I'm working towards my Master thesis with Design ROI as the focus. So , How can the value of design be proved by demonstrating the ROI?
I know design is used to differentiate and entice users and it would be invariably hard to pin down it's value but at the same would one be able to justify as to whether increased investment in design would generate increased profits ?
Hi Arne, I'm lurking around but not debating very actively these days, lots of things happening in the practical department however :)
My point wasn't that shareholder/investor influence should be used as an excuse not to change, but that it must be acknowledged that a listed/traded company is under scrutiny by its investors who will care very much what turns up on the financial statement - for better and for worse. The capitalistic system and current views on capital efficiency and so forth is the reason, as far as I'm concerned, that there are internal financial KPIs that need to be met. If you're doing consulting for a company that has to obey the rules of a financial market (rules that the individual company doesn't control really), you're need to play by these rules for the time being.
This is one of many aspects of how private companies (in stark contrast to public sector) companies work. Another is of course that if you can convince a mass of a company's customers to demand better design then you'll very likely get funds to develop such a design, given that it'll make a positive impact on finances anyway. If you find a demand, you shall be granted supply.
One might have different opinions on the what the ultimate goal for a company is, but for the time being and foreseeable future I dare saying that the simple equation income less expenses needs to be positive. It's a luxury to be able to run a company that produces losses (and a waste of resources if you ask a market economist), so the job of working with privately owned businesses - again, in contrast to the public sector - is often proving that whatever work you do positively affects incomes or reduces expenses. As long as companies are being funded with money, I suspect this will be the rule.
We recognise and laud your passion for design. Good design.
Everybody in business recognises the need to do things better. Business cases are no exception. That is why, for example, Alex Osterwalder and his collaborators developed the Business Model Generation framework as an alternative. And the ROI Institute developed their stepwise refinement model of ROI. And so on. Understanding and using these non-design frameworks are now essential skills for today's business designer.
I agree that we need to develop better ways of justifying investments (just developing different ways is never going to be good enough). Ones that include a better valuation of intangibles. Over time that might require creating a more dynamic, more balanced scorecard of measures. One that might include, e.g. people, environmental and sustainability measures. But we should be careful to avoid throwing the baby out with the bathwater. As Erik points out, today's rotten reality is based on the hegemony of financial markets. Like it or lump it. It is not going to change any time soon. By all means develop alternative measures and promote them, just don't expect those who control the purse strings to pay much attention. Designers will have to find robust, reliable, repeatable evidence of a link between design and financial return if they want to persuade these people to open the corporate purse.
The problem as I see it is simple. Designers need to learn new skills in 'pretty simple' finance. So that they can construct better iterative approaches to design that provide just enough of the evidence that business needs, during the design process rather than when it's too late. This is not all that hard to do. And it is certanly a lot more effective than trying to create an alternative, but ultimately futile design justification process. Designers just have to roll up their sleeves and do it.
PS. Here's a proposal. Why don't we - you, me and our fellow DesignThinkers - create a one day sensemaking course in Amsterdam for design and business representatives to come together and create a practical framework for 'the Return of Design'. If enough people were interested enough to come together, say a minimum of 15, and would pay a nominal fee to cover our pre-preparation and post-development costs, we could co-create an approach together. The approach would provide a robust framework and open tools for the evaluation of the return on design, whilst not constraining designers' creativity. All those who took part would get a copy of the resulting workbook to use on their own design projects. Just a thought.
I would be happy to join if my schedules allows, as this is a discussion every designer faces at least implicitly and a good explicit approach would help.
It's bull's eye on the point of fact that a more sustainable and long term view of investments is critical for the future. Arne, I most definitely am interested in the way you as a designer think.
For me coming from an engineering background and now pursuing business design is proving to be quite a challenge and I think the ROI must be firmly intertwined with equal importance being played to the design as well as financial part.What do you think?
And true, repetition will lead to nowhere and there's where innovation plays the key role in differentiating.
@Erik : I completely understand the business point of view having worked in that area and I personally know how hard it is to convince a shareholder. I still remember the time while on a project we were asked to show the projected ROI for a yet to be implemented system. It took blood,sweat and tears to come up with that. I must say though, that design did play a part in it. I would be interested in seeing as to how much of an integral part design can play in proving the ROI of design. Your thoughts !
