How Top Companies Use Design To Drive Financial Performance

In the first of a five-part series, we unpack the themes of the McKinsey Design Index, providing actionable steps you can take to start harnessing the power of design to drive innovation and business performance within your organization.

This article originally appeared in the Studio Hi Blog for Design-Led Innovation

In late 2018 McKinsey released a report titled The Business Value of Design, claimed to be (at the time of writing) the most extensive and rigorous research undertaken anywhere to study the design actions that leaders can make to unlock business value. With over 100,000 design actions collected from 300 publicly listed companies over five years, four themes of good design emerged that showed the highest correlation with improved financial performance — Analytical Leadership, Cross-functional Talent, User Experience, and Continuous Iteration. These themes formed the basis of the McKinsey Design Index (MDI), and in this five-part series of articles and videos we break down each theme and offer tips and actionable steps that you can take to start harnessing the power of design to drive innovation and business performance within your organization.

The results from the study are encouraging — companies with top-quartile MDI scores outperformed their industry counterparts with 32% higher revenue growth and 56% higher total return to shareholders. These results were consistent across three industries studied: medical technology, consumer goods, and retail banking. But hold up — if you’re starting to think to yourself that all your company needs to do is sprinkle out some magic design dust and the profits will flourish, think again.

Startup at scale

It was the companies in the prized top quartile who disproportionately pulled in the greatest rewards, with revenue and shareholder return differences only marginal between the second, third and fourth quartiles. This comes with little surprise, however, as the one common thread that ties together the four themes of the MDI also happens to be one that most established organizations recognize but struggle to put into practice — the ability to move like a startup, at scale. Ok great, so we just start acting like startups then? Simple! Well, not really.

Startups enjoy fewer, if any, layers of process or bureaucracy, are in constant conversation and consultation with their users, collaborate towards a common customer-centric vision within cross-functional teams (oh, and in real life :o), and are constantly interacting with and learning from people with other skills. Startups don’t have the safety net afforded to established organizations, nor the ability to sit still or fall victim to inertia. Instead, they must make use of what cost-effective tools and lean processes that got them to where they are and allow them to stay ahead of the curve, continuously improving and innovating as cost and time-effectively as possible.

Sense and respond

If your organization has managed to maintain it’s startup qualities and processes whilst juggling the requirements of creating a scalable and repeatable business model, then kudos to you. However, the report says that this is anything further from the norm, with over 40% of surveyed companies stating that they still aren’t talking to their end users in development and just over 50% admitting that they have no objective way to make objective design decisions. The reality is that becoming more ‘design-led’ and ‘startup-like’ is really hard, and for companies sliced into siloes, wrapped in bureaucracy and entrenched in maintaining existing business models, things only get more complex. Unfortunately for legacy organizations, there simply isn’t a choice, and the processes focused on standardization and uniformity that delivered them to where they sit are the very things that will work against them in the future. Constantly evolving customer expectations and demands on experience are exposing the weaknesses in their inability to sense and respond, giving way for smaller, nimbler organizations to capitalize and carve into their market share with new offerings, delivered faster and in direct contact with users. Which brings us full circle us to the need to return to the origins of the organization — to a time when things were focused on the customer, more collaborative and agile.

Climb, don’t decline

If there is one target audience that should take notice of McKinsey’s report, it is organizations that have drifted (or are starting to) drift away from their startup roots. If you feel like your organization fits that description, don’t despair — making the investment in good design isn’t a luxury afforded to unicorns with bottomless war chests like Google, Apple, and Uber. On the contrary, there couldn’t be a better (and more cost-effective) time for organizations of all sizes to start making the climb towards design maturity.

With the advent of tools, processes and resources to accelerate design processes and enable continuous innovation available to even the leanest organizations, the potential for design-driven growth is now greater (and more cost-effective) than ever. One only need to look to the popularity of methodologies and processes such as the Design Sprint, Lean Startup, Customer Development and Design Thinking — training and resources for gaining the skills and shifting the mindsets required to adopt the principles laid out in the MDI are widely available with advances and choice in online training and education. +Acumen and IDEO’s free ‘Introduction to Human-centered Design’ course is a great place to start, and online courses offered from the likes of Udemy, Udacity and Coursera, as well as specialised online training from schools such as IDEO U and Strategyzer are excellent for more in-depth training.

Design tools also look to be going through somewhat of a golden age, with a plethora of choice in applications and techniques for design, rapid prototyping (eg. Invision, Marvel) and collaborative tools for both design (eg. Mural, Flowmapp) and communication (eg. Slack). Likewise, competition amongst qualitative and quantitative analytical tools has meant that such tools are now affordable and accessible to organizations of all sizes. Advances in artificial intelligence (AI) will only continue to help in making sense of the data generated by these tools, by turning it into actionable insights.

Conclusion

The notion of design’s movement upstream and gaining a seat at the table has been touted for quite some time — in fact this year marks the 10 year anniversary of Tim Brown’s Change by Design, and documentaries like 2011’s Design the Business are still as relevant today as when they were released (available to watch here for free — highly recommended!). But what McKinsey’s report has done is provide the numbers needed to justify objectively not only how beneficial good design can be, but how crucial it is becoming for sustainable growth in today’s hyper-connected world of short attention spans and high expectations. Over the coming series, we’ll be unpacking the four themes in more detail and outlining practices and tips to put your organization on the right foot towards becoming design-led, and ultimately ensure it not only survives but thrives for years to come.

TL;DR

Watch the video instead!

Kelsey Shanahan is Co-founder and Digital Innovation & Design Consultant at Studio Hi in Sydney. Studio Hi is a design-led innovation and digital transformation consultancy, using human-centered design practices to enable businesses to thrive in digital innovation with the agility they need to move like startups.