The Business

Value of Design
How do the best design Contents
performers increase
their revenues and The Business Value of Design 3

shareholder returns An elusive prize 7

at nearly twice the More than a feeling: 10

rate of their industry it’s analytical leadership

counterparts? More than a product:

it’s user experience
12

By Benedict Sheppard, Garen Kouyoumjian,

Hugo Sarrazin and Fabricio Dore
More than a department: 13
it’s cross-functional talent

More than a phase: 16

it’s continuous iteration

A first step toward 17

great design

The Business Value of Design 2

The Business
Value of Design
We all know examples of bad product rapid rise in consumer expectations and industries. Their senior business
and service design. The USB plug driven by the likes of Amazon; instant and design leaders were interviewed or
(always lucky on the third try). The access to global information and surveyed. Our team collected more than
experience of rushing to make your reviews; and the blurring of lines two million pieces of financial data and
connecting flight at many airports. between hardware, software, and recorded more than 100,000 design
The exhaust port on the Death Star services. Companies need stronger actions.¹ Advanced regression analysis
in Star Wars. design capabilities than ever before. uncovered the 12 actions showing the
So how do companies deliver greatest correlation with improved
We also all know iconic designs, exceptional designs, launch after financial performance and clustered
such as the Swiss Army knife, the launch? What is design worth? these actions into four broad themes.
humble Google home page, or the To answer these questions, we have
Disneyland visitor experience. conducted what we believe to be (at the The four themes of good design
All of these are constant reminders time of writing) the most extensive and described below form the basis
of the way strong design can be at rigorous research undertaken anywhere of the McKinsey Design Index MDI,
the heart of both disruptive and to study the design actions that which rates companies by how strong
sustained commercial success in leaders can make to unlock business they are at design and—for the first
physical, service, and digital settings. value. Our intent was to build upon, time—how that links up with the
and strengthen, previous studies and financial performance of each company
Despite the obvious commercial indices, such as those from the Design (Exhibit 1). →
benefits of designing great products Management Institute.
and services, consistently realizing this
goal is notoriously hard—and getting We tracked the design practices
harder. Only the very best designs now of 300 publicly listed companies over
stand out from the crowd, given the a five-year period in multiple countries

¹ An example of a design action would be putting someone on the executive board with a responsibility for design, user experience, or both.
Another would be tying management bonuses to design quality or customer-satisfaction metrics.

The Business Value of Design 3

“The most extensive
and rigorous research
undertaken anywhere
5
year period.

300
to study the design
actions that leaders
can make to unlock publicly listed companies tracked.

>100k
business value.”

design actions recorded.

Our research yielded several striking findings:

1. We found a strong correlation

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

The Business Value of Design 4

 Exhibit 1

Blended teams at work Companies with top-quartile McKinsey Design Index scores outperformed
in McKinsey Design’s
Stockholm studio
industry-benchmark growth by as much as two to one.

Annual growth (normalized), %

AnnualTop-quartile McKinsey Design Index performers

growth (normalized), %
Industry benchmarks¹
Top-quartile McKinsey Design Index performers

Industry benchmarks¹
Revenues
180
Revenues
160
180 10%

140
160 10%

120 3−6%
140

100
120 3−6%

100
Total returns to shareholders
300
Total returns to shareholders
250
300 21%

250
200 21%
12−16%

150
200 12−16%

100
150
Dec Dec Dec Dec Dec Dec
100 2012 2013 2014 2015 2016 2017
Dec Dec Dec Dec Dec Dec
1
The envelope was set by the minimums and maximums of three independent data sets: MDI 2nd, 3rd, and 4th quartiles; the S&P 500; and a McKinsey
2012 2013
corporate database of 40,000 companies.
2014 2015 2016 2017
1
The envelope was set by the minimums and maximums of three independent data sets: MDI 2nd, 3rd, and 4th quartiles; the S&P 500; and a McKinsey
corporate database of 40,000 companies.

