Management by Baseball

We don't know who discovered water, but we can be confident
it wasn't a fish -- Father John Culkin

Paul DePodesta, the Assistant GM of the Oakland Athletics featured (not extensively enough) in Michael Lewis' Moneyball, is one of the most interesting of the new statheads in baseball front offices. What separates him from the others is not that his stats are better or deeper, it's that he understands the key, final, most-difficult-to-master concept in the Management By Baseball model: Change.

He understands that to successfully manage and push change, you have to change he changes you deploy, even as you're concurrently fighting to install them in the first place.

Thanks to a link made by Joe Sheehan at Baseball Prospectus, I was blessed with a Paul De Podesta essay on "The Genesis, Implementation and Management of New Systems". It's fantastic. Long, for a web-article, even compared to some of mine, but a delightful exploration of organizational change.

DePodesta's position is not much like the basic stance Lewis took in Moneyball (baseball can learn from investment disciplines), but quite like mine (all organizations have a lot to learn from baseball, because baseball is such an open, public, measureable endeavor).

This one article includes eleven insights and techniques for change management, for designing, pushing and polishing change in an organization combining all of the "bases" in the Management By Baseball model.

This will end up being a multi-part discussion, because there's just to much grist here, but I'll start today

DePODESTA INSIGHT: OUTSIDE BASEBALL BEATS "INSIDE BASEBALL"

Changes make working models outmoded, marginally less efficient. The more you know about the current models, the easier it is to work effectively within them and by being an insider, lose your perspective that you would have as an islander, and outsider. As DePodesta says in his article:

When I joined the Cleveland Indians in 1996, the baseball world was really rich for reform. Fans were still holding a grudge from the strike, salaries were exploding and small market teams were disappearing from the competitive landscape. In short, crisis was emerging and the existing operating paradigm in baseball was totally incapable of solving these new problems.

All of this was very bad for baseball at the time, but as it turned out, very good for me. In retrospect, I had a distinct advantage over everybody else in the industry at the time in that I knew absolutely nothing. I'd played baseball in college but that was about it. Because I knew nothing I observed everything critically and took nothing for granted. I spent my first few years with the Indians analyzing all of their systems, from contracts to player development and scouting. Because I had no preconceived notions over how an organization ought to be run, this was an education for me.

To see what needs to be done, you have to be able to pull yourself far enough away from the status quo's unquestioned assumptions to see reality for what it is. Ignorance alone is not enough, though-- you have to drive yourself to understand what the situation is, and what factors got it to it's current shape and texture.

BEYOND BASEBALL

One of the hallmarks of change is inventions. The U.S. Department of Commerce used to do a study every decade of the most important inventions of the past ten years. That list was always heavily over-populated by people no one had heard of, companies that were not leaders in their fields.

Outsiders are the ones who devise breakthroughs, and frequently they can because they don't let internalized presumptions limit their approach.

DePODESTA TECHNIQUE: INTEGRATING OBJECTIVE MEASURES INTO A SUBJECTIVE SYSTEM IMPROVES IT.

He found the existing paradigm for talent scouting and acquisition was overwhelmingly subjective. In a subjective system, the most self-confident, assertive sounding voice usually wins. Here's a little more from his piece:

In our industry we make a lot of educated guesses on the future performance of people under very stressful situations. Subjectivity will be an element in any decision we make.

The incredible thing is that in subjectivity there are a lot of biases that come into play—emotional opinions or focusing just on outcomes, or even worse, focusing on the most recent outcomes. In baseball it can even take into account the player's physical appearance or worrying about what the press is saying all the time.

Evaluation is really at the core of decision—making whether the field of endeavor is baseball or picking stocks. It was clear to me that using clearly subjective evaluation was shoddy at best. The psychological biases I mentioned, and more, were all in play. Imagine if you made a huge investment in a company after just meeting the management and never even glancing at a financial report. Your entire evaluation would be something like, “the CEO seems smart; he's got a good body on him; and I'm still really angry with that last company that lost all of our money so I'm going to do something and I'm going to do it now.”

The emphasis on the words "focusing just on outcomes" was mine. Context and luck can strongly affect individual outcomes. Let's take an example, an absolutely average batter, Lloyd Waner. Waner broke in in 1927, on the miniscus of some of the most explosive offensive years in baseball history.

Year Ag PA ........BA *lgBA .OBP *lgOB. SL *lgSL OPS *lgOPS* OPS+
+------+--------+-----+----+----+-----+-----+----+-----+-----+---
1927 21 683 100 | .355 .299| .396 .358| .410 .412| .806 .770| 110
1928 22 720 106 | .335 .295| .377 .361| .434 .420| .811 .780| 108
1929 23 726 122 | .353 .307| .395 .371| .479 .447| .874 .818| 114
1930 24 274 .41 | .362 .312| .376 .370| .427 .464| .803 .834| .94

Here's the beginning of Waner's career. A key number is on the far right, OPS+. OPS+ measures the overall effectiveness of a batter's contribution as a ratio of that of the league as a composite. So 100 is exactly average, 100 is 10% better than average, 94 is 6% less productive than average.

In 1927 Waner's batting average was .355 (.355!) and he looked great, but his other contributions, walking and hitting for power were lower than average. Even hitting .355, he was only 10% better than average (and understand, pitchers hitting count in the league average composite). The outcome was he had this high batting average and his team went to the World Series, and his brother who looked a lot like him was the team's offensive star.

In 1928, Little Poison, as he was known, hit .335 and looked great, but the league that year hit .295, Little Poison walked far less than average, and had far fewer extra base hits than average. But his outcome looks great on paper. In reality, it's only 8% better than average.

In 1929, he hit .353. same pattern. The league hit .307, and a rising tide lifts al boats statistically, even perfectly average ones.

In 1930, he managed to hit .362 while underperforming the league composite average by 6%, a remakrable accomplishment. To appear so macho and to be such a drag on his team's overall average production is pretty sad. The "outcome" was Lloyd Waner hit .362, but when you roll in context and the vagaries of chance, his actual performance was ordinary.

Outcomes are important, but you can be fooled if you don't examine them in context, if you ignore the white nosie in your measures.

BEYOND BASEBALL

Beyond baseball, this happens all the time. For example, during the 1995-99 period, it wasn't hard for brokers to make nice-looking returns, say 20% per year in a stock market that went up 27% per year compounded during that time. Chimps with dart boards could make decent returns, because like National League baseball in 1930, the it was so easy to get a hit, it made ordinary performers look stellar.

Another example: A heavily-funded political candidate who wins an election might not be a better campaigner than the people she beat, but the outcome might be affected by a disproportionate amount of money on the winner's side. The outcome though is that the winner looks like "a winner". Yes, she won, but was she the best campaigner? No way to know, because there are too many other factors.

I'll continue this exploration of DePodesta's insights & techniques in my next entry.