Innovation Profile: Oakland Athletics

The easiest yet perhaps the most interesting profile to make, I’m starting with them for simplicity’s sake.

“How’d [Oakland] do it?  What was their secret?  How did the second poorest team in baseball, opposing ever greater mountains of cash, stand even the faintest chance of success, much less the ability to win more regular season games than all but one of the other twenty-nine teams?” (Moneyball: The Art of Winning an Unfair Game, Lewis, pg XII)

With these questions, Michael Lewis attempted to discover what exactly allowed one of the poorest franchises in the sport become one of the most successful ones.  Certainly it was an intriguing question; the team was not stocked with the typical great players yet still managed to win 102 games without flashy numbers.  Lewis, in his preface, notes that “in any ordinary industry would have long since acquired most other baseball teams, and built an empire” (Moneyball, Lewis, pg XIII).  Empire, monopoly, or dynasty.  Keywords that I started to discuss last time.  Most of you probably know the answers to the questions Lewis posed as we write to a well baseball-educated audience.

Here’s a thought: Michael Lewis has a Masters of Economics.

Competitive Advantage

We harken back to the principles of Creative Destruction.  Billy Beane, GM of the Oakland Athletics, created a monopoly out of a small payroll in a tough division.  It’s easy to suggest that to create this monopoly, Beane had to have come up with an innovation.  In fact, he came up with several.

Detracters of the book Moneyball claim that it glorifies on-base percentage over all else and it’s certainly easy to see why.  Beane’s use of OBP brought it into the mainstream school of thought.  But the book is not about OBP, it’s about developing new measures to determine player worth in order to find underrated players.  So Beane innovated by using more advanced player evaluations.  He knew that there was no advantage in signing players that the market knew were good so he avoided doing so.

He also used player evaluation to discover that most players play to their greatest potential when they are aged 27-30.  Again this is hardly surprising, but he concluded that there was less worth in paying free agents with declining value.  He was able to determine the time when his assets were at their maximum worth and uses this to his advantage when trading.  Buying low and selling high is the basic rule of thumb when trading anything and Beane follows this to a T.

Beane’s A’s were the first to change their drafting dogma to the idea that past statistical performance can predict future statistical performance.  This allowed them to have better handles on what to expect out of their players.  Also in the draft was the idea that college players had a higher rate of becoming major league players and were not, in fact, less likely to become superstars.  The fact that college players often signed for less certainly did not hurt.

Ignorance Profile

Core to a systematic approach to innovation is the concept of building an ignorance profile.  When you are attempting to do something has never done before it is vitally important to discover why no one has done this before.  It might be due to some market wisdom that is incorrect or it might be due to a fact that the potential innovator has overlooked.  A lot of people get caught by not preparing something on this scale.  I am not suggesting that Billy Beane created an ignorance profile, but this is what it might have looked like.

Why did teams overlook the value of sabermetric evaluation?  Certainly the technology for the kind of sabermetrics we engage in now was not readily available until the late eighties but on-base percentages are not too difficult to calculate by hand.  Although few general managers are former players the wisdom of the players pervades the baseball school of thought.  Walks were not sexy while hits were.  For a long time people considered taking a walk from a plate appearence was a failure due to not getting a hit.  But a huge part of this was due to the prevailing wisdom that walks were entirely under the control of the pitcher and that the hitter was not a factor.  This is clearly and demonstrably false but dictated management of the game for a long period of time.

Another large problem with the market is that scouts – who used a kind of subjective analysis that Beane recognized as problematic – would only scout players whom other scouts scouted (did I say scout enough in that sentence?).  But if this is the case, then were is the advantage in scouting at all?  If they only discovered players that all other teams discovered then it gave teams no competitive advantage.  So the system of scouting was completely flawed from a economical point of view.

So certainly Beane could be sure that it was the market which was ignorant and not he, so he had a valid innovation in his hands.

Market Adjustment

As with any innovation these baseball innovation could only give the A’s an advantage for a short length of time.  On-base percentage has now reached the mainstream and even better tools of evaluation have been created.  There is little competitive advantage to evaluating players based on on-base percentage because most teams do this now.  Consider the Boston Red Sox under Theo Epstein, who have a large budget while applying Beane’s small budget principles to great effect.

As much as the book Moneyball helped bring Beane’s brilliance into the limelight it also revealed to the market the source of Beane’s success.  The success of an innovation is when it is secret so that the innovator can continually use this to his advantage.  What Lewis did was expose Beane’s innovation in a very easy too read sort of way.  That’s not to suggest the market would not adjust anyways but it could not have helped.

A very curious factor is the very idea of blogging.  Most bloggers are hobbyists who are not paid and are under no obligation to help certain teams, yet some brilliant analysises are created in this medium, just look back into the archives of this very website.  Bloggers are trending towards better and better players evaluations than I suspect teams are capable of.  But it’s all available for free (or for a pittance) over the Internet and so can only be a competitive advantage for a team insofar as other teams are ignorant of the particular analysis.  So, by writing a sabermetric blog, we’re morphing the market towards one where sabermetrics give no competitive advantage.

Into the Future

Sure, Beane’s initial innovations give less of an advantage to him now, but I think that Beane has demonstrated the traits of an innovator.  He has certainly shown himself as a superior trader and salesman who knows exactly when his assets are at their maximum value (see: Zito, Barry).  In time he will create a new innovation to destroy the monopolies created by older ones and soon be the top of the game again.  The competitive pressures demand it of him.

7 Responses to Innovation Profile: Oakland Athletics

  1. jw says:

    Please post suggestions for potential next teams for me to write about. Depending on how familiar I am with them it might take a while. Obviously the lower-tier teams need not apply.
    I have ideas for profiles on the Yankees, the Red Sox, and the Blue Jays that are simmering right now. If I’m right about the Blue Jays innovation I suspect they will surprise most people this year.

  2. Pizza Cutter says:

    So I’m writing myself out of a job?
    Also, I’d love to see what you could do with my beloved Indians.

  3. Dan Novick says:

    According to Gary Huckabay, yes you are. Not that we get paid or anything. I’m sure everyone’s seen this, but here it is again:
    http://www.baseballprospectus.com/article.php?articleid=6666

  4. Todd says:

    There’s no such a thing as a market with no inefficiencies, and Beane’s primary strength has been exploiting these. For the past couple of years it’s been defense that has been consistently undervalued. If this offseason is any indicator, however, this bias is beginning to disappear.
    I think perhaps this past seasons draft + international FA signing period offers a clue as to where inefficiencies may now lie. For the price of a mediocre, aging free agent the A’s bought the chance at having a top flight starting pitcher under club control for six years. They showed a willingness to pay over slot in the draft as well (Rashuan Dixon, Brett Hunter, Dusty Coleman). This may have just been a response to existing budget flexibility, but I think it’s worth considering that this is a new innovation of sorts; an approach with more emphasis on R&D, rather than HR (sorry, I just like the business/econ analogy too much).

  5. Graham Goldbeck says:

    “But it’s all available for free (or for a pittance) over the Internet and so can only be a competitive advantage for a team insofar as other teams are ignorant of the particular analysis. So, by writing a sabermetric blog, we’re morphing the market towards one where sabermetrics give no competitive advantage.”
    So what you’re saying is the teams should all be going out and hiring us? Sounds like a good deal to me, and for what its worth I think this is what has been happening in the burgeoning area of basketball quantitative analysis as blogs are being shut down.

  6. Graham Goldbeck says:

    Also, I think it would be interesting to see something done on the Braves, assuming you think they have (or have had, which I think is almost certain considering past results) some kind of innovation profile.

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