The Business Value of Design 5

Exhibit 2 Exhibit 3

Higher McKinsey Design Index scores correlated with higher revenue The financial outperformance o  f top-quartile companies
growth and, for the top quartile, higher returns to shareholders. holds true across the three industries studied.

Revenue, % TRS,¹ %

Revenue, % TRS,¹ %
20.6

20.6
McKinsey Design Index: difference between top quartile vs peers, 2013−18, percentage points

15.0 15.3 15.0 McKinsey

Overall Design Index: difference between top quartile vs peers, 2013−18,
Consumer Medical percentage points Retail
15.0 15.3 15.0 average packaged goods technology banking
Overall Consumer Medical Retail
average packaged goods technology 108 banking
10.0

10.0 108
6.3
56
4.6 6.3 42
4.0 41
32 56 27
4.6 25
4.0 42 18
41
32 27
25
18
Revenue TRS¹ Revenue TRS¹ Revenue TRS¹ Revenue TRS¹
Bottom 3rd 2nd Top Bottom 3rd 2nd Top
quartile quartile quartile quartile 1
Total returns to shareholders.
Bottom 3rd 2nd Top Bottom 3rd 2nd Top Revenue TRS¹ Revenue TRS¹ Revenue TRS¹ Revenue TRS¹
quartile quartile quartile quartile
1
Total returns to shareholders.
Companies’ McKinsey Design Index scores

1
Total returns to shareholders. Companies’ McKinsey Design Index scores

1
Total returns to shareholders.

The Business Value of Design 6

An
elusive
prize

In short, the potential for design-driven

growth is enormous in both product
and service-based sectors (Exhibit 3).
media and smart devices. All of these
developments should place the user at
the heart of business decisions in a way
identified in our research call for
company-level decisions and
investments. While many designers
“The good news
The good news is that there are more
opportunities than ever to pursue user-
that design leaders have long craved. are acutely aware of some or all of
the four MDI themes, these typically
is that there are
more opportunities
centric, analytically informed design What our research demonstrates, can’t be tackled by designers alone
today. Customers can feed opinions back however, is that many companies and often take years of leadership
to companies (and to each other) in real have been slow to catch up. Over commitment to establish.
time, allowing design to be measured
by customers themselves—whether
40 percent of the companies surveyed
still aren’t talking to their end users Top-quartile companies in design— than ever to pursue
user-centric,
or not companies want to listen. during development. Just over and leading financial performers—
50 percent admitted that they have excelled in all four areas. What’s more,
Lean start-ups have demonstrated how to no objective way to assess or set targets leaders appear to have an implicit
make better decisions through prototyping
and iterative learning. Vast repositories
of user data and the advance of artificial
for the output of their design teams.
With no clear way to link design to
business health, senior leaders are
understanding of the MDI themes.
When senior executives were asked
to name their organizations’ single
analytically informed
intelligence (AI) have created powerful new
sources of insights and unlocked the door
often reluctant to divert scarce
resources to design functions.
greatest design weakness, 98 percent
of the responses mapped to the four design today.”
for new techniques, such as computational themes of the MDI (Exhibits 4a and 4b).
design and analytics to value. Fast access That is problematic because many
to real customers is readily available of the key drivers of the strong and
through multiple channels, notably social consistent design environment

The Business Value of Design 7

Unpacking the MDI

McKinsey designers
In the remainder of this article, — Measuring and driving design — Making user-centric design at our Stockholm studio
we’ll describe the four clusters performance with the same everyone’s responsibility.
of design actions that showed the most rigor as revenues and costs.
correlation with improved financial — De-risking development by
performance: — Breaking down internal walls continually listening, testing,
between physical, digital, and iterating with end-users.
and service design.

Just over Over

50%
admitted that they have
40%
of the companies surveyed
no objective way to assess still aren’t talking to their
or set targets for the end users during development.
output of their design teams.

