Rational Management v.s. Old rich men playing baseball

I finally got around to reading Moneyball yesterday. Any number of people have recomended this book include a number of members of the statistical quality control management cult. My total lack of interest in baseball combined with my minimal interest that management style pushed it far down the stack. But then it was the only book on my list available at the the tiny library I found myself in the other day.

This book is marvalous. Sports provide an ample supply of heros and emotionally charged morality plays. There are so many threads that it’s very hard to summarize. So I’ll just try to pull out some of them.

You could tell this story as being just about how some folks found some inefficencies in a market and proceeded to exploit them. Told this way the tension in the story is why did it take so long for anybody to notice and act on it.  The opportunity wasn’t noticed until the 1970s.  Why not?

It is also is a story about how a small group of fans, the lowest lifeform in the industry.  These fans had a unique talent, a fresh ablity to look at the game coupled with the talents to validate their insights using statistics.    The story gets better – when they showed up at then door of the club house with their exciting discovery they are turned away.  Just like every other nutty fan has been turned away and has been for years.  So they when off and invented a fantasy game that let’s millions of fans begin to see what they saw.  Of course to do their analysis they needed data.  At first they asked the firms that had the numbers for access.  They were told: go fly a kite.  So they create a subtitute way to gather statistics. It’s a marvalous example of both innovation emerging at the periphery and how hard it is to get that innovation transmitted into the core.

It is also a story about objective v.s. subjective managment. Which is why the six-sigma guys love it.  A story about the slow displacement of artisians by science.  It’s a story about cultural blindness and group think.  As usual an paradigm unable and disinterested in hearing the disruptive news that a new paradigm has to bring. And thus it is also a story about a proffession grown so insular that is was no longer was striving to disrupt it’s self.

In a marvalous complement to those stories the author selects as his hero somebody that crosses between the two camps. A man burned by the old system. He sold his life to the profession as a boy and they did him wrong, or at least it didn’t turn out well. In a lovely personification of the subjective/objective tension of the peice he is nearly unable to keep his subjective passionate side in control. But, having been burnt by the proffesion’s old men he embraces the new objective methods. It is the story of an angry man forcing a rational management framework down the throat of an industry run on traditions that have that having lost their objective grounding are now just just emotion and intuitions.

From that it become also a story about this middleman. The hero is the two faced middleman. Bridging the market failure the talented fans on the periphery uncovered. This is key. You couldn’t use the new tools unless you could play by the old rules. So, for example, they figure out that the prices of relief pitchers are inflated, better yet the stats used by the old paradigm are easy to manipulate. So they can pump up a guys stats and sell him off at a tidy profit. Of course when you sell him you have to be able to present him exactly in the manner of the old paridigm. Our hero the middleman can do that; he lives and understands both paridigms.

The story is also a facinating story about the evolution of the industry’s architecture. The industry was built to assure that extreme variation between teams would not emerge. No power-law here. To do that the industry has adopted some standard devices for smoothing out inequality when it emerges. Lousy teams get first pick of new players. Players are tied to the teams with multiyear contracts, that tempering the ablity of rich teams to aggregate all the proven talent.

That architecture began to fall apart when the players (labor) managed to convince the courts that they were getting screwed by the owners (capital). The moment that players got freed the rich teams began to aggregate talent. Players were right, they were getting screwed, and their salaries rose by huge factors (10, 100). That money came from two places. Owners and fans; mostly from the fans since of course they are the ones with the least power in the industry.

The break down in equality producing architecture (wealth transfers, and regulatory devices) lead enivitably to increasing inequity in the game. Pretty quickly the salaries paid by various teams became expodentially distributed, but not power-law. In a subplot I find highly ironic a blue ribbon commission put together to study this growing inequality found it’s most politically conservative member, George Will, arguing that the breakdown of the architecture of wealth transfers and strong regulation was certain to kill the sport. Was he being a traditionalist, or a pro-capital anti-labor I wonder. Whatever, I’m sure he was blind to the irony that what he was advocating in the sport he was railing against in the society.

So then there is a thread about how it all plays out as the existing industry architecture falls apart. The incentives to break with the common consensus of the existing proffesionals strengthens. When the teams were, by design, closely aligned in talent the industry’s firms could collaborate as peers. That created a gentlemanly climate in the industry. Scouts, for example, would reach a industry wide consensus about incomming talent. Owners, not under strong competitive pressure, prefered stable rules sets to innovative risky ones.

As inequality sweeps into the industry a dynamic emerges. The losers, the guys out on the tail, discover that they have less and less to lose from experimenting with radical approaches. If your at the bottom paying your talent a third or a quarter times what the guys at the top are paying your chance of winning becomes nothing more than a fantasy. Like the millions of fans playing fantasy baseball you start to notice, what the hell, let’s try some experiments. Finally, and it took a surprising long time, one of them tried the experiment of using the radically better approach that the statistics nuts in the fan base had uncovered.

At this point you get the heart warming stories. Undervalued players the one the old paradigm wouldn’t touch are raised up. They are terribly grateful. When Mr. Fatty get’s the call from the new experimental team it’s the best day in his life. The old paradigm was oppressing these guys and the new paradigm is rewarding them. Sweet huh?

Some huge innovations create huge new businesses while other innovations don’t. What distinquishes the two? The ablity of an existing industry to take the innovation onboard. If the existing gorrilla’s in an industry can absorb the innovation then they do. If they can’t and the innovation is big enough then you get a huge new firm. For example Paypal is too risky a payment’s model for the credit card company’s to swallow.

Of course if they chew long enough then even the most difficult to swallow changes can get absorbed. Big firms have lots of time and resources to chew with, for example, the American auto industry did learn at least some of the lessons from the radically different way the Japanese auto industry operated. Even if it took them 25 years.

I have no idea how long it will take for major league baseball to swallow this innovation, but for a while it helps to temper the inequality between teams the current architecture creates.

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