Summary: Baseball Season is always an exciting time, especially if your Team is knocking it out of the park! But winning consistently can be a real challenge. Billy Beane of the Oakland A’s (Moneyball fame) faced this challenge. Billy became the A’s General Manager in 1997 following a dismal 96-97 year compounded by key players leaving and significant budget cuts.
Billy knew that critical recruitment decisions could not be made using traditional “experience & opinion” based decisions. He recognized the value in tapping into the abundance of data available on players in the Major and Minor Leagues.
Fighting traditional decision making techniques, Billy drove his staff to find young players or out of favor players who were more productive offensively and defensively. The result? The poorest team in baseball with the smallest budget blew past the competition in successive winning seasons. That is a truly remarkable story.
What is your company’s Moneyball story? Are you getting repeatable and meaningful insights from your analytics and data initiatives that challenge or compliment historical decision making processes?
Case In Point: Let’s look at one area that all companies can relate to, pricing discounts. Traditional sales management techniques focus on sales volume with discount strategies focused on incenting top line growth. Discounting can be done in many ways but how do you know that it is driving value to your bottom line?
Take a look at the following graph of customer sales verses applied discounts. Clearly higher sales with lower discounts (the green area) is great. But what about customers with higher sales and higher discounts (the yellow area)? A traditional sales assessment would say that this is acceptable to meet revenue growth requirements. Said another way, the Sales Umpire would say “Your Safe”.
But let’s add another dimension to evaluate the performance of these customers. Let’s look at the profit generated by these sales. As you can see below, 38 customers were actually unprofitable.
Giving much higher discounts than average for a customer that is marginal or unprofitable could be the basis for the Umpire to yell “You are out”. Or it could be smart information that can be used to create more “value based” discounting strategies.
Action: Supply chains are complex with a lot of variables that can impact Cost To Serve and Net Landed Profit performance. In today’s highly competitive and volatile market, understanding the financial impact of decisions made to manage these variables is imperative. It is most likely that in your company there are well established norms associated with driving top line growth and discounts. What hidden gems are waiting to be found in your operation?
Takeaway: Billy Beane challenged his staff to fill playing positions in a new way. Beane focused on player selection based on a specific performance analytics. They defied conventional wisdom and built their Team using analytics and the data that was available. Billy found value in players that other teams did not see.
Are there Moneyball opportunities in your operation? It may not be easy, but at the end of the day, if your measuring yardstick is “earnings per share” versus “sales per share” are you ready to play ball?
I would love to know your thoughts on this. Please comment on this posting or email me at firstname.lastname@example.org .
All the best,