The business value of design (2022)

DOWNLOADS

Full Report (18 pages)

We all know examples of bad product and service design. The USB plug (always lucky on the third try). The experience of rushing to make your connecting flight at many airports. The exhaust port on the Death Star in Star Wars.

00:00

Audio

The business value of design

We also all know iconic designs, such as the Swiss Army Knife, the humble Google home page, or the Disneyland visitor experience. All of these are constant reminders of the way strong design can be at the heart of both disruptive and sustained commercial success in physical, service, and digital settings.

Despite the obvious commercial benefits of designing great products and services, consistently realizing this goal is notoriously hard—and getting harder. Only the very best designs now stand out from the crowd, given the rapid rise in consumer expectations driven by the likes of Amazon; instant access to global information and reviews; and the blurring of lines between hardware, software, and services. Companies need stronger design capabilities than ever before.

So how do companies deliver exceptional designs, launch after launch? What is design worth? To answer these questions, we have conducted what we believe to be (at the time of writing) the most extensive and rigorous research undertaken anywhere to study the design actions that leaders can make to unlock business value. Our intent was to build upon, and strengthen, previous studies and indices, such as those from the Design Management Institute.

(Video) The Business Value of Design (DesignSingapore Council & McKinsey Design)

We tracked the design practices of 300 publicly listed companies over a five-year period in multiple countries and industries. Their senior business and design leaders were interviewed or surveyed. Our team collected more than two million pieces of financial data and recorded more than 100,000 design actions. 1 Advanced regression analysis uncovered the 12 actions showing the greatest correlation with improved financial performance and clustered these actions into four broad themes.

The four themes of good design described below form the basis of the McKinsey Design Index (MDI), which rates companies by how strong they are at design and—for the first time—how that links up with the financial performance of each company (Exhibit 1).

We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: McKinsey_Website_Accessibility@mckinsey.com

Our research yielded several striking findings:

  1. We found a strong correlation between high MDI scores and superior business performance. Top-quartile MDI scorers increased their revenues and total returns to shareholders (TRS) substantially faster than their industry counterparts did over a five-year period—32 percentage points higher revenue growth and 56 percentage points higher TRS growth for the period as a whole.
  2. The results held true in all three of the industries we looked at: medical technology, consumer goods, and retail banking. This suggests that good design matters whether your company focuses on physical goods, digital products, services, or some combination of these.
  3. TRS and revenue differences between the fourth, third, and second quartiles were marginal. In other words, the market disproportionately rewarded companies that truly stood out from the crowd (Exhibit 2).
The business value of design (2)

We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: McKinsey_Website_Accessibility@mckinsey.com

An elusive prize

In short, the potential for design-driven growth is enormous in both product- and service-based sectors (Exhibit 3). The good news is that there are more opportunities than ever to pursue user-centric, analytically informed design today. Customers can feed opinions back to companies (and to each other) in real time, allowing design to be measured by customers themselves—whether or not companies want to listen.

The business value of design (3)

We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: McKinsey_Website_Accessibility@mckinsey.com

Lean start-ups have demonstrated how to make better decisions through prototyping and iterative learning. Vast repositories of user data and the advance of artificial intelligence (AI) have created powerful new sources of insights and unlocked the door for new techniques, such as computational design and analytics to value. Fast access to real customers is readily available through multiple channels, notably social media and smart devices. All of these developments should place the user at the heart of business decisions in a way that design leaders have long craved.

What our research demonstrates, however, is that many companies have been slow to catch up. Over 40 percent of the companies surveyed still aren’t talking to their end users during development. Just over 50 percent admitted that they have no objective way to assess or set targets for the output of their design teams. 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 (Exhibit 4a), these typically can’t be tackled by designers alone and often take years of leadership commitment to establish.

