Competition, Lean Accounting, and Baseball

Russell Roberts on Cafe Hayek had an interesting commentary the other day about the Power of Competition, relaying a bit of the story of Billy Beane and the Oakland A's told in the book Moneyball: The Art of Winning an Unfair Game. Moneyball is the story of how the Oakland A's Baseball Club was able to meet the New York Yankees in the major league playoffs despite having a payroll about one-third the size of what the Yankees were putting on the field.

It's a great story, but what does this tale have to do with the lean enterprise?

Baseball teams, like most companies, are run by the metrics. While business managers expect to get high profits and stock prices by picking factories with low labor rates and high inventories, ball clubs gain wins by collecting players with high batting averages and pitchers with low earned run averages. So long as conventional wisdom reigns across the entire industry, the teams with the highly-paid hotshots do just fine.

Unfortunately, as General Motors knows all too well, every once in a while, somebody doesn't play by the establishment rules. Somebody comes up with a new way of looking at things that has the potential to change the world.

For baseball, that somebody was the General Manager of the Oakland A's, Billy Beane. Beane, discovering the work of assorted baseball fans/statisticians, figured out that most ball clubs weren't picking the highest quality players for their money. These statisticians had figured out that the traditional metric of batting averages didn't actually have a correlation to runs scored, while “on-base percentage” and “slugging percentage” did. “The thing…that we're trying to do” said Beane's statistician, Paul DePodesta, “is [to] ask the question why.” Sound familiar? By picking players with strong records in these new numbers, Beane was able to draft players undervalued by the rest of baseball at bargin basement prices. Building a team along these lines, the Oakland A's were able to win a record 20 consecutive games, and finish the 2002 season with 102 wins, while spending less money than any of their competitors. “It's looking at process rather than outcomes,” DePodesta said. “Too many people make decisions based on outcomes rather than process.”

What was major league baseball's reaction to the book Moneyball, that exposed all of this? About how the Big Three reacted to The Machine that Changed the World. Most teams are still in denial, while a handful, the Toronto Blue Jays and the Boston Red Sox among them, have taken up the concepts to rebuild their teams in Oakland's image. In testament to Billy Beane's theories, it was this approach that led the Sox to their 2004 World Series Championship, after 98 years of trying it the old-fashioned way.

Roberts' blog argues that the lessons of Moneyball were wasted on baseball because of the isolation the game has from true competition. For example, owners are usually hobbyists and not hardcore business people. I would argue differently. Competitive businesses do not like risk. Following non-traditional methods, such as lean, doesn't come easily. It takes a true vision, which often comes only after severe loss.

The power of competition is that it ultimately makes companies without vision disappear.While the American auto industry has suffered an unusually long slow reduction in size and market share, the business world is littered with examples of bankrupt companies that failed to see fundamental changes in customers, processes, or technology.

I can't say that there are any ground breaking lean ideas in Moneyball, but if you're looking for a great story about rebuilding an organization by focusing on a set of ideas nobody else has embraced, or if you're trying to explain the importance of looking at competition in a new way to a resistant manager, who happens to be a ball fan, Moneyball might be the book for you.

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