The Business Value of Design 8

Exhibit 4a Exhibit 4b

The value of design. When senior executives were asked to name their organizations’
single greatest design weakness, their unprompted responses indicated
an implicit understanding of the four themes.

It’s analytical leadership It’s cross-functional talent % of respondents

Measure and drive design Make user-centric design
performance with the same rigor everyone’s responsibility, not Create a bold,
as revenues and costs. a siloed function. user-centric strategy 10

Analytical
Embed design in the C-suite 10
leadership
Employ design metrics 17

Mo
g re Nurture top design talent 8
lin tha
fee na Cross-
na de
t ha pa
rtm functional Convene cross-functional teams 9
M ore en
t talent
Invest in design tools
and infrastructure 4

Balance qualitative and

quantitative user research 8

Continuous Integrate user, business, competitor,

and technological research 5
iteration
Test, refine, repeat. Fast! 6
Mo
re
t duct
ha
na pro
ph na
ha Start with the user, not the spec 8
a se r et
Mo User Design a seamless physical,
4
experience service, and digital-user experience

Integrate with third-party

products and services 9

The 2% of leaders who provided answers outside the MDI four themes are not shown.
It’s continuous iteration It’s user experience Source: McKinsey Value of Design survey of 300 global companies, July 2018.
De-risk development by Break down internal walls
continually listening, testing, between physical, digital, and
and iterating with end-users. service design.

The Business Value of Design 9

More than a feeling:
it’s analytical leadership
The companies in our index that
performed best financially understood
Designers themselves have been partly
to blame in the past: they have not
A strong vision that explicitly commits
organizations to design for the sake
“Through personal exposure
or constant engagement
that design is a top-management issue, always embraced design metrics of the customer acts as a constant
and assessed their design performance or actively shown management how reminder to the top team. The CEO
with the same rigor they used to track their designs tie to meeting business of T-Mobile, for example, has a personal
revenues and costs. In many other
businesses, though, design leaders
goals. What our survey unambiguously
shows, however, is that the companies
motto: “shut up and listen.” IKEA
works to “create a better everyday life with researchers, executives
can act as role models for
say they are treated as second-class with the best financial returns have for the many people.” And as Pixar
citizens. Design issues remain stuck combined design and business cofounder Ed Catmull told readers in a
in middle management, rarely rising leadership through a bold, design- McKinsey Quarterly interview, to “wow”
to the C-suite. When they do, senior
executives make decisions based on gut
feeling rather than concrete evidence.
centric vision clearly embedded
in the deliberations of their top teams.
movie-goers continually, his company
encourages its teams to take risks in
their new projects: Pixar considers
their businesses and learn
repeating the formulas of its past
commercial successes a much greater firsthand what most frustrates
and excites customers.”
threat to its long-term survival than the
occasional commercial disappointment.

It’s not enough, of course, to have One top team we know invites
fine words stapled to the C-suite walls. customers to its regular monthly
Companies that performed best in this meeting solely to discuss the merits
area of our survey maintain a baseline of its products and services. The CEO
level of customer understanding among of one of the world’s largest banks
all executives. These companies also spends a day a month with the bank’s
have a leadership-level curiosity about clients and encourages all members
what users need, as opposed to what of the C-suite to do the same. →
they say they want.

The Business Value of Design 10

Through personal exposure or constant (such as satisfaction ratings and usability
engagement with researchers, assessments) into product specifications,
executives can act as role models just as they include requirements
for their businesses and learn for grades of materials or target times
firsthand what most frustrates and to market.
excites customers. Many companies,
though, acknowledge a worrying gap The value of such accurate insights is
in understanding at the top of their significant—one online gaming company
organizations. Less than 5 percent discovered that a small increase in the
of those we surveyed reported that their usability of its home page was followed
leaders could make objective design by a dramatic 25 percent increase
decisions (for example, to develop new in sales. Moreover, the company also
products or enter new sectors). In an discovered that improvements beyond
age of ubiquitous online tools and data- these small tweaks had almost no
driven customer feedback, it seems additional impact on the users’ value
surprising that design still isn’t measured perceptions, so it avoided further
with the same rigor as time or costs. effort that would have brought little
Companies can now build design metrics additional reward.

