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How to Measure the Value of Design

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Why to measure the value of design? What are the tools measuring the value of design? What are their strengths and weaknesses? In this article we will feed you with information, which shall introduce some order into a wide variety of tools measuring the design value. With this, we intend to ease the struggle that designers and managers face when attempting to quantify the value of design. At Innovation Titans we analyzed the most relevant scientific articles on measuring the design value to enrich our practice, to better measure the value of design work and in turn to communicate it more clearly to stakeholders.

The purpose of measuring the Value of Design

With the increasing awareness of the scale of benefits stemming from design in the product/service development, the role of design becomes strategic in many organizations, particularly those innovation-focused. In order to realize the full potential stemming from design across sectors it is crucial to prove the value it brings to a project. Therefore, the ultimate goal of measuring the design value is to prove that design contribution to a project meets strategic organizational objectives and translates them into measurable outcomes. To invest in design and to scale it up managers must understand the impact of design both in financial and economic terms. Likewise, to be recognized for results of their work designers must assess the impact of their work in financial and economic terms. Hence, managers and designers have a common interest in measuring the value of design, but apparently, both struggle to do it. What are the reasons? The major ones are the lack of common language to communicate the design value between managers and designers and relatively limited scope of use of tools measuring the value of design. However, there are also many other relevant reasons identified by design management and accounting management scholars.

The major challenges to measuring the value of design:

  • Too much focus on economic (non-monetary) value compared to financial value,
  • Accounting unable to capture different types of value created in the times of knowledge economy (e.g. design being viewed as a cost and not as an investment),
  • Lack of accounting and managerial knowledge among designers,
  • Shifting role of design in organizations – from operational to strategic one,
  • Intangible or complex nature of design (especially of service design),
  • Different aspects of design value are important to be measured at different phases of a project execution.

Tools Specifically Targeting the Value of Design

1. Enriched Balance Scorecard

Balance Scorecard (BSC) is a comprehensive metric, which supports strategic planning and management of projects. Its focus is on a wide variety of project related aspects, starting from vision, through strategy, to operational elements. It is a popular tool with managers – according to Gartner Group nearly half of large US organizations applies BSC [1]. At the same time, it seems simple enough to be implemented by designers without extensive managerial knowledge, allowing both the designers and managers to establish a common channel of communication. BSC provides the data in four areas, which are critical to achieving business success: 1) customer, 2) process, 3) learning, 4) finance. However, BSC alone does not seem to address the complexity of measuring the value of design. In order to capture it, the enriched BSC model proposes a combination of the four perspectives of BSC and the four shifting powers of design in organizations: 1) differentiator, 2) coordinator, 3) transformer, 4) good business [3]. Balance Scorecard and 4 Powers of Design model by Mozota [3]. Illustration: Innovation Titans. As a result, the original model (BSC) is transformed into a new one (enriched BSC). With the “upgrade” managers and designers gain an insight into how different design roles are fulfilled through an interaction of the BSC perspectives with the powers of design. Moreover, the model also gives cues on how to choose the most appropriate design indicators – they should closely match relevant, perhaps already established in the organization, performance BSC indicators. The model can be applied at different stages of the project: to showcase potential value gains on the proposal/preparatory phase, to asses and improve value creation process throughout the project, and to determine the value brought by design once the project is completed.

Quick assessment of the enriched BSC

Strengths: + Measures nonmonetary impact of design (economic value), + Improves communication of the design value between stakeholders, including managers and designers, + Can be applied at different stages of design project, + Helps to choose the best KPIs. Weaknesses: – Doesn’t measure monetary impact of design (financial value).

2. Return on Design Investment (RODI)

Return on Investment (ROI) is a popular indicator of economic efficiency and profitability. It can be applied to design in a slightly modified form of Return on Design Investment (RODI). As in the case of ROI, RODI measures profitability of a project. The only difference is that while ROI measures the return on the whole project, RODI captures only one component, namely the profitability of the investment in design [6]. As such, by being specifically targeted on the return on the investment in design, RODI can be used to measure the value of design. At first glance, RODI might seem like a perfect tool to measure the design value in financial terms and to benchmark design efficiency. However, it is not without flaws. Firstly, an expenditure on design is viewed by accounting as cost and not investment. Hence, from the financial perspective it is not possible to compute the RODI as design does not figure on the investment fiche. This may limit the scope of RODI’s application to informal practices in management accounting. Secondly, RODI is limited to measuring only financial aspects of a project. This falls short when assessing the value of design, to which nonmonetary variables are of key importance. Therefore, RODI’s role in measuring the design value should be viewed as reduced to the one of “proxy variable”, which provides some but incomplete information on the value of design. This said, probably the best use of RODI can be made at the last stage of the project, namely the evaluation; when: 1) measuring the financial contribution of the design to the project, 2) comparing the financial contribution of design to contributions of other components of the project, and 3) comparing the financial value of a project to the other projects (prior, non-design or design based). Measuring RODI might also prove useful to reinforce the strategic position of the design in the company.

