Inspired by Sports? Check the Math

Printer version  PDF

By Adrian Slywotzky
and John Campbell

Whether their physique resembles Michael Jordan or Jackie Gleason, many business executives love the world of sports. They routinely use sports analogies to tee up a meeting, hit home runs on sales targets or move the ball over the goal line. They seek inspiration from the locker room, paying hefty sums to prominent coaches and retired athletes to give lunchtime talks about leadership and motivation. The clear-cut rules and outcomes of sporting events, not to mention the physical prowess involved, naturally make for a more concentrated and thrilling form of competition than the economic competition that most people grind through in offices and factories.

Sports fans have long been fond of tracking statistics, just as corporate executives have long focused on financial reports. But for many years sports statistics were relatively crude. It took innovators like Bill James, once a night watchman at a Van Camp’s pork and beans plant, to point out that better metrics would lead to better results. James used scientific methods to show that certain overlooked baseball metrics were critical to understanding a player’s value to his team’s performance. He showed, for example, that earned run average is not a good indicator for all types of pitchers and that batting average is not the best indicator of a player’s contribution to the offense. Using better metrics has paid off in American football for Bill Belichick with the New England Patriots, in baseball for Theo Epstein with the Boston Red Sox and Billy Beane with the small-budget Oakland A’s, and for other sports executives.

In the business world, debunking conventional thinking can also be enormously profitable. During the 1960s and ‘70s, most automakers focused on using their machines for as much of the day as possible. Toyota realized that machines were roughly one-fifth the cost of labor; it focused on using its workers for as much of the day as possible. That marked the beginning of Toyota’s ascendance.

But more executives need the stomach to break from conventional wisdom and endure the ridicule that inevitably follows. For business people, three lessons from sports are compelling:

Belichick has shown more willingness to go for the first down, rather than punt the ball, when faced with fourth and short yardage. (In American football, the offense gets four “downs” or plays in which to advance 10 yards and thereby get another set of four downs.) Belichik was influenced in part by an academic study on the question written by David Romer, an economist at the University of California at Berkeley. In a number of big games, Belichick has been rewarded for his willingness to defy an old but misguided rule of thumb.

Similarly in business, proprietary data, especially about customers, will often find the opposite of what you assume to be true. Companies that excel in analytics can keep customers loyal and improve the business’s economics.

Harrah’s, the casino entertainment company, discovered that its most profitable customers were not limousine-riding high rollers but ordinary middle-aged and senior adults with discretionary time and income. These people responded better to an offer of free casino chips than a nominally more valuable free room and steak dinner. The company changed its marketing as a result. But it had to collect the data before it could figure out which of its assumptions were correct.

Belichik is just one smart man with game tapes. But he and Patriots owner Robert Kraft have designed a different organization. They put a precise monetary value on each position of the team, not on individual players. This discipline helps steer payroll spending to where it will do the most good and emphasizes group success as much as individual performance. Likewise, a business has to identify the right metrics and create an organization that can use them effectively.

For Harrah’s, data modeling prompted the company to split its customers who hold rewards card into different groups that would each get a different level of service. It then shifted employee training, bonuses, and job ratings away from a casino’s financial performance and toward speed, friendliness, and other things that would measurably increase customer satisfaction and the number of customer returns. These organizational changes allowed Harrah’s to cultivate an increasingly devoted clientele, increase its margins, and post healthy growth in a highly competitive industry.

Jayne Torvill and Christopher Dean, the British skating couple, redefined ice dancing through small innovations in dance moves, music and clothing. After winning the 1981 World Championships, and with three more years before the Olympics, they began to plan routines that used one piece of music and had some narrative or thematic element, breaking from the traditional routine that used several pieces of music, often with different rhythms to show off the command of different steps. At the 1984 Olympics, their innovations brought them the honor of receiving the world’s first perfect score.

Small behavioral changes add up in business as well. For example, in the world of freight railroads, most firms once ran on an ad hoc basis. The train would leave the yard when it was ready, meaning it was long enough and heavy enough. Most rail managers believed this saved money by not using a crew and fuel to run a light train. For decades, Norfolk Southern operated this way. But when it did a more rigorous analysis of its system, plugging the data into a computer, it discovered that adhering to an actual schedule would not just reduce costs but also win back customers who valued reliability.

Norfolk Southern used software by MultiModal Applied Systems (now a practice of Mercer Management Consulting) to probe the inefficiencies in its railroad network and devise the best schedules. Managers also used the new database to discover many minor and fixable problems, such as a manufacturer that would use rail cars to store inventory, clogging the rail sidings. By making dozens of small improvements, Norfolk Southern has made major advances. Shipping volume has risen 14% since 2000, but the number of cars needed to move that volume is down 11%, and Norfolk Southern stock has outpaced competitors in recent years.

We do need sports heroes, because inspiration fuels us. But too often, inspiration is a fire of straw, with a half-life of just weeks or days. Method, system, information and mathematics are far more durable. They enable companies to perform well through cycles and through crises. Some sports teams are ahead of us in business. So let us admire the athletics, but let us also learn from the data mavens, who keep changing their organizations and raising their odds of winning.

Adrian Slywotzky is a director of Mercer Management Consulting and co-author of How to Grow When Markets Don’t.

John Campbell is director of publications and media relations at Mercer.