The business strategy of a sports franchise is a hot topic. Forget the business channel talking heads on CNBC or Bloomberg who argue about commodity prices, interest rates and the technology sector. If you want to hear vox populi discuss business strategy, tune into sports talk radio for real debates about strategy, management and competitive advantage.
Public information about sports has increased exponentially, and with it there has been a remarkable change in consumer expertise. The Internet has given us instant data access and cable outlets like ESPN have changed the way we think about the business of sports.
More importantly, the rise of fantasy leagues where fans get to play owner, make decisions like a general manager and compete against one another has made millions into imaginary business executives.
Can you name another business where consumers simulate ownership? Are there other parts of national life where people use data to evaluate outcomes about something that has nothing to do with their own welfare, families or careers?
Which brings me to the Phillies, our hapless baseball team. What can we learn from this awful season? A lot. It is a business case study in how an organizational culture can impede adapting to change.
When GM Ruben Amaro said the Phillies were not a “statistics-driven organization,” it showed an unwillingness to think that something you know nothing about will ever eclipse something you know a lot about. This is how organizations fail. They lack intellectual curiosity and are unwilling to challenge themselves.
A few months ago, ESPN ranked all professional sports teams based on their use of advanced analytics. The rankings covered four professional sports: baseball, football, hockey, and basketball. The Phillies were, predictably, last out of 122 teams.
To make their point about the insistence of the Phillies to stay out of the analytics competition, they used a 2010 quote from General Manager Ruben Amaro who bragged that his team is “not a statistics-driven organization by any means” and would likely never have “an in-house stats guy.”
Can you imagine the head of a company whose stock you own telling you the firm just does not like to use data? My advice would be to sell.
Amaro made this proclamation at a time when the team was at a high point in their success: The 2008 World Series victory had been followed by a 2009 World Series appearance. It all went downhill from there. Allowing success to undermine your ability to innovate or adapt to new circumstances is not an uncommon problem.
Success can be an intoxicant and thereby short-lived. Great companies do not assume that what got them to point A will get them to point B. It is never that simple.
Today, just a few brief years after Amaro made that statement, the team has the most losses in baseball. They could end the year with 110 losses, which would place them in the ranks of the top 10 for all time futility in the modern era.
Of the 21 top losing seasons in post-1900 baseball, the Phillies hold six of those spots and the old Philadelphia Athletics (now the Oakland As by way of Kansas City) hold 3 more. Losing we understand. How to get on top and stick around for a while is more elusive.
Success in sports is obviously all about talent: its discovery, evaluation, cultivation, cost, and exit. Talent evaluation is a matter of being able to measure performance over time. But how you do that is trickier than some think—and more importantly, it has changed over time, both in terms of changes to the game and changes in what we know about the game.
Baseball evaluation has always had a statistical lens attached to it, a lens that is as old as the game itself: batting average, homeruns, runs batted in, earned run average and so forth. Baseball is a sport that has always been about comparative data as a way to understand performance. If you love data and you love sports, baseball is heaven.
And of course it is about money; if you have the capacity to pay for stars then you generally stand a greater chance for success. When Philadelphia figured out it was a big market town, we built a great stadium and developed a strong core of players and were able to pay the piper and become one of the highest payrolls in the sport.
But while money always helps, it is no longer enough, particularly if you can’t do a better job of evaluating talent and knowing when it is time to let go. And here is where the Phillies have struggled; the sport changed because it got smarter. The Phillies refused to change with it.
How and why did it get smarter?
A host of new analytical perspectives on talent evaluation emerged over the past several decades and caught fire with the rise of computer technology (lots of computer models for baseball were built as early as the 1970’s and 1980’s). During the last decade it has changed the game.
Like most data revolutions, the new analytics have two components: the ability to refine predictive capacity by taking huge amounts of existing data and generating probabilities; and the creation of new evaluation categories to replace or augment existing ones.
In baseball, the data revolution has a name: Sabermetrics, which is derived from the Society for American Baseball Research (SABR), which has been around for more than four decades. In popular culture, the book and movie Money Ball gave a face (Brad Pitt playing Oakland A’s GM Billy Beane) to the movement.
What is interesting is the fact that the use of Sabermetrics happened most profoundly with teams like Oakland that did not have the money to compete against teams like the Dodgers, Yankees, Angels, Red Sox and Phillies.
The use of data was a way to get the most out of the least by getting smarter about talent. In business terms, it was a way to identify and take advantage of undervalued assets.
Unable to sign free agents or emerging stars to long term contracts they had to figure out how to put a team together in a different way, including how to best build a minor league system and how to cherry pick talent others overlooked, in part, by applying a different frame of reference.
Just to give an example, most old-time baseball followers like myself worry about a batting average, but the Sabermetrics guys concentrate on a formula for batting average on balls in play. I grew up thinking about the number of errors or the fielding percentage of a player, but the Sabermetrics guys talk about defensive runs saved. I could name dozens of other examples.
When you change the frame of evaluation, a guy that seemed great from one perspective does not seem as great from another. Is Sabermetrics right? Not always, but that is not the point. The point is you want to use as many analytical tools as possible to build a team.
The unwillingness to use new data platforms is not the only reason the Phillies went into such a radical decline, but it gives real insight into the organization. The unwillingness to change is the core attribute of their organizational culture. Among other things they:
Pay more attention to loyalty than performance: Loyalty is one of those traits that are in short supply and so we naturally admire it and want to be the recipient of it. But what if loyalty is so prized that you cannot come to terms with facts on the ground and you keep doing the same thing over and over, without a better result?
Stay in their comfort zone: Organizations that miss out on big changes are often captive to history and tradition, even if it is one of failure. They cannot break away from the people, stories, and techniques that are familiar. And those that want to break away or innovate are viewed with suspicion, as not part of the family.
Have no sense of urgency: This is a team where nobody is ever quite in charge. Owned by a consortium of minority shareholders , it is hard to identify accountability and urgency. No matter what happens on the field, the franchise makes money from television and its asset value will likely increase. Low attendance and poor merchandising take a toll but are not a death knell. Unless you are the Montreal Expos, you will survive.
The great Hollywood producer, Darryl Zanuck, reportedly said in 1946 that the television was not going anywhere: “People would get tired of staring at a plywood box” he noted.
The Ruben Amaro quote is not quite at that level but it’s of a similar type: an unwillingness to think that something you know nothing about will ever eclipse something you know a lot about. This is how organizations fail. They lack intellectual curiosity and are unwilling to challenge themselves.
The Phillies have been around since 1883, the oldest continuous one-city, one-name team in American professional sports. It is also the team with the most losses in all of professional sports. The franchise had only two serious runs of competitiveness in more than 13 decades: between 1975 and 1983; and more recently between 2007 and 2011.
Thus local author James Michener once said that while it is traditional to say “I supported them in bad years and good, with the Phillies I supported them in bad years and worse years.”
Today the Phillies are in free fall because they cannot break loose from an organizational culture resistant to change. Maybe some of the recent front office moves will take the team in the right direction, but it will take time to rebuild an organization that missed out on the talent revolution from scouts, to minor league teams, to promotions and contracts.
This is a great case study for a business class or a class in organizational dynamics. I just wish I did not have to live it every day.