Business Lessons from Moneyball

Moneyball is one of those stories we love, where unconventional thinking becomes a competitive advantage for the underdog (as The New York Times cleverly summarizes it: it’s The Bad News Bears meets The Tipping Point.) Both Michael Lewis’s book and the new movie follow Oakland A’s General Manager Billy Beane in 2001 as he tries to replace three star players who have left for more lucrative contracts. Beane grapples with the issue of trying to pull together a winning team with a $40 million payroll, when teams like the Yankees have a $126 million budget with which to play. “We’ve got to think differently,” he realizes.

Beane uses a number of critical thinking skills to arrive at his winning strategy:

Consider what not to do. In the beginning, Beane is not sure what he needs to do, but he knows what he needs to avoid doing. Lewis quotes Beane working through the issue: “What you don’t do…is what the Yankees do. If we do what the Yankees do, we lose every time, because they’re doing it with three times more money that we are.”  Often when we are wrestling with a tough business problem, we know a lot more about what we should not do that what we should do. This is not a bad thing as it allows us to take some options off the table and, in turn, generate some alternatives that might work. In this case, the Yankees are in the business of buying players and they can afford the best players in the league. They have the luxury of passing on players who are seen as too old, or slightly injured, or who have a likelihood of getting into trouble on or off the field. (In the movie version, the scouts dismiss a player because he has “an ugly girlfriend” — the justification being, it shows his lack of confidence.) Beane knows that if he plays the traditional game of buying obviously talented players, he will lose to teams with deeper pockets. Instead, he looks at buying wins and more specifically at buying runs. The players most likely to earn runs are those with the best On-base Plus Slugging (OPS) percentages, irrespective of age, injury, or character. Beane and his assistant Paul DePodesta (the character Peter Brand in the film) use the sabermetrics system popularized by Bill James to determine the players with the best OPS percentages in their price range, much like a portfolio manager looks at the fundamentals to identify undervalued stocks. Beane is able to build a strong team with one-third of the Yankee’s budget by not thinking like the Yankees. Sometimes, in business, it’s important to ask Who aren’t we? What do we not want to do.

Ask the right questions. In the film, Billy Beane accuses his scouts of asking the wrong questions. They are focusing on asking what they have always asked — Is a player left-handed or right? What is his hitting style? Does he drink? —  instead of asking the one question Beane cares about: How often does the player get on base? In the book, Lewis talks about the importance of asking the right questions: “The Blue Ribbon Commission had asked the wrong question. The question wasn’t whether a baseball team could keep its stars even after they had finished with their six years of indentured servitude and become free agents. The question was: how did a baseball team find stars in the first place, and could it find new ones to replace the old ones it lost? How fungible were baseball players?” As Beane discovers, players are much more interchangeable than anyone had thought. A star could be replaced by a player everyone had dismissed as long as they share the same OPS percentage. By asking questions that nobody else asked, Beane is able to manage his team the way nobody else has. One of the best ways to get to the “right” question is to ask what Peter Drucker referred to as naive questions and challenge the most basic assumptions. An earlier version of the Steven Zaillian screenplay has Paul DePodesta (the real-life Peter Brand), referring to Drucker as he asks Beane: “If we weren’t already doing it this way, is this the way we would start?” It’s an excellent place to kick off the conversation.

Define the problem. When looking at a problem, it’s always important to get at root cause. Otherwise, one tends to waste a lot of time fixing the wrong things. In the movie, Beane is meeting with his scouts to replace the three star players who’ve left the team. He asks one of the scouts to define the problem. The scout says they need to replace the three players: Jason Giambi, Johnny Damon and Jason Isringhausen. Beane disagrees. With their budget, it is impossible to replace three stars on a player-by-player basis, so Billy asks again, “What’s the problem?” Taking a page from the 5 Whys — a method of problem solving popularized by Toyota where one asks why something is happening at least five times to unearth the root cause — Beane continues to ask his scouts “What’s the problem?” until the problem is clear. They do not need to replace three individual players to stay competitive; they need to replace the aggregate results of the three players to stay competitive. As Beane says in an earlier version of the script, “We’re never going to find a hundred dollar bill on the ground, but maybe we can find a hundred dollars in nickels.” Once they have properly defined the problem it becomes clear that they are not looking for individual star players (something they cannot afford) but for aggregate results (something they can afford). They have a plan they can execute.

Buy-in is key. Towards the end of the film, Red Sox owner John Henry observes, “The first one through the wall always gets bloody.” Billy Beane is shown as an innovator, trying to “reinvent a system that’s been working for years.” Many people, including his own scouts and team manager whose livelihoods are threatened by his new system, show resistance to his plans. They do not see “the burning platform” Beane sees, where the difference in team budgets threatens to destroy teams like the Oakland A’s unless they take another approach. This resistance threatens to undermine Beane’s vision and it is only when he starts to talk to his team and elicit their buy-in to his strategy that the plan begins to work. Both the film and the book paint Beane as someone who does not deal well with resistance. Lewis quotes someone who knew Beane when he played baseball earlier in his career: “He didn’t know any other way to get through the wall than to try to smash a hole in it.” Beane correctly sees the need for change but instead of sharing his vision, he forces his team to adapt. Had he engaged his team in his vision from the outset, he might have had an easier time. Going through a wall hurts; being boosted over a wall by your supporters is considerably less painful.

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