Business Value of Design

Even nowadays, you can often hear the opinion that design is something that fits the category of "excessive and unnecessary luxury". According to this argument, you do not need to invest in design, and if you do, then not as much as the designers themselves usually insist.

Most often, the victims of such ideas are those who believe that the main thing is the product, which means that we need to focus on new features that will cover the needs of users. There are also those who are already satisfied with the financial outcomes of the product and do not see the forest behind the trees: the design capacity to make the product even more profitable.

Part of this problem is the designers' failure. This opinion was formed because they didn't bother to tie the design directly to business metrics. But those times are already in the past. Now, obtaining maximum efficiency from all departments is much more critical. Design is no longer discriminated as something separate, and managers are increasingly asking the question about ROI of design, and how it affects company's profits.

Design impact studies

The first major study was completed by the Design Management Institute's group of analysts in 2015. The results are on the graph showing a huge gap of 211% between the total capitalization of companies investing in design and the S&P 500.

Let's dig a little deeper!

The guys at McKinsey did their research two years later. They showed the dependency of Revenue and Total Returns to Shareholders (TRS) indicators on McKinsey Design Index (MDI) business impact ratio. Analysts found a strong correlation between high MDI performance and business performance. Companies with high MDIs increased their revenues and TRS significantly quicker than their industry peers over a five-year period. Revenue growth for the period as a whole was higher by 32%, TRS - by 56%.

The results were confirmed in all three sectors where the study was conducted: medical technology, consumer goods, and banking services for individuals. This indicates that good design is essential, whether the company is focused on physical products, digital products, services, or any combination of these.

Market leaders made conclusions even before the release of both studies and rushed to buy design firms for their needs. For instance, in 2014, McKinsey itself bought the design studio called Lunar, and later in 2017 secured another purchase of Veryday design studio and as a result formed McKinsey Design department.

Up until now, this information remains a reference standard. It can be found in many articles and reports as a dry demonstration of the design profitability. But not all design leaders care to publicly show how the impact of a design can be broken down into components and then measured.

We will take opportunity and do it ourselves. We hope this will give entrepreneurs and c-suite managers some insights on how design is able to help businesses and analyze the situation internally.

Design Value Formula

In this article, we have collected several statements about the value of design and fused them into a simple formula. We called it the Business Value of Design (BVoD) coefficient:

BVoD = Earn more/lose less

In the numerator, we have combined factors that speak for the impact of design on overall income. Denominator contains a value that reduces losses. In order for the design factor to influence business profitability to a stronger extent, you should strive for its maximum value. This means increasing the numerator value and decreasing the denominator value.

Let's analyze the components of the formula below.

Numerator. How design helps you earn

Look credible and professional in the first few seconds.

"Design is all about beauty" is only partially true. Yes, one of the directions of the designer's work is designing a good first impression.

In the title, we're talking about the "first seconds", and it already feels like something fast. Google found out that the first impression is formed in first 17 milliseconds. Researchers evaluated the impact of the visual complexity of the website and its prototypicality. Judging website's prototypes, they understood their habits or similarity among websites that look alike and specific to a certain industry, business, or topics. To calculate the prototypicality score for a particular website, they showed a slide with a bank website page screenshot and asked the respondents questions such as: "Does it look and feel like a typical website for a bank?"

The results revealed that "if the visual complexity of the website is high, users perceive it as less attractive, even if its design feels familiar. And if the design feels unfamiliar - that is, the site has a low prototype, users confront it as more unattractive, even if it's simple".

The study was conducted in 2008 and with our rapid rhythm of life, it may seem like something infinitely far away. But if you look at it from a perspective standpoint, our reptile brain hasn't really changed that much throughout the millennia. Our hypothalamus still uses the "Friend/Enemy" or "Hit or Run" rating when affected by external stimuli. It is indeed the one that gives birth to our gut feeling: "This site looks great, I can trust this company". And all this in just 17 milliseconds.

According to surveys, 94% of people reported the design as the reason for distrust or leaving the website. And usually, the time a user enters the website of a business - it is often considered as the first interaction with a business in general. That is, already from the threshold of such a brand must first return users to their resources, then return their trust, and only then talk about their benefits and services.

And 48% of people reported website design as the #1 factor when one has to make a decision whether to trust a particular business in general. It can be said that companies with poor design stand at the launch wearing uncomfortable shoes, while their competitors with well-established design processes are fully equipped and have a comfortable position on the launch pad.

Look recognizable and consistent.

To make the site aesthetically pleasing and gain credibility, web designers use various graphical techniques: choose a color scheme, select the typography, create a memorable logo - and use all this in a composite when creating an identity. Color alone increases the recognizability of a web page by 80%.

But it is not enough to look recognizable only on your own website. Users have a large number of points of contact with the brand: applications, presentations, advertising, PR, blogs, social networks, offline sales. It is important that all these stimuli work in the same way and cause an identical users reaction with each their interaction. Chaos in the company's presentation has an impact on conversion. We will talk about this in the chapter about losses.

All this helps the brand not only to be recognized but also to deliver its values through a whole image.

And now a few points where the design appears to be something more than just pixels and illustrations. Design as a business process.

