Moneyball and Business Ethics

I’m finally getting around to reading Moneyball, Michael Lewis’s best-selling ode to the study of baseball statistics (and the source material for the new Brad Pitt movie of the same name). It’s one of the most engaging books I’ve read in a long time — something that won’t surprise those of you who happen to have read The Big Short, Lewis’s lively account of the 2008-2009 financial collapse.

What did surprise me as that Moneyball isn’t really a book about baseball. It’s fundamentally about epistemology. Epistemology is the critical study of knowledge itself — how we get it and how we use it. And though Lewis doesn’t (as far as I can recall) use that word, Moneyball is all about epistemology: the epistemology of baseball, yes, but much more than that. It’s fundamentally about how managers should use information to achieve better outcomes.

Moneyball holds important lessons for business managers generally, but in particular it holds lessons about business ethics. But the messages aren’t the obvious ones you’d expect from a book on baseball — they aren’t about the ethics of labour negotiations, for example, or the incomplete alignment of the twin goals of satisfying your fans and making money.

Three key lessons of the book, as far as I can see, are as follows:

1) The numbers matter. So, don’t guess — measure. In baseball, this means scouts need to look closely at a player’s stats, rather than relying on the fact that he’s got a “nice swing” or a “body made for baseball.” In business, it means measuring actual performance — not just bottom-line financial performance, but social and environmental performance, too, rather than just relying on the vague feeling that your company is “doing OK.”

2) The numbers don’t come out of thin air. The numbers you have available to you aren’t just a feature of the universe around you. The numbers represent what happens to have been measured. The “bottom line” (net income) is no more a natural feature of business than “Earned Run Average” is a natural feature of baseball. Both are artefacts of a particular system, one with a particular history and its own set of biases.

3) Numbers can lead you astray. Managing based on the numbers someone else more-or-less arbitrarily decided to keep track of can result in disaster. This is especially the case when those decisions are rooted in idiosyncratic interests or biases. Lewis points out, for instance, that early baseball stats didn’t bother to record the number of walks a batter earned — mostly because one of the early promoters of baseball stats, a journalist named Henry Chadwick, happened to be a fan of cricket, a sport where there’s just no such thing as a ‘walk.’ Chadwick decided not to keep track of how many walks a batter achieved. The result was that there was no way to track which batters had the good judgment to watch a high-and-inside fastball sail past instead of swinging at it. It matters to their performance, but for a time there was no way for coaches to include it in their management strategies. The exact same point can be made about various elements of social and environmental reporting.

The overarching lesson, here, is about the need for (pardon the pun) a measured approach to the use of numbers in business. Numbers matter, and they matter a lot. The old saw that “you can’t manage what you can’t measure” is surely a vast overgeneralization, but one that contains a kernel of truth. But what matters even more than the numbers is knowing what the numbers mean, and what they can and cannot tell you.

1 comment so far

  1. KC on

    I have yet to read the book or watch the movie yet, but have read about both. Knowing that the film isn’t entirely about baseball and moreso about the behind the scenes makes me want to see the movie soon.
    I am currently taking a business ethics class in Tampa, Florida, and this is a great comparison to the business world, being that the baseball industry does involve needing monetary knowledge, it being a business. Those lessons hit it exactly. Yes, the numbers matter. It is easier to understand something when you quantify it, and yes, the numbers are there, but it is your job to go out and find them. The lesson that relates to business ethics the most is the one where numbers can lead you astray. You mentioned net income. In no business will the net income be a ‘correct’ number. There are so many ways to come up with the ‘net income’ number because of so many accounting practices. It is about looking at the numbers that gave you that net income to help a business figure out how the company is doing and what is going on in the operations. Just like in baseball, there could be a player with a terrible batting average, but maybe he’s a player used in sacrifice situations who eventually helps score runs which is how you win a game. Also, being a Yankee fan, I’ll give you A-Rod. He usually has a decent batting average, but did you ever notice that he gets hits when no one is on base, when the Yankees are up many runs, or just when it doesn’t count. Not to mention that he is useless in playoffs (yes I am bitter about him striking out to end their playoff reign this year). A better figure to look at would be situational numbers, like slugging when the team is down, situations when there are bases loaded, or on base percentage with a 3-2 count. So Moneyball was able to figure out how to obtain players that had better slugging percentages or other averages that other teams overlooked for a better price. That’s pure genius. They made it as far as other team who spend so much more out of their budget a year, without spending the massive amount of money. That’s smart business practices, having the least amount of costs as possible while producing great value for your stakeholders, which could include fans at this point because their team was winning. Filling a team who has players with great on base percentages will help you score runs, because you have players on base, who get hit in by other players on base, to help win games. That is a great manager right there.

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