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.