Quick assessment of the RODI

Strengths: + Focuses exclusively on measuring the value of design, + Measures monetary impact of design (financial value), + Allows to benchmark design efficiency. Weaknesses: – Doesn’t measure nonmonetary impact of design (economic value), – Engages extensive resources – requires detailed measurement of all variables throughout the project (ROI) in order to measure the RODI, – Application of the tool is limited due to the prevailing accounting practice.

3. Design Dashboard

Design dashboard is a monitoring tool to assess and to improve efficiency of the design process. Its main benefit is that it serves as a basis for measuring the value of design. First of all, it provides detailed information on the performance of all the organizational functions of the project, specific to the project and to the company (e.g. marketing, finance, design). Secondly, it serves as a simple way to assess the value of contribution that each single organizational function brings to the project. As such, it provides necessary data to calculate the RODI. Moreover, the tool enables to compare the contributions of organizational functions as a share of total investment, indicating their impact on the project. However, by limiting the scope of comparison to the ratio of total investment, design dashboard falls short of capturing intangible value of these functions, and thus measuring their weighted impact. With the focus on KPIs, design dashboard shares certain degree of resemblance with the enriched BSC model. The major difference between them is that while the first tool is used to measure RODI, the monetary indicator, the latter is of non-monetary character.

Quick assessment of the Design Dashboard

Strengths: + Serves as a basis to measure RODI, + Monitors contributions of different organizational functions to a project, including design, + Asses the monetary impact of different organizational functions in a project, + Enables improvements throughout the project resulting from constant monitoring of KPIs. Weaknesses: – Brings down the impact of organizational functions in the project to the share of total investments, disregarding their intangible value.

4. Design Multiplier

Design multiplier is an indicator used to support the decision on a new project. It provides an information on the average return on investments made in design [6]. Although, at first glance it may resemble RODI, it is more complicated and requires much more data than the latter. To be more specific, Design Multiplier is calculated not in relation to one project but on the basis of aggregated results for a set of projects. Consequently, it requires aggregated data on a number of RODIs from various projects. Only then it can be used to assess an average return on investment in design. In practical terms, prior to applying Design Multiplier organizations need to obtain necessary data from internal or/and external projects. Apparently, this might be a true challenge: at least few comparable projects must be first completed with RODI calculated for them, what requires time and resources. In a perfect world, organizations would share basic information on RODIs from various projects. It would allow to aggregate necessary data on the design value across sectors and increase reliability of design multiplier. While competitive organizations are averse to sharing such data openly, this could have been accomplished once it represented significant value to them. Hence, again the importance of communication of the value of design.  

Quick assessment of the Design Multiplier

Strengths: + Helps to assess the average return on investment from design, which is key when taking decision on a new project, + Ensures higher reliability on the return of investment from design than RODI, as an assessment is made on the basis of aggregated projects. Weaknesses: – Data needed for calculating the Design Multiplier is challenging to obtain – it requires time and input on RODI from various projects, – Doesn’t measure nonmonetary impact of design (economic value), – Application of the tool is limited due to the prevailing accounting practice (the same issue as in the case of RODI).

5. Design Metrics Systems (D3 Matrix)

While the tools described above are best suited to answer the needs of measuring design value of various sized companies, the preference of large organizations might be for more robust system quantifying the impact of design. An example of such system is the D3 Matrix co-designed by Hewlett-Packard and Jump Associates. It allows to set and to prioritize design goals and subsequently to align them to business objectives at different phases of a project: from development process to portfolio of products/services. It also contains fixed and flexible metrics, adjusted to the dynamics of the design process.
D3 Matrix by Mrazek and colleagues [4]. Illustration: Innovation Titans.
The development of the system itself was based on sound design principles: it was iterative, user focused, experiment based and feedback seeking. The matrix contributes to design measurement in two ways. First, it informs management about the effectiveness of design investment. Second, it provides continuous feedback to project teams.The 3D Matrix is comprised of three columns and three rows that cross each other creating nine cells representing different strategic goals. These goals are set by project teams at the outset of a project.  The strength of this tool lies in the possibility to categorize the projects along one of the three strands representing the overarching objectives of design: to innovate, differentiate and simplify. The matrix enhances flexibility to manage work streams and fits characteristics of innovation projects.

Quick assessment of the Design Metrics System

Strengths: + Measures nonmonetary impact of design (economic value), + A comprehensive tool based on fixed and flexible metrics, allowing to address dynamics of the design process, + Informs management on the effectiveness of the investment in design by linking actions of design teams to business outcomes, + Provides instant feedback to project teams on ongoing projects, Helps to choose best KPIs. Weaknesses: – Relatively complex tool to adopt in organizations with management not aware of the value of design, – Doesn’t measure monetary impact of design (financial value).

