Moneyball – Lessons from baseball

Written by Adela Tudorache on May 27, 2013. Posted in Articles, Strategy

The team had a restraint budget and only some talented superstars who were not team players at all. Basically, what Billy Beane (the head coach) did was to take a look at the entire picture and see what had to be done. He came up with a strategic plan based on competitive drivers.

But before explaining his tactics, a short insight on performance indicators. They are of two types: leading and lagging. Leading indicators signal future events, while lagging indicators present information that follow an event, telling us how we did in the measured circumstances. While it is important to know how the company is doing, it is equally important, or even more, to know where it is going. Using only lagging indicators is like looking in a rear mirror while driving a car and reacting to obstacles without actually knowing what you are reacting to until after you have stumbled upon them, without planning ahead. For instance, most business usually check out the financial statements once a month and try to figure out what to do. Using both types regularly (with a slight emphasis on leading indicators) is very important because it helps a great deal the cash flow planning purposes and the strategic decision making.

And, on short, that it is what Beane did. He planned ahead. In addition, as opposed to ‘old school’ scouts, who did not pay attention to statistics, but rather to the athletes’ physical abilities, such as speed, quickness, arm strength, hitting ability and toughness, Beane did not put a great emphasis on their body and physical tools. Instead, he focused his attention on two questions: “Does the player get on base? Can he hit?”. According to Lewis, Beane based his drafting of position players and hitters on certain statistics, which included on-base percentage and slugging percentage. By combining these two, he created a new statistic: ‘on base plus slugging’. Moreover, an athlete’s power was not of primary importance for Beane. He thought that this can be developed, as opposed to the patience at plate and the ability to get on base.

Although this approach didn’t work as expected at the beginning, he trusted it and went on with it. This is the problem with implementing a new campaign or a new plan: it gets worse before getting better. Like a pill: to recover from an illness, first you have to endure its awful, bitter taste. The result? His team managed to win 20 games in a row. A record!

Business leaders should learn from this example. Because developing new strategies to attain your goals can go even better than one might first expect. All you have to do is trust the process, be confident and give it a little time to see whether results appear or not. Look and plan ahead, as you see the obstacles so that when you encounter them, you know what to do to make the most out of them.

References:

• Gotts, I. (2009), Leading indicators vs. lagging indicators
• Jarvis, J. F. (2009), A survey of baseball player performance evaluation measures
• Wassermann, E., Czech, D. R, Wilson M. J and Joyner, A. B. (2005), An examination of the moneyball theory: A baseball statistical analysis
• Padva, G. (2011), Moneyball and the game of business

Image Source: Charley Soses Photography

Tags: Book review, Lagging, Leading, Michael Lewis, Moneyball: The art of winning an unfair game