Design matters—and not just in good times. CEOs who embrace design can enhance strategy and better navigate this age of volatility.
Imagine facing a wildfire during an earthquake with a cyclone on the way. Even if CEOs were facing only the specter of a looming recession and stubbornly high inflation, it would present a daunting challenge. These new shocks, however, are in addition to existing disturbances from the pandemic and supply chain disruptions, which came on top of—and often accelerated—enduring trends such as digitalization, sustainability, and the rising influence of the consumer.1 Moreover, as past crises have demonstrated, companies that focus too much on short-term defensive measures risk sidelining initiatives vital to keeping pace with the market, achieving longer-term goals, and even notching unexpected quick wins.2
Uniquely challenging times call for unique approaches, not the standard playbook. Design offers this fresh perspective. McKinsey research has shown that companies that embrace the business value of design are better able to respond to shifting landscapes and generate improved performance. From 2013 to 2018, these companies had TSR that were 56 percentage points higher than that of their peers.3 In addition, companies that continued or increased their investment in innovation during the 2008–09 recession generated three times more growth compared with their industry peers in the three to five years that followed—in many cases leapfrogging their competitors.4 These results make sense given that a recession doesn’t mean that markets and customer needs suddenly stop evolving. In fact, such evolutions often speed up.
For these reasons, we believe design should join topics such as finance, strategy, and talent on the CEO’s agenda. In this article, we explore specific examples where design has the potential to create significant value and boost an organization’s resilience. Executives can use the design function to unleash the power of creativity in strategy and problem solving in at least five important areas (exhibit).
Preserve cash flow
- CEO challenge: Substantial budget cuts are required to meet cash flow expectations.
- All-too-common approach: Pause some or all product design and development.
- Design solution #1: Prioritize one to two products to keep going at full pace based on design’s research into users and business impact.
- Design solution #2: Pause new product development but allow for new user-centric digital marketing.
In the face of a downturn, executives can be tempted to “play defense” and hunker down, pausing all or most innovation initiatives to conserve resources. However, McKinsey research shows the best performers—the “resilients”—play both defense and offense.5 Companies should resist making wholesale cuts because some initiatives may contain the seeds of an extended market advantage; indeed, some high-growth companies were founded during economic downturns.6
But how can organizations separate high-potential projects from the pack and get more from these investments? Design can help in a couple of ways. Companies could prioritize one or two products to proceed at full pace based on design’s research into user preferences and business impact. The resources freed by pausing other products could then be allocated to user-centric digital marketing to better connect products with consumers—a low-cost, high ROI approach that can reap significant benefits.
For example, a consumer bank had planned to create a suite of sophisticated new investment funds for wealthy customers. But facing a recession, executives shifted course, pausing the initiative and redirecting a portion of the earmarked budget. This enabled designers to deeply understand the implications of shifting customer behaviors and implement more user-centric marketing for existing products. Research on customer needs led the bank to move from “pushing products” to educating consumers on finance and empowering them to make more confident decisions in line with their life goals. This approach increased sales by 25 percent by building trust with consumers, and the revenue generated equaled the initial estimates from new product development.
Elevate scenario planning in strategy
- CEO challenge: The current strategic direction must be adapted to account for a high level of uncertainty.
- All-too-common approach: Use an analytical, “left brain” approach to generate scenarios.
- Design solution: Complement an analytical approach with design thinking to explore other outcomes.
The maelstrom of new shocks and disruptions on top of enduring trends creates an unusual breadth and depth of uncertainty. In such times, traditional scenario planning can be too analytical and runs the risk of falling prey to a “failure of imagination.”
The key, then, is for CEOs to ensure that scenario planning helps to surface insights amid uncertainty to guide strategy. By integrating user-centric insights, design can help to consider a broader range of possibilities and bring them to life more tangibly.7 Designers are innately curious, imaginative, and natural collaborators. Using a cross-disciplinary approach with other strategic functions, they can help foresee the next looming crisis, develop disruption scenarios, find ways to prepare for them, and catalyze the conviction to act. This approach enables organizations to get ahead of the game.
