Design-driven organisations hold big potential for revenue growth

10 January 2019 Consultancy.uk

A study has found that companies that successfully embed design within their organisations stand to financially outperform their competitors nearly twofold.

The study by McKinsey & Company followed 300 publicly listed companies over a five-year period, using more than two million pieces of data and analysing more than 100,000 design actions taken by said companies, finally homing in on four pillars that together support the McKinsey Design Index (MDI). The MDI assesses companies on their strength in the design field, connecting that strength with financial performance. 

“Top-quartiles MDI scorers increased their revenues and total returns to shareholders (TRS) substantially faster than their industry counterparts over a five-year period – 32 percentage points higher revenue growth and 56 percentage points higher TRS growth for the period as a whole,” the report states.

These results were consistent in each of the industries examined by McKinsey – medical technology, consumer goods, and retail banking. Additionally, those companies performing in the bottom three quartiles showed negligible revenue differences between themselves. “In other words” the report continues, “the market disproportionately rewarded companies that truly stood out from the crowd.”

Companies with top-quartile McKinsey Design Index scores outperformed

The MDI breaks down design within organisations into four key areas. To realise its full financial potential, an organisation must succeed in all four. The most successful companies examined by McKinsey were those which embedded design thinking throughout their organisation, on every level. When it comes to the best practices of design, there is no such thing as too big or too small. 

Analytical leadership

The first pillar of the MDI focuses on analytical leadership in the boardroom and the C-suite, where decisions are often made based on emotion, or gut feeling. Successful companies, however – and, more specifically, executives from those companies – were able to objectively make design decisions based on insights and customer needs. They also understood that what customers need may sometimes be different than what they want. These executives made time to personally interact with customers or clients, and genuinely attempted developed relationships with them. By doing so, they created a window into the minds of their consumers.

“Through personal exposure or constant engagement with researchers,” the report states, “executives can act as role models for their businesses and learn first-hand what most frustrates and excites customers.”

User experience

In top performing MDI companies, the user comes first. Every product must be designed in a user-centric manner, carefully planned around “pain points and potential sources of delight.”

By shaping products and services around the customer, companies are able to create integrated experiences that resonate long after said experience ends. “This design approach requires solid customer insights gathered first-hand by observing and – more importantly – understanding the underlying needs of potential users in their own environment,” according to the report. 

Higher McKinsey Design Index scores correlated with higher revenue growth

Effective design thinking and innovation is built upon identifying and developing insights on user needs. These insights must be placed front-and-centre – become the be-all, end-all of every meeting. 

Of those companies surveyed by McKinsey, only approximately 50% had undertaken research into their consumer base before beginning to brainstorm or come up with ideas. It’s a rather shocking statistic, especially when it is so clear that successful design rides on the coattails of successfully identifying user needs and habits.

Design-think everywhere

User-centric design isn’t a one-man show. Those employees who show promise or talent in the field should not be locked away in an ivory tower, where they are expected to create something magical, game-changing, out of nothing. Instead, these employees should be embedded throughout the company, working with colleagues in various departments. After all, great design is not an art form, but a science, based on customer needs and insights – based on people. Isolating design team has a counterproductive effect when it comes to creating what’s needed for any particular market – and in turn, to boosting a company’s revenue and financial performance.

“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,” the report states.

The report found that top design talent (“the 2% of employees who make contributions in every business”) must be nurtured, as well as given freedom. Allowing top talent to work on projects for which they show passion or great interest, as well as opportunities to publicly share that passion with others, such as at conferences or events, is essential in employee retention, potentially saving thousands in turnover costs. 

Further, top-quartile MDI companies did not easily and wilfully cut spending on design research. These companies treated effective design not as luxury, but necessity. “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,” the report states.

When senior executives were asked to name theur otganizations' single greatest design weakness

Continuous iteration

Companies that succeed in design – and those companies in the top quartile of the MDI – did not believe in one-shot kills. They expected mistakes. They planned for them, sometimes even relished in them. “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.” 

Continuous iteration means combining information stemming from market analytics groups, ethnographic interviews, conjoint analysis, and the like to create qualitative and quantitative data that can be used to examine customer behaviour and habits. This information is then shared with “outsiders” at an early stage, rather than tinkered with behind closed doors until it is grandly unveiled to the public. The more outside input, the better – top companies aren’t shooting for immediate perfection. They seek feedback, reshaping, retooling. They want surety, not shots in the dark. 

But that doesn’t mean that the work ends upon a product’s seeming completion. “Design-centric companies realise that a product launch isn’t the end of iteration,” the report states. Top design performers must constantly update their product or service to meet the ever shifting needs of a customer base that is, by nature, constantly changing.

Take action, reach the top

Those companies that take action and begin to embed the MDI’s four pillars into every level of their organisation’s day-to-day vastly improve their chances at finding a spot in the top quartile of design performers. Once there, those companies reap the rewards – rewards “as rich as doubling their revenue growth and shareholder returns over those of their industry counterparts.” 

Related: McKinsey & Company unites design skills to launch McKinsey Design.

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