ROI

It was tough times for me, being a designer and being employed at a company that defined its reasoning based on financial indications, like turnover, gross margin, return on investment, and so on. Eventually also you, as a designer, have to define your reasoning according to such parameters. Unavoidably the question on the ‘return on investment’ (ROI) will pop-up, like “What do I get back for every Euro I spent on design? Tell me, what’s actually the ROI of design?”

Then you feel the sweat running down your back, when you sit in the leather chair at the CFO’s office, sipping your coffee in front of that whiteboard covered with calculations and additions, on which some have those dangerously looking red exclamation marks put next to them. (And you want to check if they’re next to your budget allocation!)  Then you feel your throat drying up, just when you have to answer the unavoidable question, why your ‘costs’ should not be cut, unlike all the other costs. “Why do the design costs have to go up? What is the ROI, so that I can defend such an increase?!”
In that position, you almost regret you didn’t do an MBA…

Still in most companies design activities are treated as a cost, or expense, not as investments into a company value. This might be absolutely correct and in line with common practice in economics. And accordingly, we designers acting within these economic systems have tried to translate the ‘return’ of design in financial terms. We learned to speak the language of the financial world, in the hope that they take us for ‘real’ – we learned to ‘Excel’ and use SAP, so that eventually also the CFO’s would ‘get it’!

And eventually, it worked, and more often the cost for design could be protected from cost-cutting – but, it did remain a cost factor after all…

Most of the CFO’s that I met during my career did regard design as a very important, albeit expensive occupation: as an activity that needed to be controlled and that, like alls costs, needed to be reduced whenever possible. However we designers increased our ability to ‘valuate’ how we, through design, were able to grow the gross margin, to reduce yield, or to increase top-line – design remained on the ‘lost’ side of the balance sheet. To the business a  true ROI from the design activities was given then when the outcome of design activities could be generated faster and cheaper over the previous year: in the end, some target had to be set, and to be controlled!

That’s why it is fundamental for design in a business context to speak the financial language, so to say, in order to eventually achieve what is most important to improve design impact: respect. In the end, it’s about achieving a fundamental shift in the perception of design – design should be treated as an asset, not as a liability. Design belongs to the profit side of the balance sheet!

For it to get there and to truly deliver a sustainable return, it needs much more than some ‘cosmetics’ on the P&L – it needs trust. Trust in design’s ability to not only financially improve the business performance but also increase the relevance of what that business does and with that becoming more valuable.

This trust has to be lived by the designer as well, and it has to be earned. Same as in the market place, outside the corporate walls, where consumers increasingly stop to rely only on the financial figures: for consumers, as an example, the return in financial terms is worse for a Powerbook compared to a model from Dell – but to many apparently that’s not relevant. They rely on what is relevant to them. And what that means in financial terms, one can see from the ‘results’ delivered by the two companies in the example: increased relevance delivers increased return! And design is the tool to shape, create, and orchestrate the relevant customer experience. The ROI of design also lies in the increase of intangible assets a company has, namely in its relevance.

Well, the CFO, which was troubling me for a while, eventually dropped into my office one late afternoon: he wanted to talk about the budget. I invited him along for a beer with my colleagues and we had a great evening. “Guys, he said after a beer, I don’t know what you are doing all day long, but the new product range delivers double the margin! And all say it’s because of the new design!” And after another one, he added: “Really, I don’t understand design. But what I do understand is that you guys are passionate about what you do and that you love your job. I wished my controllers had that much power, then I could half the costs in one go!”

He got it – and as a consequence, I could double my budget: in the end trust and relevance delivers the highest ROI 😉

May 2011.