The business value of design (4)

We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: McKinsey_Website_Accessibility@mckinsey.com

(Video) My take on The Business Value of Design by McKinsey

Top-quartile companies in design—and leading financial performers—excelled in all four areas. What’s more, leaders appear to have an implicit understanding of the MDI themes. When senior executives were asked to name their organizations’ single greatest design weakness, 98 percent of the responses mapped to the four themes of the MDI (Exhibit 4b).

The business value of design (5)

We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: McKinsey_Website_Accessibility@mckinsey.com

Unpacking the MDI

In the remainder of this article, we’ll describe the four clusters of design actions that showed the most correlation with improved financial performance: measuring and driving design performance with the same rigor as revenues and costs; breaking down internal walls between physical, digital, and service design; making user-centric design everyone’s responsibility; and de-risking development by continually listening, testing, and iterating with end users.

More than a feeling: It’s analytical leadership

The business value of design (6)

We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: McKinsey_Website_Accessibility@mckinsey.com

The companies in our index that performed best financially understood that design is a top-management issue, and assessed their design performance with the same rigor they used to track revenues and costs. In many other businesses, though, design leaders say they are treated as second-class citizens.

Design issues remain stuck in middle management, rarely rising to the C-suite. When they do, senior executives make decisions on gut feel rather than concrete evidence.

Designers themselves have been partly to blame in the past: they have not always embraced design metrics or actively shown management how their designs tie to meeting businessgoals. What our survey unambiguously shows, however, is that the companies with the best financial returns have combined design and business leadership through a bold, design-centric vision clearly embedded in the deliberations of their top teams.

A strong vision that explicitly commits organizations to design for the sake of the customer acts as a constant reminder to the top team. The CEO of T-Mobile, for example, has a personal motto: “shut up and listen.” IKEA works “to create a better everyday life for the many people.” And as Pixar cofounder Ed Catmull told readers in a McKinsey Quarterly interview, to “wow” movie-goers continually, his company encourages its teams to take risks in their new projects: Pixar considers repeating the formulas of its past commercial successes a much greater threat to its long-term survival than the occasional commercial disappointment.

It’s not enough, of course, to have fine words stapled to the C-suite walls. Companies that performed best in this area of our survey maintain a baseline level of customer understanding among all executives. These companies also have a leadership-level curiosity about what users need, as opposed to what they say they want. One top team we know invites customers to its regular monthly meeting 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. Through personal exposure or constant engagement with researchers, executives can act as role models for their businesses and learn firsthand what most frustrates and excites customers.

Many companies, though, acknowledge a worrying gap in understanding at the top of their organizations.

Less than 5 percent of those we surveyed reported that their leaders could make objective design decisions (for example, to develop new products or enter new sectors). In an age of ubiquitous online tools and data-driven customer feedback, it seems surprising that design still isn’t measured with the same rigor as time or costs. Companies can now build design metrics (such as satisfaction ratings and usability assessments) into product specifications, just as they include requirements for grades of materials or target times to market.

The value of such accurate insights is significant—one online gaming company discovered that a small increase in the usability of its home page was followed by a dramatic 25 percent increase in sales. Moreover, the company also discovered that improvements beyond these small tweaks had almost no additional impact on the users’ value perceptions, so it avoided further effort that would have brought little additional reward.

More than a product: It’s user experience

The business value of design (7)

We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: McKinsey_Website_Accessibility@mckinsey.com

(Video) The Business value of Design Sprints - with Paul Van der Linden

Top-quartile companies embrace the full user experience; they break down internal barriers among physical, digital, and service design. The importance of user-centricity, demands a broad-based view of where design can make a difference. We live in a world where your smartphone can warn you to leave early for your next appointment because of traffic, and your house knows when you’ll be home and therefore when to turn on the heat. The boundaries between products and services are merging into integrated experiences.

In practice, this often means mapping a customer journey (pain points and potential sources of delight) rather than starting with “copy and paste” technical specs from the last product. 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. These insights must be championed at every meeting. Yet only around 50 percent of the companies we surveyed conducted user research before generating their first design ideas or specifications.

