The Total Economic Impact Of IBM’s Design Thinking Practice

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A Forrester Total Economic Impact StudyCommissioned By IBMFebruary 2018The Total EconomicImpact Of IBM’s DesignThinking PracticeHow IBM Drives Client Value AndMeasurable Outcomes With Its DesignThinking Framework

Table Of ContentsExecutive Summary1Key Findings1TEI Framework And Methodology3Isolating IBM Design Thinking’s Business Impact4Design Early, Design Right4Design Thinking’s Value Proposition5What This Study Is . . . And What It Is Not5Voice Of The Market6Survey Respondent Demographics6Awareness Of IBM’s Design Thinking Practice7Maturity Of Design Thinking Practices8Drivers Of Adoption9Instrumenting Change10Business Impacts11Perceptions And Looking To The Future13IBM’s Client Journey14Interviewed Organizations14Key Challenges14Engaging IBM15Key Results15Modeling The Composite Organization16Per-Project Financial Analysis17Reduced Design Costs19Reduced Development And Testing Costs20Reduced Maintenance Costs21Increased Profit From Faster Time-To-Market22IBM Design Thinking Costs Per Project23Composite Financial Analysis24Faster Project Design And Development24Reduced Risk And Increased Portfolio Profitability25Streamlined Organizational Process Efficiency27Unquantified Benefits29Flexibility30Project Design Thinking Costs31Design Thinking Education And Advocacy31Design Thinking Employee Training32

Financial SummaryAppendix A: Total Economic ImpactAppendix B: Calculation Tables343637Per-Project Benefit Calculation Tables37Per-Project Cost Calculation Tables40Composite Benefit Calculation Tables41Composite Cost Calculation Tables44ABOUT FORRESTER CONSULTINGProject Director:Benjamin BrownForrester Consulting provides independent and objective research-basedconsulting to help leaders succeed in their organizations. Ranging in scope from ashort strategy session to custom projects, Forrester’s Consulting services connectyou directly with research analysts who apply expert insight to your specificbusiness challenges. For more information, visit forrester.com/consulting. 2018, Forrester Research, Inc. All rights reserved. Unauthorized reproductionis strictly prohibited. Information is based on best available resources.Opinions reflect judgment at the time and are subject to change. Forrester ,Technographics , Forrester Wave, RoleView, TechRadar, and Total EconomicImpact are trademarks of Forrester Research, Inc. All other trademarks are theproperty of their respective companies. For additional information, go toforrester.com.

Executive SummaryBenefits And CostsIBM’s Design Thinking practicecuts costs by acceleratingprojects: 20.6 millionDesign thinking places end users at the center of the design process andenables teams to collaborate and work more efficiently. IBM leverages thisframework in their Design Thinking practice across its diverse portfolio ofproducts and services to help clients reduce costs, increase speed, anddesign better solutions. IBM commissioned Forrester Consulting toconduct a Total Economic Impact (TEI) study and examine the potentialreturn on investment (ROI) enterprises may realize by engaging IBM’sDesign Thinking practice. The purpose of this study is to provide readerswith a framework to evaluate design thinking’s potential financial impact forboth individual projects and a grander organizational transformation.To better understand the benefits, costs, and risks associated with thisinvestment, Forrester interviewed four of IBM’s Design Thinking clientsand surveyed an additional 60 executives who have employed designthinking at their organizations, some with and some without IBM. Theseorganizations turned to design thinking to address a variety of challenges:› Refine business strategy to invest in solving the most promisingopportunities while mitigating the risk of bad investments.IBM’s Design Thinking practicereduces risk and increasesportfolio profitability: 18.6 million› Remedy an inhibiting ‘No’ culture by energizing and empoweringemployees to think creatively without fear of failure or retribution.› Design better products to improve customer experience (CX) and sales.› Speed up sluggish project design and execution.› Streamline burdensome processes to reduce overhead.Interviewees found that IBM’s Design Thinking practice successfullypartnered with their organizations to address these challenges andenhance culture, speed, efficiency, customer experience, and profitability.Key Findings2xFaster time-to-market75%Reduced design time33%Reduced development timeQuantified benefits. The following risk-adjusted quantified benefits arerepresentative of those experienced by the organizations interviewed:› Project teams doubled design and execution speed with IBMDesign Thinking. Profits from faster releases combined with reduceddesign, development, and maintenance costs to deliver 678K per minorproject and 3.2M per major project, for 20.6M in total value. Organizations slashed the time required for initial designand alignment by 75%. The model demonstrates cost savingsof 196K per minor project and 872K per major project. Project teams leveraged better designs and userunderstanding to reduce development and testing time byat 33% This equates to cost savings of 223K per minor projectand 1.1M per major project. IBM’s Design Thinking practice helped projects cut designdefects in half. Projects were more successful in meeting userneeds, thereby reducing design defects and subsequent reworkto save 77K per minor project and 153K per major project. Faster time-to-market enabled increased profits from netnew customers and the higher present value of expectedprofits. Faster time-to-market increased profits by 182K perminor project and 1.1M per major project.1 The Total Economic Impact Of IBM’s Design Thinking Practice

