At first, Moneyball seems isolated to the game of baseball. The movie begins with a major problem the Oakland A’s were facing. The clubhouse is strapped for resources and just lost three of their star players. However, the A’s General Manager, Billy Beane sees the problem differently. The true issue is not the fact that they lost three star players and need to replace them, rather, the true issue is that they are competing in a way they are not meant to compete. The A’s are a small-market team with an approximate 40-million-dollar budget, which is insignificant in relative comparison to other teams. However, they operate their strategy as if they were a large market team. Reflecting on the corporate world, companies appear to face similar quandaries. …show more content…
Moneyball not only tells and interesting story about baseball. But it gives us the opportunity to reflect on how organizations can better align their strategies and compensations systems to drive value and ultimately sustain a competitive advantage. Megan McArdle hints in her article “Why Walmart Will Never Pay Like Costco” the profound differences organizations face that influence their compensation decisions.
For instance, Costco tends to be centered in more affluent areas, while Walmart is focused in more low-income areas. As such, Costco’s customers are willing to pay more of a premium for quality service as opposed to Walmart’s customer base. To attract higher-caliber employees to deliver this quality service, Costco pays a higher wage than Walmart. In the movie, we can ask a different, yet similar question, “Why the A’s will never pay like the Yankees.” Beane started to turn the team’s successes around as soon as the A’s created a coherent strategy and creating a vertical fit between this strategy and compensation. Like Walmart, their strategy focuses on process orientation and operations excellence. They had rigorous standards on how the players were to operate. For instance, moving a catcher to first base or advising players not to bunt. The vertical fit between compensation and strategy can be thought of in terms of supply and demand. Under Peter Brands guidance, the A’s started to seek out players that are in low demand, thus cheaper, but would contribute to team wins through their processes. The lessons of Walmart and Oakland A’s for compensation professionals is this. To create an effective compensation system, we must first understand the organization's strategy and ensure there is vertical fit between the strategy and the system we are
perpetuating. During my short professional tenure, I have been fortunate enough to see these lessons play out in a large corporation. Before coming to Cornell, I worked for State Farm Insurance. Some insurance companies, like GEICO, have a process-oriented strategy. They are very focused on streamlining operations and standardizing processes to reduce operation costs. State Farm, on the other hand, has been known for its high-level of quality service and building strong business relationships with customers. State Farm originally ensured vertical fit with this strategy through their compensation system. Employees were paid higher on average than most in the insurance industry and are given a generous pension. For instance, State Farm’s claim professionals were considered some of the best in the industry and constantly secured top awards in JD Power’s customer service surveys. Over the past few years, this fit began to slip. State Farm started operating like the process-oriented companies, decreasing compensation to new employees. The quality of these new employees was much lower than those hired in the past, as shown by team quality metrics. Unfortunately, today, State Farm’s JD Power customer service survey is lower than the industry average, falling by more than 15 spots. Last semester, I had the pleasure of speaking to American Express’ CHRO Kevin Cox on this matter. His advice was that this is due to a misalignment between the company strategy and the fit of its operations. I now see that the lack of vertical fit between the strategy and compensation is a major part if this. As seen in State Farm, the issues found in Moneyball are observed in the real world. But how can compensation professionals make better strategic choices like Walmart or Oakland A’s or? There are three major steps companies should take. First, corporations must consider what their strategy is and how it achieves a sustained competitive advantage. Specifically, is the corporation process, product, or customer focused. As described earlier, the A’s are process focused, so they can best leverage their players with fewer resources available to them. Specifically, you can think of the A’s and Walmart as “cost leaders” within their respective industry, while companies like State Farm or Apple differentiate through customer service and product superiority. To help define their strategy, companies should consider the external labor market environment and what internal resources do they have at their disposal. Porter’s Five Forces and VRIO model can prove invaluable to the analysis. Second, compensation professionals should ask how the strategy fits with the company’s compensation practices. Like the State Farm example, companies must consider whether the compensation is detracting or supporting the organization's overall strategy. For instance, if you are a process oriented like the A’s, you will typically pay your employees (baseball players in this case) less to decrease operation costs. Lastly, companies can ensure the internal consistency of HR practices. For instance, under Beane and Brand’s guidance, the A’s ensured horizontal fit by aligning their compensation with their recruiting. They acquired undervalued players and paid them accordingly, which reaped dividends in team performance. This is completely contrary to their original performance, bidding for overvalued players with smaller compensation practices. The Oakland A’s turned their season around by addressing these key areas and fitting their compensation system accordingly. Considering their example, compensation professionals can apply their learnings to support and ultimately add value to their respective organizations.
