The Strategist

McKinsey: Efficient design is extremely profitable

12/18/2018 - 11:22

Effectiveness of investments in design is underestimated. Companies investing in this direction are one-third more profitable and generate one and a half times a greater flow of dividends and capitalization gains for shareholders. These findings of McKinsey & Co study are very unusual: everyone theoretically knows about significance of design for business, yet it is a peripheral activity for half of the companies surveyed, and the infrastructure of this market is very archaic.

The study was conducted by a group of economists from several global offices of McKinsey. McKinsey considers this concept broader than the market, highlighting there service, digital and product design. The group's results are close to stunning: the first quartile (25%) of companies from the S&P 500 index, leading by MDI, differed in terms of average profitability from the rest by 32%, in TSR (dividend flow and capitalization growth for a shareholder) - by 56% . The effect is even stronger in a number of industries: for example, for medical technology companies, the deviation of the first quartile in terms of profitability is 42%, and according to TRS - 108%. For the sector of “consumer packaged goods” (CPG), profitability in the first quartile in MDI was higher than the rest by 25%, TRS - by 41%. For retail banking, the same figures were 27% and 18%, respectively

McKinsey’s results for the three remaining quartiles of the MDI companies rating are also unusual: the effect is observed only in the first; in the rest, the results are much more uniform. It is obvious that, at least in the second quartile, there are companies that also invest a lot in these processes. From this it should follow that only substantial investments in design (above a certain threshold level, which is different for each industry, and this concerns not only finance, but also management resources at a minimum) make it possible to receive the “bonus for design”.

Despite the fact that the authors of the MDI index, apparently, managed to formalize such a concept as design, the company confirms that the concept of “design” itself is complex, has linguistic and cultural components and essentially depends on the local context.

In many ways, the study makes it possible to take a different view of the vague concept of “creativity”, which has been widely included in the practice of HR since the 2000s, but rather weakly fitting into most management concepts. The work demonstrates the true scale of the principle: “If you do not have a designer, you do not have a company”. Meanwhile, the current situation with the extremely archaic design services market (as well as the labor market for such specialists) suggests that McKinsey managed to “catch” the phenomenon at the moment of development, that is, a situation in which the design award goes only to the first quartile is unusual and, presumably unstable.