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Summary:

If you’re a major league baseball fan, you’ve probably read “Moneyball,” the best-selling book by journalist Michael Lewis chronicling the successful statistics-driven management of Oakland Athletics General Manager, Billy Beane. Baseball has long been a game of stats, but Beane’s philosophy gave the tradition a twist: […]

If you’re a major league baseball fan, you’ve probably read “Moneyball,” the best-selling book by journalist Michael Lewis chronicling the successful statistics-driven management of Oakland Athletics General Manager, Billy Beane.

Baseball has long been a game of stats, but Beane’s philosophy gave the tradition a twist: Instead of tracking a player’s batting average or runs batted in, Beane tracked a player’s on base percentage. The unorthodox approach helped Beane build the A’s into a remarkably efficient team that has reached the American League playoffs five times in eight years with a payroll that’s consistently near the bottom third of all 30 MLB teams ($78.5 million in 2007).

Plenty of corporate executives have tried to apply Beane’s tactics to their own operations. NetSuite CEO Zach Nelson did one better: In 2007 he invited Billy Beane to join NetSuite’s board of directors.

Nelson says tracking nonstandard performance stats has helped improve the efficiency of NetSuite’s sales process. Most CEOs track their marketing spend, lead generations and closed contracts independently; NetSuite tracks which marketing plans (players) turn into leads (walk ons) and which leads convert to sales (runs). If improving your company’s sales efficiency is the aim, then “walk ons” — or how you get to the sale — is the key stat, just as in baseball. Below Nelson offers a few tips from Beane’s play book to get you started “managing by the numbers.”

Management Rules from the School of Beane:

1. Just start measuring it.
In the early stages of your business it may be difficult to know which stats will be the most important for evaluating your operation. (Operating expenses or burn rate? New sales or renewals?) Don’t get too hung up on selection, just start doing it. “It’s easier to measuring things now than later, when your business is much more complicated,” Nelson says.

2. Reduce the number of systems you use. Whether you’re using sophisticated SaaS applications, or a simple spreadsheet system, streamline. It’s best to unify data tracking into a single system so you can correlate the data. It’s fine to use multiple applications (one for finance, another for marketing), but keep in mind that when you fragment your data, it becomes harder to “connect the dots” and draw operationally useful conclusions.

3. No such thing as a wrong metric. It doesn’t matter if you discover you’ve been measuring a useless data point. Once you know, you can eliminate it and choose something more appropriate. There is such a thing as overkill. Nelson found that measuring the number of product demonstrations his sales representatives were doing wasn’t helpful; he could never correlate a single demo and a final sale. “Since there was no value in collecting that data point, we don’t track it anymore.”

4. Consistency is king. The one thing you can’t do is modify, in midstream, the specific terms you use to collect a data point. If you start out tracking contract renewals by geographic region, don’t change midstream to collect renewals by product line. Just start collecting a second data point. It’s more important to build up a body of historical data than to make changes in the heat of the moment.

5. Trust your data. Even when your intuition suggests otherwise. You have to have the courage and conviction to trust your data, and act on it, Nelson says. If your data says spending money on conferences like CES or Web 2.0 Summit does not convert to sales, don’t go — no matter how important you think it is to be seen at such events.

Photo credit: Geoffrey Ellis.

  1. How many world series have the A’s won using this strategy?

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  2. @Zo,

    The Red Sox use the same approach which not only ended their “curse” but has resulted in 2 world series championships. To be clear, i’m not a proponent of the strategy per se, however I do believe that there are elements of the approach that have merit.

    @Carleen,

    I must point out that modeling and measurement of correct business metrics is not new. The business school at Carnegie Mellon was founded on the fundamental premise of identification and measurement of the effective business metrics that drive the performance of a business, and not just any business metrics. Full disclosure, I have an MBA from Carnegie Mellon, which I received in the same year that the A’s won their last world series, 1989. This predated Billy Beane’s role as GM, and clearly the publishing of MoneyBall.

    Kudos to Zach and the team at NetSuite for identifying and measuring the business metrics which affect the performance of NetSuite.

    Best,

    Curtis

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  3. Focusing on the right metrics that drive the business is core to success. While you first have to determine the strategic direction you believe will win, you have to also look at the metrics that show you are headed in this direction. And as said before, CMU was famous years ago for pushing this point of view. From Nobel Prize winning Herb Simon to the more recent and practical, Bob Kaplan…CMU has pushed your strategy is defined by what metrics you act on.

    Now having said this…winning (the hated Yankees) is also about passion and vision ( Joe T of the Yankees) and of course resources (big baseball markets like New York). You can have good performance based on execution ( the A’s wins per dollar spent is the best in baseball) but the ultimate vistory must also come from vision and passion.

    Now as a 20 year A’s season ticket holder, I pray for the ultimate victory…but without the resources provided by a major market like the South Bay, the A’s are doomer to good performance based on great execution.

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  4. Beane’s strategy wasn’t simply going after players with high OBP. That’s really simplifying things. At the time OBP was underappreciated and undervalued. Beane saw that he could sign or acquire high-OBP players for a relatively cheap price. A lot of people incorrectly think that Beane was just obsessed with stats. That’s only part of the story. He was able to see which stats other executives were overpaying for and which ones they undervalued.

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  5. [...] their sales process by using his data analysis techniques. In the GigaOM blog, Carleen Hawn outlines their five tips for “managing by the [...]

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