Tools Helpful in Measuring the Value of Design

6. Net Present Value (NPV)

Net Present Value is an indicator used to evaluate whether financial benefits from a planned project exceed its costs, taking into account time value of money. Potential benefits are derived from a project cash flow analysis and are discounted to the present value. If the NPS is positive – the investment will bring profits, if negative – the investment will likely incur losses. The NPV method is suitable for making a quick assessment of the project profitability, namely in terms of the “go/no-go decisions”. As such it can be applied to product and service design projects [5]. However, as the NPV method assumes a single discount rate, it is not suitable for projects with time-varying risk. Hence, it is more useful for projects aiming at relatively small improvements, rather than a full-scale innovation.

Quick assessment of the NPV

Strengths: + Measures monetary impact of investment, + Can be applied to a wide variety of projects, including design ones, + Good starting point to make quick assessment of an investment in design. Weaknesses: – Not targeting specifically the value of design and its non-monetary aspects, – Sensitive to discount rates, – Challenging to apply to projects with time-varying risk.

7. Social Return on Investment in Design (SROI)

Social return on investment is a monetary ratio, which measures socio-economic impact of the invested resources, traditionally not reflected in financial accounting [2]. This includes positive and negative outcomes of a project, for example in respect to environment. To ensure reliability of the tool, multiple stakeholders’ views are analyzed. SROI can be applied to plan, monitor and demonstrate the socio-economic impact of projects. The tool allows for cross-sectoral application, whether in nonprofit, governmental or for-profit investments in design.

Quick assessment of the SROI

Strengths: + Allows to measure the socio-economic impact of projects in financial terms, Analyzes both positive and negative socio-economic impact of a given project, + Goes beyond monetary value as it takes into account stakeholders’ views. Weaknesses: – Challenging to translate certain aspects of socio-economic impact into monetary value, – Difficult to standardize the ratio across projects due to intangible socio-economic factors specific to each project.

Final Remarks

With this article we have introduced you to quite a few tools specifically capturing the value of design (enriched BSC, RODI, Design Dashboard, Design Multipliers and 3D Matrix) or possibly enhancing measurement of its different aspects (NPV, SROI). However, we understand that choosing the right design value measurement tool may be still challenging. To give you some further assistance on this, we propose you a two-steps approach. First, to facilitate you a choice between the existing tools you may find it useful to answer the following questions:
  1. Why do you measure the design value?
  2. What are the design goals of theproject?
  3. How do they relate to the organization’s strategy?
  4. How do they relate to operational actions of the organization/project?
  5. At which phase of a project will you collect data, make calculations and communicate results?
  6. Whom will you address with these results?
Second, while you may find the presented tools not tailor-made for your organization, building on them you may create a new tool. A tool specifically adjusted to the needs of your project, team and company’s practices. To this end, you can review short descriptions and quick assessments of the tools proposed in this article. You can also get acquainted with the basic three-steps toolkit below providing hints on how to design a perfect tool measuring the design value. We hope that its synthetic form will prove useful.  
How to design a perfect tool measuring the value of design?

The Basic Three-Step Toolkit

First, the tool should align design goals to business objectives. To this end, it should ensure solid basis for achieving the strategic objectives of a project with design goals adjusted to changing dynamics of design process. The latter is crucial in enhancing innovation and in addressing the fuzziness of innovation processes, including unknown outcomes, iterations and failures. Therefore, it should include fixed (strategy-driven) and flexible (providing real-time input for monitoring project progress) metrics. Second, the tool should support managemenet of a portfolio of projects specific to the organization, it’s practices and culture. As such, it should monitor contributions of all the organizational functions of the project and provide feedback to enable further improvements. However, often the projects include not only elements, which are easily monetized but also those of intangible character. To this end, the tool should capture the design value in both economic and financial terms. In other words, it should combine the properties of RODI and the enriched BSC model.      Third, the tool should facilitate communication of the design value. As such, it should prove that design value meets organizational objectives and translates them into measurable outcomes. While the language of business analysis and metrics should dominate as it helps to establish common terms with managers, narrative storytelling eases the communication of the design value with different stakeholders. Finally, it is important to communicate the design value from the very first phase of the project to the latest.
What are your views on the tools measuring the design value? Share with us your ideas and experiences.

References

  1. Balanced Scorecard Basics. https://www.balancedscorecard.org/BSC-Basics/About-the-Balanced-Scorecard (Accessed on: 13.09.2018)
  2. Banke-Thomas A.O., Madaj B., Charles A., van den Broek N. (2015) Social Return on Investment (SROI) methodology to account for value for money of public health interventions: a systematic review. BMC Public Health.
  3. Mozota, B. B. (2006). The four powers of design: A value model in design management. Design Management Review17(2), 44-53.
  4. Mrazek, D., Lucente, S., Wakid, K., Sato, S., Wai, C., Menter, A., & Hartley, P. 2011. The holy grail of design measurement. Design Management Review, 22(2), 6-16.
  5. Pitkänen A. Tekes and Aalto University. Helsinki. (2013) Design ROI-Measurable Design https://issuu.com/anttipitkanen/docs/droi_measurabledesign_2012_issuu_en(Accessed on: 13.09.2018)
  6. Viladàs, X. (2011). Measuring Design’s Contribution to Business Success: A Three‐Tier Approach. Design Management Review, 22(2), 54-60.