Why is a company that invests in design more successful?

Why is a company that invests in design more successful? It's easy to underestimate the challenges facing business owners, but the reality is that they often have much more than design issues to address. As a design business, we know the true value of design, but it is often difficult to communicate that value in a tangible way. Particularly for business owners when they have to deal with several important things at once. That's why we've drawn on a number of studies from recent years to outline how the value of design activities can be measured, and the real profitability of these activities for the business, and how investing in design can help a business grow faster.

There seems to be a preconception that design is a purely aesthetic discipline. An example of this is digital design, which can be seen as a broad spectrum of activities, including visual design, content creation, user experience (UX) analysis, user interface (UI) analysis and service design, not to mention user research. Design has an intrinsic value in our lives, but it has been relegated to a superfluous activity rather than a key driver of change and value creator in its own right. This is why it is important to understand the profitability of design activities, whether the investment is in a retail e-shop, a B2B website development, the creation of a corporate visual identity or a design system.

Over the past few years, a number of think tanks and consultancies have published studies and proposed models for calculating the value of design. Studies from various organisations such as Mckinsey, Forrester Research, etc. describe how companies that invest in design are more successful and achieve higher returns. Based on its own research, McKinsey has created the McKinsey Design Index, or MDI. Over a five-year period, they tracked the design practices of more than 500 listed companies and evaluated each company to produce an MDI score. They found a correlation between the companies that had adopted the best design practices, with the overarching commonality being that companies that invested in design had higher growth in the stock market, earned higher profits, and provided higher returns to shareholders than their peers.

Design profitability - A company investing in design is successful

Studies by think tanks such as the Design Council and the Institute of Design Management, and consultancies such as McKinsey and Forrester Research, have convincingly shown that companies that have adopted best design practices and who were classified as design-investing companies outperformed their competitors - often by a large margin. McKinsey, for example, has found that design-driven companies outperform their competitors in the marketplace two-to-one in terms of both turnover and profits. One of the problems with these studies is that they focus on large corporations and, furthermore, often define design very broadly as a process rather than a set of discrete activities. The story is somewhat different for small companies, and design should be seen as a set of activities that help to transform a company into a design-investing enterprise.

Small businesses are often run by people who are experts in their field but who have a predisposition to depreciate the value of anything that is not directly related to the job. For example, if you run an accounting firm, you are likely to devote more resources to getting accounting work done in your firm and developing work processes rather than to marketing and design. Or if you own a construction business you are more likely to focus on solving day-to-day problems related to the day-to-day running of the business than on marketing and design. Based on both of these examples, the mere thought of investing time and money in these activities probably seems to an entrepreneur to be a secondary activity at best. But here it is worth thinking about the benefits that can be gained by opening up new sales channels for the business, such as the website and social media. The following example demonstrates the return on investment of a simpler website design.

Let's say you are a company without a website. So far, it has been operating in the market through personal contacts and referrals and has not yet seen the need to launch a website as a successful sales channel. The company has been on the market for 3 years and has achieved a steady sales growth of 5-10% every year. The last year's sales turnover is €120,000. In the last quarters the number of enquiries has been decreasing and the company wants to increase its visibility to the customer.

Let's assume that the initial cost of developing a new website is €2,300, with after-sales maintenance and support costing €1,068 for a year and a quarterly SEO service costing €720 per year. Thus the cost of the new website including development and support services in the first year will total: 4,088.00 €, an investment of 3,41% of the previous year's revenue. Let's assume that the successfully launched website will generate additional sales revenue of 10%(12000€) for the company in the following year, i.e. 12000 - 3908 = 8092 €, i.e. the return on investment in the first year is already 193.54%. In the following years, the development costs will be much lower and the return on investment will increase even more.

Design as a process versus design as an activity.

Design as a process

As mentioned earlier, most research on the value of design has been focused on corporations and treats design as an abstract process that aims to use the integration of design thinking, lean and other methodologies across the organization to make the organization less bureaucratic and more efficient. Although it has little to do with design specifically, it is primarily a transformation of the way a company operates internally, in other words, using design as a structural enabler.

Design as action

It is much more useful to define design as a set of activities. If a company is considering hiring a designer or web designer to refresh its brand identity, it is not interested in the value of 'design as a structural enabler'. What matters to him, and what he wants to know, is the impact that rebranding or developing a website can have on the company's turnover and profits. Design activities could be broken down as follows:

  • Service design
  • Corporate visual identity
  • User experience analysis
  • User interface analysis
  • Process development
  • Product design
  • Packaging design, etc.

How does investing in design benefit your business?

Good design adds business value in two ways. The most important reason why all businesses exist is to make money. Good design can improve the bottom line in two ways: by increasing revenue and by reducing costs. The most obvious way to increase profitability is to increase sales. There are two main ways to do this: By attracting more customers or by increasing the value of existing customers (for example, customer engagement and loyalty). Involving customer loyalty and customer retention by building customer loyalty and retaining customers.

