Radical Hrm Innovation and Competitive Advantage: the Moneyball Story

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RADICAL HRM INNOVATION AND COMPETITIVE ADVANTAGE: THE MONEYBALL STORY

RICHARD WOLFE, PATRICK M. WRIGHT, AND DENNIS L. SMART Moneyball (Lewis, 2003), a New York Times bestseller, is a book about baseball. When read through a broader lens, however, Moneyball is also a book about innovation, resistance to change, competitive advantage, achieving excellence, and, of most relevance here, human resource management. While many would agree that the radical innovation described in Moneyball represents a “new vision of management” in baseball, this article describes how Moneyball lessons might contribute to a “new vision of HRM” in various types of organizations. The focus of the article is on what HR executives and scholars can learn from the Moneyball phenomenon. More specifically, the authors address a number questions related to the Moneyball story that have relevance to successfully implementing HRM innovations; these questions have to do with overcoming resistance to the implementation of radical innovation and how HRM innovation can contribute to sustainable competitive advantage. © 2006 Wiley Periodicals, Inc.

ow is it that Moneyball (Lewis, eral manager of the Oakland Athletics 2003), a book seemingly about (Lips, 2004)? baseball, was among the Economist’s Moneyball is a book about baseball. When Books of 2003 in the Economics & read through the lens of a management re- Business category, was a New York searcher, however, it is also a book about HTimes bestseller, is referenced in Larry human resource management, innovation, Bossidy’s most recent book (Bossidy & Cha- resistance to change, competitive advantage, ran, 2004), and motivated an argument in and achieving excellence. The focus of this the National Review that American educa- article, therefore, will be on what HR execution would do well to adopt the rigorous tives and scholars can learn from the Money- analysis employed by Billy Beane, the gen- ball phenomenon. While many would agree

Correspondence to: Richard Wolfe, Associate Professor of Sport Management, Division of Kinesiology, Univer- sity of Michigan, Ann Arbor, MI 48109-2214, Phone: 734-615-5218, E-mail: [email protected].

Human Resource Management, Spring 2006, Vol. 45, No. 1, Pp. 111–145 © 2006 Wiley Periodicals, Inc. Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/hrm.20100 112 HUMAN RESOURCE MANAGEMENT, Spring 2006

that the radical innovation (sabermetrics) de- rious. In the Club there was no need to read scribed in Moneyball represents a “new vision the book, and, with the exception of several of management” in baseball, this article de- owners who took an interest, baseball execu- scribes how adopting a broader lens might tives bragged that they hadn’t read the book contribute to a “new vision of HRM” in vari- because, well, it was offensive” (Lewis, 2004). ous types of organizations.1 Moneyball thus describes how Billy Beane First, a bit about the book. Lewis’s best- revolutionized Major League Baseball by ex- seller describes how Billy Beane revolutionized ploiting an inefficiency in the baseball labor Major League Baseball (MLB) by demonstrat- market (i.e., the ability to get on base had ing how maximizing efficiency can leverage been seriously undervalued). Beane exploited limited resources to create a successful out- the inefficiency by implementing a radical come. Bill James, author of the comprehensive human resource management innovation— Historical Baseball Abstract (2001), spent three an employee (player) performance measure- decades challenging the national pastime’s ment and feedback system that allowed him conventional wisdom, applying rigorous sta- to field a highly competitive team while hav- tistical analysis (sabermetrics) to determine the ing one of the lowest payrolls in Major League traits most associated with a player’s true value Baseball. The purpose of this article is to in- to his team. James’s findings were inconsistent vestigate the Moneyball story to glean what with most baseball experts’ opinions, and his lessons are contained therein for HR execu- research was ignored for years. tives and scholars concerning innovation, re- Until, that is, Billy Beane em- sistance to change, and competitive advan- Beane maximized braced sabermetrics and put it into tage all within the context of human resource practice. Beane maximized his management. We address four questions re- his team’s efficiency, team’s efficiency, focusing on play- lated to the Moneyball story that have rele- ers with the traits most important vance to successfully implementing human focusing on players for winning ballgames, rather than resource management innovations: (1) why with the traits most those with impressive traditional did it take so long for the sabermetrics inno- statistics. The strategy worked: over vation to be adopted? (2) how is it that Beane important for the past five years, Beane’s Athlet- was successful in having sabermetrics imple- ics have been near the top of the mented by the A’s? (3) does sabermetrics pro- winning ballgames, league’s standings despite being vide a competitive advantage, and if so, how? rather than those outspent by nearly all their com- and (4) is the competitive advantage provided petitors (Lips, 2004). by sabermetrics sustainable? with impressive Outside the “Club” of base- In investigating each of the above ques- ball’s establishment, the level of in- tions, we discuss (a) current management lit- traditional statistics. terest in the ideas presented in the erature related to the question; (b) how that book has been considerable. The literature plays out in the Moneyball story; Oakland Athletics’ front office has and (c) implications for the HR executive. had calls from a cross-section of U.S. business The article concludes with a general discus- and sports entities: teams from the NFL, NBA sion of the relevance of the Moneyball story and NHL; Wall Street firms, Fortune 500 com- to HR executives. Prior to addressing these panies, and Hollywood studios. The people questions, we briefly describe the relevance most certain they had nothing to learn from of the Moneyball story in today’s HR context the book, however, were in the front offices of and the radical innovation at the center of other major league teams (Lewis 2004). Lewis Moneyball—sabermetrics. argues that “they were ‘a Club.’ In business if someone exposes the trade secrets of your Moneyball and the Current HR most efficient competitor, you’re elated. Even Context if you have your doubts, you grab the book, peek inside, check it out. Not in baseball. In As firms face increasing global competition, baseball many of Beane’s competitors were fu- rapid technological change, and a growing

Human Resource Management DOI: 10.1002/hrm Radical HRM Innovation and Competitive Advantage 113 trend toward commoditization of product and there being more of a focus on (new) sta- markets, they must find ways to better lever- tistics, certain in-game decisions (e.g., sacri- age their human capital (Wright & Snell, fice bunts, stolen bases) are discouraged 2005). This requires a massive rethinking of within a sabermetric approach. Although, in the role of HR and a revolutionary approach the traditional baseball view, these tactics are to managing people in organizations. Unfor- often associated with a team’s ability to tunately, a number of writers have found “manufacture” runs by advancing a base run- that HR functions serve as bureaucratic ob- ner, the sabermetric approach eschews game stacles, rather than drivers of positive change tactics that accept a very likely out to ad- in organizations (Hammonds, 2005; Losey, vance a runner without significantly increas- Meisinger, & Ulrich, 2005; Stewart, 1996). ing the probability of scoring runs (James, While many authors bemoan the current 1986; Katsunori, 2001; Lewis, 2003). That is, state of HR, few present a coherent plan or in-game decisions based on tradition or intu- vision for how to dramatically change the ition give way to decisions based function. Such change requires radical inno- on statistical probability, which vations in how HR professionals design and works against bunting and steal- implement processes aimed at building com- ing.2 In essence, the petitive advantage through people. These are sabermetrics changes that do not generally characterize Sabermetrics and HR HR functions. While one might look to com- approach described pany stories such as Continental Airlines In essence, the sabermetrics ap- (Carrig, 1997), or IBM (Gerstner, 2002) for proach described in Moneyball is in Moneyball is ideas concerning how to drive organiza- relevant to issues corporations tional change, perhaps the story presented in and HR functions confront. First, relevant to issues firms must develop a competitive Moneyball serves as an appropriate bench- corporations and HR mark. strategy. Such a strategy should be consistent over time, providing a functions confront. Sabermetrics: The Foundation of way to differentiate the firm from competitors while requiring ap- Moneyball propriate tactical decisions made Sabermetrics refers to a statistically based ap- in response to industry and local proach for developing and applying objective conditions. Sabermetrics has resulted in knowledge to baseball. This statistical ap- strategic modifications in terms of human proach is an important determinant of player capital strategy and in-game, tactical deci- evaluation and of “in-game” tactics (e.g., sions in baseball. bunting, stealing). The term derives from Second, firms must hire individuals to ex- SABR, the acronym for the Society for Ameri- ecute their strategy. These hiring decisions can Baseball Research. Historically, assessing entail identifying relevant knowledges, skills, player talent favored future potential over and abilities (KSAs) and then developing past performance; sabermetrics, on the other measures that validly assess those characteris- hand, focuses on past performance as a pre- tics. Sabermetrics focused baseball’s attention dictor of future performance. While statistics on different KSAs than were previously con- (e.g., batting average [BA] and earned run av- sidered relevant and then offered new ways erage [ERA]) were used previous to its advent, of assessing those characteristics. It is these sabermetrics has contributed different statis- areas of overlap (i.e., modifications in human tics, which it is argued, are better predictors capital strategy, in tactical decisions, in rele- of player contribution to team performance vant KSAs, and in KSA assessment) that make (e.g., on-base percentage plus slugging per- Moneyball an interesting example of how centage [OPS]). In addition to player assess- firms might exploit better information to ment and selection becoming oriented more build human capital strategies that result in toward performance, as opposed to potential, competitive advantage. We argue that the les-

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sons gleaned from sabermetrics (as described • Organizational Focus—administrative in Moneyball) may provide unique insights versus technical—the aspect of the or- into how firms might achieve competitive ganization to which the innovation is advantage, and it is in this context that we most relevant; examine the questions that follow. • Radicalness—the extent to which an innovation is novel, represents change, Why Did It Take So Long for and thus implies new behaviors; Sabermetrics to Be Adopted? • Magnitude—the extent of change to existing structure, personnel, and financial New statistics similar to those used in saber- resources implied by an innovation; and metrics were proposed close to 50 years prior • Pervasiveness—the number of organiza- to the Athletics’ adoption of sabermetrics in tional members who are expected to 2001. Bill James, author of the change their behaviors due to the inno- comprehensive Historical Baseball vation (Wolfe, 1995). In addition to an Abstract (James, 2001), spent three decades challenging the na- While uncertainty is inherent to the im- innovation’s tional pastime’s conventional wis- plementation of most innovations (Kanter, dom, applying rigorous statistical 1988; Storey, 2004; Tushman & Nelson, attributes, analysis to determine the traits 1990), given that they are intangible, administrative innovations, HRM innovations tend organizational most associated with a player’s true value to his team. James’s to be characterized by considerable uncer- context is an findings and his approach were ig- tainty. Radicalness, magnitude, and perva- nored for years. In 1954, long be- siveness can each contribute to the uncer- important fore James’s seminal work, Branch tainty that surrounds the implementation of Rickey, then-general manager of an HRM innovation. Uncertainty, in turn, determinant of the Pittsburgh Pirates, proposed a contributes to innovation resistance, which is innovation adoption new statistical approach for as- often unrelated to the objective merit of an sessing batting proficiency innovation, depending rather on the struc- and implementation. (Rickey’s approach emphasized tural and personal consequences it implies. on-base percentage, as does saber- In addition to an innovation’s attributes, metrics). These early signals con- organizational context is an important deter- cerning new, potentially superior approaches minant of innovation adoption and imple- for assessing player talent were ignored for mentation (Damanpour, 1991). In tradition- decades. How might we explain that? bound organizations, strategic frames of reference, which had provided direction, The Management of Innovation often become blinders; established processes, Literature which had provided efficiencies, become mindless routines; commitment to particular We turn to the management of innovation lit- constituencies (e.g., employees, suppliers), erature for insights concerning delays in imple- which had provided resources, restricts flexi- menting novel ideas. As argued in that litera- bility; and values, which once unified and ture, implementing organizational innovations inspired, harden into rigid rules and regula- is dependent upon an appreciation of the at- tions (Sull, 1999). Tradition-bound organiza- tributes of a focal innovation (Damanpour, tions thus are not prone to change, certainly 1991; Wolfe, 1995). Attributes that are most rel- not to radical innovation (Hamel, 1996; evant to the adoption and implementation of Miller, 1990) as “core capabilities” become HRM innovations are as follows: “core rigidities” (Leonard-Barton, 1992). In tradition-bound institutions such as Major • Uncertainty—lack of knowledge con- League Baseball (MLB), the frames of refer- cerning the link between an innovation’s ence, established processes, constituency inputs, processes, and outcomes; commitments, and restrictive values de-

Human Resource Management DOI: 10.1002/hrm Radical HRM Innovation and Competitive Advantage 115 scribed by Sull can interact in a manner that logical advances and related improvements in reinforces the status quo. the precision with which physical characteristics (e.g., running speed, arm strength) are The Management of Innovation measured, not in the characteris- Literature and the Moneyball Story tics that are assessed.