<5%
of the companies we surveyed
reported that their leaders could
make objective design decisions
(for example, to develop new
products or enter new sectors).

The Business Value of Design 11

More than a product: “Only 50% of the companies
it’s user experience we surveyed conducted user
research before generating their
first design ideas or specifications.”

Top-quartile companies embrace the meeting. Yet only around 50 percent of This small touch led to a 3 percent
full user experience; they break down the companies we surveyed conducted improvement in retention over time.
internal barriers among physical, digital, user research before generating their
and service design. The importance first design ideas or specifications. Design-driven companies shouldn’t
of user-centricity, demands a broad- limit themselves to their own
based view of where design can make Combining physical products, digital ecosystems. The best businesses
a difference. We live in a world where tools, and “pure” services provides we interviewed think more broadly.
your smartphone can warn you to leave new opportunities for companies to For example, ready-made meals are
early for your next appointment because capture this range of experience. popular with the hard-working singles
of traffic, and your house knows when A hotel, for example, might do more than who grab them on their way home.
you’ll be home and therefore when just focus on the time between check-in A retailer of these meals has considered
to turn on the heat. The boundaries and check-out (the service element) by teaming up with Netflix to devise
between products and services are promoting early engagement through a one-click meal-ordering system,
merging into integrated experiences. social media or its own apps (the digital which would come into play
dimension) and providing physical two hours into an evening’s binge
In practice, this often means mapping mementos aimed at encouraging viewing when the customer would
a customer journey (pain points and customers to rebook. The reception receive a screen prompt. Mobile-
potential sources of delight) rather than team of one big hotel chain we know payment services such as Google
starting with “copy and paste” technical gives departing guests a rubber Pay and Apple Pay were the result
specs from the last product. This design duck adorned with an image of their of a willingness to think across
approach requires solid customer host city (such as clogs and tulips for boundaries to devise easier ways
insights gathered firsthand by observing Amsterdam). The team includes a note to access cash. A piece of plastic in
and—more importantly—understanding suggesting that guests might like to your wallet is one solution, but how
the underlying needs of potential users keep the duck at home as a reminder much easier is it to use a device you
in their own environments. These of their stay and could build a collection already carry in your pocket?
insights must be championed at every by visiting the group’s other properties.

The Business Value of Design 12

More than a department:
it’s cross-functional talent
Top-quartile companies make We are not suggesting that this Our research suggests that overcoming
user-centric design everyone’s stereotype is still common—or that isolationist tendencies is extremely
responsibility, not a siloed function. In other functions are necessarily to valuable. One of the strongest
the tired caricature of traditional design blame—but it can be surprisingly correlations we uncovered linked top
departments, a group of tattooed and resilient. One company we know, financial performers and companies that
aloof people operate under the radar, for example, unveiled a new flagship said they could break down functional
cut off from the rest of the organization. design studio to much jubilation from silos and integrate designers with other
Considered renegades or mavericks the design community. Before long, all functions. →
by their colleagues, these employees the designers had moved their desks
(in the caricature) guard access to their inside the studio, and had deactivated
ideas, complaining that they have too door access for the marketing,
often been burned by narrow-minded engineering, and quality teams. These
engineering or marketing heads moves drastically reduced the level of
unwilling to (or incapable of) realizing the cooperative work and undermined the
designers’ grand visions. performance of the business as a whole.

Image
Prototyping in McKinsey
Design’s San Francisco studio

The Business Value of Design 13

 Exhibit 5

Initial survey results reveal a wide range of design performance.

McKinsey Design Index: companies’ score vs the average (n = 173)

95
90
85
80
75 Average
score
70
65
60
55
50
45
40
Source: McKinsey Value of Design survey of global companies, July 2018.