Do Major League Baseball teams with higher salaries win more frequently than other teams? Although many people believe that the larger payroll budgets win games, which point does vary, depending on the situation. "performances by individual players vary quite a bit from year to year, preventing owners from guaranteeing success on the field. Team spending is certainly a component in winning, but no team can buy a championship." (Bradbury). For some, it’s hard not to root for the lower paid teams. If the big money teams, like Goliath, are always supposed to win, it’s hard not cheer for David. This paper will discuss the effects of payroll budgets on the percentage of wins for the 30 Major League Baseball teams of 2007.
However, if the current rules remain in place and baseball continues without a salary cap, the only hope a small market team may have is to fend for themselves on the big market with financially superior teams. This becomes an exceedingly harder task when one team can afford the salary of two top players while those contracts are equal to the entire payroll of another team’s entire roster. Therefore, the question remains should baseball implement a salary cap, and if they do, how would it come into play. When asking the question regarding the salary cap, four supporting ideas arise for either the implementation of a salary cap or keeping it nonexistent.
Under the protection of Major League Baseball’s (“MLB”) longtime antitrust exemption, Minor League Baseball (“MiLB”) has continuously redefined and reshaped itself according to Baseball’s overall needs. But while MLB salaries have increased dramatically since the MLB reserve clause was broken in 1975, the salaries of minor league players have not followed suit.
As in typical labor markets, employees are valued by the marginal revenue of production they add to their firm, or in the case of professional sports, their team. Determining player’s MRP becomes an easier process than in the labor markets of other industries due to the availability of statistics of player’s and their contribution to their team’s success. The difficulty of this process lies in the determination of how revenues for a team are produced. As previously mentioned Paul DePodesta, an analyst from the Oakland Athletics was on the foreground of this type of analysis in the MLB. His discovery of the correlation of winning percentage and team revenues was just the starting point. His methodology of his model building was briefly touched on before, but it started with running regression analysis on a series of different typical baseball statistics, and continued with his finding of On Base Percentage and Slugging Percentage being the stats that correlated closest with winning percentage, and the implementation of the AVM systems models outputting player’s expected run values. MLB’s regression analysis on player’s MRP to a team is some of the most sophisticated in professional sports, with other leagues and teams starting to catch on and attempting to create their own models of MRP for their respective leagues.
Baseball remains today one of America’s most popular sports, and furthermore, baseball is one of America’s most successful forms of entertainment. As a result, Baseball is an economic being of its own. However, the sustainability of any professional sport organization depends directly on its economic capabilities. For example, in Baseball, all revenue is a product of the fans reaction to ticket prices, advertisements, television contracts, etc. During the devastating Great Depression in 1929, the fans of baseball experienced fiscal suffering. The appeal of baseball declined as more and more people were trying to make enough money to live. There was a significant drop in attention, attendance, and enjoyment. Although baseball’s vitality might have seemed threatened by the overwhelming Great Depression, the baseball community modernized their sport by implementing new changes that resulted in the game’s survival.
As long has there has been business, Management and Labor have warred against each other for a bigger piece of the pie. Major League Baseball is no different. In the early years of professional baseball the owners controlled the salaries of the players and decided where they could play and what they would be paid. The players were bound to their team by the Reserve Clause that stated, the services of a player will be reserved exclusively for that team for the next season. This resulted in keeping the player’s salaries artificially low because the players were not allowed to offer their services to any other team. The Reserve Clause was in effect for more than One Hundred years of baseball history. It was challenged several times but the owners had won every time, until in 1970 when the St. Louis Cardinals traded outfielder Curt Flood to the Philadelphia Phillies. Flood refused to play for the Phillies and sued to become a free-agent. Flood’s case was in court for several years going all the way to the Supreme Court. He was never able to play in the Major League again. While he did not win his case, he laid the groundwork for a later case that involved two pitchers, Andy Messersmith and Dave McNally who filed a grievance against the league contending that, because they didn't sign contracts with their previous teams they were free agents. The owners and the Players Association agreed to submit to binding, impartial, arbitration in order to settle this case. On December 23, 1975 the arbitrator Peter Seitz ruled in favor of the players and the Reserve Clause was broken, and the era of free agency began in the Major Leagues. In 1976 when free agency began the average player salary was only $52 thousand dollars, but it has increased steadily ever since. By 1990 the average salary for a Major League Baseball player had risen to $589 thousand dollars. This Year baseball will start the 2001 season with an average player salary of more than $2 million, about 40 times higher than the typical wage in 1976 when free agency began.
