Summary: How does a company create a winning strategy within an industry of corporate giants? Using the story of Moneyball by Michael Lewis, we are exploring proven baseball strategies, using statistics, to help us beat our competition. On this episode, professor Kyle Anderson, steps to the plate and knocks this confusing curveball, out of the park. SHOW NOTES: This episode of The ROI Podcast is brought to you by the Kelley Evening MBA Program at IUPUI. Ranked number one in Indiana by US News. The Kelley Evening MBA will take your career to the next level—so you can be part of something bigger than yourself, while making a meaningful difference. To find out more, visit https://kelley.iupui.edu/mba/ and take the first step toward lasting career momentum. PODCAST INTRO: MATT: The Oakland A’s became a championship level team in the early 2000’s thanks to a progressive thinker named Billy Beane. In a sport where deep pockets have the greatest advantage for winning, General Manager Billy Beane took a crummy team with little money and made them champions. How? On this episode, we’re sitting down with Professor Kyle Anderson, an economist at the Kelley School of Business, who’s helping us unpack Billy’s moneyball methods, to send our company success out of the park. Let’s get to the podcast… ||ROI MUSIC PLAYS|| MATT: Welcome to another episode of the ROI Podcast, presented by the Indiana University Kelley School of Business. I’m your host Matt Martella joined by my colleague, Associate Dean of Academic Programs, Phil Powell. And today… oh this topic gets me excited, because today, we are talking baseball. And not just baseball, we’re talking how to take a proven, game winning strategy, and implement the same science into our everyday business. PHIL: (Remarks) MATT: So did you see the movie Moneyball? PHIL: (RESPONSE) MATT: I just love how it’s based on a true story… obviously dramatized in the movie, yet it was so fun to watch this classic Cinderella story of a washed-up team, adopt a new way of thinking which helped them beat Goliath teams like the New York Yankees and Boston Red Socks. PHIL: And for those that don’t know the Moneyball story, let me set the scene… In 2002, The Oakland A’s had the third-lowest team payroll compared to the rest of the league. Basically, they were a very small fish in an ever-expanding ocean. Their spending cap, during that 2002 season, keep in mind this is the SAME season they went to the playoffs, was only $44-million dollars – which seems like a lot. But compared to the New York Yankees, who had almost 3-times that amount, $120-million to be exact, the A’s could not afford the same level of talent. It doesn’t take a certified accountant to realize, Oakland had a huge disadvantage against their competition. MATT: And that’s what pushed Billy to adopt a new way of thinking in terms of how to recruit ball players. He looked at what it takes to win games and narrowed his answer down to a few key statistics – on base percentage and the number of hits per game. While most teams relied on scouting to find talent, Billy used data other teams had access to, yet completely overlooked, to his advantage. This gave the A’s a massive edge against baseball organizations who had deep pockets. So how can we compete against corporate power-houses who clearly have more money to spend? We sat down with Clinical Assistant Professor Kyle Anderson, an economist and avid sports fan here at Kelley, who’s love for the game offers great business practices. The main take-away is we have to know a basic level of statistics within our organization, so we can create the best solution for the problems facing our company. Kyle Anderson: Sports are great because there are so many statistics. Everything is available, right? And people are out there tracking it. But now in this day and age, we're tracking a lot of data and a lot of statistics about our businesses. So it just takes a mindset of, "let's go look at that data and see what we can get out of it." Can we find some valuable information and maybe compare something and really try and see what's going on. MATT: This is a tough subject for me because I’m not a numbers guy. I did not do well in stats class, and I do not like spreadsheets. But, I can confidently say, after sitting down with Kyle, I quickly realized none of my qualifications… or really, lack there of, matter. Within business, I can ask a question, then work within my team to get the data needed. What’s great is, it’s not complicated. In fact, we don’t need anything other than a willingness to start somewhere. Kyle Anderson: And the answer is almost always, start simple. I think one of the things managers can do is think in terms of experiments. Go back to your eighth grade science class, right? There are "A" conditions and there are "B" conditions. And if you want data, sometimes you have to create an experiment to help you get that data that's going to help you make a decision. It's a very simple approach… Start thinking about, not only what data can I collect, but how can I set up little experiments, little A-B tests, and find out which one works best. And I think, especially in technology, that's becoming easier and easier to do that. And it's so valuable. And it's one of the best things a manager can do. MATT: So number one, we have to be willing to start, and start somewhere small. Before Billy Beane could build his baseball empire, he had to start looking for answers that were not very obvious at the time. He already knew he could not afford the best talent, so he had to find his competitive edge. And he did, but it started with experimenting, just like Kyle suggests. Create little experiments to see what A vs B tests we can try, that point us toward the right decision. Kyle also said that of course there is a whole science to make sure your trials are balanced and fair, but do not let that discourage you from taking the first step of trying in the first place – do something two different ways and see what works best. PHIL: For example, let’s say I’m a business trying to grow my client base, yet not sure about how to measure a successful marketing campaign, I want to make it super basic. Let’s say, as a company, I’m trying to increase customer engagement on our website. Here’s a great little experiment to try – using an email marketing campaign, create two different designs. One email promotion could be a more conservative design, maybe have more info about your company than normal, or a current template you have used in the past. For the second design, just go for it. Make it edgy, simple, modern, brief, or whatever you have been afraid to try before. Once you have your designs, send one email to half of your clients, and the other design to the remaining group. After a few weeks, monitor the progress. Ask yourself, is there a trend that suggests one design received more clicks than the other? If so, as a leader in your organization, you now know improvements to implement that could help your company grow. And if not, pat yourself on the back because growing as a leader requires getting it wrong sometimes. Kyle Anderson: If you're not out there failing as a company, then you're probably not out there trying enough things. Right? You're not playing with a new strategy. Obviously, you want to fail small, you don't want to risk the whole company, but if you're not out