When it comes to product development, data and design both play essential roles. While data can inform decisions and patterns, good design can ultimately drive success for a business. Our last post pertained to the value of good design in a data-driven world. This post will explore the impact of design within a company. Since concluding that data and design go hand-in-hand, let’s take a deeper look at the business value of design. Does it really have an impact on a company’s performance? And how much trust should a business invest in design teams? While measuring the business value of design might seem complicated, a recent McKinsey study has found concrete evidence of its impact. Other studies, such as the one from The Design Management Institute found similar results.
This blog post will delve into the findings of the McKinsey study and examine the business value of design. We hope to help you understand why companies like Apple, Microsoft, and others have invested heavily in product design.
McKinsey is a world-famous management consulting firm known for its in-depth research and analysis. They report on various industries and business topics, including their recent study on the impact of design. In this particular study, McKinsey looked at the performance of over 300 publicly-listed companies from 2013 to 2018.
The study tracked the design practices of these respondents using a “Design Index.” This index was based on both quantitative and qualitative measures. They called it the McKinsey Design Index (MDI), based on over 2 million pieces of data and 100,000 design actions. They identified the 12 most important design activities, some of which include user research and prototyping.
These showed the most significant correlation with the company’s financial performance. The results? Companies in the top quartile of MDI outperformed industry benchmark growth by a staggering factor of two to one. Benchmarks are simply the average performance of a group. So to outperform them by two times means design greatly impacted these companies’ performance.
As you may expect, the McKinsey study found a strong link between higher MDI scores and higher revenue and total shareholder return. Over the five-year period, those top companies’ competitors saw their revenue grow 32% less. Their total return to stakeholders was 56 points lower on average.
As for the industries studied, all benefited from investing in design. Medical technology, consumer goods, and retail banking saw the highest impact. The stats rang true whether the product was physical, digital, or a mix of both.
The true value of design
So what does this mean for your business? It’s clear from the McKinsey study that design can have a significant impact on overall financial performance. But why is that the case? The truth is that design can be a differentiating factor in crowded markets, helping your products stand out to consumers. In fact, the study saw a disproportionate impact of design on market share. Companies in the top quartile had the largest gap in market share compared to those in the bottom. The second, third, and fourth quartiles saw much smaller differences. This shows that design can set companies apart in terms of customer attraction.
Good design also helps with product innovation. Lean startups are constantly iterating and improving their products. Design can play a big role in that methodology. The study found that companies with higher MDI gather more customer feedback on social media platforms like LinkedIn. They may also use artificial intelligence, user research, and prototyping to drive innovation. A data-driven strategy to design enables companies to create products that truly meet their customers’ needs and wants. And with a clear focus on the user experience, it’s no surprise that these same companies saw improved customer satisfaction scores.
However, not everybody boarded the design train. The study found that two in five companies aren’t talking to the end-users during their design initiatives. As such, they aren’t integrating customer input into their product development. Over half of them have no objective way to measure the impact of design on their business. These companies may be missing out on major opportunities for growth and improvement.
In other words, they are flying blind without the data to back up their design decisions. Without clear targets, it can be difficult to assess the effectiveness of the design and make improvements. Design teams might continue putting out subpar products without realizing it. The company as a whole may suffer as a result.
What gives design its value?
The McKinsey study cast a spotlight on the financial impact of design. But you might wonder how to improve your company’s design approach and see those benefits for yourself. Good design practices can help improve business profitability, according to the McKinsey Design Index. The index identifies four common factors that correlate with good design:
Design should be a priority for the entire leadership team. It shouldn’t just be siloed within one department. The MDI found that top-performing companies have CEOs who prioritize design. They communicate its value and hold designers accountable with clearly defined targets.
Design leaders also use data and analytics to understand the impact of design on business performance. Then, they make informed decisions about future design investments. As a business, you constantly measure the company’s costs and revenue. Why wouldn’t you do the same for the impact of design on metrics such as market share, customer satisfaction, and innovation?
In today’s world, there is no excuse not to have business goals and KPIs for every aspect of the business. That includes design, but it goes further than that. Instead of treating the design team like lower-level employees, design should be a C-suite agenda item and integrated into the company’s overall strategy.
Combine leadership buy-in with data-driven decision-making, and you have a recipe for successful design implementation.
Embracing the full user experience
The customer journey doesn’t end when they make a purchase. Good design considers the entire user experience, from initial discovery to the continued use and problem-solving opportunities that may arise. The MDI found that top-performing companies gather customer feedback throughout the design process. They consider their emotions and pain points when creating a product or service design.
Another crucial point was breaking down the barriers between physical and digital products as well as services. The customer experience isn’t limited to one touchpoint, so the design shouldn’t be either. Taking a holistic approach to design leads to better satisfaction and retention from customers.
For example, Amazon does a great job of integrating its physical and digital products. As a brand, they’ve managed to integrate their online marketplace with physical delivery services, streaming media, and even brick-and-mortar stores. Each aspect of the Amazon brand works together to create a seamless user experience.
In short, design is not just about aesthetics or functionality. It should also consider the end-to-end customer journey to continually improve the experience design. Look at the big picture, and don’t limit your design efforts to one touchpoint or department.
Next, the study found that top-performing companies integrate design thinking and designers into all aspects of the business, not just product development. Designers should be involved in strategy meetings and decision-making processes. Many companies still only consult them for specific projects.
In addition to involving designers early on, giving them a voice at the leadership level is essential. Companies that broke down functional silos saw higher returns on design investments. They listened to designers instead of cutting the budget for prototyping, research, and concept generation.
Designers bring a unique perspective and set of skills to the table. Don’t underestimate their value and limit their involvement in the company. Instead, give them a seat at the decision-making table and listen to their ideas. Having incentive programs in place to reward design-led innovations can also lead to better performance.
In short, T-shaped designers, or those with a strong base knowledge and expertise in design with the ability to collaborate across departments, are key players in driving business success. Keep them happy at all costs.
Finally, the study found that top-performing companies continually iterate and improve upon their designs. The others create the product once and move on to other projects. Top companies focus on design effectiveness over efficiency, continuously collecting customer feedback and making changes accordingly.
Although 60% only use prototypes later in the design process, the most successful ones use them throughout. They make changes as they go. They also continually invest in testing and measuring the effectiveness of design decisions. Being user-centric doesn’t mean creating something perfectly the first time. It means constantly striving for improvement and never being satisfied with the status quo.
Think about most software companies or video game developers. They frequently release updates and improvements based on customer feedback. This mindset should be applied to all industries, not just tech.
According to McKinsey & Company, businesses that invest in design and integrate it into all aspects of their business improve their bottom line. They see higher performance and better returns. It’s clear that great design isn’t just about aesthetics or functionality; it also considers the end-to-end customer experience and constantly strives for improvement.
Insightful data and customer feedback are also crucial to innovation and continuous iteration. So don’t just focus on design at the product development stage. Integrate it into your overall strategy and decision-making processes. And most importantly, value and listen to your designers—they have a unique perspective and skill set that can drive success for your business.
If you’re ready to elevate your company’s design strategy, contact us for a consultation.