Thursday, July 18, 2019

Moneyball

At its core, the book Moneyball, to me, is about leadership and overcoming resistance to change to create a sustainable competitive advantage. In Moneyball a new General Manager challenges a traditional industry with a new paradigm. He successfully deals with the resulting resistance from the more tradition oriented employees. In the case of the Oakland A's this has led to a substantial competitive advantage through lower costs (their payroll goes down) and improved output (the have a higher percentage of win’s) which leads to an increase in return (average cost of a run is among the lowest in baseball).This represents a major learning to me, it means that I need to be prepared to challenge the conventional wisdom by being innovative in a traditional company or industry. At the same time it is not enough to be just innovative, you need to be the innovation champion and overcome resistance. Baseball particularly seemed like a very traditional environment which allowed Billie Be an’s radical innovation to lead to significant competitive advantage. His success is achieved through three major achievements: 1) He uses innovation to create a different perspective on a particular market. ) He creates competitive advantage by using his innovation to pick his resources in a different way. 3) He further enhances his advantage by building organizational capability around the new approach he has created. Question 1: What is the best way to think â€Å"out of the box† in a particular situation, business or market to come up with the innovation that will change everything. It was my belief that a different perspective on a particular situation can be created by using imagination, intuition and creativity on top of accepted wisdom.In Moneyball, a new breakthrough approach is achieved through pure technology and in detail statistical analysis. Billy Bean uses the power of statistics to uncover relationships in individual and organizational performance. At t he same time, those objective indicators and statistics, in and of themselves, were not the keys. He was able to find (and proof) those measures that are valid indicators of future successful performance. He managed by using the right empirical data. This makes me wonder if rigorous statistical analysis (i. e. ike sabermetrics in baseball) can be used in any industry or situation to determine the factors most associated with true value to the company. The old way of evaluating players was based on naked eye observation and using 5 measurable indicators, which turned out to not be really connected to future performance. As a consequence the book also teaches me to be very careful not to attribute the wrong cause to a result. In any future position I should search for the right statistics that help me zero in on a couple of key attributes closely related to success.In recent years there are several companies that have used technology and statistical analysis to change the game even in old fashioned industries (Amazon, Capital One, etc†¦). It seems to indicate that almost every market is ripe for such an approach. The secret, as Moneyball shows, lies in finding those factors that are linked to the desired outcome versus those metrics that have traditionally been considered as â€Å"the right ones† for an industry.In the case of baseball it took years before those new ways of measuring performance came through, and even then most of the establishment (the old management) scoffed at them. It took the right way of measuring combined with the right dose of persistence to cause a breakthrough. Question 2: What is the best way to evaluate talent ? The talent evaluation approach in baseball relied on personal scouting (a subjective analysis) using some measurable factors (like foot speed) but which are not proven indicators for future success.In business, talent is also evaluated through observation, which is largely a subjective approach (â€Å"employee xx x is a team player and has the right attitude†) combined with some measurable KPI's (key performance indicators) which are often not directly linked to an employee’s contribution to the value creation in the company. Money ball begs the question if there is a way to exploit the inefficiency of current performance evaluation systems by implementing a novel, fact based, employee performance measurement and feedback system.Can companies copy the sabermetrics approach to talent assessment, selection and utilization ? One can imagine that this is possible in a manufacturing or a sales environment where there is a direct relation between employee action and measurable outcomes. It becomes more difficult in the finance, marketing or human resources arena where the immediate impact of employee actions is less obvious. Therefor it would be a major breakthrough if one would be able to identify those factors that predict success.Billy Bean in Moneyball, after identifying the right empirical data and then training (and convincing) his people of the new approach needs to build organizational capability in using and implementing his new system. In the same way, if a company comes up with a new way of determining what will lead to success (see question 1) it cannot stop at just inventing the new â€Å"system†, the organization needs to build capability to use it as a competitive advantage. To build this capability, employee’s performance needs to be evaluated in the light of how much he/she is contributing to the success of the new approach.Usually this capability is built through more â€Å"intangible factors† like company culture, teamwork, motivation etc†¦ Question 3: What is the key driver of building a successful business ? I have been influenced several books (like Blink) or the success of a Facebook, so upto now I assumed that the way to build a business is largely by intuition, belief and drive†¦ Find something you think co nsumers are interested in and then build it. In Moneyball it is exactly the opposite: success (in the form of superior financial performance) is achieved through meticulous measurement and theory testing.There is a very clear process and approach behind the success of the Oakland A’s: decisions are based on first demanding empirical evidence; second, examining the cause-and-effect reasoning that would explain the empirical evidence; third, experimentation; and fourth, continuous learning. Moneyball is a case study on the application of evidence-based management. It boils down to a very logical cause-and effect analysis of the links between resources, cost of resources and performance.Bonus question: Why do colleges pay so much attention to test scores for MBA programs if it is highly probable that my test scores will not relate to my future success in business ? Moneyball clearly makes the point that success does not just depend of having a lot of good data but mainly on havi ng data that are clearly linked to a positive, successfull outcome. It appears that, looking at all the stories of successful businesspeople that did not even finish college, MBA programs should investigate the link between their admission criteria and future success†¦As a consequence an intensely competitive market for graduates of â€Å"elite† programs has emerged, resulting in prices being bid up relative to the next tier of MBA programs. However, â€Å"second tier† programs have highly talented students who receive excellent educations, and thus, are well positioned to be successful executives. Hiring companies could find ways to assess the abilities of MBA students at these programs and obtain excellent talent at a discount relative to the graduates of top schools. Moneyball Moneyball is a book written by Michael Lewis when he follow Oakland A’s general manager Billy Beane in the summer of 2003 to see about his approach to running a major league organization. He figures out that just because you may not have all of the money in the world, say like the New York Yankees, that you can still win your division and make the playoffs. Billy Beane shows you his approach at how he win’s as many games as he does that no other team was willing to follow.He would pay attention to statistics that no one else did, like on base percentage, amount of walks, and slugging percentage, and made his team into one of the best in the majors. Since his theory has been proven it’s been shown that on base percentage and slugging percentage are better signs of offensive success and avoiding an out is more important than getting a hit.Oakland had one of the smallest payrolls in the league with $55 million and were forced to get small market players to fill thei r roster. That meant that every pick they had in the amateur draft counted and couldn’t afford to miss. In the book it talks about how Billy got his idea on why to run his organization like this, and he got it from Bill James. Bill James was a writer and obsessive baseball fan who wrote many books on baseball, but his Baseball Abstract are the ones that had the most impact.James’ books though were laughed at when they first came out and didn’t really make an impact until Billy Beane, who had read every book of James’, ran his organization like James’ had said to. Ever since then almost every club has changed how they go about picking up players and using players. Moneyball is one of the best books of all time and has helped changed the way baseball is looked at and played in many peoples eyes and even in major league organizations.

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