| Published: | October 6, 2011 |
| Author: | James Heskett |
In the past we've discussed the importance of adding nonfinancial measures to the management dashboard, "indirect goals" that help predict and explain financial performance beyond the "direct goal" of profit. These might include the speed of aircraft turnaround in the airline industry, the conversion rate of people entering a store who actually purchase something, and employee loyalty in organizations with large numbers of workers in direct contact with customers.
The new movie Moneyball (and the book on which it is based) extol the virtues of employing nontraditional thinking and measurement in major league baseball. The Oakland A's studied player performance data through the lens of "sabermetrics" to compete with much better-funded organizations, achieving success with a relatively small investment.
Writing recently in The New York Times, Cade Massey and Bob Tedeschi speculate on whether the film will rekindle the study of analytics in business schools and peak the interest of what may become a "Moneyball Generation" of managers and analysts who want to divine and track new measures that explain bottom line performance and provide a competitive edge. They ask whether we are on the verge of an ascendancy of those capable of teaching and performing the analytics necessary to supply the talent that the "new management" will need.
While exploring the substantial impact of organizational culture on performance, reported in my recent book The Culture Cycle, I specified 35 items of information needed to complete the proposed analysis. Many of them could be regarded as "indirect" performance measures, presumably of interest to managers and the investment analysts who regularly examine their work. They included such things as the proportion of new business referred by existing customers and the proportion of employees leaving the organization voluntarily. When I attempted to collect the data in several organizations, I was typically told that the data was easy to get for only about a third of the items. The other responses were either "Others have the data; it's difficult to get" or "I don't think the data exists." (In these instances, I came up with estimates and went on with the necessary calculations.) I wasn't surprised. How many of us have sat in on board meetings where the analysis of historical financial data went on far too long with little attention given to the predictors of future performance?
The fascination with analytics is understandable. How better can one achieve competitive advantage in a manner that is hard to replicate? But clearly there is a long way to go to enable managers to practice this kind of data-driven decision making. It will require dedicated talent who combine analytic ability with a basic understanding of the business, as well as increased attention given to analytics (the "new managerial economics?") in business school and traditional economics curricula.
The question then is: To what extent will we begin to see a higher profile for analytics in management ranks? How, if at all, will a Moneyball Generation influence management? What do you think?
References:
Michael Lewis, Moneyball: The Art of Winning an Unfair Game (New York: W. W. Norton & Company, 2003)
Cade Massey and Bob Tedeschi, When Data Guys Triumph, The New York Times, October 2, 2011, p. BU6
James L. Heskett, "Is Profit as a "Direct Goal" Overrated?" Working Knowledge, July 2, 2010
James L. Heskett, The Culture Cycle: How to Shape the Unseen Force that
Transforms Management (New York: The FT Press, 2011) 