Evidence-Based Baseball and Innovation

Jeff Angus over at Management by Baseball sent me an intriguing update about Billy Bean’s approach to Moneyball. Bean is famous in the baseball world for developing quantitative techniques to help identify players that are underpaid by market standards and for developing a system that enables such "bargain" players to contribute to overall team performance.  There are many signs that the system works, for example, Oakland’s cost per win in 2005 was $450,000 in salary, while the New York Yankees paid 1.4 million. The 2006 payrolls (when Oakland had a better season than the Yankees) were about 60 million for the A’s and about 200 million for the Yankees. Bean and his staff do impressive analysis to make decisions that gain them cost advantages and increase their odds of success. For example, they stay away for star players that are coming out of high school and prefer college graduates because only 5% of baseball players drafted straight out of high school are in the major leagues in three years, while 17% of college graduates that are drafted make it to the majors.

I am especially intrigued by  implications of what Bean is doing for innovation.  Jeff sent me a link to a great article in the Financial Times called Faith in Figures Proves to Be a Big Hit.   It talks about speeches that Bean has been giving at investment conference:

"Beane’s great contribution to baseball – he is quick to admit – has
been to apply to it techniques that were first honed by investors on
Wall Street. Now, to his evident enjoyment, Wall Street is interested
by the lessons it can learn from the world of professional sports.
Beane’s decisions on hiring players – and those of an increasing number
of his competitors – are based on quantitative evaluation techniques,
aimed at finding market mispricing. He freely admits that he has
borrowed liberally from the techniques of value investing and arbitrage."

I am fascinated by this because it provides an additional twist on a major theme in research on creativity and innovation.  During the years that Andy Hargadon and I worked together on innovation research, we reached the conclusion that all, or a least nearly all, creativity happens when people do new things with old things, either bringing old ideas to new places or creating new combinations of old things. This is the main point of the second chapter of Weird Ideas That Work, where I show that everything from the invention of Play-Doh to the solution to Fermat’s last theorem reflect this process of doing new things with old things. Andy I did some early work on "knowledge brokering" or "technology brokering," on how organizations can routinely accomplish innovation by importing, exporting, and mixing together ideas.  Some of these ideas are in  our 2000 Harvard Business Review article on "Building an Innovation Factory."  But the most complete — and I believe the best — treatment is in Andy’s book on How Breakthroughs Happen.

To return to the Billy Bean speeches, I am not surprised to learn that he took ideas from value investing and arbitrage to baseball to develop more rigorous approaches to selecting players that would perform better given what was spent. This method of taking an idea from one place and applying to another — usually with the help of analogy — like "suppose players were investments and a team was an investment portfolio, what would I do differently than most baseball managers do?"   The cool part, however, is that Billy Bean is now taking the ideas he originally applied (and then modified, of course) to baseball from investing, and then asking essentially the opposite question: Suppose your investment was a baseball player in my system?   

Creativity happens when you look at the same thing as everyone else but see something different, and this method of taking an idea from one place, modifying for another place, and then bringing it back again strikes me as wonderful method to help people to keep seeing the same old thing in a new light.  In short, if people borrow the ideas from your company or group, and then succeed with them (assuming they have violated now laws), don’t get mad at them, try to figure out how they’ve changed them and steal the version back if it can help you!