› Human-centered design improved product outcomes, reduced therisk of costly failures, and increased portfolio profitability. Refinedstrategic prioritization enabled investments in solutions that were lesslikely to fail. Better design increased average product profits. IBM helpedexpand design thinking at the organization over three years to penetrateone quarter of the entire portfolio, enabling 18.6M in increased profits.ROI301%Benefits PV 48.4 million› Cross-functional teams collaborated to share problems and findsolutions, reducing costs by 9.2M in streamlined processes.Survey Highlights. Data from sixty survey respondents provided thefollowing notable insights:› Improved collaboration and business strategy drove increased customerexperience and sales, streamlined processes, and reduced project labor.NPV 36.3 million› 52% of survey respondents associated IBM with design thinking.› 72% of IBM clients utilize design thinking in most or all teams.Unquantified benefits. The interviewed organizations experienced thefollowing benefits, which are not quantified for this study:› Encouraged an empowered, engaged, and happy workforce.› Enhanced KPIs such as UI, UX, CX, NPS, and brand energy.› Perfected internal processes for HR, sales, and beyond.Costs. The interviewed organizations experienced the following riskadjusted costs:› Internal labor and IBM fees for projects totaled 6.8M, driven by distinctcosts of 159K per minor project and 1.5M per major project.› Transformation costs reached 5M in IBM resources and internal labor.› Training incurred costs of 218K in IBM facilitation and internal labor.Forrester’s interviews with four existing IBM clients, data from 60 surveyrespondents, and subsequent financial analysis found that a compositeorganization based on these interviewed organizations experiencedbenefits of 48,360,958 over three years versus costs of 12,045,247 byengaging with IBM’s Design Thinking practice, adding up to a net presentvalue (NPV) of 36,315,711 and an ROI of 301%.Benefits (Three-Year)Financial Summary (Three-Year)Total benefitsTotal costsCumulative net benefits 50M 40M 20.6M 18.6M 30M 20M 9.2M 10M 0M- 10MFaster productdesign anddevelopment- 20MInitialYear 1Year 2Year 32 The Total Economic Impact Of IBM’s Design Thinking PracticeIncreased portfolioStreamlinedprofitability fromorganizationalbetter product process efficiencyoutcomes

TEI Framework And MethodologyFrom the information provided in the interviews, Forrester has constructeda Total Economic Impact (TEI) framework for those organizationsconsidering engaging IBM’s Design Thinking practice.The objective of the framework is to identify the cost, benefit, flexibility, andrisk factors that affect the investment decision. Forrester took a multistepapproach to evaluate the impact that IBM’s Design Thinking practice canhave on an organization:The TEI methodologyhelps companiesdemonstrate, justify,and realize thetangible value ofinvestments to bothsenior managementand other keybusinessstakeholders.DUE DILIGENCEInterviewed IBM stakeholders and Forrester analysts to gather datarelative to IBM’s Design Thinking practice.CLIENT INTERVIEWSInterviewed four organizations working with IBM’s Design Thinkingpractice to obtain data with respect to costs, benefits, and risks.COMPOSITE ORGANIZATIONDesigned a composite organization based on characteristics of theinterviewed organizations.FINANCIAL MODEL FRAMEWORKConstructed a financial model representative of the interviews using theTEI methodology and risk-adjusted the financial model based on issuesand concerns of the interviewed organizations.CASE STUDYEmployed four fundamental elements of TEI in modeling IBM DesignThinking’s impact: benefits, costs, flexibility, and risks. Given theincreasing sophistication that enterprises have regarding ROI analyses,Forrester’s TEI methodology serves to provide a complete picture of thetotal economic impact of purchase decisions. Please see Appendix A foradditional information on the TEI methodology.DISCLOSURESReaders should be aware of the following:This study is commissioned by IBM and delivered by Forrester Consulting. It isnot meant to be used as a competitive analysis.Forrester makes no assumptions as to the potential ROI that otherorganizations will receive. Forrester strongly advises that readers use their ownestimates within the framework provided in the report to determine theappropriateness of an investment in IBM’s Design Thinking practice.IBM reviewed and provided feedback to Forrester, but Forrester maintainseditorial control over the study and its findings and does not accept changes tothe study that contradict Forrester’s findings or obscure the meaning of thestudy.IBM provided the customer names for the interviews but did not participate inthe interviews.3 The Total Economic Impact Of IBM’s Design Thinking Practice

