The New Moneyball--and Why It Matters for Business
BY Ilan Mochari
More than 10 years after the Oakland A's baseball team discovered the initial principles of Moneyball, the team's brilliant management has discovered--and capitalized on--yet another market inefficiency.
The baseball team that made Moneyball metrics famous is now quietly using a new strategy that could be just as groundbreaking. And whether or not you're a baseball fan, this is one strategy story you shouldn't miss.
The Back Story
In Moneyball, Michael Lewis's 2003 book about the Oakland A's 2002 baseball season, the author sought to answer an essential question: How did the A's, with their paltry payroll ($41 million), manage to compete with the big-market New York Yankees ($125 million)? A 2011 movie based on the book dramatized the same question, with Brad Pitt playing the part of A's general manager Billy Beane.
The answer, oversimplified, had to do with the A's precocious grasp of advanced baseball metrics. While many teams still used traditional statistics to gauge the ability of players, Beane and the A's began using a more advanced set of numbers, called "sabermetrics." The A's realized that players with strong sabermetrics correlated just as much (if not more) to winning games than did players who were strong in traditional stats.
Better still, the players with strong sabermetrics cost far less to employ than did the players with strong traditional stats. The reason? Most teams still gauged player value by traditional stats. The A's, in using sabermetrics to gauge player value, found cheaper talent that could still get the job done.
In the process, the A's template for affordable team-building became one of the most envied (and copied) business models in the sports world.
How the Landscape Has Changed
That was then. More than 10 years later, the baseball landscape has changed, in no small part because of the A's success and the massive publicity their methods occasioned. Today, every team employs advanced sabermetrics. And so, in a funny way, the A's are back at square one: They still need to compete with big-market teams like the Yankees. But now the Yankees (and everyone else) are hip to the A's long-held advantage. How, then, do the A's still manage to compete, in an enlightened day and age?
In a brilliant post on Deadspin and Baseball Prospectus, Andrew Koo posits a plausible answer to this question. Koo's theory is that the A's have found yet another undervalued statistic that correlates strongly to performance. That statistic, in a nutshell, is the fly-ball rate of hitters. Koo argues that a key to the A's fantastic 2012 and 2013 seasons has been their acquisition and deployment of fly-ball hitters (as opposed to ground-ball hitters). Of course, there's more to it than that, and Koo's fantastic writeup has all the details.
For business leaders, there are two key takeaways:
1. Finding market inefficiencies is an ongoing concern. Baseball is a copycat sport. Whenever a team has a winning season with an affordable payroll, other teams are bound to copy the template and poach key staff. Advantages are short-lived. Which means that teams like the A's must constantly search for new ways that they can affordably compete with larger-budget entities like the Yankees. It's a form of business-model innovation, in the sense that your business model--which should address how you keep costs like payroll in check--is not fixed but, rather, continually modified to stay profitable. The key to successful business model innovation is a larger subject. But as this article on Harvard Business Review points out, it requires three things: The ongoing attention of the top team, a willingness to experiment, and the bravery to "pivot" the business model in a new direction, when the time is right.
2. Remember why you're hiring people in the first place. It's to get a job done, rather than fill a position. For the A's, that job is winning games. As simple as that sounds, it still differentiates the A's from the superstar-recruitment model that drives many personnel decisions in baseball. The relevant quote in Moneyball is, "Your goal shouldn't be to buy players, your goal should be to buy wins." In a blog on LinkedIn, HubSpot founder and CTO Dharmesh Shah shows how this applies in a business context. He paraphrases a chat he once had with an entrepreneur:
Shah: What do you need?
Them: We need to build a management team.
Shah: No, what do you actually need right now?
Them: Well, right now we need a VP of Engineering.
Shah: What for?
Them: Well, we need someone to head up our product development effort.
Shah: No, you actually need to write code and release a product. You need to respond to customer issues. You need to iterate quickly so you can learn quickly. You don't need a VP of anything, you need a doer of stuff that needs to get done. Don't think about buying titles--think about buying outcomes.
For the A's, those "outcomes" are wins. And thanks to their continued success in finding market inefficiencies, the wins keep coming.