Here is an excerpt from a “classic” article written by Michael Birshan, Victoria Lord, Anne Schlößer, and Benedict Sheppard for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out others, learn more about the firm, and sign up for email alerts, please click here.
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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. 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.
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. 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. 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.
[Here are the two.]
Preserve cash flow
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. 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.
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.
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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. 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.
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Here is a direct link to the complete article.