It’s surprisingly easy to use accounting to measure the impact of design. In accounting terms, the impact of your design project will be similar to the “economic” impact we discussed last time, but the language you use to articulate the impact will be very different.
From a design perspective, you’ll need to apply some empathy to your use of terminology. It might not be fun, but like driving a car on a windy road, you’ll need to treat your accountant the way they want to be treated. If you’re going to get the best from them.
Wherever you are from in the world the technical accounting terms might differ but, your finanical controller, Chief Financial Officer and accountant will be interested in any project that can:
Increase your revenue
Lower your cost of goods sold
Deliver a higher contribution margin (and gross margin)
Lower your overheads from capital costs
Create more earnings before interest in tax (EBIT)
Ensure ongoing positive cash-flow
Each of these areas are important to design and innovation. What you might notice is missing is the word “profit”. This is because in today’s business climate:
Profit is an opinion, cash is a fact.
Designing the business case for a new product is an integral part of bringing something new to life. For an idea to be sustainable it needs to fit into the company’s aspirations, investment profile and business model.
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.
I get asked a lot for advice about how to get a job in advertising, design or PR. Most of the people that ask me are looking for jobs as a strategist, planner, consultant or account manager. It’s not easy to get started in brand strategy and innovation.
Over the years, I’ve compiled the most important things to check in your resume when applying for jobs in innovation, design and business strategy. I’ve also kept track of the best career advice that I’ve been given…