In a sweeping study of 2 million pieces of financial data and 100,000 design actions over five years, McKinsey finds that design-led companies had 32% more revenue and 56% higher total returns to shareholders compared with other companies.
For years, the design community has been working to build the case that its work has significant business value. A groundbreaking new study by the consulting firm McKinsey & Company can put a number on the impact design has on business.
After analyzing 2 million pieces of financial data and 100,000 design “actions”–deliberate attempts to make design a more prominent part of business–for 300 public companies over a five-year period, McKinsey found that those with the strongest commitment to design and the most adept execution of design principles had 32% more revenue and 56% more total returns to shareholders. This finding held true across three separate industries: medical technology, consumer goods, and retail banking.
“We’ve just seen over the last five years, this explosion of senior business leaders saying, ‘Help, we need to up our game in terms of product and service design,’” says Benedict Sheppard, a partner at McKinsey who leads product development and design practices in the U.K. “It’s getting harder and harder to make products and services stand out from the crowd.”Sheppard and the study’s other authors used regression analysis to assess how different design actions, such as putting a design leader in the C-suite, or linking executives’ bonuses to usability scores impacted financial performance across 300 companies, which joined the study voluntarily with the goal of learning where they stood against industry competitors when it came to design. The authors uncovered four different areas that increased revenue and total returns most, then ranked all 300 companies on these four areas using a metric they’re calling the McKinsey Design Index (MDI). These themes are:
- Tracking design’s impact as a metric just as rigorously as you would track cost and revenue. McKinsey cited one gaming company that tracked how a small usability tweak to its home page increased sales by 25%.
- Putting users first by actually talking to them. This helps to think outside of a standard user experience. One hotel that McKinsey underlined presented visitors with souvenir rubber ducks embossed with an image of the host city–with the encouragement to collect more rubber ducks from the hotel’s other locations. The initiative improved retention 3% over time.
- Embedding designers in cross-functional teams and incentivizing top design talent. McKinsey pointed to Spotify as an example because the company gives its designers autonomy within a diverse environment–unlike a consumer packaged goods company, which was bleeding designers because they had to spend time making slide decks look pretty for the marketing team.
- Encouraging research, early-stage prototyping, and iterating. Just because a product or service is launched doesn’t mean the design work ends. One cruise ship company that McKinsey highlighted spoke with passengers, assessed which activities were most popular by looking at payment data, and analyzed security feeds with machine learning algorithms to find inefficiencies in a ship’s layouts–all in the name of improving user experience over time.
Companies that consistently did all four of these things scored high on the MDI. Of the 300 companies studied, the businesses that scored in the top quartile of the MDI had soaring revenue and total returns as compared to the bottom three quartiles, where the differences between each quartile was negligible. In other words, for design to work its magic, a business has to really commit and excel across all four areas that McKinsey identified. For Sheppard, that was a surprise. The team anticipated that every dollar spent on design would improve the bottom line, but instead, it has a disproportionate financial impact for companies that are really good at design.
“People need to make a decision,” Sheppard says. “‘Are we serious about design, or should we not invest at all?’ Frankly, if you want to do it, you should do it properly.”
Many of the companies that McKinsey surveyed failed to perform on these four themes. More than 40% of them don’t talk to users at all during development, and about 50% have no objective way to assess the output of their design teams. Less than 5% reported that their leadership can make design-related decisions in a data-driven, objective way. Instead of using prototypes early and iterating often with user feedback, about 60% of the surveyed companies only use prototypes late in the development process, for internal use only. These are top-down problems, something designers at a company can’t fix on their own. As the authors write:
“With no clear way to link design to business health, senior leaders are often reluctant to divert scarce resources to design functions. That is problematic because many of the key drivers of the strong and consistent design environment identified in our research call for company-level decisions and investments. While many designers are acutely aware of some or all of the four MDI themes, these typically can’t be tackled by designers alone and often take years of leadership commitment to establish.”
So how does a company without a design-centric culture build one? The study’s authors recommend choosing a single project as a pilot and then committing to each of the four key areas. They found that starting with a pilot rather than trying to implement design-focused initiatives across the entire company at once had better financial results. An example? One medical equipment company doubled down on design when building a new surgical device by forming cross-functional and co-located teams, building more than 110 prototypes and concepts, testing and iterating over the course of two years, and tying executives’ bonuses to usability scores and surgeons’ feedback. The company reported to McKinsey that the final product’s usability score was 12 percentage points higher than the competitive devices–and ultimately, the company’s market share increased 40%.
Sheppard hopes to extend the MDI to more industries in the future. For now, it’s an important step toward quantifying something designers have long known to be true but corporate leaders have been slower to embrace. “What this report acknowledges is a coming of age,” Sheppard says. “Design is now a C-suite topic.”
This article first appeared in www.fastcompany.com
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