Isolating IBM Design Thinking’sBusiness ImpactDesign Early, Design RightIt is essential to identify, design, and build solutions that effectively solveusers’ problems. Organizations must prioritize and invest in the creativedesign process to avoid expensive delays, gain competitive advantage,deliver exceptional customer experiences, and uphold employee morale.If a team discovers recommends a redesign or pivot, the business wouldbe wise to listen; yet consequences of a change increase with everyproject phase that elapses. While some delivery models (such as agileversus waterfall development) may be more adept at handling changes,all project types and delivery models will experience increasing costs andresistance during later phases of project work.The Consequences Of Redesign As Project Phases ElapseIMPACTDESIGNBUILDTESTAFTER RELEASECosts incurred byredesign Hours to daysDays to weeksWeeks to monthsMonths, years, or never› Easily and quicklygather ideas, mock upsolutions, test whatresonates, and definestrategy.› Changes can beaccommodated withlow to medium costs,though resistancebegins to surface.› Very difficult tosocialize and getapproval for majorchanges.› Pivoting is now anentirely new projectrequiring new contracts,budgeting, prioritization,and approval.› Energizing designprocess excites andinspires employees tobe creative.› Excited employeesretain creativity asthey begin to workthrough and solveproblems.› Employees becomefrustrated by reworkand lose motivation.› Pessimism abounds asemployees opposeredoing entire projects.› Employees begin tolose faith in leaders.› Employees may havelost faith in leadership.Impact on users andthe bottom line› Discover newopportunities.› Limited risk ofproject cancellation.› High risk of projectcancellation.Prioritize and solvekey problems to growthe business› Prioritize the mostimportant projects.› Limited expense formajor changes.› Expensive to makemajor changes.› Possibility the project is‘dead on arrival,’ failing togenerate revenue.› Ensure projects meetuser needs.› Change courseearly in developmentto meet timelines.› Users must waitmuch longer forproject completion.Fail fast, fail cheapTime required toredesignBeware competitorsbeating you to marketAgility to pivotproject strategy,design, andrequirementsResistance to changegrows quicklyImpact on teammoraleEmployees startenergized, butbecome frustratedand inflexible› Maximize profitsversus costs.› Deliver great UX/CX.› Cancel projects earlyto avoid wasted costs.4 The Total Economic Impact Of IBM’s Design Thinking Practice› Underperforming sales,revenue, and profits.› Negative impacts onretention and acquisition.› Damaged brand image,UX, CX.› High maintenance andcustomer support costs.