there trying new things, and occasionally failing, or more often than not failing, you're probably not being aggressive enough. MATT: The second take away is be ready to fail at times, because as Kyle said, this is a sign of progress. It’s funny because every great story requires overcoming a struggle. And I think we forget that sometimes. Let’s jump out of baseball real quick and look at Bill Gates, before computers became our livelihood. In 1980, Gates’s mission for Microsoft was, “A computer on every desk and in every home.” A ludacris idea when you consider two things - how expensive these machines were during their inception and even greater, a consumer who did not see the need for having a computer at home. In 1981, the IBM Personal Computer carried a $1,500 price tag… when you take inflation into account, it would cost us $4,100 today. Yet, when we jump back to today, what do we see? PHIL: We not only see a computer in every home and on every desk, we see multiple computing devices in every home and on every desk. They run our cars, our phones… heck they even have computers inside refrigerators now that connect to Wi-Fi. In fact, the Moneyball story would not exist without computers crunching his data. There’s an entire industry in our economy solely based on computers. But at the start, Gates had the world against him, and because he grew in failure, his vision for the world became a quantifiable reality. MATT: And that brings us to our third take-away – when we find our competitive edge after embracing statistical data, keep going. Don’t stop. Keep revisiting the numbers, keep experimenting because eventually, our competitors will not only catch up with us, they’re going to find their own advantage and grow past our organization. Kyle Anderson: I think it's a perfect parable for business. Which is, if you start doing things better, that's going to give you a competitive advantage, but it's probably not going to last very long. And the worst think Billy Bean ever did, I think, was let Michael Lewis come in and tell his story because eventually everyone saw that success and was able to copy it. And it really took away that competitive advantage. And now he's got to be looking for something else. They all are looking for a way to outperform the competition. PHIL: There was a long streak where the Oakland A’s held the advantage because they found, and perfected, a new way of building a team. However, other ball clubs started to take notice. Organizations like the New York Yankees, Chicago Cubs and the Boston Red Socks started to see the science behind Billy’s success and copied it. What happened? The Oakland A’s lost their competitive edge, ultimately allowing their competition to go further. The same evolution happens in business, it’s just a little less visible. So as business leaders, adopting an attitude of adaptability will help us keep up with our ever changing industries. And it’s that evolution which keeps our economy alive. Kyle Anderson: The story on our economic history in this country is companies rising and falling. Because it's very hard for large and confident firms with dominant market share to make those aggressive changes that you need to stay ahead. So it's the large slow businesses that get comfortable, aren't able to change and it's all the young ones at their heels. And that's just a natural evolution, and it's great for our economy. It's great for consumers, it gives us lots of choices. So it's a beneficial part of capitalism. MATT: Finally, as our excitement of data collection grows – because eventually we’ll love the quantifiable answers it brings, the fourth change we must make to beat our competition is balance. We must balance the use of data with industry experience. Data by itself can only get us so far, just as solely relying on experience will keep us from growing. Yet, if we can find a way to marry the two, we will make better decisions as leaders. Now, the movie version of Moneyball did a horrible job showing this. In the movie, Billy Beane – played by Brad Pitt – ignored his baseball scouts and only used data to find these mis-fit players. So we have to explore the book to find the actual story. Here we find that Beane leveraged the input from his scouts AND his data to make the best choice available, ultimately building a team able to take down ball clubs, like the Yankees, with deep pockets. Kyle, on the other hand, learned this lesson well before Moneyball was released. Kyle Anderson: I got my MBA from Kelley, and I got into a job where I was essentially working as the CFO for a relatively small business. It was a truck dealership and the dealer had owned the business for 30 or 40 years. And I would come in with my spreadsheets and we were talking about different ways of making decisions. He didn't even have a computer on his desk. Right? And I'm in here with all my spreadsheets. And I always thought that, "Oh, my way is better, right? I've got analytics, I've got data." Well he had 40 years of industry experience. A couple of spreadsheets are not going to give you insight that 40 years can do. Now, I think that if you blend those together, you're going to make better decisions than either having just data or just experience. So I think that a lot of the story, comes back to the moneyball, is you can't just think that analytics are going to give you the answer or you can collect some data and then do whatever the data tells you to do. You have to have your expertise in that industry and that experience is certainly valued and it should never be dismissed. ||MUSIC PLAYS|| PHIL: And that is how Moneyball became a success story. Billy Beane married both the baseball stats all other teams overlooked, with the knowledge and insight of his scouts – who carried the industry experience. By asking the right questions, experimenting in his decisions, and working through his failure, the Oakland A’s rose to the top of the league and ultimately changed how baseball teams would build their empires today. ||ROI MUSIC PLAYS|| MATT: So let’s recap. The Oakland A’s discovered a winning strategy while being faced with a major disadvantage – they were completely under-funded compared to the rest of the league. However, that did not stop them from defeating their Goliath’s and rising to the top. If we want our companies to beat industry giants, we need to make four changes and it all starts with data. First, we must be willing to start. Start with simple A-B tests that gives quantifiable answers. Don’t simply collect data to have, either. Ask yourself, “What questions do I need to answer and what data do I need to help answer that question.” Second, be ready to fail at times. The entire computer industry was birthed on the backs of failure – yet it was the lessons they brought that made Bill Gates an industry giant. Third, when we find a winning strategy, keep going. Do not get comfortable because eventually, our competition will find a strategy that will beat ours. Finally, discover a balance of leveraging data and asking our industry experts. Data will have anomalies and experts will miss something important. So if we can bring both to the table, as leaders, we will make the best decision possible. As always, thank you Phil, and thanks for listening. This has been another episode of the ROI Podcast presented by the Indiana University Kelley School of Business.
