Management by Baseball

So I consider us lucky today to have a guest column from Brian Kopec (Willie Stargell's swing, Jose Canseco's back) of the Pirate-centric weblog Batting Third.

“We obviously realize the long-term goal is to win a championship
and we need some more players to do that."
Dave Littlefield, GM, Pittsburgh Pirates, July 3, 2004

Have you ever worked for an organization that was under so much pressure to compete in the immediate moment that decisions management made to relieve that pressure undermined the long term competitive goals of the organization? You can clearly see this type of decision-making and its consequences in the competitive and highly-pressurized world of professional baseball.

One of the great things about baseball is the inner workings of management are visible to anyone who can read a newspaper. Every decision, from the sale of ballpark-naming rights to who should be the Class A Minor League team’s pitching coach, is available for us to analyze.

EXAMPLE: THE PITTSBURGH PIRATES The story of the Pittsburgh Pirates over the last decade delivers a prime example of how poor performance begets pressure begets even poorer performance.

In 1992, the Pirates lost in the NLCS for the third straight season. After the season, the team suffered a critical, if predictable, blow when league MVP Barry Bonds left as a free agent. Over the next three seasons, the team stumbled to unimpressive 5^th-, 3^rd-, and 5^th place finishes. The recent history of playoff appearances meant the media and fans granted a measure of patience and latitude with the team’s management.

In 1996, then-General Manager Cam Bonifay announced a five-year plan to bring the Pirates back to a championship level, coinciding with the opening of a new ballpark. As years #2, #3, and #4 of the plan expired, the fans, media and owner began to apply pressure to win now, causing a subtle shift in the front office’s execution.

Rather than building towards a championship, Bonifay’s front office began making transactions designed to achieve short-term success, and the kinds of moves they executed made it probable that short-term meant short-lived, too. The Bucs signed aging veterans such as injury-prone Kevin Young in early 1999 and then in late 2000, they signed Derek Bell (coming off a perfectly 50^th percentile season) both to overpriced contracts. They did this as stop gaps in an attempt to achieve the legitimacy of a .500 record to buffer the pressure from fans, media and the owner.

In 2001, the 5^th year of the plan, Bonifay was fired in the midst of a last place season and replaced as GM by David Littlefield.

Just as when Bonifay was hired, Littlefield was granted a measure of patience by the fans and media because the team had just opened a beautiful new park and because baseball insiders thought the farm system looked buff after years of attention and build-up. Still, pleasant surroundings can only distract the paying customers from a mediocre (at best) present for so long. The pressure is back on. The Littlefield front-office response to it has been eerily similar to the botch-job that bit Bonifay.

This off-season, The Bucs made two transactions that provide mounting evidence that pressure to produce a winner has caused Littlefield’s team to lose sight of their long term goal to win the championship.

11/11/2004: Pittsburgh Pirates re-sign 38 year old relief pitcher Jose Mesa for $2.5 MM.

12/16/04: The Pittsburgh Pirates acquire 39 year old catcher Benito Santiago, along with cash considerations, from Kansas City in exchange for 21 year old pitching prospect Leo Nunez.

In both cases, Littlefield has acquired aged veterans with mixed track records to staff positions at which the organization has younger, better long term options. It can only be an attempt to achieve short-term, short-lived success. Worse yet, in order to acquire Santiago, Littlefield had to spend a promising young pitching prospect. True, prospects like Nunez are nothing more than a fistful of lottery tickets, but each is a lottery ticket that may have a big future payoff. All of 40-year old Santiago’s tomorrows are yesterdays; he’s certain to have no future payoff.

Rather than acquire these veterans, the long term goal of the organization would have been better served by placing ready young players Mike Gonzalez and JR House in those roles. The Pirates chances for contending this year are small – the additional mojo they can get from Mesa and Santiago, if it happens, won’t make their goal of a championship improve, even microscopically. Letting House and Gonzalez occupy those roster slots would also save dollars for future use. And even if they fail, that is valuable information to the long term success of the franchise; it’s feedback on the farm system so the team can know what specific skills it’s doing a good job with, and what other aptitudes prospects need help with to succeed in the majors in the current environment.

BEYOND BASEBALL
I once worked within a small division (we’ll call it M) inside a medium sized company. This division produced and sold a single product: a large, encompassing piece of software designed for a specific, highly specialized industry with a very limited but very wealthy pool of potential customers.

M was a bit of a misfit within the organization, the only division that dealt in technology. The core competency of the company was management consulting and its bread and butter clients were the giant tobacco companies.

Within a couple of years of its debut, M’s product was able to acquire a significant share of the market through M’s willingness to rapidly produce feature-rich releases catered to the smaller players in the industry who were otherwise unable to develop competitive solutions in-house.

Unfortunately, the speed-to-delivery and complexity of the system resulted both in high development costs and poor quality, not a good combo. Still, the overall early strategy was thoroughly defensible: The software product had very little competition and profit potential was tremendous.

As the product matured, the division shifted resources from development to code-stabilization efforts that were necessary to ensure the long term (satisfaction of the customers) health of the business. As the product gradually transitioned from a development phase to more of a maintenance and licensing phase, M moved towards profitability.

MANAGEMENT UNDER PRESSURE
As the 90s came to a close, reality slammed the main parts of the company’s revenue streams with a double whammy: Shrinking budgets for the company’s meat-and-potatoes consulting services and the settlement of the tobacco lawsuits that sucked money out of their biggest clients’ budgets temporarily.

The Board began to apply pressure on M to start pulling its weight. Feeling the heat, M finally achieved profitability by securing major contracts with the two largest players in the industry. M secured the contracts in the same manner it had secured contracts with the smaller players that had been its customers to date. They promised each client a unique, customized software release that catered specifically to their individual business. And they promised to deliver it on a very aggressive schedule.

To meet these new contractual agreements, M shifted resources away from the code stabilization efforts that had been demanded by its legacy customers. As a result, the features added for the two major clients were built on an unstable base, resulting in continual quality acceptance issues. As a result, one of the large clients and two legacy customers eventually ended their relationship with M. Moreover, the other large client imposed contractual penalties that have eaten whatever profits might have remained n the deals.

As a result of the pressure for short term results, M’s management made decisions that ultimately undermined its long term success.

THE PIRATE'S LAMENT: WHY IS THE RUM GONE?
The M division is just like the Pirates.

Years of losing has deteriorated management’s patience and put tremendous pressure to produce a winner (and pronto). To temporarily relieve that pressure (and knowing any relief would be merely temporary), both repeatedly undermined their long term goals by wastefully applying resources that might have contributed to the achievement of those goals.

Can you achieve short-term advantages without undermining long-term goals? Of course, but you have to keep the goals in mind and select from among the available short-term choices that don’t significantly degrade your probabilities for the future.

And under any circumstances, never sign Jose Mesa for a position that has to succeed for you to succeed.