This was particularly notable in quartile for design overall were almost and opportunities to stay connected
consumer-packaged-goods (CPG) three times more likely to have specific to the broader design community.
businesses, where respondents from incentive programs for designers.
companies that were top-quartile These programs are tied to design Talented designers at a CPG
integrators reported compound annual outcomes, such as user-satisfaction company well-respected for its
growth rates some seven percentage metrics or major awards. design credentials started leaving
points above those that were weakest because of the amount of time they
in this respect. Crucially, though, retaining great design had to spend styling slideshow packs
talent requires more than promising a for the marketing team. Conversely,
Nurturing top design talent—the big bonus or a career path as a top-flight Spotify’s appeal to top designers is
2 percent of employees who make manager. Carrots such as these are often attributed to its autonomy-with-
outsized contributions in every not enough to retain top design talent connectivity culture and to a working
business—is another important if not accompanied by the freedom environment characterized by diversity,
dimension of team dynamics. Getting to work on projects that stir fun, and speed to market. →
the basic incentives right is a part of their passion, time to speak at
this: in our survey, companies in the top conferences attended by their peers,

The Business Value of Design 14

Design already touches many parts of a They will only be able to do so, though, successful companies and companies
business: human–machine interactions, if they have the right tools, capabilities, that resisted the temptation to cut
AI, behavioral economics, and and infrastructure. That calls for the spending on research, prototyping,
engineering psychology, not to mention sort of design software, communication or concept generation at the first
innovation and the development of apps, deep data analytics, and sign of trouble. Formal design
new business models. While not a new prototyping technologies that drive allocations should be agreed to
concept, “T-shaped” hybrid designers, productivity and accelerate design in partnership with design leaders
who work across functions while iterations. instead of appearing (as they
retaining their depth of design savvy, often do) as line items in the
will be the employees most able to have All of this requires time and investment. marketing or engineering budgets.
a tangible impact through their work. We found a strong correlation between

“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.”
Image
Design leaders at
McKinsey’s Global Design
Leader Summit

The Business Value of Design 15

More than a phase:
it’s continuous iteration
Design flourishes best in environments
that encourage learning, testing,
and iterating with users—practices
The best results come from constantly
blending user research—quantitative
(such as conjoint analysis) and
In a successful effort to improve
the user experience, one cruise
company we know talked directly
“Design flourishes best
that boost the odds of creating
breakthrough products and services
qualitative (such as ethnographic
interviews). This information should
to passengers, analyzed payment
data to show which food and activities
in environments that
encourage learning,
while simultaneously reducing the risk be combined with reports from the were most popular at different times,
of big, costly misses. That approach market-analytics group on the actions and used AI algorithms on security-
stands in contrast to the prevailing of competitors, patent scans to camera feeds to identify inefficiencies
norms in many companies, which still
emphasize discrete and irreversible
monitor emerging technologies,
business concerns flagged by the
in a ship’s layout.
testing, and iterating
with users.”
design phases in product development. finance team, and the like. Without
Compartmentalization of this sort these tensions and interactions,
increases the risk of losing the voice development functions may end
of the consumer or of relying too heavily up in a vacuum, producing otherwise
on one iteration of that voice. excellent work that never sees the
light of day or delights customers. At a medical-technology company, the most successful companies
blending sources of inspiration meant consciously foster a culture of sharing
talking to a toy designer about physical early prototypes with outsiders and
ergonomics and to a dating-app celebrating embryonic ideas.
designer about the design of digital They also discourage management
interfaces. These moves helped the from driving designers to spend hours
company to refine a device so that perfecting their early mock-ups or
it appealed to customers with limited internal presentations.
Almost dexterity. The resulting product was

60%
not only safer and easier to use but Design-centric companies realize
also beat the market by more than that a product launch isn’t the end
four percentage points when launched. of iteration. Almost every commercial
software publisher issues constant
Despite the value of iteration, almost updates to improve its products
of companies in our survey said 60 percent of companies in our survey postlaunch. And the Apple Watch
they used prototypes only for said they used prototypes only for is one among many products that
internal-production testing, internal-production testing, late in have been tweaked to reflect how
late in the development process. the development process. In contrast, customers use them “in the wild.”

