Lessons Learned from Little Dogs
and Overpaid Baseball Players

When I was a child, I recall my father pointed to a little dog in a fight with a big dog. The little dog had gotten the best of the big dog, challenging my belief that the big dog always wins. The lesson observed that day was simple: the little dog won because he knew how to fight smarter. The little dog attacked the big dog in his underbelly where he was vulnerable and the counterattack was more difficult.

This memory was sparked when I read Michael Lewis' book Moneyball: the Art of Winning an Unfair Game. It occurred to me that there is something similar to the big dog-little dog lesson in baseball and business. Logic suggests that the big corporation will dominate because of its size and ability to spend. Likewise, in baseball, logic suggests that the team that spends the most for its players will win the most games.

Reality suggests something different. Smaller corporations have grown faster than the big ones and provided more jobs. Analogously in baseball, the teams with have the biggest and deepest pockets for player salaries often meet with limited success on the field, while a team such as the Oakland A's, which has had either the lowest or next to lowest payroll in the game, have won more regular season games than any other team, except the Atlanta Braves, for several years.

Rethink the Way the Game Is Played
In his book, Lewis highlights why the Oakland A's scored more wins than the teams that paid higher player salaries. His observation about Oakland A's Billy Beane, the Oakland A's general manager, should prompt the management of community banks to continue to rethink their own long-held assumptions:
At the bottom of the Oakland experiment was a willingness to rethink baseball: how it is managed, how it is played, who is best suited to play it, and why. Understanding that he would never have a Yankee-sized checkbook, the Oakland A's general manager, Billy Beane, had set about looking for inefficiencies in the game. Looking for, in essence, new baseball knowledge.

In terms of business, new baseball knowledge does not mean some obscure wisdom known only to a small group of cognoscenti. For professional managers, the lesson is that they must shed some of their old, tradition-bound habits. Managers who say, in the face of a new idea, "We would never do that," reveal themselves to have closed their minds and strategies to the changing competitive and economic realties of the industry. New baseball knowledge for managers means, "Never say never!"

The underlying lessons gleamed from Moneyball illustrate the wisdom of value investing. Of course, the Oakland A's are not picking stocks but baseball players. The book shows how the Oakland A's, with a smaller wallet, played the game smarter because they took advantage of the inefficiencies of the player draft process. Those inefficiencies arose because the major league executives made draft selections based on assumptions founded on long-held half-truths.

One of the biggest half-truths is that the team should pay the highest salaries to the players with the most runs batted in (RBI) or home runs. The core assumption is that the player with the most RBIs ensures the highest probability that the team will win. However, half-truths, carried to their logical extreme, often produce the opposite of their intended effect. Lewis shrewdly observes, "Big League players routinely swung at pitches they shouldn't to lard their RBI count."

Do The Fans Come To See The Team Win Or The Super Star Dazzle?
When I was a child, I recall how the crowds roared when the great running back Jim Brown would burst down the field and score a touchdown for the Cleveland Browns. But, for Jim Brown to thrill the crowd and score the touchdown, the rest of the team, notably the offensive line, had to create the window of opportunity for him to perform his starring role. The answer to the question about why fans come to the game is clear: the fans come to see the team win, and if the star turns in a dazzling performance, so much the better. A key to success in baseball is to determine the statistic that correlates to the highest percentage of games that are won, with or without a superstar. In baseball, RBIs are not the deciding statistic that improves the chance that the team will win.

What is the key statistic? Lewis reveals the key that only a few smart baseball managers know:

To knock runners in, runners needed to be on base when you came to bat. There was a huge element of luck in even having the opportunity, and what wasn't luck was, partly, the achievement of others. "The problem, wrote James (Bill James was the founder of the Baseball Abstract, an unconventional look at baseball statistics) is that baseball statistics are not pure accomplishments of men against other men, which is what we are in the habit of seeing them as. They are accomplishments of men in combination with their circumstances."

Seeing things as they are, rather than as one would wish they were is how conventional mangers limit the number of runners they have on the bases when the strong hitter comes to the plate. For example, companies that merely follow the moves of their competitors fail to differentiate their product or service in the customer's mind.

Break Old Habits to Create New Models
In their study of baseball statistics, the Oakland A's management found there was one statistic that, over a long period, was the best predictor of the greatest percentage of games won: the on-base percentage.

When the Oakland team was purchased in 1995, the new owners closed their checkbooks and told the general manager Sandy Alderson to run the team like a business. Alderson had to find a way to get more bang for the player dollar.1 That meant that the A's management had to find a way to wisely spend $40 million on players when the Yankees or other teams were spending at the $100 million level. To make this happen, Alderson moved Billy Beane to the front office to develop a process.

Lewis recounts that process:

"Scoring runs was, in the new view, less an art or a talent than a process. If you made the process routine-if you get every player doing his part on the production line-you could pay a lot less for runs than the going rate."

This baseball wisdom was what attracted the A's to Scott Hatteburg of the Boston Red Sox. Lewis describes Hatteburg's plight as a member of the Red Sox:

"Pro ball never made the slightest attempt to encourage what he did best: take the precise measurements of the strike zone and fit his talents to it. The Boston Red Sox were obsessed with outcomes; he with process. ...To the Oakland A's front office, Hatteburg was a deeply satisfying scientific discovery."

Challenge the Seasoned Managers With New Hires
Savvy executives also may want to hire a few smart young managers who will press the seasoned managers to rethink the way they see and play the game. The success of the Oakland A's was, in part, due to two smart young managers. Lewis observes:

"And so, surely for the first time since the dead ball era, the Harvard Boys' (David Forst, Assistant to GM, Coordinator of Professional Scouting and Paul DePodesta, Assistant General Manager) came to baseball. ... I asked them if it ever troubled them to devote their lives, and expensive educations, to a trivial game. They look at me as I've lost my mind, and Paul actually laughed. 'Oh you mean as opposed to working in some deeply meaningful job on Wall Street?' he said."

Good managers would be wise to make sure that they seek new hires in the widest talent pool possible. Smart managers do not make the mistake that the Boston Red Sox made during the 1950s. Professor Sydney Finkelstein of the Amos Tuck School of Business studied the impact of integration on baseball teams. The Tuck School study uncovered a positive correlation between a team's win-loss percentage and the number of black players relative to league averages. Finkelstein concluded that the performance of the Boston Red Sox suffered in the 1950s because the team was one of the last to integrate after such baseball greats as Jackie Robinson and Willie Mays were hired by other teams.

Keep the Ball in Play
Finally, remember that good execution of a strategy is more important than that the strategy be flawless. In the American Civil War, Robert E. Lee was more successful fighting the war, for a time, despite the limited resources of the South. He was able to exploit the all-too-timid Union leadership. It was not until Lincoln appointed the relentless General Ulysses S. Grant that Lee truly met his match.

In the world of baseball and fights between dogs or men, there are sound lessons that good managers must learn in order to win. Successful managers know they must attack the competition, rather than always defend their turf. The best defense is, indeed, a good offense. With that strategy, they pick their team players wisely, make their choices based on an informed process, and revise their plans to meet changing circumstances. They do all that to make sure they always keep the ball in play.

1 The author and Alderson served together at Marine Barracks, Washington, D.C. in 1971-72. Alderson was an unlikely candidate to be the Oakland A's GM. He was a Harvard educated lawyer and a Marine veteran of Vietnam who had not played baseball since his undergraduate days at Dartmouth.