McKinsey, please.
Normally to be honest I rarely care about these business development pieces from McKinsey but I have spent the last year thinking about organizational design so this recent report caught my eye. It has also created quite the buzz in the design community for its controversial view on redesigning design departments.
Well to be fair the first half of the report is controversial, the second half, starting with “Talent” (page 17), has some good insights, nothing earth shattering but good references, nonetheless.
The controversy stems from their recommendation to distribute the members of the design teams to project teams (or departments) while limiting the function of any central “design department” to knowledge sharing and tools. They leave out any mention of Design Operations, User Research or Design Research in their recommendation. But more importantly they do not differentiate between the various practice areas within design. They make no attempt to distinguish between Hardware Design, UX Design, Graphic Design, Sounds Design, Brand Design, Advertising Design, Content Design, Packaging Design, Interior Space Design, Process Design, Service Design, etc. There are literally dozens different branches of design—and none of them are interchangeable and each with their processes, tools, and career development needs. Of course, the real elephant in the room which McKinsey fails to address is the impact that the CEO has on design and its ability to deliver business value. The single most important member of any “design department” is the CEO.
For this report they surveyed 3,000,000 designers and design leaders, from more than 100,000 design departments. They did an additional in-depth survey with 250 business & design leaders. And finally conducted interviews with 30 senior executives from design-led companies. (as with design they make no attempt to define what makes a business a “design-led company”) They also do not provide any breakdown of these surveys, either by cross-comparison, geography, market share, revenue, etc. Nor do they break out the businesses as being hardware, software, services, retail, entertainment, etc., which is unfortunate since each has inherent differences in how design functions. Likewise they did not breakout down the results by segment (i.e. CPG, B2C, B2B Fintech, Healthcare, etc.). The report paints with an exceptionally wide brush and lacks any actionable details.
Coming away from the report there three main controversial topics are:
Company performance is not directly correlated to design-team size.
Organization Integration
Corporate Structure doesn’t define collaboration
Let’s look at each one in detail…
#1 Company performance is not directly correlated to design-team size.
This first conclusion was based on designers as total percentage of employees compared to average excess total shareholder returns (or TRS in McKinsey terminology). This not a measure of investment, just head count. And given there is no description of how these headcounts are organized, their level of seniority, or influence on the company’s delivery relative to the rest of the organization there is no way to know if we are talking about a few junior designers in a distribution company or senior design leaders in a consumer electronics business.
Also I am assuming McKinsey is using their own definition based on their 2008 article, A better way to understand TRS. In that article they describe their recommended approach to this metric as:
A better approach to understanding TRS [Total Returns to Shareholder] breaks up the metric into four fundamental parts: a company’s operating performance, its stock market valuation at the beginning of the measurement period, changes in stock market expectations about its performance, and its financial leverage. The analysis can further divide a company’s operating performance into the value from revenue growth net of the capital required to grow, from margin improvements, and from improved capital productivity.
While it’s flattering to think the authors’ see these “design departments”, with their < 0.75% of total headcount having such a disproportional impact on shareholder value creation. Indeed, it places their impact on par with the C-Suite. Hyperbole aside, it is frankly disingenuous to infer such a causation. There are literally dozens of other factors that have far greater impact on TRS than a couple headcount (investments, earnings, dividends, P/E, M&A, market disruptions, macroeconomics, geopolitical, environmental, etc.). Since they don’t break down the 230 companies surveyed by industry sector, let alone their various lines of business, it is impossible to put the TRS of these businesses into any type of context.
#2 Organization Integration
Based on information collected from “leading Chief Design Officers” (keeping in mind there are maybe 30 CDO’s in the world…) McKinsey determined three themes to the optimal organizational approach: 1.) distribute the designers to the various departments across the business, 2.) nurture that talent, and 3.) provide collaborative tools. Given they provide no verbatims from these CDO’s, it’s impossible to understand the CDO’s rationale or to understand how McKinsey came to these conclusions, which is unfortunate since this section is at core of the controversy…
Let’s take each theme in turn…
The first theme was cross-functional organizational structure. The practice of creating cross-functional teams has been done for decades; you pull together a team of designers, engineers, marketers, financiers, and project managers, etc., and give them responsibility for costs, revenue, and customer satisfaction, and let them run. However, what is new is McKinsey’s recommending a change the reporting lines so these cross-functional team members would now have solid line reporting to the project teams not their departments. Team members would only have a dotted line reporting to their various departments—for knowledge sharing, tools, and community. Meaning their performance and career development would assessed by the project team manager. The explain they provide is:
Such setups maximize the “surface area” of design across the business and allow designers to grow in a commercial environment by giving them access to vocational development while allowing a flexible design function to contribute more resources to projects across the entire company.