Tradition Resistance The inherent Why would it be that MLB teams, wealthy The roles of the field manager and routinization of and otherwise, would be resistant to adopt- of the scout change dramatically sabermetrics means ing means of assessing talent that would re- with the adoption of sabermetrics. sult in paying less for a given level of talent? These changes imply serious chal- that making and We suggest that one explanation lies in MLB lenges to the extant skills as well being very tradition-bound and character- as to the job security of individu- implementing ized by deep respect for convention and als in these roles. In MLB’s con- precedent. The past commissioner of MLB, ventional way of doing things, decisions becomes Fay Vincent, expressed this powerfully and field managers have significant relatively simple, succinctly: “Baseball is all about memories” control over talent selection and (Vincent, 2005). over in-game tactics. This “field and the supply of MLB has a very rich history and strong manager-centric” orientation, tradition. Continuity and common experi- however, is inconsistent with full people qualified to ence are endemic in MLB. Since 1990, ap- implementation of sabermetrics fill related roles proximately 85% of field managers have had wherein the field managers have a MLB playing experience. The remaining 15% greatly diminished role (e.g., in becomes more have had significant minor league manage- talent selection and in-game tac- rial, major league coaching, and/or front of- tics that are based to a consider- abundant. fice experience (Holtz, 2005). Similarly, vir- ably greater extent on statistics). tually all MLB coaches have considerable As described in Moneyball, Beane professional baseball backgrounds, and hired Art Howe as the Athletics’ manager be- scouts are former professional players and/or cause he believed that Howe would follow have been trained by the MLB Scouting Bu- the instructions of the front office. reau. Until the advent of sabermetrics, this Adopting sabermetrics also results in a dra- was the case with front-office personnel (e.g., matically decreased emphasis on professional general managers, directors of baseball oper- discretion and an increased emphasis on sta- ations, scouting directors) as well. tistics on the part of scouts and administrators Although certain aspects of baseball have responsible for evaluating and selecting talent. changed over the years (e.g., the designated Moreover, these scouts and administrators are hitter rule, specifications concerning the ball, unlikely to have considerable training in sta- the height of the pitcher’s mound), preferred tistics. The inherent routinization of sabermet- player characteristics have remained constant. rics means that making and implementing de- The desired attributes of position players cisions becomes relatively simple, and the focus on the “five tools” (hitting for average, supply of people qualified to fill related roles hitting for power, fielding, foot speed, and becomes more abundant. Resistance to saber- arm strength) while those of pitchers focus on metrics thus can be understood as the natural three factors (arm strength, number of pitches reaction to a radical innovation that chal- thrown, and control). “Make-up” (i.e., charac- lenges extant skills as well as job security. The ter, personality) attributes such as aggressive- following statements are indicative of this: ness, instinct, dedication, and work ethic apply to both position players and pitchers. A lot of what scouts feel they do is based Until very recently, changes in the evaluation on gut instinct, their history of being in of potential talent have been due to techno- the game . . . their experience. They

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have a hard time quantifying it. . . . as T-groups or handwriting analysis, most HR they see all these . . . charts and graphs professionals can be characterized as risk- . . . and maybe when you don’t under- and change-averse. stand something, you feel a little chal- However, HR professionals are not alone lenged by it. (Gary Hughes, Chicago in resisting to change to HR practices. Snell Cubs’ assistant GM and MLB scout for and Dean (1994) have noted that HR systems 30 years, in Schwarz, 2005) are notoriously intractable. Wright and Snell (1998) suggested that this stems in part from . . . the main adversarial thing is that individual users’ (e.g., HR’s managerial clients) some of our old-time guys are losing discomfort with changing their normal rou- jobs that we didn’t feel they should be tines. For instance, despite significant research losing....we correlate it to the fact that support for the superior validity of structured some of the computer stuff is causing behavioral interviews over traditional unstruc- that, and we resent it. (Eddie Bane, the tured interviews, many companies and inter- California Angels’ scouting di- viewers continue to use the latter. In many rector, in Schwarz, 2005) cases, interviewers are unwilling to cede deci- HR has been sion-making control to a formulaic score, pre- We see then that due to its ferring to use their intuition built up over criticized for its tradition-bound nature, MLB has years of experience. not been prone to change, cer- While all firms seek to leverage their administrative tainly not to radical innovation. As human capital as a competitive weapon, few bureaucracy, argued above, in tradition-bound seem to have done so successfully. The past institutions such as MLB, frames of few years have increasingly focused HR prac- unwillingness to reference, established processes, titioners’ attention on HR metrics (Becker, constituency commitments, and Huselid, & Ulrich, 2001; Fitz-Enz & Davison, change, and inability values interact in a manner that re- 2001), but in large part these efforts have not to add value… inforces the status quo. Moreover, led to developing better measures to assess the attributes of sabermetrics (i.e., previously identified phenomena or to mak- it is a radical, administrative, per- ing better use of existing measures. With the vasive innovation with considerable magni- notable exception of the Sears story (Rucci, tude) create considerable uncertainty and Kirn, & Quinn, 1998), efforts to develop HR resistance to its implementation. This uncer- metrics have seldom led to comprehensive tainty and resistance are exacerbated by the questioning of either business tactics or perceived threat of sabermetrics to extant job human capital strategy. This omission stems skill sets and to job security. from HR professionals tending to be tradition-bound and risk-averse (Hammonds, Implications of the Moneyball Story 2005) and from the fact that such a compre- for the HR Executive: Relating the HR hensive, sabermetrics-type approach would Context to MLB be radical, of significant magnitude, quite pervasive, and, therefore, characterized by While the context of HR varies considerably considerable uncertainty. We now return to at the level of the organization (e.g., public the Moneyball story to see how sabermetrics vs. private, large vs. small, technology vs. was successfully implemented in spite of a manufacturing vs. service, etc.), the profes- similarly unfavorable context. sion of HR in many ways resembles the tradition-bound nature of MLB. HR has been How Did Beane Successfully criticized for its administrative bureaucracy, unwillingness to change, and inability to Implement Sabermetrics in the add value from Drucker (1954) to Stewart Oakland Athletics? (1996) to Hammonds (2005). While willing As described earlier, MLB is a tradition- to occasionally chase after certain fads such bound institution with what have become

Human Resource Management DOI: 10.1002/hrm Radical HRM Innovation and Competitive Advantage 117 limiting frames of reference, processes, and zation’s context, the less “pushing” of the constituency commitments that interact in a innovation and trying to enlist increasing manner that reinforces the status quo. Con- levels of organizational support is necessary siderable force or energy would be necessary on the part of the champion. to counter these inertial forces. What was the As argued earlier, MLB had become an force, or energy, that resulted in sabermetrics unwitting prisoner of industry convention. being adopted by the Oakland A’s? Hamel and Getz (2004) argue that to counter such convention and resulting iner- The Management of Innovation tia with radical innovation, an understand- Literature: Overcoming Resistance ing must emerge that standard industry practices have become “dogma” justified Given the uncertainty surrounding most solely by precedent. An innova- HRM innovations (HRMIs) and due to po- tion champion, therefore, is nec- tential resistance, HRMI implementation is essary to challenge deeply held A champion’s efforts determined by a combination of the power convention. In addition, a semi- of an innovation champion and by organi- nal element of organizational are necessary to zational context. The presence of an inno- context, discontinuities in tech- counter inherent vation champion—the individual who pro- nology, is often an important de- vides energy and momentum to the terminant of radical innovation organizational implementation process by advocating and (Hamel & Getz, 2004). promoting an innovation—is an important resistance to determinant of successful innovation imple- The Moneyball Story and change; a new idea mentation (Howell & Higgins, 1990). A Overcoming Resistance champion’s efforts are necessary to counter either finds a inherent organizational resistance to As discussed earlier, the context change; a new idea either finds a champion surrounding the Oakland A’s was champion or dies. or dies (Schon, 1963, 1976). Predicting inhospitable to sabermetrics. The HRMI consequences is inherently uncertain, very strong influence of tradition and the innovation’s very existence can be and history (i.e., “Baseball is all about mem- threatening to vested interests, so such in- ories” [Vincent, 2005]) worked against inno- novations tend to stimulate political activity vation. The threat of sabermetrics to extant (Johns, 1993). The relative power of organi- skills and to livelihoods resulted in consider- zational actors resolves such activity. While able resistance to the innovation. As sug- a champion is necessary to personify and gested in the innovation literature, in such make an administrative innovation tangi- situations, innovation implementation is de- ble, his/her power is also necessary to pendent upon the innovation champion counter threatened groups with necessary having considerable organizational power. power and authority (Galbraith, 1982). A As described by Lewis, Beane was the pro- critical component of successful implemen- totypical innovation champion. He had the tation of HRMIs, therefore, is the existence necessary energy, commitment, and organi- and power of an innovation champion zational power to propel the adoption and (Wolfe, 1995). implementation of sabermetrics. Lewis de- In addition to the power of the innova- scribes Beane as a man of boundless energy: tion champion, organizational context is an “It was hard to know which of Billy’s quali- important determinant of HRMI implemen- ties was most important to his team’s suc- tation. These two innovation determi- cess: his energy, his resourcefulness, his in- nants—champion power and organiza- telligence, or his ability to scare the living s--- tional context—interact in HRMI out of even very large professional baseball implementation such that one can compen- players” (2003, p. 153). In addition, Beane sate for the other (Wolfe, 1995). The more was committed to sabermetrics; it was congruent an innovation is with an organi- Beane’s way or the proverbial highway. Only

