(Update September 2018: I’m gradually appending M&A transactions since this article was published, listed as comments at the bottom of the page. There have been at least 19 in the 36 months since first publication – feel free to add your own in the comments section.)
User-centred design is becoming a magnet for capital investment. Traditional consulting firms are acquiring design agencies as strategic assets, venture capital firms are appointing partners with design backgrounds and big brands are acqui-hiring design teams to expedite their own digital ambitions.
This new importance attached to user experience has implications for all in the MEX community, whether you own an agency or you’re leading an in-house digital team at a big brand.
Louisa Heinrich, founder of agency Superhuman and previously Head of Strategy for Fjord, described the current climate: “Not only are there a lot of interested buyers out there, but I suspect that, though they won’t say so publicly, a lot of agencies are actively looking to sell.”
For me, it has meant most of my recent meetings with agencies, brands and investors have been focused on permutations of the same question: “Is it possible to buy a sustainable engine for user-centred design and should we try?”
I listen to management consultancies who want to know how they can become more like user experience agencies. Then I talk to user experience agencies who want to know how they can evolve into management consultancies. They’ve been casting envious glances at each other from afar for some time and many are now preparing to invite the other to the dance.
The elusive and intangible asset at the heart of this increasingly intense and competitive flow of deals has many guises: some call it user experience, while to others it is ‘design thinking’ or simply ‘design’. Few can define it, but many want a piece of it.
However, when you strip away the terminology, there is a unifying objective. A wide range of companies are recognising that the ability to understand human behaviour and use that knowledge to guide the development of new technology is a source of competitive advantage. This capability can have an exponential effect on commercial success. Implemented at scale, this ‘design’ effect can represent gains of billions in start-up exit valuations for or hundreds of millions in improved professional services fees for consultancies.
The market is moving. In the last year alone, management consultancy Ernst & Young bought Seren, systems integrator Wipro bought DesignIt and Adaptive Path was purchased by a bank, Capital One. Meanwhile, Accenture marked two years since its acquisition of digital pioneer Fjord by announcing plans to expand to a total of 17 international studios and increase headcount by 30% in the next year.
In Silicon Valley one of the most well known VC firms, KPCB, hired John Maeda, formerly president of the Rhode Island School of Design. Since then several more high profile VCs have followed, appointing experts in user-centred design as partners and advisors. Earlier this year Pinterest, a poster child for ‘designer-led’ start-ups, raised $367m at an $11 billion valuation, Facebook bought agency Teehan Lax and Google bought Gecko in 2014. KPCB’s Maeda has chronicled these developments in a widely shared presentation and blog post of his own – #DesignInTech.
It is a very different climate to 10 years ago, when I launched MEX as an initiative to champion best practices in digital user experience design. In 2005, we had to first convince a diverse constituency of device, software and services companies why user-centred design should even matter to them. It was only then we could begin in earnest our ongoing efforts to improve its methods through events, publishing and advisory work.
However, some things have remained constant: the nuance of the user-centred design process – and how it is positioned within an organisation – are critical to its effectiveness. With companies beginning to put their money where their mouths are, and make significant capital investments in user experience skills, the management of its implementation is becoming more important than ever.
As competitors inevitably copy each others strategies, a great deal of money will be wasted acquiring user-centred design agencies over the next few years only to see their effectiveness diminished by poorly thought out integration strategies.
“There is no doubt buying a ‘UX’ firm is a nice sexy growth strategy for the senior teams of management consultancies,” confirmed Gus Desbarats. “The bigger issue is whether this adds adds value for the talent and clients.”
A good user experience agency functions as a sustainable engine for creating new ideas. It does this by motivating a team of talented individuals to observe human behaviour, make tangential leaps in understanding what that behaviour really means and applying that knowledge to make better design decisions. Done right, it is a process with the potential to transform existing businesses and maintain competitive advantage.
Gus Desbarats stated: “‘Design thinking’ isn’t enough, it needs to be connected to ‘design doing’.” He continued: “While UX excellence requires a strategic ‘service layer’ overview, it also require deep, deep attention to detail. The whole point is that you don’t stop at workshops and Post-it notes. UX consultants need to roll up their sleeves and go in to the operational bowels of the client organisation to really get things done. It’s a role that requires innovation leadership skills from even quite junior consultants. This can be hard to nurture in very large, multi-tiered organisations.”
