Tag: Accounting

Statistics on design investment

The best defence in your business case for investment in design is the impact of design on the long-term financial value of the business. There are several reputable organisations that have spend quite some time and money to analyse how spending on design creates impact on the bottom line.

Design Innovation Ireland
Design Innovation Ireland has some great stats on business and design.

Interbrand have some fantastic international analysis on the Best Global Brands 2008 and they discuss how to value your brand based on future earnings using:

  1. Forecast financials
  2. Economic analysis
  3. How your brand influences ongoing consumer demand

The Design Council UK found in 2001 that a basket of companies using design grew by around 10% faster than the market. The Danish Design Centre found in 2006 that out of 800 companies (staff from 35-200) those that use design had growth in gross result (gross profit discussed above) of 250% compared with companies that did not.

In 1993 Roy R. and Potter S. (of the Open University in the UK) found in a study called Winning by Design that 94% of projects using design that were implemented achieved a positive net return. On average the payback period was 14.5 months. Interestingly, product design projects took 15.9 months to pay for themselves and graphics/packaging projects took 11.5 months.

The Irish Center for Design Innovation gets design and innovation in a big way and it’s worth pointing your finance team towards them to check out the financial models for assessing an investment in design.

Armed with your economic levers, your accounting impacts, the specific forecasts and some aggregate data to support your assumptions you are now ready to face your CFO.

Business case for design

This post analyses the business case for design using the fundamentals of micro-economics and financial accounting.

Let’s run through how you (as a product development professional) can use the language of economics and finance to articulate the return on investment of design expenditure. In particular, in the areas of brand, product and process. You can also look at how to articulate the business wide impact of incorporating design thinking into your company’s vision, culture and strategy.

We can use a USD$100,000 engagement with an external product design and innovation firm as an example. The aim of this project will be to develop a product that anticipates latent needs, delights end-users and delivers an integrated holistic experience. However before you or your external product designers get to any of that you’ll need to get past your CEO, senior management team, CFO and their corporate finance team. We’ll address the CEO first.

Economic returns from investing in design

The key levers available to your firm’s senior management include the price, quantity, variable costs and fixed costs of your business. To convince the CEO and senior management team of the benefit of the project you’ll want to address the real life impact of the project in each of these areas. You will need to convince them that with the aid of a disciplined approach to NPD and an empathetic approach to design, your project will create a product that:

  1. Commands a higher price because it is differentiated from your competition.
  2. Sells a higher quantity because it provides more utility to the customer.
  3. Can be produced with lower variable cost.
  4. Is designed to allow for lower fixed costs.

Each of these economic levers contributes to the ultimate goal of your CEO which is usually some variation on creating a sustained and differentiated high margin revenue stream.

You will need to have command of the above financial terms and be able to structure your business case accordingly. The attention span of senior management teams is shortening and a good summary (in terms they understand) is important.

The internal finance team will have their own requirements for your project so speaking their language can help increase you chances of getting a project approved.