The value of design for business (the McKinsey report and others)
An international consulting company — the McKinsey conducted a study that determined how and in what way the value of design for business is expressed. This article summarizes the main thesis and ideas expressed in the report.
Why does business need design? It helps to stand out from the competition, meet the high expectations of consumers and share an international experience.
Design in the broad sense of the word, it blurs the boundaries between hardware and software parts and services.
But how to create something exceptional each time? Is it worth it? In this article we will review the recent report by McKinsey and will position it against existing ones.
Intro: Facts and Figures
To answer these questions, McKinsey studied the design practice of 300 different public companies for five years. They collected extensive financial data and counted more than 100 thousand design activities. Top managers and heads of creative departments were interviewed separately.
An extended regression analysis has shown that a total of 12 actions can significantly improve financial performance. McKinsey divided them into four large groups, which are precisely the basis of good design or MDI (Figure 1).
MDI (McKinsey Design Index) — an index that reflects the economic effect of the design. The most successful companies with the best financial indicators fall into the upper quarter of the chart, then — by the drop down.
The approach is not new
We shouldn’t forget about the report that Design Management Institute created and came up with the same index Design Value Index. It shows the capitalization of companies investing in design — in 2015 it grew by 211% stronger than the S & P 500 stock index. In fact, McKinsey made a copy of it.
Forrester by a contract from IBM conducted a survey-study of economic emissions from the introduction of design thinking practices. Very appealing numbers indeed.
A report by Design Council on the contribution of the design to the British economy in 2015. Very interesting and pleasant numbers — it brought 71.7 billion pounds of gross value added (7.2% of the total figure for the country). If you do not assume that they simply included in this figure in general the entire result of a company with a good design, not just a share of the design.
As we can see, big consulting agencies have shown their interest in the effect of design on the business. But lets get back to the McKinsey report to see if we have missed anything.
The findings of the study
The first conclusion. Strong link between MDI and overall business performance
The upper quarter companies, that is, whose MDI is above average, have increased their profitability and total shareholder return (TRS) much faster than their counterparts in five years. Revenue growth was 32%, and TRS — 56%.
The second conclusion. Good design depends on where the company operates — offline, online or at the intersection
And also on what physical or digital products or services it provides.
This is true for all areas of research: medical technology, consumer goods, and banking services.
The third conclusion. Exclusive design is expensive
The difference in revenue and TRS between the second, third and fourth quarter was significant.
This suggests that the largest profits were for those companies that can stand out from the crowd.
Getting under the MDI
The good news is that today there are much more opportunities to do user-oriented and analytically-based design than ever. In real time, customers can give companies feedback and evaluate them, even if they do not want to listen.
Startups of the new generation or, as they are also called, “lean” are a vivid example of how to create better solutions through prototyping and iterative learning.
Huge repositories of user data and artificial intelligence have created new powerful sources of information and technology, such as computer modeling and data analytics. All this puts the user at the forefront. Now all decisions in design and business should be made with an eye to it.
But in reality, everything is not as rosy as in fantasy. According to the study, more than 40% of companies do not talk to their customers during surveys. And more than 50% admitted that they have no objective way to evaluate and set goals for their project teams. Without a clear understanding of how design can help a business, those who are at the helm reluctantly allocate funds to it. This is the main problem.
The top quarter companies are not only successful in design but also have good financial performance and show excellent results in all four areas. Moreover, leaders have an implicit understanding of the basic tenets of MDI.
When managers were asked to name the weaknesses of their companies, 98% indicated one or more components of MDI:
- Manage design costs with the same rigor and care as basic income and expenses.
- Erasing the boundaries between offline, online and brand identity design.
- Creating a user-oriented design is a responsibility for everyone.
- Reducing risks through constant testing and communication with end users.
Four pillars of design
Consider each set of project activities separately. They ultimately affect the financial success of the company.
Analytics: more than a feeling
Companies from McKinsey’s index, which have the best financial performance, have shown that design is a problem of top management, and not ordinary employees.
However, in many companies, designers admit that they feel themselves second-rate specialists, and many issues are not moving above the middle level. And if it did happen, the top management makes decisions based on feelings and sensations, not on numbers and facts.
The designers here are also not innocent lambs — in the recent past they themselves actively resisted all sorts of “dimensions” and did not try to connect creativity with the company’s business goals. However, their research just clearly demonstrates that companies with better financial returns have managed to combine them thanks to their bold, design-oriented vision and teamwork.
A clear vision is also needed in order to once again remind yourself of the world and motivate the team. For example, IKEA very clearly formulated its mission: “To create a better everyday life for many people.”
