Tuesday, November 01, 2005

Management Lessons from DePodesta Firing:
#2 = Unreality, Real Estate, 4th Estate  

If we don't change course soon, we'll end up
right where we're headed--Prof. Irwin Corey

Re-hash: Paul DePodesta, the G.M. of the Dodgers got fired yesterday after two seasons of a five year contract. He's been a lightning rod for the Bitgod contingent (Back in the Good Old Days) of baseball execs and reporters who pine for the social structures of the past, and for two reasons. One, he wasn't perceived as having "paid his dues". Two, he was featured heavily & praised in Michael Lewis' book Moneyball, a work the Bitgods found offensive.

There are key management lessons in this event. This is the second one.

We Imprint on Whatever Made Us Successful;
The More That Success is Core to Our Identity,
The Harder it is to Escape Its Cognitive Grasp

The Dodgers are owned by the McCourts. They are not stupid. They are smart...viewed through the filter of where they came from: Real Estate Development. They are not sufficiently self-aware (Third Base in the Management by Baseball model.)

This is neither an attempt to besmirch them nor to excuse their moves, just describe them in a way that makes sense of their decision-making and also to provide you some insights you might find useful in predicting or interpreting their future behavior.

It's one of those great Steven Wright thangs. ¿Why is it called real estate if it's value is not based in reality? You know the classic mantra commercial real estate brokers use: Location, location, location. To a small degree, there's real-world truth to it. If you build a day care center within ten miles downwind of the Three Mile Island nuclear power plant, or anywhere with 20 miles of the Chernobyl reactors or build your gas station/mini-mart combo in Fallujah or your home in the lowest lying land in the Johnstown flood plain, the market value for your property should be below equivalent market values in safer spots.

That's where the real part of real estate ends, big projects especially. It's about "feelings", "impressions", the ability of the seller to market the property and the prestige (or whatever impression the seller/landlord) is trying to sell. It's much like "branding". Within flexible limits, you can put lipstick on a pig, package Jose Mesa as a closer, or get retailers to pay top dollar to move into your dying mall, if the packaging is right. If it's wrong, you can have a great property people won't snap up. There are a lot of emotions and impressions that go into purchase decisions. I'll quote Dr. James Rigali here, a former real-estate agent: The bigger & more important the purchase is to the buyer, the higher the proportion of emotion that forms the final decision.

To a degree more significant than in other, more tangibles-driven decisions (say steel bars, bituminous coal, what radio station to listen to), Real Estate success is affected by image, intangibles, and not metrics. People who succeed in Real Estate can do that, within some limits, based on a combination of broadcasting images successfully and creative financing, and a lot of unintuitive tax breaks that are mutant anti-free-enterprise wackiness that can make even long-empty space a wash that doesn't put a brake on your overall profitability. In ship-building, you can't do these things.

Note that in baseball, you can market image alone in very specific, unusual contexts. Even the Kansas City Royals (under .400 four of last seven seasons, one season of .500+ ball) sell some season tickets. And franchises like the Cubs can market their lovable-loser image the way a terrible neighborhood can turn yuppie with the right reverse spin.

So the McCourts "know" that to build a successful franchise, whether it's an office park or a baseball club, you need the right image and the outcomes don't matter as much. This knowledge and the successful application of it has brought them success in their primary endeavor greater than almost any of us will ever achieve in our own. They apply what made them successful in their previous endeavor in this one. Their decision to fire DePodesta (and let Tracy go) both seem reasonable if measured in the context of their prior endeavor

Most of us sabermetrics types were very pleased when DePodesta got his chance to be a G.M. It appeared pre-mature from a career evolution perspective, but he was/is undoubtedly a genius and particularly around his understanding of managing and driving change as a competitive advantage.

I'm pretty sure that wasn't why he was hired. He was hired because Moneyball got into owners' hands and passed around. The message was succulent to owners: winning incrementally more without spending more (More With The Same). DePodesta was the co-hero of the book in many ways, and Beane was already busy. DePodesta was like an undervalued commercial property, and one that looked like could make you money.

But real estate, more often than not, is a turnover business. What's a school in the 1960s can be a boutique mall in the 1980s and converted to condos in the 2000s. It just needs to be turned over. Refreshing some appearances if done properly can give the impression of changed value, of better prestige or practicality or whatever image you're trying to broadcast and get the media to help you with.

There's a boutique "mall" in a converted school building in the neighborhood I live in. In 1986, it was a destination shopping spot for the whole middle-class cohort of the city looking for original retailers and quality stuff. The developer just raked it in, but when the local economy tanked, the developers didn't cut rents, they raised 'em. Fewer buyers, fewer dollars, higher rents. You got it, but they didn't (they have a lot of other properties, the biggest and closest actually competes with this one). The place looks like three neutron bombs went off in it (the last two just in case the first missed anyone). It's a Killing Field for Creative Retail.

The developer's solution? They're repainting the building. I'm not making this up. It would be as though the regime that succeeded the Khmer Rouge invested all their energy in building gilded tombs for the massacred. Ridiculous, but remember, this is not a line of business that's dictated by the metrics. I promise you they will get some new victims at the high rents they're telling prospectives they need to pay, and the new paint job will have a part in many renters' decisions.

Hiring DePodesta, apparently a stroke of genius to many, was a classic coat of paint and touch-up for the owners.
Firing DePodesta, apparently a stroke of madness, was a classic strip-down prep to make ready for a new coat of paint and touch-up for the owners.

Where would Donald Trump be without the press? I'm not asserting he's the "average", he's a caricature, but a caricature always takes the truest-looking aspects of the subject and amplifies them. You can broadcast all you want about the image of your property, but if the business press is not transceiving your images (or even contradicting it), you're hosed.

So in the balance of acheivements and image, when the team was making the playoffs on the backs of Evans' and DePodesta's craft and on the owners' money, the bad-horror-movie-moaning of horse's-axes of Plaschke and his peers (The P-Team) was perceived as something to be put up with. When the appearance of the team's quality was no longer sustained by the win-loss record, the relative weighting of the press image, key to the McCourts (and all successful real estate developers), went up. They listened to The P-Team because they felt they needed their support, and they were telling the owners the paint job blew chunks. And as I mentioned in the previous article in this series, Lasorda was peeing in their ears, too, so they had some "expert" opinion to support he P-Team's Initiative. Without the record to sustain him, DePodesta was in a terrible position, hard to defend by anything but the common-sensical one that any viable four- to six-year plan needs some time to play out.

The lesson for managers outside of baseball is a very very important one. Skills and tendencies and patterns we bring from outside an endeavor are very powerful -- for good and ill. When you try to bring you tools from one line of work into a different one, ask the naive question like DePodesta. But when it comes time to apply your existing nifty tools from that other endeavor, ask the question, ¿How might this tool work in this context? and not the statement This is my way of doing that. Context changes the foundation of every practice and decision, and if you don't overcome your programming, especially programming imprinted by success, you will find it ever harder to succeed.

The McCourts are going to struggle with this. The Dodgers' efforts on the field may not, and that's going to be the topic of my next lesson from the DePodesta firing.

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