Design Thinking’s Value PropositionDesign thinking is a framework for teams to collaborate and work moreefficiently, while placing end users at the center of the design process.Organizations achieve a variety of benefits such as the following:› Design solutions that better meet the needs of end users, to delightcustomers and ultimately increase profits.› Refine business strategy by identifying and investing in the mostimpactful user problems to reduce business risk and improve results.› Energize employees to be more collaborative, do better work, andachieve heightened job satisfaction.Why Design Thinking?›Refine strategy.› Discover redundant or wasteful processes to streamline efficiency.›Minimize risk.› Complete projects faster with reduced costs and labor.›Reduce costs.IBM’s Design Thinking framework is best known for rapidly scaling thesepractices across geographies, organizational boundaries, and projects:›Energize employees.›Improve speed.›Design better solutions.›Delight customers.› Workshops unite diverse perspectives and democratize decisions.› User research paired with sponsor user participation ensures teamstruly understand what users want and how they will use a solution.› Project teams stay in sync during outcome based ‘hills’ dotted byregular ‘playbacks’ to exchange feedback.› Accelerated visioning runs through creative possibilities quickly anditeratively to create a design and architectural project framework.Design thinking has applications in every part of an organization, andtherefore it should be of no surprise that its impact varies. Yet, the coreresults from interviewed organizations and survey respondents are clear:impressive returns versus modest costs.What This Study Is . . . And What It Is NotIBM’s Design Thinking practice extends across virtually their entireproduct portfolio, their service delivery arms, and their internal HR andCIO organizations, but the framework is consistent. In this case study,Forrester has leveraged its Total Economic Impact methodology toisolate and quantify the specific impact IBM’s Design Thinking frameworkdelivers across their products. Let’s consider what that means:› This study measures the marginal profit increases, better investments,and reduced risks that are specifically attributable to better design andfaster time-to-market achieved by customers of IBM’s Design Thinkingpractice. It does not measure the entire profit associated with a project.› This study isolates the labor costs and fees directly attributable to thedesign thinking framework such as research, workshops, acceleratedvisioning, and sponsor users. It measures the specific reduction in totaltime for design and execution that is directly attributable to designthinking, not the entire cost of design and development; in fact, it doesnot distinguish the type of project and whether the project team is fromIBM, the client, a third party, or any combination thereof.› This study measures the initial costs and efficiency benefits for theearly years of an organizational transformation that is enabled by IBM’seducation, training, coaching, and advocacy to teach its designthinking framework. It does not measure the impact of other consulting,business, or technology services that IBM may provide for a client.5 The Total Economic Impact Of IBM’s Design Thinking PracticeIn this case study,Forrester has employedits Total Economic Impactmethodology to isolateand quantify the specificimpact that is directlyattributable to IBM’sDesign Thinkingframework, agnostic of theIBM product or team aclient has engaged.

Voice Of The MarketHOW SURVEY RESPONDENTS UNDERSTAND, INVEST IN, AND MEASURETHE IMPACT OF DESIGN THINKING AT THEIR ORGANIZATIONSSurvey Respondent DemographicsTo first understand the broad perception of design thinking, Forresterconducted an online survey of 60 US-based respondents to evaluatetheir attitudes and experiences regarding design thinking. Respondentswere not in any way aware that this survey was part of a studycommissioned on behalf of IBM. The study focused on understandingorganizations’ perception of design thinking, the key challenges theyhoped to address with the framework, and the impacts they achieved indoing so. Survey respondents were represented based on the followingkey demographics:Survey respondentswere not aware that thesurvey was part of astudy commissioned onbehalf of IBM.› A range of large to very large organizations and enterprises across abroad swath of industries.Number of employees Thirty-eight percent earn between 100M and 1B in annualrevenue.50% Twenty-two percent earn between 1B and 5B in annualrevenue.40% Forty percent earn more than 5B in annual revenue.30%› The number of employees varied, though all were staffed by at least1,000 employees:20% Thirty-five percent are between 1,000 and 4,999 employees.10% Twenty-seven percent are between 5,000 and 19,999employees.0%1,000 to4,999 Thirty-eight percent are at organizations over 20,000employees.5,000 to 20,000 or19,999more› Survey respondents primarily represented IT/technology (57%),executive management and strategy (27%), and operations (13%).How long has yourorganization been usingdesign thinking?› Respondents shared high levels of seniority: Thirty-three percent at the director or executive director level. Twenty-five percent at the VP, SVP, or EVP level. Thirty-eight percent at the C-level (CIO, CTO, CEO, CFO).› All respondents had significant strategic authority at their organization,with 73% of respondents identifying that they “are the final decisionmaker for the strategic planning process” and the other 27% identifyingas an influential part of the organization’s strategic planning team.› These organizations have leveraged design thinking for at least sixmonths, broken down into the following time spans:50%40%30%20%10% Forty-five percent over two years. Thirty percent between one and two years. Twenty-five percent between six and twelve months.6 The Total Economic Impact Of IBM’s Design Thinking Practice0%6-12months1-2 years More than2 years

Awareness Of IBM’s Design Thinking PracticeRespondents were broadly surveyed to learn who they affiliated withdesign thinking frameworks. IBM was the most cited organization with52% of the 60 survey respondents associating IBM with design thinking.Further, 36% of respondents engaged directly with IBM to implementdesign thinking at their own organizations.What organizations do youassociate with design thinking?IBM52%36%72%Engaged IBM to implement designUse design thinking in most or allthinking at their organizationte

Design thinking places end users at the center of the design process and enables teams to collaborate and work more efficiently. IBM leverages this framework in their Design Thinking practice across its diverse portfolio of products and services to help clients reduce costs, increase speed, and

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