SME stands for Subject Matter Expert. It means that you have extensive experience doing tasks in a particular field. The question is “If you are looking for a designer, should you try to find one that is also a SME for the target domain?” The answer may seem counter-intuitive, but experience doesn’t help, it usually hurts a design.
Every single thing I have ever designed in my career has been a new domain to me. Designing a product or website has little to do with the things the product is doing and everything to do with what the people using it are doing. Design is about people, not about product or domain expertise.
You do not need to be a project manager to design great project management software. You need to have empathy for project managers and you need to learn the scope and purpose of the functionality you are building. Great designers can learn domains pretty quickly. More importantly, designers should be used as fresh eyes for the domain. Additionally, having fresh eyes for the target audience is critical. Designers don’t (shouldn’t!) make assumptions about the target audience. This is why we do personas and research.
When you “know the industry” you will skip these steps and often design the same old thing everyone has already experienced.
Take the domain “marketing automation” as an example where I have extensive experience having previously designed a system from scratch. Let’s say someone was starting a new company for that industry. If they hire me, it would be a mistake. I don’t have fresh eyes anymore for that field. I would probably design the new system much like the old one. If you want to build something new and different, you need to hire someone who doesn’t have subject matter expertise coming in. Fresh eyes are more important than the couple of weeks/months it takes to learn a domain.
Sometimes people think “passion” about the domain is required for great design. I would say the opposite is true. You need to be able to overturn sacred cows. Having empathy for the user base requires a calmness of mind and objectivity that comes when you aren’t a huge fan. I would never hire a life-long gamer to design my gaming website. I want someone who isn’t passionate about games. They will be able to see something new and different.
This may seem counter-intuitive to most people. I understand that. People want to believe that previous experience about the domain will yield better design. I understand the psychology of why instinct takes us there. Unfortunately, it just doesn’t pan out that way in practice. If you want to do something “the same”, then SME helps. If you want to do something “different”, then you need to be able to break out of the box with fresh eyes.