Of course, beautiful slogans alone are not enough to destroy the walls. Companies that are best in this direction show an understanding of customers at all levels. Managers are really interested in what users need. One top company (remains unnamed) even specifically invites customers to monthly meetings to find out what they think about its products and services.
Through communication with the staff, you can learn a lot about the pains of the client. However, many companies between top management and ordinary employees have an impassable gulf and lack of communication.
Less than 5% said that their managers make informed decisions when developing a product or new functions.
But there is hope that in the age of numerous online tools and user data operations, the situation will improve. Now there are many metrics that allow you to assess how convenient the product is and whether it meets the requirements of the market.
For example, thanks to this knowledge, one game company (remains unnamed) was able to improve the usability of its home pages, thereby increasing sales by as much as 25%.
User experience: more than a product
Companies from the top quarter are trying to break down the internal boundaries between offline, online and service design. User orientation requires a broader look at where the design can change something.
We have already lived up to the fact that the smartphone warns when it is better to go out, so as not to get stuck in a traffic jam. This is just an example of when products, services, and design come together.
If we are talking about user experience, the development of any product here begins with the Customer Journey Map, exploring which path a user takes in the application or on the website, and not copy paste from the Internet or previous developments. This approach requires careful observation and communication with the client and, more importantly, an understanding of its basic needs and the environment in which they appeared.
The combination of physical products, digital tools, and “clean” services offer great opportunities for companies. At the same time, they are not limited at all. The most successful companies among the respondents seek to think globally and expand their boundaries.
So, the Google Play and Apple Pay payment systems are the results of the desire to make money transactions faster and more accessible. A plastic card is good, but how much easier it has become to live when one smartphone is enough to solve many issues.
Cross-functionality: more than a department
In the upper quarter, creating the user-oriented design is the task of everyone and not just one.
However, there is still a stereotype about designers that these are some strange uncontrollable people cut off from the rest, ready to die to fight for their ideas with marketers or management who do not understand this and are unable to understand the delicate design soul and realize something creative.
Thank God that this is just a stereotype.
The study showed that the desire to overcome misunderstanding and alienation is stronger than ever and the design is gradually integrated into the overall structure of the company.
This is especially noticeable in the field of consumer goods. For companies that have incorporated design into their structure, there was a 7% increase compared with those who did not.
Cultivating talents is another important factor that influenced changes in dynamics. The upper quarter companies are three times more likely to offer young professionals incentives for development compared to the rest. They are directly related to such results as user satisfaction or major rewards.
However, in order to keep a good designer, you need more than a mythical bonus or the prospect of being in a manager’s chair. Creative units need to be given creative freedom and the ability to communicate with their own kind. This is where various industry conferences come to the rescue.
The design incorporates all the trends and innovations that penetrate into ordinary business: artificial intelligence, behavioural economics, engineering psychology. These trends require narrow specialists who can perform many functions, but at the same time deeply understand the processes. Their influence will be most noticeable.
Reaching trends is possible, but this requires appropriate infrastructure and tools that will speed up and automate work: software, communication applications, in-depth data analysis, prototyping.
Continuous iteration: more than a stage
The best design is the result of training, testing and a series of iterations with subsequent user reviews. This approach increases the likelihood that a breakthrough product will be created, and the money will not fly into the pipe.
It contrasts sharply with the approach that still exists in many companies when the final version of the product is immediately created and the opinion of potential consumers is not taken into account.
The best results appear at the junction of quantitative (joint analysis) and qualitative user research (ethnographic interviews). This information needs to be analyzed together with analytical reports on the market, patents, emerging technologies, possible financial difficulties, and so on.
This all, of course, requires considerable tension of forces, but without it, you will never make a product that will ever see the light.
Despite the value of the iterations, almost 60% of surveyed companies stated that they use prototypes only for internal testing at the end of development. On the contrary, the most successful companies speak and show their achievements from the very beginning.
Those who put design above all understand that the finished product is not the end. Almost all major developers are constantly releasing updates both in appearance and “viscera.” For example, Apple Watch has been specially modified so that people can use them in the wild.
The design is not about beautiful pictures. This is the whole user experience, the user story behind the product and the user.
We all came across a frankly bad design. For example, a USB hole that can only be accessed from the third time. Or fantastic — the infamous exhaust port at the Death Star in the Star Wars franchise. The fatal mistake of the designer was the reason for the death of such a powerful and at first sight invulnerable unit.
But the main point is that it is not the design that generates the profit. It is actually the great product that solves customer’s pain.
The design only helps the customer and the brand communicate better, thuds more efficiently.