Design Thursday: Proving Design Moves Markets

We know that great design fuels revenue and grows margins. But thus far, most companies -- with the possible exception of pioneers like Procter & Gamble and Whirlpool—have been unable to prove it. The main reason is that it's exceedingly difficult to untangle design's contribution from all the other business drivers--engineering, manufacturing, distribution, marketing--that ultimately fuel a product's performance in the marketplace.

There is, however, compelling evidence that in the aggregate, companies that excel in design kick some serious butt in the market that matters most to investors: the stock market. The data comes from the London-based Design Council, a publicly funded research organization that promotes the role of design in Britain. The Council reports that over a ten-year period, from 1995 to 2004, 61 "design-led" businesses outperformed the Financial Times Stock Exchange 100 by more than 200%.

The Council's "Design Index" tracked the share prices of British companies that demonstrated a sustained record in racking up design and innovation awards--outfits like Tesco, Marks & Spencer, Easy-Jet, Rolls Royce, BP, and Unilever. It found that the organizations' overall performance was consistent: the Index rose more in good times than the FTSE 100 average and fell less in bad times. (The Council regularly re-calculated the Index to account for mergers and de-listings.) As the Council put it in an accompanying report that was updated last month, "The Value of Design Factfinder", the Index presents "clear evidence of a relationship between design investment, business performance, and long-term stock market value."

In a phone interview, Harry Rich, deputy chief executive of the Council, conceded that the Index does not demonstrate a causal link between design and stock market performance. "The claim is not that design is the magic bullet that made it all happen," he said. "The claim is that in a well-run business, one of the things you'll be doing is great design. You can put as much good design as you want into a business, but if you can't manage, say, your cash flow or distribution network, you won't be successful. In successful companies, good design is part of a total package."

The Council, in its attempts to demonstrate the bottom-line value of design, has been way out in front of US-based organizations. And yet, in Rich's view, the recent scramble to calculate the ROI on design investments might have gone a little too far. "There's an interesting paradox here: Sometimes, the requirements that we put on ourselves to 'prove' design's impact are greater than those we put on any other business area. The fact is, there are many areas in business where it's impossible to isolate and quantify the ROI. Think of the billions that are spent on strategic-management consultancies, and yet it's difficult to demonstrate a causal link between the consultants' advice and a business outcome. So we need to cut ourselves a bit of slack. Let's be realistic about what's provable."

Rich believes that if companies combine good design with good management, good financial results will follow. And he contends that designers have little to fear from the growing interest in calculating the real return on design investments. "My experience, in talking to executives, is that if they don't believe in design in the first place--if they think it's a bunch of nonsense--they won't be convinced otherwise by any kind of data. However, if executives are open-minded but want to see some evidence, you can certainly make the case that design will help make them more competitive."

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