much does it cost you to acquire a new customer? As a benchmark, an LTC to CAC ratio of three or higher is considered to be healthy.
However, warning alert. Note that your recovery period is even more important than your CAC. So keep this one as low as possible.
Another thing that may be going thru your mind right now is… Well, that is nice and good for you but that would never work at my company so whatever. And for those of you, I say this… try the following techniques before giving up.
Number one, the revolving door test from Andy Grove. Try saying something like this to your manager… Boss things are not going so well here and we may get fire because of it — if new management comes in. What do you think will be the first thing they will do or change? Wait for it… then ask so why not do it ourselves?
Number two, worst case scenario do the changes yourself — before asking for permission.
Number three, come back full circle and read this quote to your manager.
My passion has been to build an enduring company where people were motivated to make great products. Everything else was secondary. Sure, it was great to make a profit, because that was what allowed you to make great products. But the products, not the profits, were the motivation. Sculley flipped these priorities to where the goal was to make money. It’s a subtle difference, but it ends up meaning everything: the people you hire, who gets promoted, what you discuss in meetings.
Then ask your manager… who do you want to be boss? Jobs or Sculley?
So never forget to always put product over profits. Because monetization is the result of engagement.
Finally, to recap the keys of this talk are:
- Disrupt yourself before others do it for you.
- Revenues don’t lie — either the customers are willing to pay for your product and services or they are not.
- Profits are only the echo of having the right people, process, and products.
- Remember to always leave the place better than how you found it.
This is it, my name is Irving Rivera and I market and sell to personas — but I design for the jobs that need to be done.