For example, one building materials and products company formed a cross-functional team that included designers to lead strategy development. This team identified three 15-year trends with the potential to shift 10 to 15 percent of value—equivalent to more than 1 percent of global GDP—across the construction value chain. This exercise helped drive the company to work on adjusting its strategy and operating model to pursue new opportunities.
Manage supply chain risk
- CEO challenge: Supply chain disruptions threaten the organization’s ability to secure supply and meet demand.8
- All-too-common approach: Attempt to find alternative and backup suppliers.
- Design solution: Remove difficult-to-source parts by redesigning products based on user needs.
For most of the past year, companies have been buffeted by supply chain disruptions, and climate change will only worsen reliability. A common response has been to dispatch engineering teams to change suppliers or parts to mitigate the situation—a course of action that often requires the costly revalidation of parts.
Often, a better way is to redesign products that are susceptible to supply chain risk. By accommodating and validating a wider range of parts or eliminating unnecessary components altogether, design can create more resilient products, cut costs, and limit delivery problems.
For example, an industrial-equipment manufacturer was facing semiconductor shortages, including on oil-level sensors. Engineers were working late into the night to source and test alternative suppliers of sensors. The design team examined the use of the products in the field and analyzed usage data from customer software. The results showed that less than 5 percent of customers used the oil sensor because the physical inspection of oil levels was mandated in most cases. The design team recommended removing the sensor entirely and introduced a better-designed dipstick that led to more accurate readings.
Raise the bar on sustainability and environmental, social, and governance (ESG)
- CEO challenge: The importance of sustainability and ESG continues to rise, but investing in these areas comes under pressure during economically difficult times.
- All-too-common approach: Aim to hold the line on ESG during a downturn.
- Design solution: Embrace “skinny design” to simultaneously reduce product costs, transport costs, and carbon footprint.
When deciding to limit ESG initiatives as a result of cost cutting during a recession, companies can miss opportunities to create new products or services.9 Business leaders can act much more boldly. By using a skinny design approach10 to reassess products and packaging, companies can simultaneously lower product and transport costs and reduce their carbon footprint. One convenient bonus is that the elements of skinny design can often be implemented quickly and with little investment while motivating a design team to fulfill the company’s mission.
Products that have been redesigned to improve sustainability demonstrate the potential value of skinny design. For example, since shampoo is 90 percent water, one bold redesign we’ve seen is moving to a simple powder that lathers when mixed with water and is packaged in a much smaller box. This new version can enable a company to ship more product in the same container and reduce its carbon footprint while continuing to deliver a great—and possibly better—consumer experience.11
Drive internal efficiency
- CEO challenge: Boosting productivity and reducing general and administrative (G&A) costs is an imperative.
- All-too-common approach: Deploy a traditional “lean” methodology.
- Design solution: Apply the same design approach used to optimize customer experience to streamline internal processes.
Many companies have dedicated significant resources to enhancing their customer-facing processes (for example, opening a bank account or applying for a mortgage). They have an opportunity to turn that same design lens to internal processes: speeding them up, reducing inefficiency, and delighting employees and internal “customers.”
The design function can focus on internal processes, using a cross-functional, collaborative approach to discover unmet needs and develop solutions. This path can deliver multiple perspectives on problems and increase engagement across the workforce.
A newly restructured mining company that was facing financial hardship had already cut its frontline head count by 20 percent. The remaining employees were feeling overworked, and morale was low. A design team began working with frontline employees to understand their frustrations and codesign technology-based solutions. The company introduced new digital tools that replaced inefficient paper-based procedures, yielding an extra 76 hours per year of increased productivity per worker and a $6 million return from increased tool time. The company also improved safety with new hazard diagnosis and awareness systems, leading to a 280 percent improvement in hazard reporting. These innovations had the additional benefit of improving employee engagement and morale by giving frontline workers a voice and allowing them to participate in the design and implementation of the new technology systems.
ENDS
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This article first appeared https://www.mckinsey.com/
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