Corporate Performance Management & the National Pastime
by Bruce Semisch, Executive
These days I spend most of my working hours thinking about corporate performance management (CPM) and how it can help our clients. In my off hours, I’m often thinking about baseball, especially since warmer weather has finally arrived. Given my interest in both topics, it was probably inevitable they would merge in my mind, and I would start seeing CPM principles in how Major League teams – specifically the Boston Red Sox – are managed.
Now, at some organizations, CPM refers to a specific type of software or what the finance department does. That’s why CPM has gained a reputation among some skeptics as forcing managers to make decisions strictly by the numbers – the “do what the data says you should do” school of management.
We define CPM more generally and holistically. In fact, we often call it “performance management” to make a distinction from a specific tool. There are strategic, process and organizational factors involved, as well as data and technology. Done right, CPM incorporates a range of steps and inputs, including budgeting, forecasting and modeling, and can be applied to a range of functions beyond finance – HR, sales, marketing and customer support, to name a few.
Whatever you call it, the idea is to use data (both historical and predictive models) to gain better insight into current operations and take action to boost bottom-line results in the future. Further, we see data streams as enhancing – not replacing – the wisdom and experience of managers, helping them make tough calls about resource allocation, process engineering, supplier relationships, product development and the like. Which brings us to the Red Sox.
Breaking the Curse
As you may know, the Sox won the World Series in both 2004 and 2007, after not winning any during the previous 86 years. While those Championship teams had great players, the breaking of “the curse” has largely been attributed to an innovative front office that combined two distinct management styles:
- THE STATISTICS-BASED “SABERMETRIC” MODEL of performance analysis that predicts players’ future performance based on sophisticated statistical models. Once obscure metrics, like OPS (on-base plus slugging percentage) and DIPS (defense independent pitching statistics), have become industry standards for evaluating players. Conversely, familiar stats, like batting average and ERA (earned run average), are now viewed as less useful. Described as the “search for objective knowledge in baseball,” sabermetrics was invented by The Society of American Baseball Research, or SABR, and was made famous by the Michael Lewis best-seller Moneyball. It has been embraced by a younger generation of general managers, many of them with Ivy League MBAs or advanced mathematics degree. And it’s thought to have given small-market teams with relatively low payrolls a valuable tool for competing with free-spending franchises in larger cities.
- THE TRADITIONAL APPROACH, where veteran “baseball people” (usually older scouts and coaches, many of them former big leaguers) use their experience and instincts to evaluate ballplayers on more qualitative factors. In this style of management, which was the rule for the first century of professional baseball, a premium is placed on things like speed on the bases, the ability to hit for power and a strong throwing arm. Other “intangibles” – like confidence in the clutch, soft hands and a “head for the game” – are also taken into account. Obviously, there are metrics involved, but they are relatively vague (think stopwatches). Historically, if an experienced, trusted scout said a player had the tools, that player got a place in the lineup.
It’s easy to see why there is tension between the two schools. Often, it’s traditionalists who complain that baseball is being ruined by the bean counters and b-school whiz kids, that the focus on objective data corrupts the soul of the game. The same thing happens with CPM. We all know executives who trust their guts more than they trust data. But, the truth is that a performance management process allows for – and even inspires – “gut-feeling” management and dynamic leadership. In fact, that’s one of the coolest things about it.
The Red Sox have expertly blended the traditional “intuitive” approach to player evaluation, with the 21st century, data-centric model. They rely both on the insights of wise old baseball men and the fresh thinking of younger, IT-savvy execs. Yes, they have a huge payroll and, yes, they’ve had a few superstars. But their championship rosters were most notable for highly effective role players (Kevin Millar, Hideki Okajima) and hugely productive hitters who would’ve been undervalued in previous eras (Kevin Youkilis, Dustin Pedroia). These last two players have gone on to become All-Stars, just as the sabermetric data suggested they would be.
There’s no doubt that organizations in non-baseball sectors could benefit from this sort of “best of both worlds” approach. The numbers shouldn’t dictate every decision. Dashboards can never replace a sixth sense for market opportunities or a nose for hidden risk. And certainly they won’t replace institutional knowledge. But neither should executives live solely by their guts. They should use data to sharpen and refine their instincts. The point is, an effective performance management process – with the right team of people analyzing the right set of objective metrics in the context of a repeatable decision making framework – can make a huge difference. Just ask a Red Sox fan.
