Radical Hrm Innovation and Competitive Advantage: the Moneyball Story

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 execu- tion 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

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