Pay For Performance, Stupid

What businesspeople can learn from Michael Lewis's book, “Moneyball.”

Moneyball

There's an old axiom that says, “What looks good, isn't always good for you.” Although most people immediately associate this phrase with fatty foods, it's also worth remembering when evaluating potential employees. In “Moneyball: The Art of Winning An Unfair Game” (W.W. Norton), author Michael Lewis has created a runaway bestseller simply by illustrating how Major League Baseball executives have long failed to heed this advice. In a nutshell, the book deftly explains why traditional yardsticks for measuring baseball prospects are hopelessly inadequate—and why most general managers and scouts stubbornly refuse to acknowledge this fact, despite the abundant evidence. Of course, executives and personnel people in less glamourous businesses also struggle to evaluate prospects, relying heavily on résumés to screen candidates—a system that makes the hiring process as much of a crapshoot as the baseball draft. Incredibly, what virtually all employers neglect to consider is past achievement, perhaps the best indicator of future success. 

According to Lewis, “Moneyball” was inspired by a single question: “How did one of the poorest teams in baseball, the Oakland Athletics, win so many games?” He found the answer in general manager Billy Beane, an intense individual who was inspired in part by his own baseball failures to break the rules for evaluating players. A former first-round draft pick of the New York Mets, Beane was once considered an elite prospect, on par with former Mets star Darryl Strawberry (the first player selected in the 1980 amateur draft). Believe it or not, scouts not only loved Beane's skills and physique, they felt he had “the Good Face”—yes, scouts unwittingly use physiognomy—believing that his facial structure was indicative of character. But the Mets disregarded several warning signs, ignoring the fact that Beane indicated a lack of desire to play professional baseball. Of equal concern was his temper, which flared up on the rare occasions when he wasn't successful on the field. Some wondered how he would react when faced with the inevitable setbacks experienced by all young professional players.

Beane's abbreviated career at the major league level was a disaster; he finished with a .219 batting average and a strikeout-to-walk ratio of roughly 7.5 to one. In the end, Beane's lack of discipline at the plate and fear of failure negated his prodigious skills. He quit the game—some would say prematurely—to take a lowly advance scouting job with the A's, convinced that he could become a successful front office executive by identifying players who weren't like him. It was a virtually unheard-of career move—the equivalent of a young, good looking, yet under-performing CEO walking away from his cushy job to slave away for a bootstrapping startup, determined to turn a blind eye to pedigree when considering potential future employees. 

The dramatic change re-energized Beane and he quickly rose through the ranks to become Oakland's general manager. Once in control of all personnel decisions he decided to fully embrace a philosophy pioneered by Bill James, a statistics guru who had long argued that certain baseball stats were overvalued (batting average, for example), and others under-appreciated (walks and extra-base hits, to name a few). For years, James had been dismissed as a freak by baseball executives, but Beane and a few of his laptop-toting minions with no professional baseball experience saw the value of James' arguments. Together they began looking at which statistics were the best indicators of success at the professional level (concluding that walks and on-base percentage were the most important considerations), and evaluating prospects solely based on past performance instead of potential. 

To the dismay of the organization's old-fashioned scouts, Beane and his number crunchers began discounting physical appearance, muscle mass and success in scoring with the ladies, preferring to focus on the numbers each individual produced. As a result, an A's draft pick could be relatively slow, overweight, unattractive, or even have—in the case of one draftee—breasts, as long as he could play smart and hit exceptionally well against high-level competition. It was fortuitous that Beane found himself courting players virtually no one else wanted; Oakland's budgetary considerations meant the A's couldn't compete for expensive free agents or afford to draft prospects the other clubs lusted after. At first, other baseball executives openly laughed at Beane's unorthodox approach. Yet, despite a low budget, the A's remained a perennial playoff team, winning as many as 102 games a season. Before long, Beane's colleagues became wary about making deals with him. Not only was he doing more with less than anyone else in the league, he was fleecing fellow GM's in what turned out to be one-sided trades.

To date, at least one other major league club has taken Beane's against-the-grain approach to heart. In November 2002, the Boston Red Sox hired Theo Epstein, 28, as senior vice-president and general manager, making Epstein the youngest GM in baseball history. Not surprisingly, the Red Sox have taken considerable flak for appointing such a young man to such a critical position, the criticism exacerbated by the organization's longstanding reputation for making boneheaded baseball decisions. While the jury is still out on the hiring of Epstein, the Red Sox should be applauded for making such a bold move. Anyway, it's not like the team's former front office executives were getting the job done before he arrived; the Red Sox haven't won a World Series title since 1918. In 1920 then-owner Harry Frazee sold the now-legendary Babe Ruth (“The Bambino”) to the archrival New York Yankees and the fortunes of the two franchises turned. Since then, the Bronx Bombers have won 26 world championships while the Red Sox have been plagued by bad management and bad luck, a condition that some now refer to as “The Curse of the Bambino.” 

If you want to know why your favorite baseball team is underachieving, it's most likely because the front office is unable to evaluate talent. Of course, that's one of the great shortcomings of the vast majority of businesspeople. Just as baseball scouts tend to become enamored with isolated measuring sticks like speed, arm strength and physical appearance, ordinary employers narrow-mindedly scan résumés for acronyms like MBA and count years of “relevant experience.” But just because a prospect can run like a deer and looks like he was born to wear a baseball uniform (or just because a man or woman has studied marketing principles and looks sharp in a business suit) doesn't ensure success when the game is on. That's why high first-round draft choices and MBA's from prestigious institutions of higher learning often end up being an employer's worst nightmare—expensive and functionally useless. 

In much the same way the A's, and even the Red Sox, have begun challenging traditional baseball thinking, the employers of the world might want to consider alternatives to the “résumé, degree and years of experience” system. After all, a degree and experience says little about a candidate's past performance. What an employer really needs to know about is talent, motivation, work ethic, work style and how a candidate's personality fits into their organization. Perhaps applicants should simply assess their own abilities the same way draftniks evaluate potential professional athletes, providing “Strengths,” “Weaknesses,” and “Achievements,” plus a “Summary” that focuses on potential for future success on the job. More traditional measurements like education and experience could always be considered later. In this system, the most talented, passionate and compatible candidates would be rewarded with interviews, instead of those who might offer nothing more than the path of least resistance.