Compared to other teams, the Oakland A’s had about half the salary to work with. “The average big league salary was $2.3 million. The average A's opening day salary was a bit less than $1.5 million.”(Lewis 87) This mean that they couldn’t afford to get big league stars in their prime and couldn’t even afford average priced players. “The poor team was forced to find bargains: young players and whatever older guys the market had undervalued.”(Lewis 87) The Oakland A’s had to look for players that they thought had value for a cheap price. To obtain these players and actually make the deals work, Billy had to be smart in the way he approached other
Despite the war and the effects, it had on the economy, as well as the effects it had on baseball during this time, was the hardships that the Chicago White Sox’s team endured, in large part due to their frugal owner, Charles Comiskey. In fact, Comiskey was so frugal that he would not even have his player’s uniforms laundered. This, in turn, caused the players to protest by wearing dirty uniforms for games on end, resulting in the nickname “Black Sox’s” (Baseball, 2011). Furthermore, Comiskey paid his players very little and even would go as far as sitting out his pitcher who had already won 29 games for the reason that he had promised him a $10,000 if he had won 30 games (Baseball, 2011).
From the years 1917 to 1919 the Chicago White Sox were by far the dominant team in baseball. It is speculated that they could have “gone on to become one of the greatest teams in history” (Schwalbe 2). However, despite having the most talented team around, Charles Comiskey paid his players considerably less than any other winning team (Durst 2). Due to the oppression they were under, the player’s morale began to decrease as their need for money increased. They considered going on strike, but were talked out of it by their manager, “Kid” Gleason. They remained desperate until first baseman Chick Gandil met with a notorious gambler named “Sport” Sullivan.
Since January 31, 2004, the investment banker for Wal-Mart has been Moody's investor services. Wal-Mart plans to refinance for their long term dept with Mood's Investor Services and also a few other investment banking for other corporate purposes that are not mentioned. Wal-Mart also plans to bowwow 3.3 billion dollars and an additional 1.1 billion for commercial paper By January 31, 2004 the, Wal-Mart had already established a 5.1 billion dollar lines of credits from 77 different banking industries and investment and used up approximately 145 million in the production of commercial paper. During the same time period Wal-Mart had 6 billion dollar debt of securities under a shelf registration regulation which derived from the SEC. Wal-Mart sold 1.25 billion in notes and maturity. The notes bear an interest of 4.1.25 % and mature by February 2011. The total quantity of notes allowed to be sold to is up to 4 billion.
Sports transformed into a business where profit was the main concern. “As the pecuniary returns of the game increased, the value of the individual player was enhanced: the strength or weakness of one position made a difference in thousands in receipts, and this set the astute managerial mind at work” (Ward 315). This pertains to baseball, football, basketball and any other sport today. The more money a person could make off the game, the more significant the players became. The players were the ones making the money for the owners or the gamblers, and so many of these people no longer saw the person in the player, only the prowess in the player. The players soon began to be thought of as property and were often coerced into giving their permission to be traded to another club. “[T]he buying club bought not only the player’s services for the unexpired term of the contract, but the right to reserve or sell him again” ( Ward 315). Clubs claimed that this right to the player’s prowess was necessary to conserve the game and so many clubs abused this idea and ignored getting the player’s
Environmental Studies is the academic field, which systematically studies human interaction with the environment in which we live in. It is a broad field of study that includes the natural environment, built environment, and the sets of relationships between them. Environmental studies takes into account many different factors that help provide an enjoyable, fruitful way of life, such as national policies, politics, laws, economics, sociology and other social aspects, planning, pollution control, natural resources, and the interactions of human beings and nature.
Although Susan’s plan to “just do what her competitors are doing” (Nelson Education, 2013) may have not been the best approach to follow, it is in The Fit Stop’s best interest to match their compensation policy to those business’s similar to them. There is no need for The Fit Stop to lead with the best compensation options around, but lagging with the compensation could repel employees and could push them towards working for a competitor.
From the consumer side, Amazon provides services like Amazon Prime, which delivers free two-day shipping on retail purchases, on-demand video streaming and a free access to the Kindle library, everything for an annual
Moneyball is about Billy Beane (Brad Pitt), the General Manager for the Oakland Athletics. The problem he faced was that his team could not afford to hire baseball superstars. Beane, frustrated with this issue, employs Peter Brand (Jonah Hill) to assist him in creating an affordable and successful baseball team using a computer program. In the movie, Billy negotiates the buying and selling of players with other managers of different teams and shows how the game of “deal making” is truly played. (Miller, "Moneyball")