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one-half of the scouts that were with the A’s However, when an HR innovation im- for the 2002 draft described in Moneyball re- pacts those outside HR, in particular the line main with the team. In addition, Beane was organization (i.e., it has significant magni- (almost) all-powerful, reporting only to team tude and pervasiveness), an external cham- ownership. pion will likely be required. For instance, A second important determinant of the Dave Pace, SVPHR at Starbucks, describes the implementation of sabermetrics were ad- fact that after reading Moneyball, the chair- vances in computing technology, mainly man and CEO, Howard Schultz, tasked HR powerful PCs, that provided the fast, pow- with the challenge of identifying Starbucks’s erful computational capabilities necessary equivalent of OBP. Such a champion, exter- for implementing the innovation. We see nal to HR, bodes well for Starbucks’s ability then that both a powerful innovation to push this innovation through to success- champion and discontinuities in technol- ful implementation. ogy were in place for the adop- The implementation of global HR infor- tion and implementation of mation systems (HRISs) has become almost sabermetrics by the Oakland A’s. ubiquitous within large multinational corpo- …adopting a rations. These systems compile and store a vast amount of data on all employees, across sabermetrics-type Implications of the Moneyball Story for the HR all jobs, worldwide. These data provide the approach to HR Executive: The Importance foundation for building a sabermetrics-type of the Innovation approach to HRM. The effective use of HRIS should require an Champion in this manner, however, as in the case of sabermetrics, necessitates effective champi- energetic and HR professionals are not generally oning as well as significant technological known for their organizational charismatic knowledge and support. power or their ability to effectively champion. champion change within their or- Does Sabermetrics Provide a ganizations. Authors who advocate implementing HRM innova- Competitive Advantage, and if So, tions inevitably cite the need for “support How? from top management” as a prerequisite to ef- The Strategic Management fective implementation. This is not surprising Literature given the history of HR and its place as a staff function. Consequently, adopting a sabermet- In an effort to assess how sabermetrics rics-type approach to HR requires an energetic might provide a competitive advantage, we and charismatic champion. employ the resource-based view (RBV) of Depending upon the nature of the inno- the firm, a perspective that has emerged as vation, two types of champions might emerge. a major strategic paradigm (Berman, Down, For internal HR innovations a visionary and & Hill, 2002). According to Barney (1991), a intelligent senior vice president of human re- firm’s resources “include all assets, capabili- sources (SVPHR) might effectively champion ties, organizational processes, firm attrib- the program. For instance, Randy McDonald, utes, information, knowledge, etc. con- as SVPHR at Verizon, pushed through the de- trolled by a firm that enable the firm to velopment of an HR scorecard (Walker & Mac- conceive of and implement strategies that Donald, 2001), one of the first of its kind. improve its efficiency and effectiveness” (p. Since becoming the SVPHR at IBM, he has im- 101).3 As argued by Barney (1991, 1995), plemented a similar, yet more extensive HR the RBV stipulates that firms are endowed scorecard. Because the scorecard largely im- with heterogeneous bundles of resources pacts only the HR organization, he was able to and that competitive advantage accrues if, effect the innovation without a significant and only if, a resource (or bundle of re- champion external to the HR function. sources) is:

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(1) valuable, in the sense of enabling Implications of the Moneyball an organization to conceive of and/or Story for the HR Executive: implement strategies that exploit op- Achieving Competitive Advantage portunities and/or improve its effec- via HR Innovation tiveness and One can certainly see how sabermetrics en- ables the Oakland Athletics to achieve supe- (2) rare, among current and potential rior performance at lower cost. The superior competitors. A resource that is pos- use of data to exploit information asymme- sessed by a large number of organiza- tries gives the team the ability to attract tions will not be a source of competi- high-quality players at a lower than market tive advantage. price. Imagine how valuable it would be for The Moneyball Story and the companies to have the ability to identify, at- Strategic Management Literature tract, and retain superior talent at a cost advantage relative to competitors. Sabermetrics works. The Athletics’ ap- Returning to the HRIS example, note proach to identifying hitters with superior that vast reservoirs of data now exist that skills at reaching base without paying a have the potential to provide insight con- market premium for them has resulted in cerning the characteristics of the most tal- winning games at a discount relative to the ented employees and their location within competition. Beane’s A’s have been near the organization. While such data may be the top of the league’s standings despite embedded in the system, without the abil- being outspent by nearly all their competi- ity to exploit that data, an expensive HRIS tors (Hakes & Sauer, 2004; Lips, 2004). becomes virtually useless for gaining com- Table I presents evidence of this. petitive advantage. For example, one HR Since Billy Beane took over the Athlet- executive in a working group on HR func- ics prior to the 1998 season, the team’s tional excellence described his firm’s HRIS winning percentage has increased dramati- as follows: “$200 million later, now I know cally, while the team’s payroll has de- how many employees I have . . . almost.” creased just as dramatically. By identifying On the other hand, IBM has increas- players with superior skills not so identified ingly focused on how it might exploit the by competitors, sabermetrics meets the information embedded in its HRIS as a way RBV “value” criterion. When implemented of outperforming competitors. IBM’s HRIS by Beane (in preparation for the 2002 contains information on each consultant’s draft), sabermetrics met the RBV “rare” cri- skills and experience relevant to a number terion as well. Based on the RBV criteria, of different types of consulting projects as therefore, we see how sabermetrics can pro- well as each consultant’s salary and loca- vide a competitive advantage. tion. IBM’s consulting opportunities arise

TABLE I Oakland A’s: Wins/Costs

1991–1997 1998–2005 2002–2005*

Win % 47.5 56.5 58.3 Win % Rank** 18.1 8.2 8.3 Payroll Rank 12.7 24.8 22.3 Cost/Win Rank 17.6 4.4 5.8

* since the Moneyball draft. ** among 30 teams

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all around the globe for limited periods of these resources will be at a disadvantage. time; the firm needs to identify the skill While it is relatively easy to purchase physi- sets of consultants and how they match cal resources or software, this is not the case various project requirements. Conse- with socially complex resources (i.e., organi- quently, IBM has gained a competitive ad- zational phenomena such as trust, friend- vantage through leveraging the informa- ship, teamwork, culture, and reputation). tion in its HRIS to find (a) the right The importance of history and related so- consultant (i.e., with the relevant skills and cially complex resources foreshadows the experience), (b) the right place (i.e., at or fourth RBV criterion: closest to the project geographically), and (c) the right price (i.e., the lowest cost con- (4) organization; the firm must be or- sultant). Thus, IBM is able to exploit HRIS ganized such that it can realize a com- information to have successful projects petitive advantage based on resources that are extremely cost-effective that add value, are rare, and are imper- (Kirkpatrick, 2005). As does fectly imitable/substitutable. sabermetrics for the Oakland A’s, In addressing IBM’s HRIS contributes a com- Organizational components are consid- petitive advantage by providing ered complementary resources as they have imitability, it is valuable information that is rare very limited ability to contribute to compet- helpful to consider in its industry. itive advantage directly. Their true value comes in combination with other resources the importance of Is the Competitive and capabilities (Barney, 1991, 1995). Nu- Advantage Provided by merous aspects of a firm’s organization (e.g., history as well as structure, control and reward systems, com- Sabermetrics Sustainable? socially complex munication, and leadership) are relevant The Strategic Management here. resources. Literature In his article “What Is Strategy?” Porter (1996) makes some RBV-related arguments We return to the RBV to address that are relevant to the sustainability of com- the potential of sabermetrics providing a sus- petitive advantage. Porter argues that com- tained competitive advantage. In addition to petitive advantage arises from an organiza- the RBV “value” and “rare” criteria discussed tion’s choice of unique activities and/or by earlier, to contribute to a sustained competi- performing activities more efficiently than tive advantage, a resource must meet two competitors. He argues further that increased further criteria that we consider in turn. diffusion of best practices in today’s environment often results in competitive advantage (3) It must be imperfectly imitable/sub- being temporary. stitutable in the sense that competing Porter proposes that activities—their organizations face cost and/or quality choice and/or their performance (i.e., how disadvantages in developing a dupli- they are implemented)—form the bases of cate of the resource or in developing an sustainable competitive advantage. He states appropriate substitute for it. that firms’ competitive advantages (e.g., those of Southwest Airlines and Ikea) are In addressing imitability, it is helpful to based on unique, tailored sets of interlocked consider the importance of history as well as activities, with entire business systems of ac- socially complex resources. As organizations tivities fitting and reinforcing one another. evolve, they acquire skills, abilities, and re- Strategic fit among activities reduces costs sources that may be unique to them. When- and/or increases differentiation and is funda- ever the acquisition or development of valu- mental to the sustainability of competitive able and rare resources depends upon unique advantage. In other words, it is more difficult historical circumstances, those imitating to match an array of interlocked processes

Human Resource Management DOI: 10.1002/hrm Radical HRM Innovation and Competitive Advantage 121 and activities than it is to imitate one or two Athletics’ socially complex resources (i.e., the processes, or activities. front-office structure, teamwork, and culture developed by Beane as well as his leadership) The Moneyball Story and Sustained will result in those attempting to imitate Competitive Advantage sabermetrics being at a disadvantage. While a competitive advantage was created by the The Oakland A’s created competitive advan- Athletics’ choice of implementing sabermet- tage through their choice to implement rics, their competitive advantage may be sus- sabermetrics. During and following the 2003 tained by performing sabermetrics more effi- season, however, two senior managers from ciently than their competitors (Porter, 1996). the Athletics’ front office were hired as general managers by the Toronto Blue Jays and Moneyball, Sabermetrics, and the Los Angeles Dodgers (Saraceno, 2004). In Sustained Competitive Advantage: addition, the Boston Red Sox hired the father The Future of sabermetrics, Bill James, in an advisory ca- pacity (Hakes & Sauer, 2004). Obvious ques- Preliminary research of the imple- tions that come to the fore are: (1) is saber- mentation of sabermetrics pro- Very preliminary metrics, as implemented by the A’s, imitable? vides some insight into another and (2) given the movement of senior man- way that this innovation might analyses indicate agers from the A’s, who were closely involved lead to a sustainable advantage. that competitive in implementing and administering saber- This research indicates that an metrics, has the Athletics’ competitive ad- MLB team, the Cleveland Indi- advantage provided vantage been lost? ans, under the leadership of Gen- Very preliminary analyses indicate that eral Manager Mark Shapiro and by sabermetrics competitive advantage provided by saber- his top management team, has may not be metrics may not be sustainable. Hakes and adopted an innovative, inter- Sauer (2004) argue that sabermetrics has locked systems approach in im- sustainable. spread with sufficient speed that prices in plementing sabermetrics. The In- baseball’s labor market no longer exhibit the dians have done so through the “Moneyball anomaly,” that the market ineffi- design and implementation of two propri- ciency disappeared when Athletics’ man- etary programs—DiamondView and Player- agers were hired to run competing fran- Plan. These two innovative programs incor- chises. We maintain, however, that it porate the four functions of the HRM cycle remains too early to make a definitive state- (recruiting and selection, appraisal, training and ment concerning the sustainability of the development, and compensation). Consistent Athletics’ sabermetrics-based, competitive with Porter’s interlocked business systems ar- advantage, as their advantage may be sus- gument, the HRM cycle should operate as a tained by performing sabermetrics more effi- congruent, reinforcing system. Also consis- ciently than their competitors. It might be tent with Porter, to the extent that sabermet- that the Athletics’ unique historical circum- rics is limited to any one HRM subsystem stances and related organizational structure (e.g., recruiting and selection), its sustainability and systems developed by Beane, as well as will be limited while to the extent that saber- his leadership, will result in a disadvantage metrics is implemented in a systematic, ho- for those attempting to imitate sabermetrics. listic manner, the sustainability of advan- Porter’s ideas concerning interlocked ac- tages gained will be greater. tivities as well as Barney’s proposition that to The Indians’ DiamondView is a compre- sustain a competitive advantage a firm must hensive player database system that is up- be appropriately organized are relevant here. dated electronically on a daily basis. It con- In addressing whether the Athletics’ saber- tains scouting reports, player statistics, metrics-based competitive advantage will be biographical information, injury reports, sustained, it is useful to consider whether the video footage, player contract and team

