Sunday, June 27, 2004

Adaptive Mid-Range Planning,
Cleveland Indians-Style  

In the last entry I covered two extreme mid-range planning approaches, the Colorado Rockies' highly-impatient experimental style and the Seattle Mariners' (hypothesized by Steve Nelson) rigid stay-the-course approach that apparently refuses to make quick changes, even small ones, in response to the present situation or trends.

The poster child of the Baby Bear, adaptive version of mid-range planning (a "just right" mix of a steady long range plan that bends in the short- and mid-range to exploit sudden opportunities or changes in the overall or team-specific environment) is the front office of the Cleveland Indians. The previous G.M., John Hart, executed some masterful innovations that took advantage of the team's existing talent acquisition and development strengths, and the current G.M., Mark Shapiro, perpetuated the underlying innovations, but fine-tuned them in a couple of advantageous ways.


On becoming war chief of the Indians in 1988, Hart constructed his organization to make it more diverse and knowledgable throughout, and to make himself replaceable by hiring a truckload of people who could take over his job one day. He complemented the knowledge and skills of the existing staff with ambitious, youngish people who had outside experiences that added to his own repertoire and the organization's, too.

The names of some of these hires are known to students of baseball front offices. Three of them are G.M.s themselves now: Dan O'Dowd (the demon empiricist driving the Rockies' frenetic experiments), Shapiro (who attained Hart's job when Hart left for Texas in 2001), and Paul DePodesta, the intellectual driver for Billy Beane's "Moneyball" approach in Oakland, and now G.M. of the Los Angeles Dodgers). Others are assistant G.M.s in other major league organizations.


Many managers hire dependent or passive assistants so they themselves aren't threatened (I call this the Kahle Model), so that when the organization is on the fence about replacing the manager, there are no attractive, easy internal alternatives. Organizations that want to maintain high accomplishment over the mid- and long-term need the Hart approach, as opposed to the Kahle Model that benefits the manager but costs the organization. (The Mariners' front office, discussed in the previous entry, seem to be working generally in that Kahle Model...when they recently hired a new manager to replace their veteran and headstrong manager, they went outside the organization and hired someone who'd never been a major league manager. When they replaced retiring G.M. Pat Gillick, a successful and veteran G.M., their new G.M. came from outside, too, and wasn't currently a major league G.M. nor particularly experienced as a major league G.M. Apparently, upper management prefers pliancy to track record.).


Hart inherited a fairly rich farm system when he started, an existing strength of the franchise. But while life and natural evolution itself put limits on how long young, cheap talent stays young, baseball labor structures and contracts put a sunset on how long young cheap talent stays cheap. Free agency truncates the amount of time a team might harvest returns on the talent it invests in nurturing. As a result, many teams trim investment in coaching and training, because the shorter the horizon between "now" and when a successful trainee leaves via free agency (or via other mechanisms such as trade because of immanent free agency), the less benefit an individual organization reaps from investing in an individual contributor. This baseball system clearly illuminates why the typical go-go corporate giant that works the system by applying the disposable employee model has been cutting back so much on training & re-education at the exact time every expert says the way the U.S. economy needs to get out of its doldrums is to accelerate re-education & training.

Like all baseball organizations, the Indians kept track of the talent it controlled by using a matrix by position and maturity. With this tool, baseball teams can judge, for example, if they have someone who can take the place of their 34-year old third baseman the team believes will be net-positive for another two or three seasons. They want to have a minor league third baseman who is showing progress in a way that suggests he'll be ready in one or two or three seasons. Well-run baseball organizations tend to be better at this succession-planning approach than not-well run ones.

So the Hart front office judged its young talent and signed selected individuals to multi-year contracts earlier than the major league norm. These contracts tended to be less costly per year, because the talent was less proven. Hart was counting on the congress of good minds he put together to pick out the better young players. And by signing them to multi-year deals earlier, not only were they less costly per year than other multi-year deals, but it made the benefit/cost ratio of coaching and training individuals higher.


A system skills-building organization like this will sometimes produce more young talent for given roles than they need for their succession plan. You can only have so many hard-hitting 1st basemen, even in a league with a designated hitter. There's some incremental value in stocking up talent -- injuries, accidents and mistaken guesses are all easier to cover for if there are next-best alternatives to take the place of the prospect who didn't work out. But there's another thing you can do with "surplus" talent. You can trade the individuals for others who play roles different from what you have been successful in producing. And if you find yourself in a pennant race and want to show your team a vote of confidence and add to your potential for success, you can trade some of your "surplus" talent for one or more players who give you an immediate boost.

It took Hart's front office five years of work to mulch and nourish and fine-tune this system before they started winning big. They had an extraordinary nine-year run, including a five-year streak of getting into the playoffs, no easy accomplishment.

The Hart Model supports long- and mid-term plans well, but provides resources to risk on short-term projects that could make a significant difference in adapting to a sudden environmental or situational need, such as an expensive but about-to-become-a-free agent starting pitcher out of whom you can get a third of a season's use and additional torque for the playoffs, too.


That five-year horizon, was actually a competitive advantage to the Indians. It took other teams five years to see the strength of the model. In all endeavors, competitors will imitate successful experiments. But many organizations don't have the patience to take on and then stick with a plan that even the succesful originator toiled at for five years to see the return in results. That means some might take it on, but fewer will be able to see it through. The cost of entry to successfully imitate the Hart Model is high, not in cash, but in acquiring the right front-office talent and sticking with a long-term plan long enough to see it bear fruit.


Governmental and academic organizations are more capable of resisting the need for quick returns, and can have better luck with a Hart Model approach. Corporate organizations are less capable, especially publically-owned ones, because of the pressures to perform against quarterly or annual P&Ls.

There are, however, Hart Model techniques you can use in any organization. You'll need courage, as all those who refuse to order vanilla every time do. Hart's team broke the unexamined status quo's presumptions, and to do anything particularly successfully, you will have to break the mold.

Why when you acquire young talent that exceeds expectations do you keep them on an "at-will" arrangement? It reduces the benefit/cost of training and investment in her or him, and means she can walk at a time of her choosing. If you sign your young talent Hart-style, to a contract of specific time, higher than what you are paying this very minute, but lower than the longer-term cost you might have to shell out in a couple of years, you have the assurance of her participation on a long enough horizon to make investment pay for itself many times over. Plus you have the additional asset of certainty that you won't need to replace your contributor for N years, a very valuable addition to the bottom line most accountants can't assess.

And when you've invested in a good long-term plan, do you commit 100% of your resources (human talent, money and time) to execution, or do you keep some in reserve to meet immediate needs and wrinkles? Just as the Hart team was able to deploy talent to acquire things because it had kept it in reserve, your projects and efforts benefit from the ability to move quickly in response to surprises good and bad.

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