The Business Value of Design 16

A first step toward
great design
We realize that many companies apply elements right. This approach showed of customer satisfaction—exceeded The McKinsey Design Index highlights
some of these design practices—a far better financial results than trying 90 percent, compared with less than four key areas of action companies must take
strong voice in the C-suite, for example, to improve design as a theme across 76 percent for the machines of its to join the top quartile of design performers.
or shared design spaces. Our results, the whole company—for example, two main competitors. The ultimate
however, show that excellence across conducting trials of cross-functional solution combined a physical device,
all four dimensions, which is required to work in isolation from real products a digital data pad that could seamlessly
reach the top quartile, is relatively rare. or services. connect with more than 40 third-party First Third Companies that tackle these
We believe this helps account for the operating-theater devices, four priorities boost their odds
dramatic range of design performance One medical-equipment group we and a service contract. at the top of the organization, adopt nurture your top design people and of becoming more creative
reflected in the observed companies’ know rallied around the design of an analytical approach to design by empower them in cross-functional organizations that consistently
MDI scores, which were as low as 43 a new surgical machine as it sought In the past six months, the company’s measuring and leading your company’s teams that take collective design great products and
and as high as 92 (Exhibit 5). to head off a growing threat from market share has jumped 40 percent, performance in this area with the same accountability for improving the services. For companies that
competitors. The commitment of the in part as investors understand rigor the company devotes to revenues user experience while retaining make it into the top quartile of
The diversity among companies CEO and senior executives was intense; the upcoming user-centric products and costs. the functional connections MDI scorers, the prizes are as
achieving top-quartile MDI performance executive bonuses were tied to the and services that set the company of their members. rich as doubling their revenue
shows that design excellence is within product’s usability metrics and apart from its competition and—even growth and shareholder returns
the grasp of every business, whether surgeon-satisfaction scores. more importantly—that will improve Second over those of their industry
product, service, or digitally oriented. patients’ lives. Finally counterparts.
Through interviews and our experience Cross-functional and co-located put the user experience front and
working with companies to transform teams carried out more than two center in the company’s culture by iterate, test, and learn rapidly,
their strength in design, we’ve also hundred user tests over two years, softening internal boundaries (between incorporating user insights from
discovered that one of the most from the earliest concepts to the physical products, services, and digital the first idea until long after the
powerful first steps is to select detailed design of features. In all, interactions, for example) that don’t final launch.
an important upcoming product more than 110 concepts and prototypes exist for customers.
or service and make a commitment to were created and iterated. The final
using it as a pilot for getting the four design’s usability score—a measure

The Business Value of Design 17

“Design is more than a
feeling: it is a CEO-level
priority for growth and
long-term performance.”

Benedict Sheppard is a partner Want to know how your

in the London office, where Garen
Kouyoumjian is a consultant; Hugo
organization compares?
Sarrazin is a senior partner in the
Silicon Valley office; Fabricio Dore Take the 30-minute assessment at
is an associate partner in designindex.mckinsey.com to
McKinsey’s São Paulo office. understand where your design strengths
and opportunities lie, and the value
The authors wish to thank Becca at stake from further improvement.
Coggins, Volker Grüntges, and
Michael Silber for their tireless support Copyright © McKinsey Design
of the research behind this article.
mckinsey.com/valueofdesign
They also wish to thank Maxim Berdutin,
Markus Berger-de León, John Edson, @McKinseyDesign
Sarah Greenberg, Rupert Lee, Randy @McKinseyDesign
Lim, Drew Mancini, Rob Mathis, Rashid
Puthiyapurayil, Stefan Roggenhofer,
David Saunders and Hyo Yeon
for their substantive input.

The Business Value of Design 18