How McKinsey Confirmed the Strong Correlation Between Business Value and Design

McKinsey & Company’s 2018 report “The business value of design” is one of the most comprehensive studies to date regarding the ROI of design – a topic that has been a point of concern for many companies hesitant about the value that design can bring. The report has comprehensively tracked 300 publicly listed companies over a five-year period across multiple countries and within the medical technology, consumer goods, and retail banking industries.

The McKinsey Design Index (MDI) is based upon four themes of design that are detailed below. The MDI essentially works as a system to rate companies by how strong they are at design performance, and how that design implementation coincides with overall financial performance and growth.

According to McKinsey’s report, “the potential for design-driven growth is enormous in both product- and service-based sectors. 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.”

Across all industries studied, there was a noticeably strong relationship between high MDI scores and enhanced business performance. The market has proven to disproportionately reward companies in the top-quartile of the index, as the report shows “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.”

Figure 1: McKinsey & Company 2018 Report, top-quartile versus industry-benchmark

Figure 1: McKinsey & Company 2018 Report, top-quartile versus industry-benchmark growth

Analytical leadership

Understanding and promoting the importance of design within the organizational structure of a company is integral to both design- and financial-related success. It’s the responsibility of not only C-suite senior level executives, but also of designers themselves to work collaboratively in combining design with business goals and metrics. Without this highly collaborative environment, leadership and design will likely be hindered by an inability to see eye-to-eye on the value that design can bring.

This incongruence between design and leadership is a real pain point, as McKinsey’s report found that “many organizations acknowledge there is a worrying gap in understanding at the top for companies–less than 5% of those surveyed reported their leaders could make objective design decisions.”

More than ever before, designers and companies alike are able to use accurate, data-driven consumer insights to target their customers. When utilized top-down throughout the organization, these insights into truly understanding the user experience have proven to be extremely profitable across the board.

User experience

Both products and services are now expected to be designed and provided as user-centered experiences. Constantly embracing new opportunities, taking risks, and innovating the user experience through gathered customer insights is the key to staying ahead of the curve. A shockingly low percentage of companies actually conduct user research prior to considering initial design ideas.

Consider how you make and handle financial payments on a daily basis, and the ease that mobile payment services now bring. McKinsey’s article uses these innovative services as prime examples to keep pushing the limits when defining user experience. The report notes, “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?”

Based on observable, accurate, and detailed user insights, design-led companies have continued to reinvent the wheel and merge all user touch points in the creation of a single, seamless user experience.

Cross-functional talent

These top-quartile, design-driven companies all work to centralize the importance of design performance and user experience across the organization – not just amongst a singular team or department. Siloes and a lack of general integration or attention to the design function only hinders overall business performance.

Designers should be involved in all pertinent conversations to ensure user satisfaction. The clear benefit that design brings to areas like AI, innovation, development, engineering, behavioral economics, insights, and much more, means design is so much less valuable when isolated or paid little attention to within an organization.

Investing in design teams, tools, and infrastructure is just the first step that many companies still trail behind in. Even if your organization excels in this area, it’s not enough to be considered a top-quartile company according to the MDI. Both maximizing the capabilities of your design function, and ensuring those capabilities are being shared in an effective, collaborative way across the organization is key.

Continuous iteration

It’s more than just a phase. Design teams create the best results when they are able to continually research, prototype, test, ask questions, and make small adjustments along the way. This increases the chance that your organization will provide the user with a delightful experience, while reducing the risk of costly or careless mistakes.

According to the research conducted by McKinsey’s report, “Despite the value of iteration, almost 60% of companies in our survey said they used prototypes only for internal-production testing, late in the development process. In contrast, most successful companies foster a culture of sharing early prototypes with outsiders and celebrating embryonic ideas.”

The best results occur not accidentally, but from constantly combining user research throughout the design process, and understanding that the release of a single product is not – and should not – be the end of iteration. Excellence in this category, along with the three others, is rare, but something that all companies should strive toward when looking to stay one step ahead.