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payroll information, and notes from trade Implications of the Moneyball Story discussions for the nearly 6,000 major- and for the HR Executive: Achieving minor-league professional baseball players. Sustained Competitive Advantage The purpose of the system is to increase the precision of appraising players’ performance The potential of a sabermetrics-type HR ap- and value. DiamondView thus facilitates re- proach to constitute a source of sustainable cruiting and selection and has also facilitated competitive advantage is relatively high. the determination of optimum team salary Such an approach would require HR profes- distributions (Vinella & Mangels, 2003). sionals with substantial skills in strategic PlayerPlan is a detailed program for thinking, analytics, and change manage- player training and development. The objective ment. In a recent study conducted by Towers of PlayerPlan is to precisely evaluate and im- Perrin (2005), however, these were three of prove each player’s skills. Coaches and in- the five lowest-rated skills of existing HR pro- structors determine a player’s fessionals. needs (physical, baseball funda- In particular, HR professionals facile with The potential of a mentals, mental) and develop a data are few and far between. As Carrig and plan to overcome identified defi- Wright (in press) note, analytical skills be- sabermetrics-type ciencies. The manager and player come more and more important within an discuss the plan, with the objec- information-based economy. Too often, “in- HR approach to tive of the player taking owner- formation” is defined only with regard to constitute a source ship. The plan is added to the products and services related to external cus- player’s file in DiamondView tomers, rather than information being recog- of sustainable (Vinella & Mangels, 2003). nized as having critical importance to the in- We see then that the Cleve- ternal workings of organizations. Yet few HR competitive land Indians use DiamondView professionals have requisite skills to analyze data in a way that might enable the firm to advantage is and PlayerPlan in (a) recruiting and selection, (b) appraisal, (c) create performance advantages. relatively high. training and development, and Note that this state of affairs stems logi- (d) compensation. We believe that cally from the facts that (a) HR has never had this systematic, holistic approach to analyze much data because (b) organiza- taken by the Indians in applying Moneyball tions did not have much data to analyze and insights, consistent with Porter’s arguments (c) past technology did not allow for efficient concerning unique, tailored sets of inter- data analysis. As we have seen and discussed, locked activities that reinforce one another, the technology now exists, and it is being will contribute to the sustainability of advan- combined with vast reservoirs of data. The tages gained. Importantly, the Indians’ HR in- only missing piece to the puzzle is the HR novations have been implemented by what professional’s competency to use the tech- Chen (2004) has described as “the new breed nology and data to derive superior human of front-office executives: fresh, Ivy League- capital strategies. educated faces . . . men who often have less The potential for the sustainability of (than) impressive baseball credentials . . . (but such an advantage stems in large part from are) believers of the importance of statistical the rareness of HR professionals with these evaluation.”4 Outcomes related to the inte- analytical skills along with a professional grative approach taken by the Indians in ap- culture that values fads to a greater extent plying Moneyball insights are presented in than research-based knowledge (Rynes, Col- Table II (Mark Shapiro assumed the role of ber, & Brown, 2002). Firms that build the ca- general manager subsequent to the 2001 sea- pability to develop and implement informa- son). One notes all of the outcomes moving tion-based human capital strategies will in the desired direction. Dramatic decreases likely be able to maintain that advantage for in payroll have been accomplished by sub- a significant period of time. As is the case stantial increases in the winning percentage. with the implementation of sabermetrics,

Human Resource Management DOI: 10.1002/hrm Radical HRM Innovation and Competitive Advantage 123

TABLE II Cleveland Indians: Wins/Costs

2002 2003 2004 2005

Win % 45.7 42.0 49.4 57.4 Win % Rank* 20.0 25.0 17.0 6.0 Payroll Rank 9.0 26.0 27.0 26.0 Cost/Win Rank 25.0 11.0 3.0 2.0

* among 30 teams new skill sets and a supportive organiza- mation asymmetries inherent in their com- tional culture will be necessary for the suc- petitive environment. These three levers all cessful implementation of information- now exist within the larger corporate envi- based human capital innovations. ronment, but the question remains concerning who will be the first to integrate them, Conclusion: The Relevance of the and thus, identify and exploit the informa- Moneyball Story to HR Executives tion asymmetries that exist. Moneyball describes the story of how the The Competencies of HR Oakland Athletics overcame cultural obsta- Professionals Will Have to Change cles to implement sabermetrics—a data- based approach to organizational decision As academics that have taught HR profes- making—in a manner that created a compet- sionals throughout their undergraduate and itive advantage. We have explored this story graduate careers, we have had numerous through the lens of the management of in- opportunities to observe how they ap- novation and strategic management litera- proach certain courses within the curricu- tures to draw some implications for HRM. lum. Regardless of the university, future HR This leads us to the following concluding practitioners almost universally shy away thoughts. from the more analytical classes such as statistics, research methods, operations man- Information/Data Becomes agement, management information sys- Increasingly Important to Effective tems, accounting, and finance. If not Human Capital Management required, future HR managers avoid these classes. If such classes are required, they are The recent obsessions with human capital endured in order to receive a passing grade management, HR metrics, and HRIS have without truly capturing the knowledge pro- tended to travel parallel paths with little syn- vided. In a “Moneyball” world of HRM, the ergy. While some of the metrics have focused knowledge and skills required will be pro- on human capital, and human capital might vided in the very classes that prospective be an input to an HRIS, what seemingly has HR professionals detest. been missing is an integrated approach to Efforts by baseball teams to adopt saber- human capital strategy that realizes the syn- metrics have brought about “the new breed ergies among these different components. of front-office executives: fresh, Ivy League- Just as MLB had a focus on talent (i.e., educated faces . . . men who often have less human capital), on statistics (i.e., metrics) impressive baseball credentials than Garth and recently on information technology, it Brooks. For a stat-head to break into the big was not until sabermetrics provided the plat- leagues was, not long ago, almost unheard form for integrating all three that the Oak- of. Now believers of the importance of statis- land Athletics were able to exploit the infor- tical evaluation are infiltrating management

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and infusing teams with a Wall Street-style allel changes in the type of individuals who sensibility for ‘beating the market’” (Chen, work in HR for sabermetric-type HR innova- 2004, p. 64). There will likely have to be par- tions to be implemented.

RICHARD WOLFE is an associate professor and director of the Michigan Center for Sport Management in the Division of Kinesiology at the University of Michigan. He holds a PhD from the Stephen M. Ross School of Business at the University of Michigan. Re- search that Professor Wolfe is currently involved in includes managerial efficiency in Major League Baseball; the turnaround of sport franchises; the application of consumer satisfaction, loyalty, and profitability model to sport; and professional sports and corporate social responsibility. Related research has focused on organizational innovation and stakeholder management. His work has appeared in journals such as Organization Sci- ence, Human Resource Management, the Journal of Management, the Journal of Sport Management, the Academy of Management Executive, the Journal of Applied Behav- ioral Science, the Journal of Management Inquiry, the Journal of Management Studies, and Business and Society.

PATRICK M. WRIGHT is a professor of human resource studies and director of the Cen- ter for Advanced Human Resource Studies in the School of Industrial and Labor Rela- tions, Cornell University. He holds a BA in psychology from Wheaton College and an MBA and a PhD in organizational behavior/human resource management from Michigan State University. Professor Wright teaches, conducts research, and consults in the area of strategic human resource management (SHRM), particularly focusing on how firms use people as a source of competitive advantage. He has published over 50 research articles in journals as well as over 20 chapters in books and edited volumes. He currently serves on eight editorial boards. Dr. Wright served as the chair of the HR Division of the Academy of Management and has served on the board of directors for the SHRM Foun- dation, World at Work, and the Human Resource Planning Society and was recently inducted as a fellow in the National Academy of Human Resources.

DENNIS L. SMART is an associate professor of management in the McCoy College of Business at Texas State University–San Marcos. He received his PhD in strategic management from Texas A&M University. His current research interests include the identifi- cation and development of competitive advantages through innovation and entrepre- neurial activities in large organizations, organizational restructuring/diversification strategies, leadership, and sport management-related issues. Previous research has been published in a variety of journals, including the Academy of Management Journal, Advances in Strategic Management, the Journal of Management, the Journal of Man- agement Inquiry, and the Journal of Sports Management.

NOTES tion is new to the world or simply new within a specific context). In the main, most analysts are 1. The term innovation is often used loosely and in- interested in innovations that make a significant terchangeably with terms such as change. One of impact rather than mere routine and incidental the most frequently cited academic definitions of change (Storey, 2004, pp. xvi–xvii). Sabermetrics innovation suggests that it refers to “any idea, is clearly a radical innovation, one that remains practice, or material artifact perceived as new by novel; the first “sabermetrics draft” was con- the relevant unit of adoption” (Zaltman et al., ducted by the Athletics in 2002 (Lewis, 2003), and 1973). Differentiators of innovation are scale (the only five (or so) MLB teams have adopted it to extent to which there is a radical break with the date. As it diffuses, of course, sabermetrics will past) and domain (the extent to which the innova- become less novel. As that occurs, however, we

Human Resource Management DOI: 10.1002/hrm Radical HRM Innovation and Competitive Advantage 125

embrace the perspective that sabermetrics will be Chen, A. (2004, April 5). No baseball experience re- an innovation to each team that adopts it since it quired. Sports Illustrated, pp. 64–66. will be new to that organization (Rogers, 1985). Damanpour, F. (1991). Organizational innovation: A 2. Adopting a sabermetrics approach thus implies meta-analysis of effects of determinants and mod- changes in a number of areas: in performance sta- erators. Academy of Management Journal, 34, tistics, player assessment, and in-game tactics. 555–590. Baseball teams can “dabble” in aspects of saber- Drucker, P. (1954). The practice of management. New metrics; in considering sabermetrics a radical inno- York: Harper Collins. vation, however, we are referring to its broad- based use, as exemplified by the Oakland Athletics. Fitz-Enz, J., & Davison, B. (2001). How to measure 3. While we adopt Barney’s broad definition of re- human resources management (3rd ed.). New York: sources, others differentiate resources from capa- McGraw-Hill. bilities (e.g., Hoopes, Madsen, & Walker, 2003; Galbraith, J. R. (1982, Winter). Designing the innovat- Makadok, 2001), defining a capability as “a special ing organization. Organizational Dynamics, pp. type of resource—specifically, an organizationally 5–25. embedded, nontransferable, firm-specific resource whose purpose is to improve the productivity of Gerstner, L. (2002). Who says elephants can’t dance? other resources possessed by the firm” (Makadok, Inside IBM’s historic turnaround. New York: Harper 2001, p. 389). Collins.

4. Central to the implementation of these initiatives Hakes, J. K., & Sauer, R. D. (2004). An economic eval- by the Indians are Mark Shapiro, executive VP and uation of the Moneyball hypothesis. Unpublished general manager, graduate of Princeton University; manuscript, Clemson University. Chris Antonetti, assistant general manager, gradu- Hamel, G. (1996). Strategy as revolution. Harvard ate of Georgetown University; and Mike Chernoff, Business Review, 74(4), 69–82. assistant director of baseball operations, graduate of Princeton University. Hamel, G., & Getz, G. (2004). Funding growth in an age of austerity. Harvard Business Review, 82(7), 76–84.