Combining physical products, digital tools, and “pure” services provides new opportunities for companies to capture this range of experience. A hotel, for example, might do more than just focus on the time between check-in and check-out (the service element) by promoting early engagement through social media or its own apps (the digital dimension) and providing physical mementos aimed at encouraging customers to rebook. The reception team of one big hotel chain we know gives departing guests a rubber duck adorned with an image of their host city (such as clogs and tulips for Amsterdam). The team includes a note suggesting that guests might like to keep the duck at home as a reminder of their stay and could build a collection by visiting the group’s other properties. This small touch led to a 3 percent improvement in retention over time.

Design-driven companies shouldn’t limit themselves to their own ecosystems. The best businesses we interviewed think more broadly. Ready-made meals are popular with the hard-working singles who grab them on their way home. A retailer of these meals has considered teaming up with Netflix to devise a one-click meal-ordering system, which would come into play two hours into an evening’s binge viewing when the customer would receive a screen prompt. Mobile-payment services such as Google Pay and Apple Pay were the result of a willingness to think across boundaries to devise easier ways to access cash. A piece of plastic in your wallet is one solution, but how much easier is it to use a device you already carry in your pocket?

More than a department: It’s cross-functional talent

The business value of design (8)

We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: McKinsey_Website_Accessibility@mckinsey.com

Top-quartile companies make user-centric design everyone’s responsibility, not a siloed function. In the tired caricature of traditional design departments, a group of tattooed and aloof people operate under the radar, cut off from the rest of the organization. Considered renegades or mavericks by their colleagues, these employees (in the caricature) guard access to their ideas, complaining that they have too often been burned by narrow-minded engineering or marketing heads unwilling to (or incapable of) realizing the designers’ grand visions.

We are not suggesting that this stereotype is still common—or that other functions are necessarily to blame—but it can be surprisingly resilient. One company we know, for example, unveiled a new flagship design studio to much jubilation from the design community. Before long, all the designers had moved their desks inside the studio, and had deactivated door access for the marketing, engineering, and quality teams. These moves drastically reduced the level of cooperative work and undermined the performance of the business as a whole.

Our research suggests that overcoming isolationist tendencies is extremely valuable. One of the strongest correlations we uncovered linked top financial performers and companies that said they could break down functional silos and integrate designers with other functions. This was particularly notable in consumer-packaged-goods (CPG) businesses, where respondents from companies that were top-quartile integrators reported compound annual growth rates some seven percentage points above those that were weakest in this respect.

Nurturing top design talent—the 2 percent of employees who make outsized contributions in every business—is another important dimension of team dynamics. Getting the basic incentives right is a part of this: in our survey, companies in the top quartile for design overall were almost three times more likely to have specific incentive programs for designers. These programs are tied to design outcomes, such as user-satisfaction metrics or major awards.

Crucially, though, retaining great design talent requires more than promising a big bonus or a career path as a top-flight manager. Carrots such as these are not enough to retain top design talent if not accompanied by the freedom to work on projects that stir their passion, time to speak at conferences attended by their peers, and opportunities to stay connected to the broader design community. Talented designers at a CPG company well-respected for its design credentials started leaving because of the amount of time they had to spend styling slideshow packs for the marketing team. Conversely, Spotify’s appeal to top designers is often attributed to its autonomy-with-connectivity culture and to a working environment characterized by diversity, fun, and speed to market.

Design already touches many parts of a business: human–machine interactions, AI, behavioral economics, and engineering psychology, not to mention innovation and the development of new business models. 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.

They will only be able to do so, though, if they have the right tools, capabilities, and infrastructure. That calls for the sort of design software, communication apps, deep data analytics, and prototyping technologies that drive productivity and accelerate design iterations. All of this requires time and investment. We found a strong correlation between successful companies and companies that resisted the temptation to cut spending on research, prototyping, or concept generation at the first sign of trouble. Formal design allocations should be agreed to in partnership with design leaders instead of appearing (as they often do) as line items in the marketing or engineering budgets.

