Wednesday, July 19, 2006

In Which the Cleveland Indians' Mark Shapiro Discovers Strategic Gotcha #3  

The stupid think of the past; 
the wise of the present; the fools of 
the future -- Napoleon Bonaparte

Napoleon is halfway right -- when it comes to strategic planning, you can never count on what was past being prologue. The rapid change in the relative strength of the various divisions engenders a different set of objectives to arrive at the goal.

Most Major League teams' owners (except the monetary-profit-through-losing-baseball Kansas City Wal*Marts & the Pittsburgh McClatcheys) share a common goal: to make the playoffs. Note though, the objectives a management team must attain to get to the goal are different depending on which division the team plays in. And there are a bunch of lessons for non-baseball organizations' strategic planning efforts in baseball's current divisional contexts.

A quick rehash of the American League standings as of this writing illustrates the various contexts.

American League Regular Season Standings
Eastern Division
Team W L Pct. GB East Cent West
New York
Tampa Bay
25 - 19
18 - 11
24 - 17
15 - 23
16 - 28
7 - 7
16 - 7
8 - 8
10 - 8
8 - 6
8 - 8
10 - 10
11 - 7
10 - 11
4 - 13
Central Division
Team W L Pct. GB East Cent West
Kansas City
8 - 8
8 - 11
9 - 4
7 - 9
4 - 17
26 - 12
22 - 13
12 - 21
19 - 21
13 - 25
13 - 8
14 - 6
14 - 13
7 - 11
5 - 11
Western Division
Team W L Pct. GB East Cent West
Los Angeles
11 - 9
12 - 11
18 - 13
8 - 10
12 - 14
14 - 10
11 - 12
12 - 17
17 - 12
14 - 13
12 - 10
10 - 18

Source: STATS Fantasy Advantage

Traditionally, the Eastern was the toughest division...For the last ten seasons, the Eastern has had the winningest team 6 times, The Central 3 times, the Western 2 times (a tie granted two different divisions an increment). To win the Eastern, you have to beat the Yankees, and  to have a chance to beat the Yankees you planned on winning 97 games, super tough to do, and even then you'd pass them about half the time over the last 11 seasons. Though w/97 wins you'd capture an occasional wild card berth, and that's essentially equal for the goal of getting into the playoffs. 97 wins in the Eastern Division would give you 4 divisional titles, 2 wild cards and 3 no-goals over the last nine seasons.

The Central has been more balanced, with most teams closer to .500, so winning 92 games in the Central would have given a team 5 divisional titles, 3 wild cards, and 2 no-goals over the last 10 years. In 1997, 86-75 wins earned the playoff spot.

The Western has been more variable, so planning on any fixed number has a lower confidence return

But last year's winningest AL  team was the Central's Chicago White Sox. And this season, as you can see, the Central has been the toughest again, with Detroit and Chicago both playing well over a 100-win pace so far. So the 92 game win theory for the Central is a complete no-op for other Central teams this season, teams such as Minnesota and Cleveland that have won nine of the last eleven divisional titles between them. 

According to the Chicago Tribune's Phil Rogers wrap on Sunday:

In a long interview done over the break with Jim Ingraham of the Lake County (Ohio) News-Herald, Cleveland GM Mark Shapiro admitted he had been trying to put together teams that could win in a weak division, not the AL Central of the last two years. The White Sox won with 99 victories a year ago and were on track for 105 wins at the break this year, four fewer than Detroit.

"We have to re-invent what's around the core, and we have to set our sights higher to win the division," Shapiro said. "The original goal . . . 88 to 90 was good enough to get us in the running every year. . . . But that's not good enough to get us in the running right now, with the depth of our division. And I don't think the Twins, who won the division three years in a row, would win this division this year or last year."

Shapiro is not even remotely a stupid person, nor, do I think, are any of the front office people of , but the Cleveland organization exhibited functionally stupid behavior if they planned on feeling confident they could compete with 92 wins (or the 89-90 Shapiro stated as getting them "in the running").

