As we round the bases for the last two weeks of Major League Baseball, it's worth noting that big league managers may know more about 21st century leadership than Fortune 500 CEO's, with the possible exception of Steve Jobs. Remember Michael Lewis' bestseller Moneyball about how Oakland A's General Manager Billy Beane remade the game of baseball by looking at new metrics as a means of determining which players had the greatest impact on his team's success?
Like Steve Jobs' Apple in the battle against Microsoft, The A's had high odds against them with a team payroll that was just one-third of what a bigger market team like the New York Yankees could pay their players. So, Billy Beane reevaluated the conventional wisdom that stolen bases, runs batted in, and batting average were the most important statistics to consider when selecting players for a team. Doing rigorous statistical analysis -- and using a certain amount of gut wisdom -- Beane was able to show that little-considered stats like on-base percentage or slugging percentage were bigger indicators of offensive success than some of the historical numbers that most teams used. The Oakland A's soon leveraged their intellectual competitive advantage by selecting bargain players who helped them in a series of improbable playoff runs. Sadly for the A's, the rest of the league caught up and teams like the Boston Red Sox parlayed these "Sabermetrics" -- what Beane called these unique numbers -- into the World Series. The A's were back where they started, a perennial also-ran.
Most business leaders are using 20th century metrics to create 21st century success. We were taught to "manage what we can measure" and, generally, what's most easily measurable are the more tangible aspects of life. In business, this translates to metrics like profitability and cash flow -- clearly important, but outputs in actuality, not the inputs that create success in the modern company. Today's most valuable business assets often don't appear on a balance sheet, an accounting relic that is 500 years old. In our knowledge economy, it's not the tangible factories or equipment that creates sustainable success, it's the intangibles like innovation, employee engagement, brand reputation, and customer evangelism that drive market performance. Stock analysts suggest that 80% of Apple's value doesn't appear on its balance sheet. The balance sheet is the output, just like the baseball standings are the results of how you've invested in your inputs.
We're living in a new era. And yet, we're using the old metrics. Nearly two-thirds of the world's GDP now comes from the intangible service industry -- as opposed to tangible industries like manufacturing or agriculture -- where competitive advantage isn't about who's the biggest, but who's the smartest. Savvy business leaders are learning how to measure those intangible assets like loyalty and reputation -- there are even social media benchmarks for your company now -- so that they can modernize what they're managing. What are the inputs or "Sabermetrics" in your business that you've been ignoring?
Fortunately, Hollywood is a step ahead of most business leaders, as they realize that Moneyball defines our 21st century world of underdogs looking for a leg up. You'll see Brad Pitt playing Billy Beane next year when Sony Pictures brings this epic story of "what counts" to theaters around the world. Let's hope a few business execs sneak off on their lunch hour to learn this leadership lesson on the big screen.