Cognitive biases and how to attract more customers at a higher price

All large companies invest millions in visual identity because they know that customers, whether consciously or subconsciously, make snap judgements about the quality of products or services based on their visual packaging. This phenomenon is known in psychology as halo effect.

Halo effect

The halo effect is one of the most well-known psychological cognitive biases that we notice quite often in everyday life. The term was introduced in 1920 by psychologist Edward L. Thorndike, following army research he conducted, in which he noticed that officers attributed positive evaluations to their superiors, often based on a single trait. Or, conversely, they attributed negative generalizing characteristics, based on a single negative trait.

For most small business owners, improving their visual identity is a foolproof way to close the gap between competitors and gain a huge competitive advantage over other small businesses. For example. Most small businesses in Estonia do not pay much attention to their visual identity and design activities and do not need to do much to differentiate themselves.

Barnum effect

The Barnum effect is a phenomenon that occurs when people believe that personality descriptions apply specifically to them (more than to other people), despite the fact that the description is actually filled with information that applies to many people. This explains how horoscopes, fortune telling and personality tests can appear to be exceptionally accurate. By using the Barnum effect, you can make website visitors feel that you are talking to them alone, when in fact the text is aimed at many. All it takes is a little customer research to find out the tone of voice that speaks best to your target audience.

Group bias

The tendency of people to favour others whom they perceive as belonging to the same group as themselves. These groups can be formed on the basis of trivial, observable traits (e.g. tattoos) and meaningful, hidden traits (e.g. political views). This cognitive bias has persisted since 1906, when sociologist William Sumner argued that humans are inherently a grouped species. He also argued that people have an innate tendency to favour their own group over others. Using this cognitive bias, your website or e-shop should match the group you are marketing to. You need to walk, talk and behave like your target demographic.

How can investing in design help increase the conversion rate of a website or e-shop?

User experience (UX) design is a powerful tool that engages the visitor with the website in a purposeful way, resulting in increased website conversion. For example, updating the design of a company's outdated website and changing the messaging based on user experience analysis will increase website conversion because the visual and text-based communication is more clearly targeted to the audiences it is trying to attract. The return on investment of the work carried out also demonstrates how multidisciplinary design and marketing more broadly really are: The work done was based on best practices and knowledge of user experience in brand messaging as confirmed by user testing. Read more about our design processes

How can good design help reduce business costs?

Another way to increase design profitability is to reduce costs. It is easy to overlook inefficiencies in your operations, especially if you have always done things a certain way in the past. Companies can reduce costs in two main ways. Good design can increase profit margins by reducing both costs.

How do design systems save a company's time in design activities?

Many businesses, mainly small businesses, suffer from a lack of a systematic approach. This is true across the board, but especially in design and digital marketing. Thanks to the use of established design systems, large companies are able to present a coherent image, both visually and verbally, across thousands of brand touchpoints in every country where they do business.

What is a design system?

In short, a "design system" is basically, an ever-evolving set of rules on how to present yourself as a brand. Companies, whatever their size, need a single, clear source of rules to achieve the level of consistency needed to build brand equity over time.

One of the ways in which a design system can help a company simplify design work and save time is by reducing the time it takes to make the right design decisions, so you can get to a better solution more quickly, rather than constantly going back to the same problem and improving the design. If you don't have a solid design system in place, you're in a situation where you're constantly reinventing the wheel, in other words you're falling back on the same design problems.

For example: what typography to use and what font size to use in the headline, "call to action" buttons should be blue or red. Should the buttons be rounded or square and what should be the rounding of the corner, etc.? What is certain is that, over time, inconsistencies in brand messaging will inevitably emerge. All such decisions take time and cost the company money. Each individual decision may be relatively quick and inexpensive, but over days, weeks and months, all these small decisions add up to one big expense and you can waste a lot of money every year.

How to calculate the cost of design decisions?

Let's say your time as a business owner is worth €100 per hour. Let's also assume that you only spend 3 hours a week on these small design decisions: 3 hours × 52 weeks × 100 Euros = resulting in €15,600 per year. Good design can increase your profitability every year, simply by eliminating the need to make side decisions that are not directly related to the core business of the company. Even if you are a very small company. In short: A design system ensures consistency in your design and marketing activities and reduces the time spent on content production.

How can you make sure your design spend is profitable?

Good design is valuable. A design that is simply done and thoughtlessly executed is not always a good design, and frankly there is not always a 100% guarantee that a design investment will be profitable. Design investment is like any other investment: you have to be smart and you have to have a plan. Successful design activities have two common components: clear objectives and metrics. A good designer will help you define what goals are worth pursuing, how to set realistic targets and how to measure the achievement of your goals, whatever budget you are working with.