October 29, 2012
If the Oakland Athletics baseball team under Billy Beane were to be likened to the Star Wars trilogy, the season made famous by Moneyball would be the original Star Wars and the years immediately following would be The Empire Strikes Back. But 2012 would be The Return of the Jedi.
Let me explain.
In April at our 2012 Customer Summit, Billy Beane, the General Manager for the Oakland Athletics, and baseball Jedi Knight, spoke to our customers, prospects, partners and employees about Moneyball.
He offered a facinating look at how the Oakland Athletics used statistical analysis to gain a competitive advantage, which ultimately helped them win an American League best 103 games with the 6th lowest payroll in baseball at $41M.
We asked Mr. Beane to speak because of the parallels this has with price and margin management techniques and the competitive advantage that our customers have enjoyed resulting in 1-3% or more return on sales in pure profit.
If you watched the film or read the book, you know that the end was a bit of a downer. Despite making the playoffs every year from 2000-2003, the Athletics never won the World Series. After their success in the early 2000s, the word got out. The Empire Strikes Back: big market teams like Boston began using these techniques in addition to having much bigger payrolls. How was a small market band of rebels going to compete now that the market became more efficient and the price for players was more aligned with their actual value? That was the big question mark at the end of the movie and the book.
Fast forward to 2012, The Return of the Jedi, with a now league-worst $49M payroll, the Athletics won the AL West with unknown players over the Texas Rangers who had a $121M payroll.
There are a few lessons from this:
- Applying statistical analysis and techniques helps small and mid market companies compete even when the large cap companies are using the same techniques. This of course applies to pricing as it does to baseball.
- These techniques continue to deliver value year after year
- Transformation can take longer than you think
- The competition will copy you if you have success
- Confidence and chemistry: Having the right system, people and processes in place allows the team to become greater than the sum of its parts and even less talented and experienced players to succeed. This young team came together in a system they believed in and played together as a team. They had confidence that built on itself.Better price and margin management will help your company compete whether you are the market leader or not.
Knowing the price your customers are willing to pay and understanding the profitability of every deal will give you an advantage over companies not using these techniques, and is a must have to compete with companies that are, especially relevant if you don’t have Brad Pitt’s good looks to fall back on.
Use the (price and margin management) force.
– Gabe Smith