More than a phase: It’s continuous iteration

The business value of design (9)

We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: McKinsey_Website_Accessibility@mckinsey.com

Design flourishes best in environments that encourage learning, testing, and iterating with users—practices that boost the odds of creating breakthrough products and services while simultaneously reducing the risk of big, costly misses. That approach stands in contrast to the prevailing norms in many companies, which still emphasize discrete and irreversible design phases in product development. Compartmentalization of this sort increases the risk of losing the voice of the consumer or of relying too heavily on one iteration of that voice.

(Video) Design Wednesday: The business value of design

The best results come from constantly blending user research—quantitative (such as conjoint analysis) and qualitative (such as ethnographic interviews). This information should be combined with reports from the market-analytics group on the actions of competitors, patent scans to monitor emerging technologies, business concerns flagged by the finance team, and the like. Without these tensions and interactions, development functions may end up in a vacuum, producing otherwise excellent work that never sees the light of day or delights customers.

In a successful effort to improve the user experience, one cruise company we know talked directly to passengers, analyzed payment data to show which food and activities were most popular at different times, and used AI algorithms on security-camera feeds to identify inefficiencies in a ship’s layout. At a medical-technology company, blending sources of inspiration meant talking to a toy designer about physical ergonomics and to a dating-app designer about the design of digital interfaces. These moves helped the company to refine a device so that it appealed to customers with limited dexterity. The resulting product was not only safer and easier to use but also beat the market by more than four percentage points when launched.

The business value of design (10)

We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: McKinsey_Website_Accessibility@mckinsey.com

Despite the value of iteration, almost 60 percent of companies in our survey said they used prototypes only for internal-production testing, late in the development process. In contrast, the most successful companies consciously foster a culture of sharing early prototypes with outsiders and celebrating embryonic ideas. They also discourage management from driving designers to spend hours perfecting their early mock-ups or internal presentations.

Design-centric companies realize that a product launch isn’t the end of iteration. Almost every commercial software publisher issues constant updates to improve its products postlaunch. And the Apple Watch is one among many products that have been tweaked to reflect how customers use them “in the wild.”

A first step toward great design

We realize that many companies apply some of these design practices—a strong voice in the C-suite, for example, or shared design spaces. Our results, however, show that excellence across all four dimensions, which is required to reach the top quartile, is relatively rare. We believe this helps account for the dramatic range of design performance reflected in the observed companies’ MDI scores, which were as low as 43 and as high as 92 (Exhibit 5).

The business value of design (11)

We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: McKinsey_Website_Accessibility@mckinsey.com

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. Through interviews and our experience working with companies to transform their strength in design, we’ve also discovered that one of the most powerful first steps is to select an important upcoming product or service and make a commitment to using it as a pilot for getting the four elements right. This approach showed far better financial results than trying to improve design as a theme across the whole company—for example, conducting trials of cross-functional work in isolation from real products or services.

One medical-equipment group we know rallied around the design of a new surgical machine as it sought to head off a growing threat from competitors. The commitment of the CEO and senior executives was intense; executive bonuses were tied to the product’s usability metrics and surgeon-satisfaction scores. Cross-functional and co-located teams carried out more than 200 user tests over two years, from the earliest concepts to the detailed design of features. In all, more than 110 concepts and prototypes were created and iterated. The final design’s usability score—a measure of customer satisfaction—exceeded 90 percent, compared with less than 76 percent for the machines of its two main competitors. The ultimate solution combined a physical device, a digital data pad that could seamlessly connect with more than 40 third-party operating-theater devices, and a service contract.

In the past six months, the company’s market share has jumped 40 percent, in part as investors understand the upcoming user-centric products and services that set the company apart from its competition and—even more important—that will improve patients’ lives.