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Human Resource Management DOI: 10.1002/hrm COMMENTARY ON “RADICAL HRM INNOVATION AND COMPETITIVE ADVANTAGE: THE MONEYBALL STORY”

WHY ORGANIZATIONAL SCIENTISTS CARE ABOUT MONEYBALL

JOEL BROCKNER AND FRANCIS J. FLYNN

ifferent strands of evidence suggest tent with the scientific enterprise in which that Michael Lewis’s (2003) book, many of us are engaged. Moneyball, has attracted the atten- Perhaps more to the point, Moneyball tion of management scholars. provides a playing field for many topics of Thaler and Sunstein (2003) gave it a interest to management scholars, spanning Dglowing review in the New Republic, the fine micro and macro levels of analysis. At the article by Wolfe, Wright, and Smart (2006) micro level, Moneyball speaks to an ongoing in this issue grew out of a well-attended ses- debate in human judgment and decision sion at the 2005 Academy of Management making: whether people in organizations meetings, and Roberto (2005) recently wrote should rely on hard data (e.g., systematically a Harvard Business School case on this topic. recorded evidence) versus soft data (e.g., Moreover, our own informal conversations those gathered from intuition) to form judg- with colleagues indicate that the book has ments and make decisions. In the clinical caught their eye. Some of the reasons for and organizational psychology literatures, scholars’ growing interest in Moneyball may this debate finds expression in the long- be independent of its implications for man- standing question of whether data gathered agement. After all, baseball is the great from tests or structured interviews are more American pastime, and many of us have predictive of behavior than is information deep connections to the game. We played it gleaned from unstructured interviews or as kids and we are longtime fans. Indeed, clinical impressions (Meehl, 1954). one of us has been an ardent Yankees fan for The “hard versus soft” distinction also about 50 years, whereas the other has been appears to apply to the decision-making a loyal Red Sox fan for approximately 30, style used by the longtime chairman of the living proof that coauthorship conquers all. Federal Reserve, Alan Greenspan, and his Aside from having an affinity for the sport, successor, Ben Bernanke. In the New York management scholars are sympathetic to Times (Andrews, Porter, & Uchitelle, 2005), the sabermetrics method, a data-driven ap- one of Mr. Bernanke’s long-time colleagues proach to making decisions that is consis- predicted that Mr. Bernanke will “probably

Correspondence to: Joel Brockner, 420 Beechmont Drive, New Rochelle, NY 10804

Human Resource Management DOI: 10.1002/hrm 128 HUMAN RESOURCE MANAGEMENT, Spring 2006

work towards depersonalizing monetary pol- Sabermetrics further suggests that the icy.” That same colleague also suggested that hard data underlying subjective impressions Mr. Bernanke is an advocate of Bill James’s may themselves be problematic. It is not books on sabermetrics, “which often argues simply that Billy Beane relies on objective infor statistical analysis over intuition. . . . Per- dicators. Rather, he relies on the kinds of ob- haps the best way to establish transparency, jective measures that have statistically been Mr. Bernanke has written, is to set up an eas- proven to be more valid indicators of a ily understandable process. It is in many player’s true value than those conventionally ways the opposite of the image that Mr. measured. For example, players, fans, man- Greenspan has helped cultivate, agers, and Hall of Fame election committees that of an oracle.” have long believed that a player’s batting av- …an extremely The tension between using erage is a tried and true indicator of his hard and soft data also underlies value. Batting average is important, to be important matter for the veritable explosion of theory sure, but may be less revealing of a player’s and research in the related fields of true value than is his on-base percentage. future research is to behavioral decision making, be- Rather than being anchored to the conven- havioral economics, and behav- tional wisdom about how players should be delineate when and ioral finance (e.g., Belsky & appraised, Beane has relied on a different set why data-driven Gilovich, 1999). The normative of criteria, enabling him to be a considerably view in classic economic models more efficient manager of human resources versus soft would have us believe that people than his counterparts at some of the more are tough-minded scientists who free-spending major league teams. approaches lead to rely on hard data to form judg- By touching on topics of interest to man- better judgment and ments and make decisions. In- agement scholars, Moneyball may help to stead, we find that people also rely stimulate further thinking and research. To decision making. on cognitive shortcuts, intuitions, provide just one example, whereas sabermet- and “gut feelings,” often leading rics predicates the use of hard data over soft, to decisions that deviate from a certain conditions may exist under which classical definition of economic rationality. the latter is more diagnostic. In Blink, Glad- In considering prospective talent for his well (2005) reviews scientific evidence that organization, Billy Beane, for his part, draws “snap judgments” may be remarkably accu- more on statistical evidence (i.e., objective rate, sometimes more so than judgments ar- indicators of a player’s previous perform- rived at on the basis of hard facts. To be sure, ance, which is assumed to be the best pre- decisions are usually more likely to be ac- dictor of future performance) than on the cepted and implemented in organizational more subjective impressions of so-called ex- settings if they appear to be based upon a perts in judging talent. Perhaps this is be- hard-nosed analysis. However, the hard- cause reliance on subjective impressions led nosed analysis itself may not be necessary for Billy Beane to be misjudged early in his play- improved judgment and decision making. ing career. As a high school player, Billy Thus, an extremely important matter for fu- Beane seemed to fit the profile of someone ture research is to delineate when and why who could develop into a major league star. data-driven versus soft approaches lead to He possessed impressive physical skills that better judgment and decision making. occasionally helped him to perform great As with most complex matters, contin- feats on the field. Relying on this representa- gency theories may be more useful than tiveness heuristic in appraising Billy Beane, hard and fast rules in mediating this debate. major league scouts somehow did not take For example, sabermetrics suggests that cer- into account the harder evidence—for exam- tain in-game strategies, such as bunting and ple, the fact that his on-field performance stealing, are not advised. However, they plummeted from his junior to his senior year may make sense in certain situations (e.g., of high school. in stealing, when a base runner is excep-

Human Resource Management DOI: 10.1002/hrm Why Organizational Scientists Care About Moneyball 129 tionally quick or a pitcher is unusually slow within organizations that affect the likeli- to the plate). Moreover, sabermetrics is hood of successful implementation of inno- based on the premise that a player’s past vations. Moneyball (and Wolfe et al.’s analy- performance is the best predictor of his fu- sis) suggests that factors residing external to ture performance. Right off the bat (so to organizations also have much to say about speak), we know that this is not always the whether innovations will be successful. To case, such as when a player has been in- the extent that success depends upon being jured or has reached a certain age. Clearly, the first mover, or on competitors being slow contingency approaches may be helpful to to adopt the innovation, Beane’s early suc- baseball executives, but what may be most cess may be due to an exceptionally strong interesting to management scholars is de- industrywide tendency to maintain the sta- termining how much complexity (e.g., the tus quo. absolute number of contingencies factored The book also reminds management into a single decision) is sensible for practi- scholars and practitioners of the tioners to consider. need to delineate factors that en- At the macro level of analysis, Moneyball able organizations to maintain the has important implications for theory and competitive advantage produced One of the potential research on organizational innovation and by innovation. One of the poten- organizational change. The innovation lit- tial downsides of being a success- downsides of being erature has concerned itself with two re- ful innovator is that competitors a successful lated questions. First, what factors predis- begin to watch your every move, pose organizations to adopt certain which may threaten continued innovator is that innovations? Second, what factors make success. For example, if Beane adopted innovations more versus less likely were to express interest in a less- competitors begin to to be successful? Moneyball speaks to both touted prospect (by, say, flying watch your every of these matters. Whereas Billy Beane was out to a game to watch him play), the first baseball general manager to base richer teams might interpret his move, which may his decisions on sabermetrics to a signifi- actions as a sign that the player is cant degree, sabermetrics had been around undervalued, thereby leading threaten continued for a long time; Bill James began writing his them to offer the player more success. books in the 1970s. Why, then, was it money than Beane could. This adopted by Billy Beane and not others, and dynamic reflects a fundamental relatedly, why did it take so long for base- rule about the nature of competi- ball executives to take heed? Moneyball re- tion: to the extent that the bases of compet- minds us that innovation adoption is itive advantage are public knowledge, com- jointly determined by personal and situa- petitive advantage becomes more difficult to tional factors. Some of the personal inputs maintain. In fact, several other teams have highlighted in this case include Billy actively embraced sabermetrics as a basis of Beane’s high level of energy, his credibility decision making, and one (the Los Angeles (having played the game), and his powers Dodgers) even hired one of Beane’s chief of persuasion. Situational factors include lieutenants (Paul DePodesta). Interestingly the fact that his organizational superiors enough, however, the Dodgers did not per- gave him a wide degree of decision-making form particularly well on DePodesta’s watch, latitude. and he was recently fired. Moreover, as Wolfe, Wright, and Smart One of the most intriguing macro themes (2006) point out, what may have given emerging from Moneyball is the baseball sys- Beane a competitive advantage over his tem’s reactions to Beane’s innovation. System counterparts who did not adopt sabermetrics reactions (or lack thereof) actually began more is that major league baseball (as an industry) than 30 years ago, when Bill James wrote his is steeped in tradition. Much of the innova- first books. James’s approach was potentially a tion literature has examined factors residing source of huge competitive advantage. Why,

Human Resource Management DOI: 10.1002/hrm 130 HUMAN RESOURCE MANAGEMENT, Spring 2006

then, was it ignored for so long? The baseball Moneyball reminds us that organizational in- establishment’s initial (and long-running) re- novations affect multiple constituents who jection of sabermetrics is reminiscent of an- may have other reasons for wanting to main- other example of how a system may dismiss a tain the status quo, such as when their sense source of competitive advantage. of personal identity is based upon the system In the classic Gunfire at Sea, Morison as it existed prior to the innovation. In his (1966) describes how at the turn of the twen- prologue to the book, Michael Lewis re- tieth century, a junior officer in the U.S. counts how Joe Morgan, a baseball Hall of Navy, William Sims, notified his superiors of Famer, and now a baseball announcer for a technological breakthrough (known as ESPN, was in such denial about the implica- continuous-aim firing) that improved shoot- tions of Moneyball that he could not even ing accuracy by 3000%. His superiors re- correctly identify its author; Morgan insisted sponded first by ignoring Sims, then by that Billy Beane, and not Michael Lewis, denying that such a breakthrough was possi- wrote the book. ble, and finally by branding Sims as a “crack- In conclusion, we believe that Moneyball brained egotist, . . . a deliberate falsifier of ev- elucidates many valuable insights unearthed idence” (p. 135). by management scholars. So, while we pay As Wolfe, Wright, and Smart (2006) sug- homage to the veridicality of the book’s ideas gest, innovation threatens those with a as they play out on the baseball diamond, we vested interest in maintaining the status also feel inspired to conduct future research quo. That vested interest sometimes runs so that may lead to greater insights for both the deep that it may override technical rational- organizational theorist and practitioner. Mon- ity, as in, “Don’t bother me with facts, my eyball and management—now, there’s a great mind is made up.” In this sense, it is easy to double play combination. understand why the baseball scouts in Billy Beane’s organization would reject sabermet- We are indebted to Richard Wolfe for his rics. After all, if sabermetrics was in, it meant constructive comments on an earlier version of that they would be out (of jobs). However, the manuscript.

