We read the McKinsey report on design so you don’t have to
We’re not the first to ask: how can you confidently prove the business value of good design?
Sure, there are workarounds that uncover pieces of the puzzle, like A/B tests that show increases in conversion rates or user research that validate design choices. But, the bigger picture — financial results — always seem to be missing.
McKinsey & Company is trying to change that with their October 2018 report highlighting “the most extensive and rigorous research undertaken anywhere to study the design actions that leaders can make to unlock business value.” They tracked the design practices of 300 publicly listed companies over a five-year period, interviewing senior business and design leaders. The team gathered more than two million pieces of financial data and recorded more than 100,000 design actions. From all this, they uncovered 12 actions showing the greatest correlation with improved financial performance and grouped these actions into four broad themes.
These four themes of good design are the foundation of the McKinsey Design Index (MDI), which rates companies by how strong they are at design and, more importantly, how that actually relates to real business value. With this design index in place, McKinsey had a quantitative way to measure design.
The results were impressive: companies with the top-quartile MDI scores outperformed industry-benchmark growth by as much as two to one, increasing their revenues and total returns to shareholders significantly faster than their counterparts. And this wasn’t an isolated incident — these results appeared in all three industries that were studied (medical technology, consumer goods, and retail banking).
This research leads to the same conclusion that we have all come to believe: good design pays off. Literally. Customer-centric, iterative design is the way forward, both in terms of financial growth and delightful user experiences.
Leveraging the four themes of the McKinsey Design Index
How can you take these learnings to drive results in your company? The four clusters of design actions that make up the MDI offer proven design best practices that you can follow.
Here are the four design themes:
1. Analytical leadership
Companies that perform the best financially have strong C-suite support and recognize that design is a top management issue. Design is not viewed as a second-class citizen and is instead assessed with the same rigor used to track revenue and cost. In other words, design has an equal seat at the business table.
But, it’s not enough for leaders to simply recognize the importance of design. They also have to maintain a baseline level of customer understanding. Companies that performed best in the McKinsey survey have executives who are genuinely curious about what users need.
“One top team we know invites customers to its regular monthly meetings solely to discuss the merits of its products and services. The CEO of one of the world’s largest banks spends a day a month with the bank’s clients and encourages all members of the C-suite to do the same,” found McKinsey.
2. User experience
Today’s customer experience isn’t limited to physical or digital environments. The top-quartile companies embrace the broad, full user experience where “boundaries between products and services are merging into integrated experiences.”
For example, a hotel might think beyond the traditional check-in process and promote early engagement through social media or its own app. Or, think of mobile-payment services like Google Pay and Apple Pay, which were the result of out-of-the-box thinking to create easier ways to access cash.
This design approach requires “solid customer insights gathered firsthand by observing and — more importantly — understanding the underlying needs of potential users in their own environments.” Once you truly understand the customer journey (including pain points), you can start to think outside of your ecosystem and create all-encompassing user experiences.
3. Cross-functional talent
The top-quartile companies recognize that user-centric design is everyone’s responsibility. The best performing companies said they could break down functional silos and integrate designers with other functions.
“While not a new concept, ‘T-shaped’ hybrid designers, who work across functions while retaining their depth of design savvy, will be the employees most able to have a tangible impact through their work.”
Designers will only be able to do so, however, if they have the right tools, capabilities, and infrastructure. This requires design software, communication apps, deep data analytics, and prototyping tools that drive productivity.
As any employee knows, investing the time and money into these tools is easier said than done. But, it does pay off: McKinsey found a strong correlation between successful businesses and companies that “resisted the temptation to cut spending on research, prototyping, or concept generation at the first sign of trouble.”
4. Continuous iteration
Design is most successful in environments that encourage learning, testing, and iterating with users. The top companies understand this and foster a culture around celebrating nascent ideas and failing fast. They discourage designers from spending hours perfecting a mock-up and acknowledge that a product launch isn’t the end of iteration. In fact, some of the best updates can happen post-launch (look at how the Apple Watch has been tweaked to reflect how customers actually use it in real life).
The best results “come from constantly blending user research — quantitative (such as conjoint analysis) and qualitative (such as ethnographic interviews).” The report points to a medical-technology company that blended user research subjects, talking to both “a toy designer about physical ergonomics and to a dating app designer about the design of digital interfaces.” These diverse insights helped the company refine its device so it was safer and easier to use (and beat the market by more than four percentage points when it launched).
Design excellence for all
“The diversity among companies achieving top-quartile MDI performance shows that design excellence is within the grasp of every business, whether product, service, or digitally oriented.”
Not sure where to start? McKinsey recommends selecting a single upcoming product or service and using that as a pilot for putting the four themes into action. This approach has shown better financial results than trying to improve design across the entire company, perhaps because you’re able to start small, learn fast, and scale appropriately.
“Companies that tackle these four priorities boost their odds of becoming more creative organizations that consistently design great products and services. […] The prizes are as rich as doubling their revenue growth and shareholder returns over those of their industry counterparts.”
To read the entire McKinsey report on the business value of design, click here.