Consultants McKinsey found that out of 300 listed companies over five years those with the best design practices achieved 32 per cent higher revenues and 56 per cent higher returns for shareholders.
The rise of design has seen it move out of its department to scale the heights of some of the biggest firms in the world to move into the c-suite at places like soft drinks giant PepsiCo, Lloyds Banking Group and Dutch conglomerate Philips.
For companies who want innovation that is adopted design thinking has become de-rigueur, but at these corporate giants it is now informing strategy as well, adding a bottom-up process to what has traditionally been a top-down driven activity.
By incorporating design thinking into the strategy process firms acquire vital knowledge about their customers that can not only inform their new products or services, but transform their entire business model. It allows the strategy to gain greater empathy and emotional engagement with actual users of the products and services.
So how do companies incorporate design thinking into their strategy process?
We were given access to a digital bank as it went through the process, attending 36 workshops, operational meetings and design sprints, plus interviewing 19 senior and middle managers, designers and external consultants. We also had access to 236 pages of documentation and photographs.
Our in-depth analysis found four important steps:
The design thinking process throws up a lot of data and material about the customers, as Gianfranco Zaccai, Chief Design Officer of innovation design firm Continuum, says: “You have to know your customers not as statistics but as human beings.”
Once this data and information has been gathered through the design thinking process it is vital that it is analysed and reviewed by those involved in the strategy process.
It is imperative that managers have time during strategy workshops to “sit with” the design-led materials to gain an understanding of and empathise with the customer’s point of view. These materials can be reports, consumer research, more personal reflections from customers or managers, even a picture or video.
An example from our case study saw strategy managers pour over a single piece of paper with customer reflections on a product the digital bank was developing. It was a single page summary from the design team.
The customers were expressing the kinds of reminders they wanted to help them save money or make investments. There was no conversation; each participation took in the information and reflected on what it meant for their role.
It is important strategizers are given space and time to analyse and think about the material by themselves before a discussion then takes place. We found this time to review material made a big difference to the ensuing conversation around strategy.
This is where managers involved in the strategy process attempt to ‘walk in the shoes of the customer’. The design team should lay out material in the room about the service or product and managers can then handle them and see them from the customer’s point of view. Each manager can handle or look at the material to gain a sense of what the user ‘sees’.
This can be done by prototyping the product or service, which managers can then pilot and see what it is like to engage with as a customer. The prototype does not have to be anything fancy, it could be simply post-it notes or just different screenshots of an app drawn on paper.
What is important is that managers can simulate what it is like being the customer, gaining valuable insights as part of the strategy-making process. They can get a feel as to how the company is perceived and how the strategy would work on the ‘front line’.
In the bank we researched, a good example saw strategy managers given a ‘walk-through’ of an app that was being developed. Managers sat in front of a computer screen and were taken through each screen as they used the app like a customer would. It helped them visual the app on a smartphone screen and understand how it would be used by customers. It also led to a change to the product, as managers felt the error message was too small to read.
A Digital Product Owner said: “The prototypes are really effective at conveying [to executives how] user feedback is shaping the product.”
The ability to build these sense-making prototypes or experiences becomes vital in ensuring that bottom-up user perspectives moderate top-down managerial concerns when formulating the strategy.
It means strategy managers can have a more in-depth connection with their market and can alter their strategy directions through the different ideas, values, assumptions and emotions this elicits when simulating the customer’s experience.
Once reviewing and simulating has been done strategists are ready for group discussion to outline their individual perspectives and work towards a collective agreement.
The centre stage is no longer the data and material brought together by the design thinking process. Instead these insights are gathered and combined with the practical realities of the challenges managers face in their unit, organisation, market, with competitors and the environment.
Everybody needs to share their perspective and insights so an understanding of the different facets of the company can be formed. Coming together to listen to each other’s version of events helps to unearth individual blind spots and biases, so they can be ironed out into a more rounded view. In the process this helps the strategy fit the market view and the company’s strengths. It is where the bottom-up and top-down perspectives come together.
At the digital bank a manager organised a workshop between the strategists and designers after a month’s hiatus and initiated a dialogue around what each person was doing and what needed to be addressed, so they could all agree on the path forward.
A Design Lead said: “We got [other managers] involved and [they] were able to give an unbiased opinion across what we were doing, which is important because we don’t want to get to a point where we’re just going to support each other’s great ideas. You’ve gotta run it by other people who are disconnected from the team in some way.”
And because of the design-led simulating and reviewing we found the strategy discussions were more inclusive and better informed.
The focus in this practice is to develop a shared solution to a complex problem. It involves discussion and materials brought together to piece a step-by-step process.
It is especially useful when looking at how suppliers or other stakeholders will be affected by the strategy under consideration. It usually involves a whiteboard or post-it notes as a group discussion works through the issues and realigns them to produce a collective agreement.
For example, at the digital bank managers had to detail all the research tasks needed for a new product. It involved them coming up with ideas which one member of the team then wrote on post-it notes and placed in a timeline. This was an iterative process as they moved or removed the post-it notes in the timeline. This approach is similar to the design thinking ‘gallery walk’ exercise, where data is galleried on walls for managers to review in sequence.
Using visual effects, like post-it notes, helps managers come to a common solution and objects to discuss, move and realign until agreement is found.
At the bank this process of visualising the ‘gamification’ of a customer journey helped a product manager understand the strategy. They said: “The penny dropped on how we can use gamification as a [broader] strategy in [changing] savings behaviours.”
Participants can not only see the strategy laid bare, but are able to re-arrange it and re-configure it until everybody is satisfied and in agreement.
By incorporating these four practices into the strategy-making process a company is able to gain valuable insight from the ‘ground’ that would not be possible in the four walls of the boardroom. Thus, bottom-up and top-down insights can be combined and improve the organisation’s strategy.
Understanding the consumer journey better may alter the discussions around the strategic position of the company in the marketplace. Rich and detailed information on customers and how they use the services and products may well challenge the assumptions held inside the boardroom.
In the banking sector the rise of fintech start-ups is challenging the established players to get closer to the customer, to innovate and provide more services than they traditionally have. By drawing on design thinking they can do this and incorporate the findings in their strategy.
Setting up rooms with customer insights, personas, and other materials from design thinking research can allow managers to continuously reference them throughout the strategy development process. McKinsey Digital Labs, for example, advocate using the four walls of a project room to track a specific focus such as customer experience, technology, team planning, and operations and process. This allows cross-functional teams to quickly and easily access information from each other’s domains and support new idea generation.
Strategy is greatly improved if it can incorporate different kinds of knowledge, insight and materials rather than relying on the CEO or a department in the higher echelons of the company. Using design thinking is one proven way of doing this.
Knight, E., Daymond, J. and Paroutis, S. (2020) "Design-led strategy: how to bring design thinking into the art of strategic management", California Management Review, 62, 2, 30-52.
Knight, E., Paroutis, S. and Heracleous, L. T. (2018) "The power of PowerPoint : a visual perspective on meaning making in strategy", Strategic Management Journal, 39, 3, 894-921.
Micheli, P., Perks, H. and Beverland, M. B. (2018) "Elevating design in the organization", Journal of Product Innovation Management, 35, 4, 629-651.
Sotirios Paroutis is Professor of Strategic Management and teaches Strategy & Practice on the Distance Learning MBA, Executive MBA and MSc Marketing & Strategy. He also lectures on Strategic Advantage on the Executive MBA (London).
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