Monday, 24 January 2005 | Levent OZLER
The Impact of Design on Stock Market Performance
An Analysis of UK Quoted Companies
Foreword
Design is a critical component of business performance. We've heard designers, commentators and companies say it. But, to date, the evidence for the link between shareholder return and investment in design has been scarce and anecdotal.
Companies the world over spend billions every year on design, from product development and packaging to web design and branding. The UK's design capability puts it at the forefront of global expertise. Yet the business case for design needs to be made with increasing confidence and precision. Companies need to justify investment in all business activities, and measure their individual impact on productivity and profitability.
Over the last few years the Design Council has undertaken a programme of research to analyse the impact of investment in design on the stock market performance of UK publicly listed companies. The results of that research could not be clearer in proving that those companies that effectively use design outperform their peers.
With a research universe of 166 design-led companies, tracked over ten years, we have seen an outperformance of 200% against the FTSE 100 and FTSE All-Share. This adds to the growing evidence that design measurably improves company performance. For the financial community, it offers a new way of looking at investment. And for business managers and designers alike, it provides the business case that is needed in an increasingly rigorous business environment.
David Kester
Chief Executive
Design Council
Overview
The Design Council has recently completed an analysis of the performance of UK FTSE quoted companies over the last ten years, between 1994 and 2003, encompassing a long bull market period, from March 1995 to March 2000, the bear market period from March 2000 to March 2003, and the more recent recovery period.
The key finding of the study is that a group of 63 companies identified to be effective users of design outperformed the FTSE 100 index over the full period by 200%, and also beat their peers in the recent bull and bear markets. A number of prior studies have been undertaken around the world but all have been limited in their methodology or scale (see Appendix 1). We believe that this study offers the first conclusive evidence for the relationship between the effective use of design by corporates and an improved share price performance and therefore greater shareholder returns.
The companies in this study were selected principally on the basis of their being nominated for and winning design-related awards. The companies were grouped into two portfolios - the 'Design Portfolio' and the 'Emerging Portfolio' - comprising, respectively, high and lower scorers in terms of the number of awards won by each company and therefore the effectiveness of their use of design. The chart below summarises the performance of these two portfolios over the ten-year period of the analysis.
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