I just came upon the topic yesterday, discussing with some doctors we are collaborating with for a care design project. We are trying to complement the KPI's that they usually use to measure the performance of the activities undertaken and with other kind of indicators more related to the quality of the environments, the visual and ergonomic impact of the furniture and machinery used and the nature of the relationships created. Maybe dealing with healthcare, the idea of enlarging the meaning of "return" is an easy-reference for us (but also for 3M talking about safety for example), but adopting new measurements in any case is not an easy task and at the same time we have to demonstrate to our funders that we spend efficiently their money and to the hospital management that the project is viable and that we save costs. I have found very interesting Jan-Erik's, Arne's and Sylvain's contributions and I hope to read other posts here about the theme. Thanks Maddy for opening the discussion. I would be very interested to see your thesis, too.
I completely agree with the fact that complementing the KPI's in relation to the design factor is hard and quite a task in itself.
Quantifying the value of design is a huge challenge with the roadblocks. I would be grateful for your views on this theme :)...
I suggest you to have a look at Richard Dalton's blog (http://mauvyrusset.com) and in in particular at the presentation "A Practical Guide to Measuring User Experience", focused more on "driver" measures. It has been recently a good reference for me
Fantastic :) Thanks for the info Marianna ! Will look into it soon enough...
This thing with ROI of deign is an interesting and important topic. As several of you are pointing out, one might need to do some frame-shifting to get at it. I will give you some ideas of such shifts (which might be too many at the same time, sorry about that), and then give some pointers.
ROI of technology. Just want to highlight that when looking at ROI of design, one is looking at a very broad concept, just as technology. And at the firm level one tends not to look at the ROI of technology. But certainly the ROI of a specific technology, related or disprutive to the business at hand. So, it might be a good start to be more specific; what specific "design" are we talking about here? And at what "level"; enterprise, firmlevel, market level, product level, project level, line organisation level?
ROI as risk of investment: If the company is operating on a consumer market, instead of looking at increasing returns of investments, one could argue that one should look for decreased risk of investments; or at least a risk profile. If design, in this case, refers to user-centeredness (and the like), the risk of investing in activities that provides the company with better basic material about user needs (and must-haves, and service envy etc) is low. Alternative cost is the easy way out here, but not necessarily the best.
ROI as reader of investment: who is the "reader" of investment decisions and calculations? Is it the product managers? Or the project managers? Or the line managers? The partners? The board? The CEO? Maybe the shareholders? Depending on the configuration of the organisation, different patterns and rules apply. Because their roles are different, and require of them to view the "health" of the organisation in different ways.
Nothing precedes design value: this is a radical shift. The figure of thought saying that design can be used to provide a differentiated market offer, assumes that 1) we know how a design drive differentiation at the market level and how to incorporate this in the firm (not only as putting lipstick on a pig, though), 2) there is a mechanistic behaviour of the market that is controlled by the firm. The radical shift assumes that, because the expereinced presence of a product/service/system is where we all construe our life-world, the design of the product is what consumers/customers/users know, and therefore the design value precedes business value. I wrote a longer piece on this for the Service Design Conference in Linköping winter 2010: www.servdes.org.
Level of Return; make sure to distinguish between return on a macro- or societal level, all the way through the enterprise and firm level, down to the individual. These are highly different things.
ISO: in the ISO quality standards one can find a differentiation between process quality and product quality. How and where does the process gain from design (throughout a value-chain or a value-constellation)? How and where does the product gain from design?
With a little help from my friends: as Arne is saying, one needs to understand the joint objective of the organisation and its customers/users. ROI always need to be related to value-creation; for some created as in a product dominant logic, for others created in a service dominant logic. If we don't know anything about this, no ROI can help. And even if we do know, design might not bring increased value, or brings increased value at a non-acceptable cost. Or when we know, we might go into a premium segment.
What is it that one is investing in: a person? a process? knowledge? a consultant? If it is a person with knowledge; look at how the human resources field are defining competence areas and needs, and how the optimize and calculate the loss (or the non-existence) of specific competencies. And, on that note, if the organisation already believes it is doing the things that design would bring; there is another set of problems related to ROI. The scale becomes more complex, and one will deal with ROI of change as much as ROI of anything else. We saw such tendencies (the "not invented here syndrom", and "don't tell us how to do things we already are doing", in a project on procuring usable systems through design)
It ended up in one pointer, apart from the ones above:
You should look at the Human-Computer Interaction area; there is a good book called "cost-justifying usability" which you will find informative. Then, of course, there are a set of cases in design management talking about these things.
I forgot an old and good source. Paul Strassmans "The business value of computers". A little bit old, but dives deep into the issues of showing the business value of computers. And they were struggling to be able to prove/disprove the productivity paradox, so they did a thorough job.