McKinsey & Company Acquires Lunar, One Of Silicon Valley’s Oldest Design Firms

Lunar, a design firm that has spent 30 years creating everything from game controllers to genetic sequencers to ice cream scoops, has been acquired by McKinsey & Company, the mammoth business consultancy that did $8 billion in revenue in 2014. It’s McKinsey’s first acquisition of a design firm.

“They’re hoping to bring design forward to strategy, because it’s such an essential tool to create competitive advantage these days,” says Lunar president John Edson.

The acquisition comes at a time of major change for both independent design agencies and large corporations. Traditional, spreadsheet-driven business services are increasingly investing in design. Last year, IBM budgeted $100 million to hire designers and build out its design fluency, all to be able to offer design services as part of its business consultation. At the same time, independent design agencies are being snapped up left and right by companies that recognize the business value of design. Recently, the Chinese communication group BlueFocus acquired Yves Béhar’s Fuseproject, and the banking giant Capital One bought Adaptive Path. As more businesses understand the role design can play shaping their strategy, acquisitions, such as McKinsey’s of Lunar, will only become more common.

McKinsey approached Lunar, a mid-sized firm with 75 people, in 2013. Over the course of the following year, the two companies discussed what a partnership might look like, while testing their compatibility through a few test projects. Ultimately, they decided on an acquisition for an undisclosed sum, and an arrangement where Lunar’s four offices in San Francisco, Chicago, Munich, and Hong Kong will continue to operate as usual and serve existing clients. The main difference now is that Lunar will take on McKinsey client projects, and also sit in on McKinsey’s consultation practices—even helping clients build out their own internal design practices.

In return, Lunar gets access to what Edson calls “a nice potential pipeline” of traditional design consultation work. Lunar has enjoyed a steady stream of work over the years and won prominent accolades—in 2014, it received the National Design Award for product design—but the business of independent design has shifted. Many large companies that once patronized, or would patronize, design agencies have started bringing design talent in-house, which means fewer projects for those agencies. Smart Design, one of Lunar’s peers, closed its San Francisco office recently due to lack of work. “Running a medium-sized design firm isn’t for the weak of heart. It’s an ongoing challenge,” Edson says. “From the business angle, we think a lot about where the next project is going to come from.” McKinsey will give Lunar stability and client leads—in essence, a way to grow the Lunar brand—and Lunar, in turn, will give McKinsey more in-house design expertise.

The question, of course, becomes whether or not Lunar can retain its creative freedom working under a big organization. “Maintaining that heritage is an important part of keeping the culture of the firm intact,” McKinsey partner Derrick Kiker says, “and we don’t see any reason it needs to change.”