JOEL BROCKNER is the Phillip Hettleman Professor of Business and chair of the Man- agement Division at Columbia Business School, Columbia University. He received a PhD in social/personality psychology from Tufts University. His research interests include organizational justice, self-processes in work organizations, organizational change, and cross-national influences on work attitudes and behaviors.

FRANCIS J. FLYNN is an associate professor of management at Columbia Business School, Columbia University. He earned his PhD in organizational behavior from the Uni- versity of California, Berkeley. His research interests focus on social influence in organizations, particularly how employees can obtain help from one another and how they can develop healthy patterns of cooperation.

REFERENCES make big money mistakes—and how to correct them. New York: Simon & Schuster. Andrews, E. L., Porter, E., & Uchitelle, L. (2005, Octo- Gladwell, M. (2005). Blink: The power of thinking with- ber 26). At the Fed, an unknown became a safe out thinking. New York: Little, Brown, and Company. choice. New York Times, p. A1. Lewis, M. (2003). Moneyball: The art of winning an Belsky, G., & Gilovich, T. (1999). Why smart people unfair game. New York: W.W. Norton.

Human Resource Management DOI: 10.1002/hrm Why Organizational Scientists Care About Moneyball 131

Meehl, P. E. (1954). Clinical versus statistical predic- game. Harvard Business School Case /9-305-120. tion: A theoretical analysis and review of the evi- Boston: Harvard Business School Publishing. dence. Minneapolis: University of Minnesota Thaler, R. H., & Sunstein, C. R. (2003, September). Press. Who’s on first. New Republic, pp. 27–30. Morison, E. (1966). Men, machines, and modern Wolfe, R., Wright, P., & Smart, D. (2006). Radical HRM times. Cambridge, MA: MIT Press. innovation and competitive advantage: The Money- Roberto, M. A. (2005). Billy Beane: Changing the ball story. Human Resource Management Journal.

Human Resource Management DOI: 10.1002/hrm COMMENTARY ON “RADICAL HRM INNOVATION AND COMPETITIVE ADVANTAGE: THE MONEYBALL STORY”

APPLYING MONEYBALL IDEAS OUTSIDE OF BASEBALL: THE PERSPECTIVE OF A BUSINESS SCHOOL DEAN ROBERT J. DOLAN

hen Moneyball was published in about two people—Bill James, the philoso- 2003, I violated my principle of pher and conceptualizer of the ideas, and never paying full price for a Beane, the implementer within an industry hardcover book. Waiting a week decidedly not receptive to the James gospel. or two for the 30% discount to The question “are Moneyball ideas applicable becomeW available in my local bookstore was to managing a business school or other or- too high a price to pay given the attractive- ganizations?” really has two parts. First, is ness of a Michael Lewis book about statistics the message of the James gospel relevant to and baseball for a person like me who: (1) business schools and, second, if so, can these relished Lewis’s previous book The New New lessons be implemented by perhaps taking a Thing, (2) was trained as a mathematician page from Beane’s book? and statistician, and (3) continued a life- long dysfunctional, emotional relationship The James Gospel with the Boston Red Sox. As Moneyball aptly points out, you have to question the con- James’s central message is not to “use statis- ventional wisdom (e.g., “never buy at full tics” in management but rather to apply the price”) and, in this case, I was glad I did. scientific method. Baseball’s “violation” of The $24.95 list price was a bargain for in- the scientific method is noted throughout sights into the game I love. But the book the Moneyball book. also provided me stimulation to think For example, about the job I was doing as the “general manager” (sort of anyway, the analogy is • To describe the scouting of future not perfect) of a business school whose en- mediocre major league player Billy Beane dowment (both physical plant and dollars) as a high-school baseball star we are told: was Oakland A’s–like, suffering in compari- “Each time the scouts saw Billy they saw son to the institutes which we call our “peer only what they wanted to see: a future big institutions” or “competitors” depending league star” (Lewis, p. 8, emphasis mine). upon the circumstance. • More generally, on the traditional scouts of While most would say that Moneyball is talent, “the old scouts are like a Greek cho- a book about Billy Beane, to me it is a book rus, it is their job to underscore the eternal

Correspondence to: Robert J. Dolan, Stephen M. Ross School of Business, Wiley Hall, Ann Arbor, MI 48109-1234.

Human Resource Management DOI: 10.1002/hrm Applying Moneyball Ideas Outside of Baseball: The Perspective of a Business School Dean 133

themes of baseball. . . . the old scouts aren’t Beane Implementation built to argue; they are built to agree” (Lewis, p. 30, emphasis in original). Beane is a “necessity is the mother of inven- tion” story. When asked, “How do you, as a The evaluation of talent in baseball suf- $40 million bankrolled team, compete with fered from a flaw common to many scientific the Yankees and its $226 million potential?” and management endeavors—namely, the Beane gave the smart, yet simple answer: seeking of and granting salience to only “What you don’t do is what the Yankees do. those data capable of confirming prior be- If we do what the Yankees do, we lose every liefs. James described the result of this atti- time….” (Lewis, p. 119). So, knowing what tude being “a great portion of the sport’s tra- not to do is a good start, but there are still ditional knowledge is ridiculous hokum” lots of options left. (Lewis, p. 94). James advocated the use of Beane could only redefine the output side statistics but worried that without a more of Figure 1 a little bit. It would be hard to dif- fundamental shift in thinking from seeking ferentiate yourself from the Yan- confirming data to a hypothesis testing and kees by changing your objective revision model, the wide availability of sta- function from “winning games” “…a great portion tistics would create a situation where “we are to “losing games.” Beane’s only no longer capable of truly assimilating any chance was to understand how of the sport’s knowledge which might result from them” the system in Figure 1 worked bet- (p. 95). ter than others did and then use traditional that improved understanding to Lewis himself describes the “whole point knowledge is of James” as adoption of the scientific develop the people to operate the method: “Think for yourself along rational system and provide them explicit ridiculous hokum” lines. Hypothesize, test against the evidence, instructions on what to do within and never accept that a question has been a game (e.g., take a pitch, swing answered as well as it ever will be. Don’t be- away, bunt, hit and run, steal, tag lieve a thing is true just because some fa- up). Why was he successful at the “radical mous baseball player says that it is true” human resource management innovation”? (Lewis, p. 98). (Wolfe et al., p. 112). Simple—he could con- At its core, the primary message of Mon- trol both inputs on the left side of Figure 1. eyball is the same one advancing the scien- For example, when the previous base-stealing tific method at the heart of the research wizard was acquired by Oakland and told to methods course taught in graduate schools stop attempting steals, he did. everywhere. It is old advice, just delivered in a more fascinating and engaging way (at Beane and Business Schools least to a baseball fan) than we typically en- counter in the academic literature. If Beane were the leader of a business school, Defining the “major lessons” of Money- he would find more degrees of freedom in ball in this way renders moot the question of defining the objective function. While there “are Moneyball lessons applicable to manage- really is only one plausible objective func- ment of business schools and other organi- tion for a Major League Baseball team, such zations?” Figure 1 draws on the Wolfe, is not the case for business schools. While we Wright, and Smart article’s partitioning of each state that we seek to develop leaders, the input to the system as (1) performance our approaches to that are fundamentally characteristics of players and (2) in-game de- different. There is no World Series champion cisions. The advocacy of applying a rigorous, each year in business schools. On that score, scientific approach to defining the right out- it would be easier to do “what the Yankees come measures and developing understand- don’t” on a reasonable outcome measure. ing of the workings of the system portrayed On the other hand, a Beane repotted into in Figure 1 extend to all organizations. the business school world finds the “tradi-

Human Resource Management DOI: 10.1002/hrm 134 HUMAN RESOURCE MANAGEMENT, Spring 2006

FIGURE 1. Schematic of a Baseball System.

tions” more strong and binding than in the ing than baseball. In this circumstance, the baseball world. The way we evaluate talent is job of the general manager is less an individ- codified in our tenure standards, and those ual understanding of the system’s operation standards are formally adopted by the faculty. than guidance of a faculty process to promote There is a “strictness” in our process and cri- adoption of the right standards and rigorous, teria for selection of talent that is more bind- scientific application of those standards.

ROBERT DOLAN is dean of the Stephen M. Ross School of Business at the University of Michigan. He also holds the Gilbert and Ruth Whitaker Professorship and is president of the William Davidson Institute, a research organization at the university.

He became dean of the Ross School in July 2001 and implemented a strategy based on the school’s strengths in action-based learning where students combine classroom work with in-the-field engagements with companies worldwide. In September 2004, the school obtained two marks of distinction. First, Stephen M. Ross, a graduate of the school, made a gift of $100 million to the school in support of its strategy. This was by far the largest single gift ever made to a business school and the largest in the university’s history. Second, the Wall Street Journal, based on its polling of recruiters, named the school’s MBA program the #1 program in the country, citing its strategy of “Leading in Thought and Action.” Later that fall, student evaluations placed the school at the top for leadership training in the BusinessWeek poll.

Prior to becoming dean at Michigan, Dolan was the Edward W. Carter Professor at the Harvard Business School. His case studies and notes published there have sold over 1.25 million copies. He is the author or coauthor of eight books including Marketing Man- agement: Text and Cases and Power Pricing (coauthored with Hermann Simon). He published widely in journals such as the Harvard Business Review, Management Science, and the Journal of Marketing.

Human Resource Management DOI: 10.1002/hrm Applying Moneyball Ideas Outside of Baseball: The Perspective of a Business School Dean 135

He has consulted on marketing issues, particularly product policy and pricing, with a broad range of firms and has served on the boards of both public and private firms. He has also held faculty appointments at the University of Chicago and IESE in Barcelona, Spain.

Human Resource Management DOI: 10.1002/hrm COMMENTARY ON “RADICAL HRM INNOVATION AND COMPETITIVE ADVANTAGE: THE MONEYBALL STORY”

THE MONEYBALL APPROACH—BASKETBALL AND THE BUSINESS SIDE OF SPORT

ALAN OSTFIELD

rofessors Wolfe, Wright, and Smart methods to measure a baseball player’s per- investigate the Moneyball story and formance and contribution to his team, to- apply the lessons learned to the role gether with baseball’s long history of col- of the human resources executive. lecting statistics, ensure that baseball is a The views presented in the article fertile ground for statistical analysis. Pshould stimulate thoughts within the In basketball, however, statistics are not human resources profession and enable as easily used to measure a player’s contribu- these professionals to be more successful at tion to team performance. Due to the nature implementing innovations in their organi- of the game itself, basketball players are zations. In this commentary, I consider the more dependent on each other for the article in the context of the sports business, team’s performance than are baseball play- with particular emphasis on basketball. For ers. Therefore, it is necessarily more difficult purposes of this commentary, it is perhaps to use statistics to assess player personnel in more appropriate to say the “business of basketball (and various other sports) than it sport,” since the main focus of my thoughts is in baseball. will be on the business side of sport. Make Statistics being less relevant in assessing no mistake about it—sports itself is big busi- a basketball player’s performance and con- ness, as some individual teams generate tribution to his team, however, does not hundreds of millions of dollars in revenue mean that statistics are irrelevant. The ques- and will likely soon be bought and sold for tions are how relevant are they, how should close to a billion dollars. Therefore, I address they be used, and how much weight should both the business and sports sides in the they be given in team management? Cer- “business of sport.” tainly, statistics such as shooting percentage, points per game, and rebounds per game are The Moneyball Approach: Basketball part of the basketball vernacular and are and the Business Side of Sport therefore often used by team management. While we have not yet seen what could be The use of statistics to assist in the assess- described as a “revolution” in baseball, bas- ment and management of player personnel ketball teams are, as was described in a re- has particular relevance in baseball. The rel- cent Sports Illustrated article (Ballard, 2005), atively independent nature of the game and beginning to incorporate statistical analysis

Correspondence to: Alan J. Ostfield, Palace Sports & Entertainment, 3 Championship Drive, Auburn Hills, MI 48326-1752.

