We know that design is an expense—just look at any company's balance sheet. And we know intuitively that for many companies, design is a profit center. But few organizations can actually prove that great design drives profits. One data point: a Whirlpool survey of 15 "design-centric" companies including BMW, Nike, and Nokia found that when it came to measuring their return on design (ROD), most were clueless—they simply relied on a rough calculus of basing their future design investments on past performance.
And yet, as more and more companies begin to boost their investments in design, CFOs are increasingly seeking a bullet-proof system for forecasting their ROD—one that's a little more dependable than "trust me, I'm a designer." The quest to empirically prove design's ability to generate profit is beginning to take hold in companies like Whirlpool, Procter & Gamble, and Hewlett-Packard.
One of the pioneers of the return-on-design movement is Rob Wallace, managing partner of Wallace Church Inc., a package-design consultancy that works with consumer-brand giants like Nestle, Samsung, and Home Depot. Wallace's 2001 article in Design Management Review amounted to a clarion call for quantifying design's value. In a recent phone interview, Wallace remained adamant that objective business measurements will ultimately underscore the power of design, even as he conceded that the effort is not without its share of controversy and obstacles. Here are excerpts from our conversation:
FC: Why have you been pushing designers to work with companies to calculate their return on design investments?
Wallace: I set out 15 years ago to find a methodology I could use to prove the ROI on brand-identity [i.e., packaging] design, which is our specific expertise. My motivation stems from that old adage, If you can't measure it you can't manage it. Businesspeople operate in a world of numbers. As designers, we have to embrace that world. We've always been about aesthetics—we're more interested in whether a design "moves" someone —which is all well and good, but that's not the way executives make decisions.
FC: You've said that many companies want to calculate their ROI on design, but few ever get around to actually crunching the numbers. Why is that?
Wallace: Our clients say they don't have the time or the allocation of resources to do the pre-design research, much less the post-design research. They barely have the time and money to do the quantification of the design before it hits the marketplace, and now we're asking them—six months or a year after the product hits the market—to put the time, energy, and money into quantifying the extent to which the design moved the needle on revenue. Plus, it's difficult to untangle design's influence from all the other influences—like engineering, marketing, and distribution—that contribute to a brand's success.
Seven years ago, we surveyed many of the major consumer packaged-goods companies—like Nestlé, Unilever, Coca-Cola—to learn about their measures for tracking the financial value of their brand-identity efforts. Design managers—even heads of consumer research—want to embrace measuring design ROI as a company-wide best practice, but when the rubber hit the road I got very little response. I got probably 18 to 20 case studies out of hundreds of requests. And the results I did get were published results of sales increases; a few went so far as to show the amount of profit that the increases generated. But in terms of what I need to determine the actual ROI, I'm not by any means getting an overwhelming response.
FC: Then what makes you think that design drives profitability?
Here's one example: On average, based on two dozen case studies with Fortune 500 companies, for every dollar invested in advertising, packaging and promotion, and visual communication at the point of sale, companies realized a $7.21 ROI. But when the advertising didn't change (or there was no advertising)—and packaging design was the only thing that did change—there was a $15.17 average ROI on every dollar invested.
I'm confident that if the ROI on design was truly measured, design would come out quite well, and it would be treated by the finance side as the adult it now wants to be. The ROI on design is not only a tool for showing design's true value, it can also show how and when design can be most critically used as a tool to continually generate the highest profits.
FC: So why are many design managers ambivalent about measuring ROI?
They've spent their entire careers being visualists; they're just not comfortable with numbers. Some are scared that the numbers might indicate that they're not doing the best job. To those people I say, I get it, you make sense. But you've got to be a leader in this process because it's going to change and you're going to be quantified. It's time to find a universally acceptable platform by which we can all hold each other's feet to the same fire and be measured.
If the design managers don't embrace this the CFOs will. They will take the lead in determining design's ROI. And [design managers] will hate it.