Just finished watching the movie Moneyball. It is a fascinating film that draws upon many parallels between life and business. The core premise of the movie is that the collective wisdom of baseball insiders (including players, managers, coaches, and scouts) over the past century is subjective and often flawed. Basically Billy Beane (Brad Pitt), the head coach of the Oakland A’s, was behind the most under funded and lowest performing teams in the league. Beane met Peter Brand (Paul DePodesta), a recent Yale Economics grad, who recommended a statistic driven approach to player acquisition and management. Rather than searching for talented and holistic players Beane and Brand found a way to use a data-driven model coined as Sabermetrics to make key decisions.
There are three main key ideas that I took away as they relate to winning the game of business:
1. HAVE CANDOUR AND IDENTIFY THE REAL PROBLEM.
Beane did a great job at looking at the big picture. The team was tight on money and had a few talented superstars that were not team players. The real problem was not going to be solved with another silver bullet, but rather a strategic plan based on competitive drivers. Rather than trying to pretend the problem was not there, Beane went against the grain of all his advisors and status quo and made the tough changes quickly and swiftly as they were needed. If the wrong people are on the bus, the options are to a) re-assign them to another seat or b) let them go. If they are not the right fit and other options have been explored the best choice is to free that person up so they can have a better future elsewhere.
2. KNOW THE NUMBERS.
In business there are two types of indicators. Leading and lagging. Leading indicators can be defined as KPI’s or key performance indicators. KPI’s predict future performance and allow a manager to forecast operational, sales, and marketing figures more effectively. KPI’s include measures such as bank cash balance, lead generation campaigns, sales team win rate %, average client sales price, and repeat business driven through loyalty programs. Lagging indicators are known as business metrics. These include events that have already transpired such as existing client base, total revenue, or profit margin. Lagging indicators look in the current or past position and tell us how we did. KPI’s operate as dashboard by providing important measures on future performance. The practice of reviewing KPI’s regularly is essential for cash flow planning purposes and strategic decision making. Business metrics are like looking in a rear view mirror and reacting to what is being seen. The challenge with most businesses is they typically look at financial statements once a month and then try to guess what levers are driving their business success.
Beane discovered with the help of Brand that the most important measure in the game of baseball was a “players on base” percentage. This was a critical number that Beane focused on and found unorthodox players with great on base percentages at fantastic acquisition prices. I liken this to new forms of lead generation that lead to client acquisition. Lead gen is often the lifeblood of any business and there are many ways to drive new leads to a business. There are expensive mass media approaches such as TV, newspaper, and radio or there are new forms of cost effective direct response marketing such as strategic mail outs, email marketing, pay per click marketing, search engine optimization, and inside sales. To stay competitive in this economy we need to find cost effective and innovative ways of reaching customers and providing value. When the numbers are clear then it becomes easy to make data driven decisions that support the overall strategy vs. making emotional decisions that are often driven by ego.
3. TRUST THE PROCESS.
When first launching any new campaign or plan things inevitably get worse before they get better. A business leader needs to be able see the vision and then build the team, resources, and plan to see that vision through. This change can often be met with resistance and set backs. After making some key decisions the Oakland A’s went downhill and started losing game after game. It would have been easy for Beane to give up, but he was steadfast in his decision, stuck to the plan and did not give up. He trusted the process and continually trained the behaviour that he wanted to see in his players. The consistency eventually created remarkable results and the team began to turnaround to what eventually became a 20 game winning streak, an all time american league record. Beane’s approach changed the way the game of baseball was played. Now many teams have a position reserved for Sabermetric analysis to drive their key acquisition and management decisions but how do you complete with the big business that has three times the budget?
Business leaders will have to become as thoughtful, strategic, and fearless as Beane was to develop new strategies to close the gap. The good news is the external technology and data is available. It’s a matter of adjusting the vision and the corresponding culture and process to accept the new technology. This approach can create a huge competitive advantage for any business.