Human Resource Management DOI: 10.1002/hrm The Moneyball Approach—Basketball and the Business Side of Sport 137 into their decision making along the lines on subjective information. A person making described in Moneyball. In the years ahead, decisions regarding baseball players (or other with the sports business continuing to types of employees) needs to have an appro- evolve, the risks of the business continuing priate framework for evaluating players (or to increase, and the success of Moneyball other types of employees). This framework teams in baseball, we might very well see could include the traditional, subjective data basketball teams increase their use of statis- as well as the newly publicized and/or devel- tics in the assessment and management of oped objective data. Properly balancing and player personnel. using all relevant data is what good leaders A larger point to be taken from Money- do, creates good decision-making processes, ball and the Wolfe, Wright, and Smart arti- and produces effective decisions, something cle that applies to the sport side of basket- to which all leaders (whether evaluating ball, the business side of sport, and to more players or “traditional” employees) should traditional businesses is the increased use of strive. objective data in an organization’s decision- making processes. The “innovation” de- Major Change and the The leader must scribed in Moneyball—the use of additional Importance of Timing and more objective data to assist in the as- bring together all of sessment and management of baseball play- As described in Moneyball and by the various ers—has implications far beyond baseball, Wolfe, Wright, and Smart, the player assessment, and sports. Businesses, Oakland Athletic’s experienced a disciplines and regardless of the industry, can benefit from set of circumstances that created incorporating a wider range of information the impetus for the implementa- balance the use of (including more objective information) tion of sabermetrics. Significant into their decision-making processes. As change was needed, as the team’s objective (and Wolfe, Wright, and Smart state, the “supe- revenue structure did not permit perhaps trendy) rior use of data to exploit information them to compete with large-rev- asymmetries” is what gives an organization enue teams in the traditional information with the ability to make better decisions than way. The Athletics’ timing was others and obtain a competitive advantage. particularly right, as they were in other subjective (and A related issue in considering the applica- the unique situation of having perhaps traditional) tion of the Moneyball approach to baseball, seven first-round picks in the basketball, or business is the way that the 2002 draft described in Money- forms of information. organization and decision makers bring rel- ball. This increased the benefits evant disciplines together and balance the of being right and the risks of use of the available and appropriate infor- being wrong, thus placing greater pressure mation. The leader must bring together all on their drafting decisions. Finally, but per- of the various disciplines and balance the haps most importantly, the A’s had a leader use of objective (and perhaps trendy) infor- who could make it happen, as Billy Beane mation with other subjective (and perhaps had the pedigree of having been a traditional) forms of information. The ap- ballplayer, the knowledge that something propriate blend of information depends on different was needed, the willingness to act the particular circumstances. outside the norm, and the security of know- Perhaps, in certain cases, the Moneyball ing that ownership was fully behind him. approach has dominated other relevant in- While other organizations outside of profes- formation and elements of analyses (e.g., the sional sports often experience similar dy- traditional subjective views of scouts). Or namics that necessitate change, such dy- perhaps the Moneyball approach only ap- namics might be particularly applicable to pears to have dominated in certain cases be- professional sports teams given the “haves” cause it received so much publicity due to its and “have-nots” distinction that often exists contrast with baseball’s traditional reliance among them.

Human Resource Management DOI: 10.1002/hrm 138 HUMAN RESOURCE MANAGEMENT, Spring 2006

Major Change and the Likelihood of eral manager), a good public face for the Resistance change in Billy Beane, a very strong belief in the appropriateness and necessity of the Moneyball and the Wolfe, Wright, and Smart change, and an infrastructure (including article describe the resistance met by Billy like-minded, appropriately educated, young Beane and his like-minded colleagues when baseball operations executives) that was able they tilted the decision-making process to support the desired change. In addition, toward reliance on statistics and away from Beane and the A’s had several “early victo- traditional subjective assessment. The resist- ries,” both in the form of particular players ance that Beane confronted is understand- doing well and the A’s making the playoffs, able given the tradition-bound nature of that helped them to overcome initial doubts baseball and the experiences of many of the and hurdles, provided continued confidence people whom Beane was dependent upon to that they were proceeding along the appro- implement sabermetrics (the scouts’ experi- priate path, and propelled them to contin- ence was limited to baseball and to tradi- ued change and improvement. tional subjective, as opposed to objective, To successfully implement change of any statistical assessment of talent). significant magnitude, an organization needs There would likely be resistance to signif- a variety of factors working together at the ap- icant change in basketball for many of the propriate time. To increase the odds that im- same reasons. However, basketball might be plementing change will be successful, leaders more accepting of change than baseball, should recognize the natural difficulty often given that factors such as baseball’s long his- associated with change, attempt to implement tory and significance of tradition are not as change with the right people at the right time influential in basketball. Also, National Bas- (organizations too often attempt to imple- ketball Association Commissioner David ment change in challenging times, when peo- Stern has been, and continues to be, quite ple most want to hold on to what has worked progressive. He and his staff often push for in the past), estimate the types and amount of and are receptive to new ideas, so change is resistance to be faced and develop a plan for more likely to be accepted (and, in fact, en- addressing such resistance and managing the couraged) in the NBA. change. The factors that led to the Oakland As’ success in implementing sabermetrics should Factors That Enabled the Oakland be emulated to the extent possible by any busi- A’s to Successfully Implement the ness considering implementing a change of Moneyball Innovation this magnitude. By all measures, the Oakland A’s under the leadership of Billy Beane were successful at Reference implementing a new method of assessing Ballard, C. (2005, October 24). Measure of success: and managing player personnel. But this was Those stat guys are at it again, and now the Mon- no easy task. The Oakland A’s had strong eyball math of baseball has come to the NBA. leadership (ownership, president, and gen- Sports Illustrated, pp. 78–82.

Human Resource Management DOI: 10.1002/hrm The Moneyball Approach—Basketball and the Business Side of Sport 139

ALAN OSTFIELD is the chief operating officer of Palace Sports & Entertainment and the Detroit Pistons, responsible for overseeing the business operations, structuring and ne- gotiating significant business relationships, evaluating new business opportunities, and leading the strategic planning efforts. In addition, Ostfield is also the assistant general manager of the Pistons and is actively involved in the Pistons’ basketball operations, including managing the NBA’s salary cap and participating in player transactions. Prior to joining PS&E and the Pistons, Ostfield was senior vice president and general counsel of the San Diego Padres Baseball Club, where he was involved in the Club’s business, legal, and baseball activities. Ostfield has also combined his experiences in professional sports with higher education, including developing and teaching “Managing a Profes- sional Sports Franchise” in the University of Michigan’s Sport Management Masters Pro- gram, teaching “Sports and the Law” at the University of San Diego School of Law, and writing articles for various publications and speaking at various universities regarding the business and legal issues in professional sports. Ostfield earned a bachelor’s degree in economics from the University of Pennsylvania prior to attending Boston University, where he received his JD from its School of Law and an MBA from its Graduate School of Management. Ostfield’s achievements were recognized nationally in 2000, 2001, and 2002 when Street & Smith’s SportsBusiness Journal included Ostfield on its annual “Forty Under 40” list (which recognizes the 40 most influential sports executives under the age of 40), culminating in Street & Smith inducting Ostfield into its Forty Under 40 Hall of Fame in 2002.

Human Resource Management DOI: 10.1002/hrm COMMENTARY ON “RADICAL HRM INNOVATION AND COMPETITIVE ADVANTAGE: THE MONEYBALL STORY”

MONEYBALL LESSONS: THE TRANSITION FROM HR INTUITION TO HR ANALYTICS

DAVE PACE

olfe, Wright, and Smart posit a business results. HR professionals must ex- significant overlap between the plore these data and identify elements that approach to baseball that Billy differentiate the best performers currently in Beane advances in Michael their organizations as well as the best Lewis’s 2003 book Moneyball prospective hires. If HR can focus talent Wand the challenges faced everyday by HR management efforts on the true differentia- professionals in corporations across the tors and organize that talent effectively, they country. The reasoning and assessment put will secure the talent required to deliver ex- forth in this article not only is accurate, but ceptional performance. it also previews the increasingly complex HR can learn from other organizational and analytical role expected of today’s HR functions. For example, the finance profes- professionals. sion went through a metamorphosis in The race for talent and the impending which it moved from the traditional back- demographic challenges facing employers ward-looking discipline of accounting to the have been well documented for some time, more forward-looking discipline of analysis yet most HR professionals have not yet re- and planning. Similarly, the HR profession sponded to this reality with new or innova- must move from the backward-looking dis- tive thinking. Most continue to approach cipline of performance appraisal to the more talent management with the same toolbox forward-looking science of predictive analy- that they have always used, relying on in- sis. Each organizational function has a re- stinct, experience, and street smarts in sponsibility to define its decision science; much the same way that the old-school one that allows their organization to look scouts of the Oakland A’s did prior to the ar- forward and then act, not just look back- rival of Billy Beane. ward and then react. The transition from intuition to analyt- This need for a forward-looking perspec- ics in any field should not be surprising, tive means that traditional “scorecards” no given the vast amount of information avail- longer are sufficient to lead the human capable on any subject. We can instantly learn ital decisions necessary in every organiza- about individuals’ performance and general tion. Scorecards tell you where you have human behavior, and the achievement of been and what has been done. Predictive de-

Correspondence to: David Pace, EVP, Partner Resources, Starbucks Coffee Company, 2401 Utah Ave., South, Seattle, WA 98134.