The first challenge is that most organizations are constrained to the highest point on the yardstick they aspire to. 

So it's usually true that an organization that makes a primary goal of "good enough" is most likely limited to that result, at best. (This ethic is most common in organizations where accounting or finance people dominate strategy because this is a lesson they're taught in grad school and it dovetails nicely with the cognitive map of most finance people who are usually bookkeepers with power.) Sure, an outfit can get lucky, it's competitors can stumble, but when a "good enough" ethic is strong at the top of an organization, the acceptance of squeaking by almost guarantees that excellence will be unattainable. 

And as "good enough" gets closer to perfect entropy...for example an NL West state circa 2005 when San Diego's Fried Friars had their div's sole winning record, and a peckishly positive one at 82-80 at that...the business' strategic plan for "success" loses its apparent requirement of excellence entirely. The aspiration usually becomes mediocrity because within the system in which they live, mediocrity can achieve the goal. In this case, it's getting to the playoffs, but in Sprint's or Verizon's or Cingular's case, it's delivering phone service no more worthless than anyone else's, and that's awfully close to undiluted entropy.

Even well above that entropic event horizon, though, there are pretty dire consequences.

I worked in the marketing department for a company that had had a long tradition of excellent-or-better marketing and technical support. The customers expected both -- that's how they most identified with the company. As a result, the outfit was able to charge relatively high prices for their goods. When the owners brought in venture capital, the VCs brought in a new management team with finance backgrounds. The president, functionally stupid in Napoleon's (and in my) definition knew marketing and customer service were cost centers ergo, it was important to be just "good enough" to squeak by. He once told me we could stop marketing entirely beyond our contracted commitments because the marketing had been so effective -- he called it Return on Image. The lure of coasting on the past memes implanted in earlier times was an attractive option -- but almost certainly doomed to fail. In this company's case, it failed totally. They've had three profitable quarters in the past 14 quarters, and the combined gains in the three positive quarters are smaller than a single quarter's loss during that time.

Planning for "good enough" can enable you to squeak by but it's more likely to lead to cherry pie time, and very very unlikely to lead to serious success.

The second challenge is that more often than not, if a "good enough" strategy gets any positive feedback (in the case of AL Central teams for ten years, an 80% success rate getting into the playoffs with ~92 wins), if soon ebbs from being a consciously thought-out and measured goal to a habit, an unexamined stance.

After a while the participants can forget why they made that decision -- it becomes standard operating procedure. And if the "good enough" cognitive setting types are still in control (& if they're in Finance, they usually are) the original plan becomes internalized to the organization's autonomic behavior set. They will "forget" the solid underlying reasons why this approach was chosen, and therefore be unable to recognize it isn't appropriate to the present situation. The Cleveland Indians are smart enough to have avoided this particular pitfall (Shapiro's comment makes that plenty clear), but most organizations beyond baseball aren't that smart.

The company I was describing earlier went down the tubes with cutbacks to technical support and laughably awful marketing. They managed to survive with clever financial ledger-de-main, although the SEC did ultimately punish the firm's officers for it. But by the time they could have realized their craptastic efforts were killing them, they'd forgotten that excellent marketing and good customer service can make a difference (and had). It was as lost and incomprehensible to them as the strengths of the script and plot of the original Alien was to the nincompoops who made Alien Vs. Predator

In the end, baseball always adapts. The Indians should have realized that the White Sox' 2005 season, with their GM Ken Williams explicitly telling the world the goal was never a single World Series, but back-to-back ones, was not a fluke they could ride out. The Tigers didn't play it that way. The Indians are already planning for the tougher world, adaptive to a degree to which most non-baseball organizations are incapable.

The Ken Williams model, whatever doesn't make you stronger kills you, the idea that nothing less than back-to-back titles, nothing short of competitive excellence, was "good enough", is the winner's model --  and the only probable escape from Strategic Gotcha #3.

In a future entry, I'll explain Strategic Gotcha #4, closely related to #3, but about style/tendency instead of about the amount of quality required to be considered success.

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