Monday, January 26, 2004

M. Donald Grant's Met Fever:
When the Bottom Line Is Not Winning  

We idealize the closed, competitive system of baseball and many of us see in it a pure laboratory for testing competing theories for winning. Since the beginning of the game, though, winning has not always been the primary focus of team owners. Sometimes it's been the (financial) bottom line.

Winning just isn't the only prime motivator. Before anyone figured out that having an owner operate two teams was a loser idea (he could load one up with two teams' worth of talent, let the other implode like a remanufactured whoopie-cushion under a sumo wrestler, making more money than he could with two middling teams), 19th century baseball allowed this practice. In the 1950s, the New York Yankees used the Kansas City Athletics as a farm club. At the time it all looked very suspicious, with very good players going from the As to the Yanks and roster plaque going the other way generally. Later documentation indicated the Athletics owner had been patially financed by the Yankees' money, making them, functionally, a part owner that had Kansas City's losing represent a small advantage.

In the 70s, when the Mets board member M. Donald Grant, basically an accountant with some job experience as a stockbroker, took the lead in managing the club's business afffairs, he calculated the incremental value (to the financial bottom line) of wins over about 70 were worth far less than the wins under that number, so he made decisions that would slash expenses and while resulting in more losses on the field, wouldn't affect income to the magnitude of the savings. He even traded the team's marquee player, Tom Seaver, still in excellent form, to the Reds in 1977 for a souvenir ashtray, two pieces of string cheese and a prayer to be said later, just to keep payroll costs down. Grant was fired the next season.

Closer to the present, we have teams that don't have winning as job #1.

The Milwaukee Brewers appear to have taken a step a year ago towards aiming at winning, but for the ten of the last eleven seasons, they've had losing records (in 1996, they were essentially a .500 club), and they've kept their payroll very low, which, while it isn't a deal-breaker, is a partial factor in success. But they've made money during that time anyway, though several other means. For one thing, they have a new stadium for which they didn't pay the tab. For another, they are the recipient of Major League revenue sharing money, skimming bucks off more profitable teams to subsidize their efforts. The Brewer startegy has been very bottom-line, not about excellence. in anything but clever accounting.

The Detroit Tigers have had ten losing records in a row, the last four declining each season. Last year they lost 119 games, and it had never been their intent to win a 2003 pennant. They did, however, have a different excuse. They were rolling out a lot of very raw players to give them high-level experience, and young players keep the payroll low because their negotiation options are very limited. The Tigers were more investing in the future than they were just playing bookkeeper tricks.

If you believe the newspaper reports in their home region, the Seattle Mariners' ownership were just straight out viewing their bottom line as earnings and not as winning. Howard Lincoln, the man who represents the interests of the largest shareholder, has gone on the record saying that winning the division is not significantly better than winning the wild card, and that winning in any one year is not as importnat as just putting a competitive product on the field every year. Insiders I know who are friends with several of the smaller shareholders tell me the owners are primarily (not exclusively) focused on the financial bottom line, showing a profit. Your odds of showing a profit in a fiscal quarter or annum or season are higher if you make that your focus.

As an observer, I'm not critical of that approach, but the odds of winning when your measure is the bottom line when you're competing with others who are pursuing excellence are very low. The Mariners haven't made the kind of popular late-July team-boosting acquisitions that rivals have. The last two years, they have flagged as the flag was in sight. And ownership is fine with that, to the degree it hasn't yet affected the financial bottom line.

And most (not all) of the players who are the kind of players who can help you win are the kind want to play for a winner if they can.


Beyond baseball, the measure of success as financial bottom line is just as sure to corrode excellence unless that financial measure is simply a metric and not a goal. I generally won't take clients whose mission statement is "Increase Shareholder Value" or "Maximize Net". Not because those are not valid or hateful or stupid. It's just that that approach guarantees mediocre product. Because M. Donald Grant was right in his own demented Bookkeeper From Hell way: It is more expensive to outlay for excellence than for mediocrity.

Cost-cutting and tight resource management as a means is necessary part of any success. Endemic cost-cutting as a primary goal in business and government creates laboratories for the invention of long-term mediocrity. All human systems tend to be self-amplifying. The pursuit of mediocrity in output tends to push out those who care deeply about excellence and tend to attract those who have comfort with less-than excellence, so over time, this selects for the talent that is comfortable with the strategy, making it ever less likely (without a big purge) that the mediocrity can be overcome.

There are plenty of organizations that thrive while selling mediocrity, usually to other organizations that themselves are similarly focused. A kula ring of crap. Maybe a fifth of the Fortune 500 are in this zone.

Have you ever worked in an organization that had it's primary mission to maximize shareholder value or earnings? Did it work as a long-term strategy or did the management blow itself out? How long did it take before they failed? How long did it take for them to be held accountable?

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