What is Design?
Businesses and organizations adopt the methods of design—sometimes in the simplified form of “design thinking“—to make better: better products, better experiences, better enterprise.
This short video describes design as a method to craft greater value, and shows how you can calculate and demonstrate your Return on Design.
Boost your Return on Innovation.
Investors measure the value of an enterprise according to financial metrics, such as Return on Equity. ROE provides a useful summary for comparison among investments, but if you want to improve your company’s returns, it helps to break it down to the components you can manage directly.
At the highest level, three ratios combine to produce ROE:
- Income/Sales measures profitability.
- Sales/Assets indicates cost efficiency in earning revenue, and
- Assets/Equity indicates how much “leverage” you get for your underlying shares.
Pharmaceutical companies and other industries pioneered the metrics to measure their returns on a risky pipeline of new products. Several years ago, Scott Anthony, author and managing partner of Clayton Christensen’s Innosight, published an alternative metric to calculate return on innovation, or Return on Design. We extend this to include new services, new offerings, new ventures and entirely new businesses.
To generalize the innovation process, we refer to the outcomes as new “concepts”, meaning a valuable new offering that earns net new revenues in-market.
Return on Design can be summarized as a single ratio: Income/Concept. On average, how much do you earn for each new fully-formed concept?
(nb: Use your preferred label for this ratio—Return on Innovation or Return on Design—to match your culture. Return on Innovation may be abbreviated as ROIn, to distinguish from the more general Return on Investment. We’ve also used RoDT for clients who use Design Thinking as their descriptor.)
It’s vital that you understand that not every idea evolves to a fully-formed concept. Do NOT divide income across every formative idea you generate. That would dilute your ideation process at the early stage of the high-volume, low-cost creative process when more is the best path to better. Only count in your denominator those ideas that on comparative review pass the hurdle to merit further design into complete, testable, designed concepts with valued features informed by market insight and user testing.
This ratio of your innovation Return On Design also breaks down into three multiples. To get a big return, you need to design big value with high hit rates at low cost.
How big is your average concept? What’s the scale of your entire portfolio? How much could they be worth if fully realized in the market?
What’s your “hit rate”? If it’s too low, you’re taking a lot of risk on the few that do eventually pay off. If it’s too high, you’re probably not taking enough risk, and only getting low returns on each. Across your whole portfolio of concepts, what percentage of them actually survive the gauntlet, captivate customers, deploy in market and grow to scale?
How much does it cost you to produce your concepts? The faster, better, cheaper and more reliably you innovate, the more efficient you become.
Grow by design.
Know what good looks like. Measure it. Enhance it. Prove it.