It is easily mismanaged, notably by an unwillingness to invest in its strategic importance for the long-term and by mistaking it for a separate function which can be placed in a non-core corporate silo like the ‘design group’ or the ‘innovation hub’.
It’s no coincidence that the ‘Aha!’ moment for management often comes when they realise user-centred design isn’t something exclusively for people with a design degree or who know how to build mobile apps; at its heart, user experience is just good business sense: investing in your ability to stay ahead of customer needs. If you’re intent on acquiring in the carefully honed practitioner skills which good user experience agencies espouse, they need to be put to work at the heart of the business.
The challenge is to sustain the culture of ideas – the hallmark of great agencies – during the acquisition. Sofia Svanteson, founder of agency Ocean Observations, stressed the importance of this: “You’re buying a culture; a way of working together to solve problems and coming up with nifty solutions. This culture is made up of people, their abilities, experiences and knowledge. The major question is: would this culture survive after an acquisition?”
Furthermore, Svanteson believes the combined entity must find ways to become greater than the sum of its parts: “You must ask: would the acquired agency be able to maintain innovative working practices, and would they be allowed to spread throughout the organisation? Another aspect is about learning from each other – does each party value what comes with the new entity? Going back to 1997, when I was working at companies like Razorfish, I saw both successful and unsuccessful acquisitions. My belief was that the successful ones included companies sharing a common vision, how to reach it and why one should move in that direction.”
Louisa Heinrich described the paradox facing larger companies which acquire smaller digital agencies: “Culture can be very difficult for a corporate to replicate, which is why creative teams are often housed separately from the rest of the business. But if all that design thinking is kept separate from the core business, is the core business reaping the full benefit? I’ve seen lots of clients build or acquire in-house agencies, but that isn’t enough to embed design thinking in the organisation. The teams often become demoralised because they no longer trade in ideas; they become a production house for whatever the business teams bring them.”
A variety of scenarios are likely to play out in the near future:
- Professional services firms acquiring design agencies to meet demands from existing clients for greater digital expertise and to cross-sell other services. e.g. Ernst and Young’s purchase of Seren and Accenture’s acquisition of Fjord.
- Major traditional brands acqui-hiring agency teams to boost their in-house digital skills, e.g. Capital One buying Adaptive Path and BBVA buying Spring Studio.
- Tech industry companies acqui-hiring agencies to solve talent shortages, e.g. Facebook acquiring Teehan Lax.
- Large marketing services firms acqui-hiring to expand their digital teams, e.g. WPP buying Effective UI.
- Small and medium-size agencies merging to achieve competitive scale or add specific capabilities, e.g. digital agency Foolproof buying industrial design boutique Knit.
Each of these holds the potential for success and failure, with the benchmarks depending more on the intangible nuances of integration than on a predictable formula of industry type, headcount or office location.
Last year I wrote a MEX framework for building agencies capable of sustaining good quality user experience work. It placed primary importance on nurturing a culture and engine of idea development, spanning client work, independent thought leadership and open engagement with the wider user experience community. I stand by the assertions of this piece and, in particular, would highlight the 4 questions it posed.
I asked those running agencies to consider how someone joining their organisation today might perceive it:
- If you were joining the agency as an employee today, would you see it as a place where your creativity will have a public profile outside of day-to-day client work?
- Where do the ideas – life blood of the agency – come from? Does it actively monitor the quality and variety of idea sources, from encouraging employees to diversify their interests on company time, to reviewing the way in which it records, develops and re-uses ideas generated during day-to-day work?
- Is someone in the company dedicated to nurturing ideas and developing new channels for their use? Are they represented at board level?
- If the agency continues working the way it is today, what will its legacy of ideas be in 20 years? Will its reputation extend beyond tactical client work and stand for something more?
As capital investment in user experience increases, we are entering a period when there will be multiple exit routes for valuing an agency’s ability to connect good design with good business. These 4 questions can help to clarify paths to long-term quality, whether as an independent business or as a more attractive acquisition target.
With thanks to Gus Desbarats, Louisa Heinrich, Sofia Svanteson and several others in the MEX community who made valuable, anonymous contributions to the research for this piece.