The McKinsey Design Index highlights four key areas of action companies must take to join the top quartile of design performers. First, at the top of the organization, adopt an analytical approach to design by measuring and leading your company’s performance in this area with the same rigor the company devotes to revenues and costs. Second, put the user experience front and center in the company’s culture by softening internal boundaries (between physical products, services, and digital interactions, for example) that don’t exist for customers. Third, nurture your top design people and empower them in cross-functional teams that take collective accountability for improving the user experience while retaining the functional connections of their members. Finally, iterate, test, and learn rapidly, incorporating user insights from the first idea until long after the final launch.

Companies that tackle these four priorities boost their odds of becoming more creative organizations that consistently design great products and services. For companies that make it into the top quartile of MDI scorers, the prizes are as rich as doubling their revenue growth and shareholder returns over those of their industry counterparts.

FAQs

What is the business value of design? ›

The business value of design is indisputable and has been proven countless times as a way to increase company profits. Good design differentiates a product from the competition. It contributes to a better user experience, higher customer satisfaction, and an enhanced brand image.

How is design important in business? ›

Ultimately, good design increases your company's value, boosts sales, and puts your business in a better financial situation. Through building trust, making strong first impressions, building customer relationships, and even executing successful campaigns, good design helps make your business more profitable.

How can design add value to a business? ›

People connect with and empathise with visuals, and if the visuals have the right design-thinking behind them, will connect with the right people, in the right way, and encourage action (such as buying your products a or interacting with you in someway) This works for physical products (like the packaging they are ...

What does design value mean? ›

Most simply stated, design values are the qualities and characteristics a game's designer wants to embody in the game and its play experience. Design values help designers identify what kind of play experience they want to create and articulate some of the parts that will help their game generate that experience.

What is the value of design quality? ›

Design quality is the value of a design to customers. Design is the root of all quality including the quality of products, services, experiences, systems and processes. For example, a product with a poor design will be low quality even if quality control and quality assurance succeed in producing the design accurately.

What is value in graphic design? ›

Value: In design, value refers to the lightness or darkness of a color. The values of a color are often visualized in a gradient, which displays a series of variations on one hue, arranged from the lightest to the darkest.

How does design impact business? ›

Design takes your growth strategy, your promotional activity, your product experience or customer service, and turns up the volume, amplifying the impact of your efforts across every channel in your business.

What is importance of design? ›

A good design can make people trust you more, alter customer perception, make you memorable, get your message across, make your product work to the fullest, and shine. A great one can do even more.

Does design matter in business? ›

Whether it's your website, logo, or marketing materials, design plays an important role in branding and promoting your small business. A well-designed website is important for business marketing. A company's website and logo design should communicate a message and make a good first impression.

Why is added value important for a business? ›

Adding value to a product or service helps companies attract more customers, which can boost revenue and profits. Value-added is effectively the difference between a product's price to consumers and the cost of producing it.

How do you create value? ›

Here are 7 strategies for creating value that will allow you to maximize what you get out of life.
  1. 1 – Maximize each moment by staying engaged. ...
  2. 2 – Build more value by training yourself to start. ...
  3. 3 – Let yourself be moved. ...
  4. 4 – Get comfortable with uncertainty. ...
  5. 5 – Give yourself credit and be okay with judgment.

How can value be used in design? ›

Value simply refers to how light or dark design elements appears. White is the lightest value, while black is the darkest. All other colours have value and sit within the range of light to dark. For example, yellow has a relative light value and purple has a relative dark value.

What makes a good design? ›

Good design is a concept defined by industrial designer Dieter Rams's principles: It makes a product useful and understandable, is innovative, aesthetic, unobtrusive, honest, long-lasting, thorough to the last detail, environmentally friendly, and involves as little design as possible.

