• Rasmus

My reflections on metrics that help you detect the problem before it becomes too late to fix

Over the past three months we’ve seen politicians presenting statistical charts in prime time. Who would have thought that? We have become familiar with a wide variety of corona metrics and been taught concepts like exponential growth, rate of transmission and predictive modelling that are usually limited to statistics courses at universities. 

In particular one corona metric has seemed to stand out from the crowd. It is the so-called R-number, which has been at the core of how prime ministers and governors have explained their corona-strategy to the people. The R stands for reproduction and is the number of people one infected person will pass the virus on to, on average. Keep the number below 1, and the outbreak is under control. Allow it to rise above 1, and you will soon face a big problem.

When I first heard about the R-number a few months ago it made me think of the famous canary intervention, pioneered by the Scottish physiologist John Scott Haldane about 100 years ago to save the lives of coal mine workers. In those days many workers died from carbon monoxide poisoning caused by firedamp and coal dust explosions in the mines. The poison gasses had no smell and would therefore build to deadly levels without the coal mine workers noticing. 

Haldane’s idea was to equip workers with canaries when entering the mines. The anatomy of canaries is quite unique in the sense that it allows them to get a double dose of oxygen, one when they inhale and another when they exhale. That’s why John Scott Haldane believed they were the perfect early detectors of carbon monoxide in the mines. For every time humans would inhale a dose of toxic gasses canaries would get a double dose, fall of its perch and that would be a signal for the coal mine workers to evacuate. The canary intervention saved many lives.

I guess you could say that the R-number is designed to do the same job for us as canaries did for the coal mine workers: detect the danger early so we can change our behaviour before it is too late. Because there is a time delay between the reproduction number rising, people being hospitalised and some dying the R-number enables us to be on the front foot and change before the problem spins completely out of control. 

I believe every business should have its own R-number. Think about it this way; within organisations there is also a time delay between cause and effect. Your outcomes in April are not the consequence of something you did in April. In some businesses the time delay is days, in other businesses, depending on its size and complexity, it can be months and even years before your underlying performance impacts your results. 

Let’s say you run a restaurant and you’ve identified the metric "time from order to delivery" as a key driver of customer satisfaction which again drives profitability. If "time from order to delivery" starts to drops off it might not show up in your customer satisfaction score straight away but over time it will, and at that point the damage has probably already happened because your customers had enough and have decided to go eat somewhere else. 

However, having identified "time from order to delivery" as a key metric is what allows you to detect and fix the problem before it pops up on your financial statement. That’s exactly what a good R-number does, it helps you confront the need for change before it become obvious. 

Having spent time with many leaders in many different industries I think that businesses are generally too focused on outcomes and not paying enough attention to the metrics that actually drive the outcomes, and as a consequence they become too reactive. For example, about 10 years ago Starbucks almost went out of business because the management team had become obsessed with the company’s stock price and especially how many new stores it opened during a quarter. It completely overlooked that one of the key underlying metrics had started to drop off. Many customers who use to come in twice a day had stopped coming in for their afternoon treats. Starbucks didn’t take notice, and when the problem became obvious and the stock price dropped 42% in one year it was almost too late to change. 

So here is the question we should all consider: What is the R-number in your business?

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  • Rasmus

What the corona crisis is teaching us about innovation

If you want an example of how innovation looks like then keep an eye on what happens at 3 pm on Monday at this car park in western Denmark.

This is MCH Arena, the home FC Midtjylland, my childhood football club where I am lucky to be the Chairman. On Monday we’ll be playing our first game in the Danish league post lockdown, and it will be a special one. Because of the ban on mass gatherings there won’t be any spectators inside the stadium, but there will be +2000 cars filling our mega car park watching the game on huge screens outside the stadium. The fans can tune into the TV commentary through their car radio, and live footage of the car-park will be screened inside the arena to enable players to feel the fans’ presence.

This will be the world’s first ever drive-in football experience. It was sold out in 10 minutes, and broadcasters from all over the world are flying in to cover this world premiere.

So why this story? Because it offers a sometimes forgotten lesson on how innovation actually grows.

The drive-in football idea was born a few months ago, shortly after the Danish prime minister imposed a national lockdown because of the corona virus. To the football industry that meant an immediate freeze of all revenue streams. No more football games in the foreseeable future and no fans in stadiums for a long time.

While this outlook seemed depressing in every imaginable way it was at the same time what drove our marketing team at FC Midtjylland to ask themselves questions that would otherwise never have been asked. Questions like: How do you turn football behind closed doors into an experience you just can’t miss? What unique assets do we have that allows us to create such an experience?

As you might have noticed on the picture above we have parking facilities in abundance right outside the stadium, primarily because there is a big exhibition centre next door. Up until this point we’ve mostly seen this as a liability. The fact that the arena is located relatively far from the city centre has felt like a barrier for people to come here to watch live football. No one can walk to the games, few people cycle there. But as soon as our marketing director floated the idea of drive-in football the parking facilities suddenly became an asset. As pretty much no football club has more parking spaces than us it seemed like we were actually in a unique position to deliver something the world had never seen before.

When the first ever drive-in football experience happens on Monday it will be a living example of how constraints can drive innovation. You will find plenty of example of that in other industries. My favourite one is Southwest Airlines and their famous 10-min-turnaround. At one time it was impossible to make money in the airline industry, but then Southwest Airlines came around and has consecutively generated a profit for the past +40 years.

The success of Southwest has a lot to do with their ability to turn around an aircraft faster than anyone else. Fast turnarounds are very valuable from a business perspective because airplanes only make money in the air, not on the ground, and with a world record of 10 minutes to unload, clean and reload the 137-passenger Boeing 737s, Southwest's turnaround time was about half of what most other airlines manage. How was this competitive advantage born?

Again, constraints.

Back then, in the early days of the company, Southwest Airlines was on its way out of business and had to sell one of its four planes in order to survive. With one plane less in the fleet the only way they could avoid cutting back their schedule were to reduce their turnaround times. Changing the tires, checking the oil, and getting the plane turned around, all in ten minutes. Considering most airlines took almost an hour to turn a plane around it sounded like mission impossible, but Southwest employees went beyond their normal duties to make it happen. Even pilots chipped in by cleaning the cabin.

The 10-minute turn became a real competitive edge for Southwest Airlines, and the year after its introduction the company posted its first profit and has been profitable every year since.

Like drive-in football in Denmark, the 10-min turnaround was fuelled by tough circumstances and constraints forcing Southwest to ask themselves a question that would never had been asked if they would have had lots of time, money, people and resources.

I think both examples provides a strong counter-argument to all the companies believing that innovation grows from fancy office design, blue sky thinking sessions or the famous Google idea about allowing employees to spend 20% of their time working on whatever they want. My experience is that if you give a team the full time they ask for, or the full budget they want, or the full number of people that they say they need, those teams will rarely execute anything of significance.

Resources don’t inspire innovation as much as scarcity does. In fact, too much resource often kills innovation. That’s why many companies lose their innovation edge when they become successful. With success come more employees, more cash, and more market power, and that makes executives intellectually lazy. When you throw a lot of money at something you don’t need to throw as much brain power at it.

This is one of my key take-aways from the corona crisis. Often we try to create the perfect conditions for innovation by removing constraints so creativity can flow freely. But maybe we should do the opposite, deliberately adding constraints and obstacles to inspire the questions that leads to innovation. Hope to see you for drive-in football in western Denmark on Monday.

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