Vocational development? Contribute more resources? McKinsey, please.
Aside from setting up small fiefdoms this recommendation will require businesses to hire additional resources in order to staff these functions on each project team. Or be faced with the on-going decision about which project team these resources and which ones don’t. And this recommendation doesn’t just apply to design, there are cross-functional implications for Marketing, Finance, Legal, etc. (And though McKinsey left them out, user research falls into this category as well)
Anyone who has managed a cross-function team knows there are peaks and valleys in regards to capacity planning. There is not always a continuous stream of work with one project team to keep a marketer or designer or financier at capacity. Dynamic staffing is far more efficient use of limited company resources, bringing these disciplines on to the project teams as needed and rolling them off to work with with another project team, or to focus on department programs (i.e Design Systems, Customer Insights, Design Research, next-gen design concepts, etc.).
McKinsey’s recommendation also places a massive burden on the project team managers to be able to assess and provide career guidance to a range of professional disciplines. Not to mention the operational logistics of determining when a function such as finance, legal or compliance should be added to the project team, budgeting for these headcount, not to mention recruiting and on-boarding. This recommendation is frankly is turd on a pillow.
Which leads to their second theme, nurturing design talent. McKinsey offered this insight in 2018 when they published The business value of design (Who knew you nurture your top talent? Groundbreaking.) However, taking a step back, this seems to be at odds with their previous recommendation: having cross-functional teams report to a manager who at best has a cursory understanding of their profession or the industry benchmarks for career advancement, not to mention being able to assess their performance relative to their peers across the organizations on other project teams. Seems distributed places serious limitations on any potential nurturing.
And given the delivery pressures on these project teams, there will likely be an inherent conflict of interest in the career development of the team members since advancement would likely require them to leave their current team. This same conflict of interest also applies to McKinsey’s recommendation about providing project team members secondments. Why would a project team manager support a job rotation if it left a skill gap on their team?
Without a central management team for each functional area to coordinate consistent performance evaluations and apply industry benchmarks for their career development, nurturing individuals will devolve into political brinksmanship, favoritism, and no doubt lead to higher turnover while depressing talent acquisition.
The third recommendation focuses on tools and collaboration and belies the authors’ (and arguably McKinsey’s) failure to understand the true nature of design. Operationally, there is no debate that having teams use a common tool set and infrastructure optimizes efficiency. However, it’s the notion put forth by the authors’ that a designer’s “best work” is dependent on the software package they use clearly reveals how little they understand about design. The authors also are remiss in omitting two core tools every design team needs for their success: a Design System and a Design Language. These cannot be managed by individual project teams, they need to be centralized and part of Design Operations.
#3 Corporate Structure doesn’t define collaboration
“Our survey results showed that a high level of integration was not linked to a single organizational archetype, implying that wholesale reorganization is not a prerequisite to unlocking design’s potential.”
This is a fascinating statement given the exhibit McKinsey uses to explain this conclusion clearly shows that one organizational model outperforms the other four, at least based on the metric they are using to determine value delivery. (The cynic in me can’t help but think what McKinsey is really saying is that there’s no money to be made redesigning design organizations.)
Apple runs their design organization as a separate business unit, and this centralized model outperforms McKinsey’s recommended approach (Deliveroo & Netflix) by almost 2x. When McKinsey’s model is taken to its natural conclusion (Google) the centralized model is 3-1/2x more effective. (However based on recent insight I am not sure Apple’s cross-functional integration is really that high…)
It is interesting in the models McKinsey explored they didn’t look at hybrid models that mimic those of engineering organizations, that is BUs have stand-alone engineering organizations—focused on the BU’s market performance, but which are coordinated through a CTO to ensure architectural cohesion, strategic planning, talent acquisition & development, and knowledge sharing, that same model could easily be applied to design—and other functions, within these larger companies.
But again, perhaps McKinsey doesn’t feel there is money to be made in actually solving the problem but there is money in continuing to treat its symptoms.
As always, please feel free to share your thoughts.
(please note, all posts are moderated for appropriate content)
