A client of mine recently wanted to do a written customer survey. I’m usually allergic to these generic and prosaic insight-free-zones. But Jeremy Moon from Icebreaker recently put me onto a metric called the “Net Promoter Score” that might actually be worth testing for in a customer survey.
Jeremy is an independent advisory board member of Better By Design which is the design and innovation team within New Zealand Trade & Enterprise. He has always been a real inspiration to me because of the integrity of the Icebreaker merino products and the passionate tribe of fans that the brand attracts.
It’s hard to forecast the impact of a new product on the whole business, but it’s important to try.
Each of the levers in the post on accounting for design will affect key parts of your company’s financial statements. To convince the CFO of the value of your project you’ll be forecasting scenarios based on the proposed investment in research, design and innovation. These scenarios can be as simple as guessing the number of units that you will sell of the new product or as complex as full financial models of the entire organisation based on discount factors for out-years.
If your CFO is seeking basic forecasts then your financial analysis of the project will be persuasive. If however, your CFO asks for scenario plans and mock-financial statements then you’ll want to enroll the help of a sympathetic accountant or financial analyst.
The first question that person will ask you is would you like your forecast “bottom up” or “top down”? The right answer is “both”.
Bottom up forecast start from your existing production and supply. They then build up to forecast the possible future sales.
A top down forecast starts with the potential market demand and builds down to answer the production and supply that would be needed to meet that demand.
The flaw of bottom up forecasts is that they are often boring and do not build a sufficient case to invest in break-through innovation. We see this most often in clients as, “We grew at 10% per annum for the last five years so I guess we’ll keep on doing that.”
The flaw of top down forecasts is that they risk being “pie-in-the-sky” and ignoring the organisation constraints. We see this most often in clients as, “The Chinese market for this product will be USD$10 billion so we only need to get one percent of that and we’ll have a run-away success.”
Work with your ally to create forecasts that both stand robustly in the present and aspirationaly in the future. The most powerful technique we’ve met to achieve this is future-casting five years ahead aspirationally and then looking back from there brutally to see each step involved.
The second question your sympathetic accountant will ask is: “How are we going to account for the non-cash impacts of your project?” The safest answer at this stage is “We’re not.” Any brand benefits from a new product should be treated as a windfall.
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 incorporatingdesign 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:
Commands a higher price because it is differentiated from your competition.
Sells a higher quantity because it provides more utility to the customer.
Can be produced with lower variable cost.
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.