Human Resource Management DOI: 10.1002/hrm Moneyball Lessons: The Transition from Intuition to Analytics 141 cision metrics, while they might be based on Thus, we’re left with an uncomfortable analyses of traditional scorecard data, tell dilemma; a decision science is needed on the you where you need to go. HR professionals people side, but the systems required to pro- should be held to the same standard of pre- duce the foundational data are generally in- dictive analysis for people decisions that fi- sufficient, and the most likely analysts are nance professionals are held to for capital-al- not that interested in going in this direction. location decisions. Therein lies the potential for short-term This perspective sends a chill down the competitive advantage. Those who dig and spine of many HR traditionalists. Much the discover these analytics will no doubt create same as the traditional scouts for the A’s, competitive advantage for their organiza- many HR professionals have established tions, but what they are creating is a their roles as the premier “readers” of tal- methodology that is not necessarily propri- ent, able to assess potential based upon an etary. Once the methodology has been docu- instinctive analysis of a candidate’s em- mented and described, others will be able to ployment history and idiosyncratic an- apply it in their own organizations, much swers to the “tried and true” questions of the same as other Major League Baseball the HR interview. teams have attempted to follow the path laid While enhanced data analysis and per- out by Billy Beane. This adoption by others formance predictability will no doubt be skills offsets any potential competitive advantage. required of the future generation of HR lead- If you buy into the approach of ers, the fact is that many of today’s HR leaders Beane and the analysis of Wolfe, still have a “get out of jail free” card to fall Wright, and Smart, what is re- back on in the absence of such analysis. That quired to set this up in your organ- …the organization escape route is the relatively poor quality of ization to achieve, at least, a short- must have a most human resource information systems term competitive advantage? (HRISs). For many years, the focus of most or- The recipe for success falls strategically ganizations has been on the continuous im- upon several factors. First, the or- provement of traditional financial systems ganization must have a strategi- oriented, analytical and/or broad-reaching enterprise resource cally oriented, analytical chief peo- chief people officer planning (ERP) initiatives. The capture of sig- ple officer who is comfortable in nificant and meaningful people data, how- the role of change agent. This offi- who is comfortable ever, has been overlooked and pushed to the cer must define a vision that can be backburner of systems’ priorities. As Wolfe, embraced not only by his or her in the role of change Wright, and Smart point out, many of these function, but also by the entire or- agent. initiatives have resulted in little more than an ganization. Second, a sophisticated accounting of how many people work for an HRIS must be in existence to pro- organization and the minimum requisite vide the raw analytic material. functionality to ensure the completion of Data fields must go beyond name, address, payroll. salary, number of dependents, and beneficiary The most likely way that organizations designation. Third, the HR executive will need will respond and install the necessary data a team of sophisticated “miners” to tear apart systems required to uncover the parallel of the data, in order to uncover those nuggets sabermetrics’ “OPS” (on-base percentage plus that will form the OPS for their corporation. slugging percentage) metrics for their human This team will likely be the nontraditionalists capital planning needs is if the HR profes- within the organization, much as the Ivy sional drives it. The Towers Perrin analysis League analysts have emerged as the “seers” of referenced in the article, however, suggests Major League Baseball talent. This group will that this is unlikely to happen, and that an need resilience, as the traditionalists no doubt organizational change of this magnitude will will attack their conclusions. require the bold leadership and passion that Once these elements are in place, it still Beane showed with the A’s. will be up to the senior functional leader to

Human Resource Management DOI: 10.1002/hrm 142 HUMAN RESOURCE MANAGEMENT, Spring 2006

find those truly predictive factors, so that the deciding on the best combination of result is not just another “HR scorecard.” Se- human traits and behaviors through an al- nior staff will require convincing, and they gorithm developed by a staff of Ivy League will want to see the link between these data wonders. The predictability of human per- and financial and customer data in order to formance and the effectiveness of organiza- ensure that these predictors actually lead to tions will always have some unknown fac- business performance. tors. However, we can do better, and it is up Even with all of this in place, judgment to all of us in the HR profession to move our still will be required. It is unlikely that we discipline from the abacus to the laptop if will see a day when HR professionals are we are to adjust to the changing workplace transformed into backroom statisticians, around us.

DAVE PACE joined Starbucks Coffee Company in July 2002 as executive vice president of Partner Resources responsible for the company’s overall partner (employee) and organizational strategies. From 1981 to 1999, Pace held a wide variety of positions with PepsiCo Inc. and subsequently with the spun-off Tricon Global Restaurants (now YUM! Brands Inc.). From 1995 to 1999, Pace served as senior vice president of human resources for Tricon Restaurants International, which employed more than 300,000 people in 92 countries. In addition, Pace held overseas executive assignments in Cyprus for the Middle East/Africa region of Pepsi-Cola International and in London for its European operations.

Between 1999 and 2000, Pace served as the chief human resources officer for Home- Grocer.com, a Seattle-based Internet start-up specializing in the online sale and delivery of groceries to the home. Prior to joining Starbucks, Pace held the position of executive vice president for i2 Technologies, the Dallas-based software firm providing industry- leading solutions in supply-chain and supplier relationship management.

Pace currently serves in board positions with the Starbucks Foundation, the Human Re- source Policy Association, the Cornell University Center for Advanced Human Resources Studies (CAHRS), the University of Southern California’s Center for Effective Organiza- tions (CEO), and AmericaSCORES, a national nonprofit organization that serves at-risk children through after-school programs that combine soccer and poetry to improve the health and literacy of America’s youth. In 2005, Pace was inducted as a fellow in the Na- tional Academy of Human Resources. He has previously served in board positions with both the Taco Bell and i2 Foundations and was chairman of the Board of Governors of the United Hockey League, a minor league professional organization from 1998 through 2002.

Pace received his bachelor of science degree in industrial and labor relations from Cor- nell University.

Human Resource Management DOI: 10.1002/hrm COMMENTARY ON “RADICAL HRM INNOVATION AND COMPETITIVE ADVANTAGE: THE MONEYBALL STORY”

THE LEADER’S ROLE: DEFINING THE CONNECTION BETWEEN CHANGING AND WINNING

IAN V. ZISKIN

he business of baseball as described in ans, Texas Rangers, Tampa Bay Devil Rays, Ari- the Moneyball story has more in com- zona Diamondbacks, and Oakland Athletics mon with HR and effective organiza- have hired general managers with a common tions than we might think. Five les- attribute—relative youth and inexperience. At sons from experience common both the time of their appointments, most of these Tto baseball and business are the following: individuals were 28–35 years old, while several First of all, past performance—track record— were in their late 30s or early 40s. tends to predict future success. Second, the Clearly, these baseball executives were not difference between success and failure is often selected merely because they are relatively at the margin, the 10% of positive or negative young and inexperienced by traditional base- performance that comes from alignment, ef- ball standards. So, what is going on? Quite fort, and execution. Third, everything is about simply, these new leaders have brought an eye reconciling competing priorities between for talent supported by financial acumen and quality of performance and the costs associ- quantitative analysis, a healthy disrespect for ated with delivering that performance. Next, certain traditions, and a willingness to aggres- nothing happens without talented people. Fi- sively advocate for the correlation between nally, we never truly know how things will changing and winning. This trend is about turn out; that’s why we play the game. recognizing the critical importance of change In addition to the above commonalities agents—leaders who have the ability to love between baseball—indeed all professional the game of baseball from within while objec- sports—and business, there are universal tively standing outside of strongly held con- truths that bind these worlds together— ventions and executing on a mandate to people hate change and love to win. It is, change the way the game is played. Not a bad therefore, the leader’s role to define a crys- set of capabilities for any successful leader of tal-clear connection between changing and change, especially HR leaders. winning. With this parallel between baseball execu- As we think about the role of leaders, con- tives and HR leaders as a foundation, there are sider an emerging trend in Major League Base- eight implications for how the Moneyball ball. Among others, teams including the New story might help HR professionals and all York Yankees, Boston Red Sox, Cleveland Indi- business leaders rethink talent management.

Correspondence to: Ian V. Ziskin, Corporate VP, HR and Leadership Strategy, Northrop Grumman, 1840 Century Park East, Los Angeles, CA 90067

Human Resource Management DOI: 10.1002/hrm 144 HUMAN RESOURCE MANAGEMENT, Spring 2006

Strategy versus Structure Will versus Skill Every baseball team has nine players in the Talent is a state of mind, the drive to succeed, field and nine batters in the lineup. Their in addition to a set of skills and capabilities. structures are basically the same. However, Over the long run, average talent with ex- their strategies of how to play the game vary traordinary drive will outperform better talent considerably, as do their levels of talent. with little drive. Strategy and talent to execute are much more important than structure. In fact, Diversity versus Unity strategy and talent are flip sides of the same coin. Diversity is fundamentally about surrounding ourselves with teams of the very best people Track Record versus Potential who complement one another, making everyone feel included and creating a unity of pur- Long-term potential is a legitimate reason to pose. Team unity should not be confused with take a risk on a talented individual. But rely everyone doing the same thing, in the same more heavily on a past track record way, at the same time. Diversity is about or- of performance as the best predic- chestrating and valuing differences, not creat- tor of future success when placing ing sameness. Managed well, diversity and Moneyball teaches people in tough assignments. unity are one and the same. High-potential people are labeled us there is a place as such based on how we have seen Yes versus No them perform in the past. for data and analysis The single most important talent manage- in managing talent, Strengths versus Flat ment decision a leader can make is the an- Spots swer to the question “Should I pick this per- and in creating a son to be on my team?” The difference compelling nexus Focus the majority of develop- between a good decision and a bad decision mental actions on building and is enormous, because good people and bad between changing capitalizing on people’s strengths, people have a significant multiplier effect on the 80% of capabilities that breed everyone around them—but in completely and winning. their success. Create self-aware- opposite directions. Sometimes not choosing ness of and work on developmen- someone to be on our team is the best selec- tal needs, but do not overinvest tion decision we can make. in fixing things that represent 20% or less of a person’s path to success. Judgment versus Data

DNA versus Coachability Moneyball teaches us there is a place for data and analysis in managing talent, and in creat- We cannot coach DNA, especially under ing a compelling nexus between changing and stressful conditions when people retreat to winning. While data may inform decisions their comfort zones. Selecting the right peo- about talent, however, data never should sub- ple for the right situation at the right mo- stitute for good judgment. After all, great lead- ment is much more effective than coaching ership is about making good judgments de- them to hit a curveball as it approaches home spite bad data. Likewise, good data will rarely plate. Select for DNA, coach for technique. overcome bad judgment.

Human Resource Management DOI: 10.1002/hrm The Leader’s Role: Defining the Connection Between Changing and Winning 145

IAN V. ZISKIN is corporate vice president, chief human resources and administrative officer for Northrop Grumman Corporation. He is responsible for HR strategy, compensation, benefits, HR information systems, ethics, diversity and EEO, employee and labor relations, learning and development, talent management/succession planning, talent acquisition, organization effectiveness and change management, process excellence, acquisition integration, security, environmental, health and safety, real estate and facilities, travel services, command media, flight operations, community relations, and the Northrop Grumman Foundation. Ziskin is a member of the Corporate Policy Council, the senior leadership team responsible for company governance.

Ziskin has 24 years of human resources and leadership experience, including more than 18 years with TRW, one of Northrop Grumman’s heritage companies. Most recently, he has served as corporate vice president, human resources and leadership strategy for Northrop Grumman, executive vice president and chief human resources officer for Qwest Communications, and president and founder of Executive Excellence Group, a firm that builds executive and organizational credibility.

During his career, Ziskin has had responsibility for all aspects of human resources at the corporate, sector, operating unit, and staff levels. His experience includes the aerospace and defense, automotive, electronic components, information services, and telecommu- nications industries in both service and manufacturing environments in over 25 countries in North America, South America, Europe, and Asia/Pacific. He has led large-scale organizational changes, including four multibillion-dollar acquisition integrations in three separate companies.

Ziskin has been a speaker and author in areas including acquisition integration, global- ization, HR strategies and competencies, and leadership/talent development. He holds a bachelor’s degree in management from Binghamton University, where he graduated magna cum laude, and a master’s degree in industrial and labor relations from Cornell University. He is also a graduate of executive human resources programs at the Univer- sity of Michigan and Cornell University, as well as general management experiences including the Thunderbird Global Leadership Program, TRW's Advanced Management and Business Leadership Programs, and LEAD1NG One Northrop Grumman, where he also serves as a faculty member and program leader. Ziskin is a board member or participant in multiple professional organizations, including the HR Policy Association, the Center for Effective Organizations at the University of Southern California, the Center for Ad- vanced Human Resource Studies at Cornell University, and HR50.

Human Resource Management DOI: 10.1002/hrm