Michael Lewis’s bestseller, Moneyball, and the movie version of the book starring Brad Pitt are chock-full of great insights for business. But after reading more than 50 articles and blog posts on it, it’s evident that the most critical message seems to have gotten lost. And it’s a message that has enormous implications for every business.
I’ll share that message in a minute and you won’t want to miss it because it’s worth its weight in gold.
Moneyball
If you haven’t seen the movie or read the book, I highly recommend it. It’s the story of the Oakland A’s baseball team and their general manager, Billy Beane’s efforts to stay competitive against the larger, richer franchises they compete with. Like so many stories of innovations, this one started in crisis. After a very successful season in 2001, Oakland was losing it biggest star players because they could not afford to pay them what other teams were offering.
To compete with the richer clubs they needed to gain an edge. They would find it by questioning the fundamental way they (and every other team in the league) evaluated players and determined their value. There were a number of flaws in those methods which the story illustrates very well, and by applying a different set of criteria they were able to find an ample supply of players who would help them create wins that the conventional model overlooked. I won’t spoil it if you haven’t read or seen it yet. There’s a great 2 minute movie trailer that sets it up beautifully.
Moneyball and the Bottom Line
The key scene in the movie is the first conversation between Billy Beane (Pitt) and Jonah Hill’s character. They are discussing Beane’s need to find replacements for the star players he can’t afford. In it Hill says “your goal shouldn’t be to buy players, it should be to buy wins.” Readers of The Goal will undoubtedly have a déjà vu feeling about the initial conversation between Jonah and Alex Rogo in that book.
The point is very simple, almost obvious, but all too often it’s taken for granted and not given a second thought: everything you do, including putting together the team in this case, should stem from your goal. The goal of the team is to win games. So, in all aspects of running the organization, it is essential to focus on actions and decisions that will produce more wins.
The difficulty for baseball and for business is very much the same—connecting actions and decisions to achieving your goal. And most of the time we don’t do it as well as we’d like. As Hill says later in the same scene in the movie: “What I see in baseball is an imperfect understanding of where wins come from.”
Bam, there it is, right in our face. And the statement is probably even more true for most businesses than it is for the baseball business. We have an imperfect understanding of how we make money in our businesses. I know it sounds like quite a statement to make, but hang in there a second and I think you’ll agree with me in the end.
Mis-alignment with the Goal
We could cite a lot of examples, but rather than do that let me illustrate this “imperfect understanding” very simply with two points.
- In most businesses the major measures and rules that are used are based on some form of “cost” management. The budget is the primary one but items such as margin, product cost, variances, and efficiency are also cost-based. This means that most actions and decisions focus people on “saving money” not “making money.” While saving is important because it’s a component of the bottom line, it underestimates the importance of generating money—creating Throughput.
- We have a very poor working knowledge of what determines Throughput (how the business generates money). Here the problem is even more obvious. Throughput is generated by the concerted effort of the entire business (like wins in baseball, it’s a team sport) so it requires our entire “chain”. Any chain is only as strong as its weakest link, or constraint. So the constraint DETERMINES how much money our business generates. Yet very few businesses have even taken the first step of identifying their constraint, much less to fully exploit it or to align the rest of the business with it.
The facts that the primary focus of most companies is on cost, and that most companies haven’t agreed on what is their constraint mean that we have a “very imperfect understanding of how we make money. Actions and decisions by definition are going to be mis-aligned with the goal, just on these items alone.
Moneyball is Real
The big message for business in Moneyball is that we have to look much deeper, and more critically at the fundamental rules and measurements we use to make decisions and drive actions. These things determine the performance of our companies, and they are not always moving us in the right direction.
The success the A’s enjoyed in the story (and it’s a true one) may look like a fluke to the uninformed on-looker. But it’s absolutely no accident and it can be repeated in any business. The key is to gain a better understanding of how we generate Throughput, and then to balance that much better with the cost side of the profit equation. Doing this will provide a different basis for making decisions and motivate more of the right actions in the company—one that is more closely aligned with the real goal of the company.
How to do this much better is the subject of my next post, sign up with your email so you won’t miss it.
Now I have a favor to ask you. Since I didn’t have room to include many examples, please share yours with us. Tell us the “imperfect measures” you have seen in your experience and how they cause people to make decisions or act in ways that don’t help the company reach its goal. Have a great week!