Design. It’s more than just a pretty picture.
It’s a strategic driver of business value, impacting everything from revenue growth to shareholder returns.
While many companies understand the concept of good design, consistently executing it is a different story. This post, inspired by research from McKinsey & Company, delves into the tangible business value of design, exploring how top-performing companies leverage design to outperform their competitors.
We’ll uncover the key actions they take, the challenges many face, and how you can implement these strategies in your own organization.
The Design Dividend: Quantifying the Impact
McKinsey’s extensive research, encompassing 300 publicly listed companies across various industries, revealed a striking correlation between strong design practices and superior financial performance.
Their analysis, which included over two million pieces of financial data and more than 100,000 design actions, culminated in the McKinsey Design Index (MDI). The findings are compelling:
- Top-quartile MDI scorers saw 32 percentage points higher revenue growth and 56 percentage points higher total returns to shareholders (TRS) over a five-year period compared to their industry counterparts.
- This advantage held true across diverse sectors, including medical technology, consumer goods, and retail banking, demonstrating the universal applicability of good design.
- The market disproportionately rewards exceptional design. The difference in performance between the top quartile and the rest was significant, while the differences between the second, third, and fourth quartiles were marginal. Standing out is key.
These findings highlight the immense potential of design-driven growth. In today’s hyper-competitive landscape, where consumer expectations are constantly rising, exceptional design is no longer a luxury—it’s a necessity.
The Design Gap: Why Many Companies Fall Short
Despite the clear benefits, many companies struggle to effectively integrate design into their core business strategy. McKinsey’s research uncovered a significant gap between the potential of design and the reality for many organizations. Alarmingly:
- Over 40 percent of surveyed companies don’t engage with end-users during the development process.
- Just over 50 percent lack an objective way to assess or set targets for their design teams’ output.
- This lack of measurement and user engagement makes it difficult to demonstrate the ROI of design, hindering investment and strategic prioritization.
This disconnect often stems from a perception of design as a purely aesthetic function, rather than a strategic driver of value. Design decisions are often based on gut feeling rather than data-driven insights, leading to missed opportunities and suboptimal outcomes.
The Four Pillars of Design Excellence: The McKinsey Design Index (MDI)
McKinsey’s research identified four key themes that characterize top-performing design organizations. These themes form the basis of the MDI and provide a roadmap for companies seeking to unlock the full potential of design:
- Analytical Leadership: Treating design with the same rigor as finance and operations.
- Cross-Functional Collaboration: Breaking down silos and integrating design across the organization.
- User-Centricity: Making user needs the central focus of the design process.
- Continuous Iteration: Embracing a culture of learning, testing, and refinement.
Let’s delve deeper into each of these pillars:
1. Analytical Leadership: Measuring and Managing Design Performance
Top-performing companies understand that design is a strategic imperative, not just a tactical consideration. They measure and manage design performance with the same rigor they apply to other critical business functions. This involves:
- Establishing clear design metrics: Defining measurable objectives for design initiatives, such as user satisfaction, usability scores, and conversion rates. Just as companies track revenue and costs, they should also track the impact of design on key business outcomes. For example, an e-commerce company could track the impact of design changes on cart abandonment rates.
- Embedding design in the C-suite: Elevating design to a strategic level, ensuring that design considerations are integrated into key business decisions. This requires having a design champion at the executive level who can advocate for design and ensure that it receives the necessary resources and attention.
- Data-driven decision making: Using data and analytics to inform design decisions, rather than relying on gut feeling or subjective opinions. This involves conducting user research, analyzing market trends, and leveraging data to understand user needs and preferences. For instance, A/B testing can be used to compare different design options and determine which performs best.
2. Cross-Functional Collaboration: Breaking Down Silos
In many organizations, design is siloed within a specific department, isolated from other functions. Top-performing companies, on the other hand, foster cross-functional collaboration, breaking down silos and integrating design across the organization. This involves:
- Creating cross-functional teams: Bringing together designers, engineers, marketers, and other stakeholders to work collaboratively on design projects. This ensures that diverse perspectives are considered and that design is integrated into all aspects of the product or service development process.
- Promoting a shared understanding of design: Educating employees across the organization about the principles of good design and the importance of user-centricity. This helps to create a culture where everyone understands and values design.
- Establishing clear communication channels: Facilitating communication and collaboration between design teams and other departments. This can be achieved through regular meetings, shared workspaces, and collaborative software tools.
3. User-Centricity: Putting the User First
At the heart of great design is a deep understanding of the user. Top-performing companies prioritize user-centricity, making user needs the central focus of the design process. This involves:
- Conducting user research: Gathering insights directly from users through interviews, surveys, and usability testing. This helps to understand user needs, pain points, and preferences. For example, a software company might conduct user interviews to understand how users interact with their product and identify areas for improvement.
- Creating user personas: Developing representative profiles of target users to help designers understand their needs and motivations. These personas can be used to inform design decisions and ensure that the product or service is tailored to the needs of the target audience.
- Mapping the customer journey: Visualizing the steps that users take when interacting with a product or service. This helps to identify pain points and opportunities to improve the user experience.
4. Continuous Iteration: Embracing a Culture of Learning
Design is not a one-time event; it’s an ongoing process of learning, testing, and refinement. Top-performing companies embrace a culture of continuous iteration, constantly seeking to improve their designs based on user feedback and data. This involves:
- Prototyping and testing: Creating early versions of designs and testing them with users to gather feedback. This allows designers to identify and address any usability issues early in the development process. For instance, a hardware company might create 3D printed prototypes of a new product and test them with users to get feedback on ergonomics and functionality.
- Iterative design: Continuously refining designs based on user feedback and data. This involves making small changes and testing them again, repeating the process until the design is optimized.
- Post-launch optimization: Continuously monitoring user feedback and data after a product or service is launched and making further improvements. This ensures that the product or service continues to meet user needs and remains competitive.
Implementing Design Excellence: A Practical Approach
Transforming your organization into a design-driven powerhouse requires a commitment to these four pillars. Here are some practical steps you can take:
- Start with a pilot project: Choose a key product or service and use it as a pilot for implementing the four MDI themes. This allows you to focus your efforts and demonstrate the value of design before scaling it across the organization.
- Secure executive sponsorship: Gain buy-in from senior leadership to ensure that design receives the necessary resources and attention. This is crucial for driving cultural change and embedding design into the organization’s DNA.
- Invest in design talent: Attract and retain top design talent by offering competitive salaries, challenging projects, and opportunities for professional development. Create a culture where designers feel valued and empowered.
- Provide the right tools and infrastructure: Equip your design teams with the tools and technologies they need to be successful, including design software, prototyping tools, and data analytics platforms.
- Foster a culture of experimentation and learning: Encourage experimentation, prototyping, and user testing. Create a safe space for designers to take risks and learn from their mistakes.
Conclusion: Design as a Competitive Differentiator
In today’s increasingly competitive marketplace, design is no longer just a nice-to-have—it’s a must-have. Companies that prioritize design and effectively implement the four pillars of design excellence outlined in this blog post will be well-positioned to outperform their competitors and achieve sustainable growth.
By embracing design as a strategic driver of value, you can unlock the full potential of your organization and create products and services that delight users and drive business success. The payoff is significant: increased revenue, higher shareholder returns, and a stronger brand reputation. Invest in design, and you’ll be investing in your future.
