Innovation at Scale, #6: Efficiency = fragility

Designing systems for efficiency means weaker resilience. Can innovation help?

Mar 25, 2020

“Predicting rain doesn’t count, building an ark does.” - Warren Buffett

There are three different kinds of supply shortages happening in most western economies right now. One is related to your everyday shopping, another is for medical supplies, and a third is a shortage of overall capacity in the medical system.

All three are the direct result of the quest for efficiency, and the tradeoffs that must be made to build efficient systems. But are they solvable by “innovation”?

The Three Shortages

The first kind of shortage is for everyday household goods. It’s tough to find a store that has pasta, rice, or toilet paper in stock, and these shortages extend (to a lesser extent) to online delivery services as well.

The second shortage is for medical gear and Personal Protective Equipment (PPE). PPE includes things like N95 masks and nitrile gloves; the medical gear shortage extends to ventilators and other medical equipment.

The third shortage is the limited availability of overall medical capacity. This is an absence of long-term infrastructural capacity.

These three shortages have different causes, many of them operational. For each, we can ask: “Can innovation help solve the problem?”

The Household Goods Shortage

“So this isn't anti-social idiots stockpiling canned goods: it's every household adding £5 or £6 to its weekly shop. It's happening to a highly-calibrated supply chain that can replenish daily – because *there is no shortage* – but just can't keep the shelves full during the day.”

That’s from a great thread on this, from the UK perspective, by Greg Callus.

I think he’s mostly right — the concerns are mostly not about underlying supply shortages, but about last-mile distribution, immediately available inventory, and the cadence of replenishment. These are symptoms of an effectively optimized supply chain, and its inability to react when underlying demand experiences even “small” shifts.

For an optimized, scaled, well-understood business, a 10% rise in demand is enormous, and generally too much to account for. If your system has enough slack to absorb a 10% rise in demand, then you’re leaving profit on the table by paying for unnecessary capacity. Callus again:

If you operate a Tesco Metro in Central London, you don't (a) carry excess stock (just exactly right amount based on models): wasted working capital
(b) rent very expensive premises with larger stock rooms than you need when stock-minimisation & just-in-time replenishment is part of the financial model that makes it profitable at all. That entire model for all supermarkets is based on predicable and modelled seasonal demand.

So the problem is that, in order to reach optimal efficiency, what’s been cut is the system’s *flexibility*. Any system redesigns would need to make sense over the long term, which might or might not make sense as the crisis unfolds. It may be that the current system is mostly good enough, and consumers will face some last-mile shortages. To change these systems probably means choosing to add slack back into the system. The tradeoffs between resilience and efficiency might be made differently, but these will be made at the intersection of operations and commercial logic.

The Medical PPE shortage

The shortage of medical protective equipment (masks, et al), on the other hand, is one of supply. We haven’t produced enough of these items to sustain a response to a major pandemic. I don’t wish to blur the line between innovation and disaster-readiness too much, but to meet the current requirements will likely require a transition of existing production infrastructure towards producing these products.

For example:

These transitions require changing the production lines and changing the distribution channels for the new products, but both of these changes are well understood. These aren’t innovation challenges as much as operational challenges.

The Medical Capacity Shortage

There aren’t enough ventilators. There (probably) aren’t enough ICU beds.

The ventilator problem looks a lot like the PPE problem - it is tied directly to capacity as a matter of hardware production and distribution. We can solve it in similar ways. Until we do, doctors may face some very hard decisions about the allocation of scarce resources.

Actual capacity problems (like insufficient availability of ICU beds) might require technical invention, to find ways to rig up alternative solutions. These might be hard capacity constraints, on a short time horizon. Solving these would likely require the deployment of state capacity to quickly build new hospitals or recommission other public spaces as intensive care units. While this looks to some degree like a hardware production problem on a larger scale, it will likely require a level of policy and regulatory engagement and/or public expenditure to kickstart.

How Innovation can help

Innovation expertise can accelerate the pace of solving these problems. It will require partnering with expertise in logistics, operations, production, and medicine to solve these problems. That partnership can be extremely valuable as decisions get made. Innovation best practices can accelerate the pace of learning and deployment, and the feedback loop to ensure that the solutions meet the needs of the key people who should benefit.

Most importantly, the kinds of people who work on Innovation are often system-focused problem solvers, who can tie together the expertise of others into proposals that can move things forward. Innovation thinking — Design thinking, Lean Startup thinking, Zero to one thinking — can play a significant role in developing the best proposals and finding ways to quickly launch pilots, learn, and deploy revisions. We need these processes to get to the right answers faster than we otherwise could.

Reading List

Each week, I'll include links to articles, books, or podcasts related to corporate innovation, that can help you accelerate the knowledge and progress of your teams.

One of the best articles I’ve read recently, on any topic: What the Challenger Shuttle Disaster can teach us about bad launches. Highly recommended, for anyone who is thinking about launching new projects inside a larger organization.
Some examples of people quickly accomplishing ambitious things together, via Patrick Collison, the CEO of Stripe. Most of these are truly massive infrastructure projects or great technological leaps. My favourite example: during World War Two, Lockheed delivered the XP-80 to the US Air Force 143 days after starting the design process. Read that again. 143 days. (I’ll have more to say about the original Skunk Works in a future post)
The World Needs Designers Now More Than Ever by Scott Berkun. Closely related to the theme of this week’s newsletter, Scott talks about design as an important part of progress toward solutions to our key problems:
“It’s only when things fail that we start to ask questions that perhaps we should have considered all along. Design questions. What were the goals? What tradeoffs were made? How could this fail (or have been designed to be more resilient?)”
In practice “Innovation” and “Design” are closely related, and the boundaries between the two are often fluid. Depending on the environment, both “design” and “innovation” are strategic, commercial, customer-centric, and own the business outcomes of projects. What you call it is up to you.