Take into account the convenience and user-friendly design of the page.

Adobe found that 38% of people will stop interacting with a website if its layout is unattractive. Almost half of the mobile users report having difficulty interacting with the web page, and 44% complain about confusing navigation. So, these are some negative numbers from the front of bad design.

Weak designers just do. The strong ones - study the problem before they start working. And when it comes to developing some kind of flow, designers find out how the brain is exactly dealing with the information.

Terribly impractical, but a beautiful project has great risks of earning only likes and enthusiastic comments on dribbble and awwwards instead of real money.

Use the Experience of Users.

The title seems so natural, and it is strange to think that user surveys are a result of design. However, more than 40% of McKinsey's surveys do not take end-user feedback into account during product development. And it is natural that none of these companies were in the upper quartile of the survey.

A legitimate question: what does design have to do with it? The answer is that problem definition and research are the first two stages of Design Thinking methodology. The next step is the third step.

Find the best solutions by creating layouts at an early stage

The third step is prototyping. This is creating a rough design before implementing the product in the following iterations. In reality, almost 60% of companies admitted that they only use prototypes for internal testing at the end of the development process. By contrast, the most successful companies consciously develop a culture of sharing early prototypes and encourage the creation of many different options. One of the management requirements is not to spend hours trying to perfect their early prototypes.

This point is on the edge. On one hand, it helps to find the best options among hundreds of prototypes, and on the other hand, it saves time for designers and developers.

Let's move on to the denominator.

The denominator. How design helps you lose less

Do not spend money on excessive product features.

At the beginning of the article, we said that the search for new features becomes compensation for good design. Don Norman says the same in his book "The Invisible Computer". He illustrates this situation on the graph where he draws a boundary clearly separating the product's lifecycle start period from the stage of its active use. It is that boundary symbolizing the transition from the dominance of technology to attracting designers and developing a convenient and friendly UX. This is an important period when the company needs to redistribute investments and avoid being trapped in unnecessary fittings, just as Norman mentioned, "most customers are not interested in this region".

The rule is the following, "Adding each new feature disrupts the UX design." And the more this event occurs in the right of the X-axis, the more it affects the UX design of the product. So instead of adding just a feature, you should focus on Core UX Features development. Design plays a big role in this.

Less wasting on marketing and advertising

We talked about design consistency and how designers achieve it through identity. The guidelines are part of the identity and a product of the system approach in design. They help the whole team to have the same view on how to represent a company in the public field. Without this understanding, marketers, guided by good intentions, often rethink the company's image. And without common and shared patterns, they spend more time creating these marketing materials. The result is a double blow to brand's reputation: these materials come out too late, and the design does not match the image of the brand in the minds of customers.

Conflicting marketing materials that are created by marketers in the deadlines are ambiguously perceived by users. They do not take brand's identity into account, do not respond to triggers, and therefore do not respond to advertising.

Let us assume that the loss of conversion, in this case, will be 1%, and the annual advertising budget will be $1-1.5 M. With such investments even just a 1% is a big loss. And the other way around, after connecting the design team to the processes, it will not only replenish this 1% back, but you may quite possibly expect an increase in conversion between 30% and 300%.

Reduce development costs

Work without a system approach applied to design will led to extra labor for developers. The system approach assumes teamwork with the unified information base including manuals and design standards, templates in a code, examples, and goodm proven practices. Without such a system, all actions are scattered and unproductive, and an embodiment of new design elements of a product done by developers will have to be created from scratch.

Now, let's translate that into money. Based on our experience, the system approach saves 30-35% of time spent on labor. Let's assume that the development department consists of 10 people, and the average annual salary for every employee is $50k. Savings in this case would be $150k per annum.

Save investment when changing a direction

We felt that simply maintaining the product without a system approach was rather costly. And what happens if the company's plan includes conducting experiments and test new things? Or will it require urgent and vital changes to keep up with the market pace? The answer is simple. All experiments and innovations will have to be created from scratch because there is no framework to rely on to build that new image. And this ends up as unplanned spending again, now on hiring new staff members.

Will any design cut it?

Here's another and last graph from McKinsey's research. It talks about the quality of the design.

It should be reminded that the upper quartile of the companies have increased their income and total shareholder profit much faster than the industry as a whole. At the same time, the difference between the second, third, and fourth quartiles was not very significant. This means that the market rewards those companies that do something special. This is particularly apparent on the TRS chart.

The difference between good, average, and poor design is almost irrelevant. What matters is the difference between a good design and everything else on the market. This shows that market leaders invest heavily in design.

Let's summarize

Design can and should be broken down into multiple components, this way we can estimate its value for a business. At the same time, the value of design is not only in the aesthetics and how does product recognition affect the sales. Design determines your product's convenience when it's actually being used by someone. How quickly can a project go from a prototype to a release. Both quality and level of design development in the company directly affect several departments: development, sales, marketing.

Yeah, it's not always easy. Reasoning can't always be transparent at first glance. However, if you come up with a list of items from our article and compare it with what is happening in your company, then CEO will be able to make several insights on how can design reinforce current business position, or find causes of hidden financial leaks.