How do businesses use design thinking? ›

#10 Ways to Use Design Thinking for Driving Business
  1. Create a roadmap for the Future.
  2. Identify the Right Problem.
  3. Team Collaboration & innovation.
  4. Deep Understanding of Customers.
  5. Stay ahead of Competition.
  6. Get more opportunities.
  7. Clarity in Meetings.
  8. Improve Customer Experience.
18 Dec 2017

Why is quality so important in design? ›

Quality Design Makes Your Business Brand Seem More Trustworthy. Your customers can easily pick up on quality, especially when there are so many great websites out there. And good quality marketing materials can make a great impression, which can help you build trust with your customers.

What are the 12 principles of design? ›

Understanding the basics

There are twelve basic principles of design: contrast, balance, emphasis, proportion, hierarchy, repetition, rhythm, pattern, white space, movement, variety, and unity.

What is basic design? ›

Basic Design means a set of documents comprising explanations and drawings demonstrating the principal designing solution, which fully meets the conditions for estimation of total investment capital and serves as basis for deployment of subsequent designing steps.

What makes graphic design important? ›

Graphic design not only makes something look good, it organizes information to help deliver a message in the most impactful way possible. When you combine the right image, a well-written headline, professionally executed in a well-established package, then BOOM! The message hits its target.

What impact does a design have? ›

Design matters a lot in how a brand can influence its target audience. Its impact is so strong that it has the ability to make or mar a business. So, it is these brands that understand the value of design in the journey of a business that make the frontline.

Why is design important in marketing? ›

The purpose of design in marketing is to communicate and strengthen your branding as well as to emphasise a campaign message. Therefore, design plays an essential role in your marketing efforts.

What impact does a good design have on the product? ›

Better design, better leads

Nowadays, to attract more leads, having a good user experience is very important. A website that is logical, understandable, and also very attractive is important for not just attracting new consumers but also retaining them.

What is the most important thing in design? ›

Knowledge is the most important thing we have. A tool doesn't make you a better designer. Knowledge and understanding of design does. No amount of features in a design tool will make your design work more effective.

How Can design change the world? ›

In the book Do Good Design: How design can change the world, David Berman awakens designers to the powerful role they play in shaping the world around us and empowers a shift to a new, sustainable design practice that's more socially and environmentally responsible.

How does design impact our lives? ›

Design helps us get involved, keeps us connected to the world, helps us navigate our way through physical and digital spaces. It has the power to persuade and strengthen the decision-making process. Wherever we encounter the language in written form, we see the work of font designers and typographers.

What is the McKinsey design index? ›

The four themes of good design described below form the basis of the McKinsey Design Index (MDI), which rates companies by how strong they are at design and—for the first time—how that links up with the financial performance of each company (Exhibit 1).

Why do we design? ›

Because they want to acquire things that look good as it makes them feel good about themselves. Whether it's something in nature or something we designed, we enjoy admiring or using things that look good. However, art and design can make us feel a wide range of emotions.

Videos

1. #224 The business value of design with Jeanne Liedtka
(UX Podcast)
2. The Business Value of UX Design - Laith Wallace
(Laith Wallace)
3. Explaining the Business Value of Service Design in Plain English
(Human Centred Design United Arab Emirates)
4. The business value of design - Mark Rawlins
(Front)
5. Business Value of Design
(Aginic)
6. The Business Value of Design | 132 Ben Blumenrose of Designer Fund
(Outlier Academy)

Top Articles

Latest Posts

Article information

Author: Horacio Brakus JD

Last Updated: 10/15/2022

Views: 5750

Rating: 4 / 5 (71 voted)

Reviews: 94% of readers found this page helpful

Author information

Name: Horacio Brakus JD

Birthday: 1999-08-21

Address: Apt. 524 43384 Minnie Prairie, South Edda, MA 62804

Phone: +5931039998219

Job: Sales Strategist

Hobby: Sculling, Kitesurfing, Orienteering, Painting, Computer programming, Creative writing, Scuba diving

Introduction: My name is Horacio Brakus JD, I am a lively, splendid, jolly, vivacious, vast, cheerful, agreeable person who loves writing and wants to share my knowledge and understanding with you.