Many of you know I am a big fan of Vanderbilt Baseball. My son, Riley, was on the first Vandy team that played in the College World Series in 2011. Now they are back and doing well. So in honor of baseball, this blog is focused on a favorite baseball topic turned business concept: Moneyball.
What is Moneyball?
The book Moneyball: The Art of Winning an Unfair Game by Michael Lewis, published in 2003, was written about the management of baseball teams by applying fact-based analysis. Much to traditionalists’ dismay, it makes a convincing argument that baseball victories can be linked to specific statistics. What gets really interesting is that the ones that count aren’t the ones you think. According to the book, scoring runs is the key, so on base percentage (OBP) is the key statistic for hitters, not home runs. In fact, OBP is valued three times more than slugging percentage. That means batters who take walks, who get on base with singles, even slap hitters – not necessarily sluggers- are the real heroes of the game. Clearly unsung heroes in the eyes of sports scouts and media.
We “Ooh!” and “Aah!” over the big hit in baseball, and it is pretty to see, but not meaningful in creating consistent W’s in the win column. Yet baseball scouts recruit guys who look the part (which has no correlation to success) and drop the bomb (hit a home run). For that reason, coaches have become a superstitious lot that think luck (and bankroll) predict game outcome. What is truly amazing is that even when they have seen these new principles applied, baseballs inner sanctum is reluctant to change. Why? It runs counter to everything they have been taught as they came up the ranks and de-values the importance of their experience and subjective judgment. Could business leaders be just as “off-base”?
Moneyball in Action
What the Moneyball concept proved in baseball is that what decision-makers thought correlated with success was a product of their experience and the wrong answer (power hitters). Indeed, what mattered more was scarcely considered; in fact, by many in the business it is considered downright unmanly. No one in baseball is admired for getting on base with a walk. Many would rather go down swinging, yet that ability to get on base consistently, by any means, is the factor that leads to success.
Case in point? Just last night the ESPN commentators were talking about how badly TD Ameritrade Stadium needs to move fences in because they don’t allow for a lot of home runs. At Rosenblatt there used to be 30-40 homeruns during the Series and now there are 5-10. And yet, teams manage to win and lose all the same. You adjust the game to the playing field.
In business the playing field is in constant flux. Leaders need to learn how to play the game effectively in the current market place—not the one it used to be. Moneyball is essentially a system of using statistical data to improve performance. Sound like a game you want to play? The key is deciding what data you need, how to look at it and then what decisions it drives you to make. You don’t need to know everything. It is simply too much data. Some data is more relevant than others. In other words, not all information is created equal.
Once your organization is committed to studying the stats that drive performance, the first challenge is defining the stats that correlate with success. They are not the same for every business.
Following the 2008 recession, I embarked on a project to correlate business performance with leadership. I interviewed dozens of leaders of high performing organizations that fared better than average. One theme that emerged from these interviews was that most of them had identified a leading indicator that served as an early warning to the impending downturn and allowed them to take action earlier than most to prepare. Leading indicators vary by the business.
According to Rick Frost of Louisiana-Pacific Corporation (LP), their indicator was commercial tires. When LP’s rate of sales for commercial tires slows it means that industry is shipping less goods and that was their signal to prepare for what was coming. For Tractor Supply, a Tennessee based retail farm and ranch store chain, “The average ticket began to come down and cash and debit became a more preferred tender type, as opposed to credit.” said then Chairman and CEO Jim Wright.
While both of these businesses felt the recession, they outperformed peers. Early warning meant decisive action. Both were able to involve employee teams in solution development and engage hardship head-on as a team and well before many organizations even understood it was a recession.
Make Moneyball Work for YOU
It will be difficult to identify the lead indicator(s) without careful analysis of data. However, once done, it allows an organization to focus on the data that is most meaningful to them and will help them improve performance relative to the overall market, relative to their industry and relative to their closest competitors.
Information about the business is power; the right information allows the business to press the pedal to the metal with confidence—accelerating the practices that yield success. It is the fuel that can allow leaders to take their organizations to the next level. But it must be understood. It must be harnessed–trained and trusted– first, before it can be released.