What’s the R-number in your business? Part I
21st Club Co-Founder, Rasmus Ankersen, provides his thoughts on finding a metric that detects your problem before it becomes too late to fix
17 years ago Michael Lewis published his bestselling book Moneyball in which he described how Oakland Athletics used statistical models to achieve a competitive edge. Through statistical analysis Oakland Athletics learned that one stat – on base percentage – was superior at predicting how many runs a player would score in the future, and ultimately it allowed the team to identify undervalued baseball talent.
Fast forward to 2020, and we are currently facing another lesson in how to use statistics. 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. I guess you could say that the R-number is to pandemics what on-base-percentage is to baseball. 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 I guess the remaining question is: What is the R-number in your business?
Rasmus Ankersen is a 21st Club Co-Founder, as well as Co-Director of Football at Brentford FC and Chariman at FC Midtjylland