The cost of not innovating
On my travels around the region, I meet all kinds of CEO’s, conservative, dynamic, aggressive, visionary... but one theme is constant amongst them all - and becoming increasingly common, it is of course the downward pressure on budgets. How often have we heard our clients say they ‘can get work done more cheaply locally?’, or ‘by using an inexperienced local consultant they can save money?’ In this article, I will explain why thinking this way is crazy.
CEO’s are employed to take responsibility for the stewardship and growth of a business. Normally, they report to a Board of Directors who are responsible for presiding over the best interests of the businesses and shareholders. Part of the role of any CEO and Board is to invest the companies capital wisely, to deliver growth - a positive return. It therefore confuses me that CEO’s are not asking the following question before choosing their consulting partner:
‘What is my consultant’s track record in delivering a market busting return on investment (ROI), and how, if I employ them, will that impact on my business.’
Consultants are to blame
As consultants, we have allowed our clients to jump to the cost argument first. How often do we make presentations that feature beautiful visuals, stunning graphics and video, referral letters from CMO’s etc. that leave our clients speechless, stunned by the visual feast they have just experienced? I suspect very often...
How often do we get down to brass tacks and show how, in numbers, our work really impacts on business by delivering a stunning return on investment? I suspect very rarely.
My point is this, that in order for us to help CEO’s value consulting services we, as consultants have to be rated on our business performance - how much money our work makes for our clients.
The design industry is famous for being vague about the return on investment of it’s services, and it may be easy to understand why. It is actually quite difficult to measure design effectiveness in an ever changing world. Or is it?
The big consultancies like McKinsey and Accenture talk numbers... ‘can your business really miss out on an opportunity to work with us?’ and as a consequence, based on a track record of delivering commercial results, they win the big contracts.
Innovation in Numbers
Let’s take a look at retail and brand design for a moment and see how the McKinsey and Accenture model could be mimicked. I will use the company I work for, Allen International (‘allen’) as an example. Allen have been in business for over 20 years and during that time, they have achieved many firsts. In retail design for example, on average, they increase their clients revenue by 35%. That means that after allen have completed their work, clients can expect a 35% increase in revenue. Let’s just take that figure and do some maths:
Average Annual Revenue = 20m
Average Annual Profit (@15%) = 3m
Average Design and Implementation cost = 1.5m
Apply an average 35% increase in revenue to these numbers:
Average Annual Revenue after design = 27m
Average Annual Profit after design (@15%) = 4.05m
Therefore, in this example, it will take just 18 months for an allen designed retail space to break even. This is excluding other ‘soft’ business benefits.
With the average shelf life of a retail space being 4 years, surely investing in innovation is a non-decision and, based on allen’s 20 year track record, every CEO can expect and almost guarantee a market-busting return on investment.
I have been in this business for over 20 years, during which time I have never been asked by a CEO to discuss return on investment in design this way... and I want to.
Each and every consultant in our business should be measured on performance - based on business metrics. Rather than asking us to produce meaningless beauty pageant creative pitches, upon which to base important business decisions, I would like to see businesses asking consultants like us ‘what is your average ROI?’, ‘what is the industry average?’, and ‘how does your consultancy perform against this?’ - I am convinced that by thinking this way business will deliver better results and agencies will deliver better work.
Let’s introduce a new phrase into our vocabulary - ‘Performance Design’