This post is coauthored by Innosight Managing Director Matt Eyring.
Seeing coverage of this week’s baseball draft made us realize how much companies can learn about innovation from watching how great baseball teams manage their early portfolio of talent.
Baseball teams have to assemble the best talent possible, just like companies have to bet on the best innovation opportunities. A baseball team chooses between acquiring talent on the free agent market or drafting and building talent. A company chooses between acquisitions or organic growth.
Acquisitions are expensive, but perceived to be lower risk, because the talent (or idea) has proven itself demonstrably in the marketplace (for baseball, that means success on a major-league diamond). Organic growth is typically cheaper, but perceived to be risky because many times highly touted initiatives or prospects don’t pan out.
Baseball teams know that talent follows a power-law pattern, where for every 1,000 players there are 100 players that are capable of playing at major league levels, 10 of whom are legitimately good players, and 1 of whom is a true superstar. The same is true for innovation.
The challenge is: Which project or which player? Just as a baseball team doesn’t have complete information about what a player’s true level of ability is on draft day, you don’t know the real potential of any one innovation project.
Both of you are forced to deal with incomplete data. A team has to rely on a mix of limited performance data at the high school and college level and an assessment of a player’s inherent skills. Good teams collect as much data as possible. They have sophisticated models to project how rough performance can project to the major league level. Good teams also let past patterns inform their decisions. High school pitchers? Very risky. College hitters? Much less risky.
With a well-organized scouting team, you should gather multiple data points in preparation to “draft” innovation opportunities. Get the very best market data you can, look at past successes and failures to see what lessons you can glean, and use qualitative metrics or patterns to guide decisions. ...
Read the rest at Scott's Harvard Management blog, Innovation Insights.
As September wanes and summer fades the Oakland Athletics are once again in position to finish first in the American League West. Despite sporting a perennially low payroll ? this year?s $62 million ranks in the bottom third of the league, less than 1/3 of what George Steinbrenner doles out to his Yankees ? this will most likely be the fifth time in seven seasons that the A?s make the playoffs. This unusual success has been driven by the unconventional and counterintuitive management principles developed by A?s General Manager Billy Beane and chronicled by Michael Lewis in his bestseller, Moneyball. Essentially, Beane has been able to consistently acquire undervalued players that subsequently outperform expectations, leading to winning seasons at a fraction of the price paid by other contending ball clubs. In an article this morning on the resurgence of A?s designated hitter and Most Valuable Player candidate Frank Thomas ? a former superstar widely considered to be washed up last winter when Beane signed him for a measly $500,000 ? the New York Times calls Oakland?s recurrent success ?baseball?s ultimate mystery.? So how do they do it? By executing a management strategy that aligns neatly with certain aspects of Disruptive Innovation theory. As cash-rich big market titans like the Yankees and the Red Sox fight to sign the most expensive players every winter, the A?s find success at radically lower price points by using counterintuitive metrics to evaluate market worth. Adhering to their principles, Oakland disrupts the Major Leagues from the low end year after year. Lewis goes into great detail in his book, but, in brief, the A?s value players according to nontraditional measures of performance that tie closely with the ultimate Job to be Done: plating more runs than your opponent. Traditional baseball talent scouts look for players who excel along accepted dimensions ? great athletes who run, jump, hit and throw with the best ? believing that they will then develop into great baseball players. Unfortunately, baseball is complex and notoriously difficult to predict, and many blue chip, expensive, and ?can?t miss? prospects fail to live up to their potential. Beane, therefore, looks for players who do the specific things that lead to winning ball games: batters who get on base and therefore don?t make outs and pitchers who throw strikes and therefore get batters out. Eschewing conventional wisdom and zeroing in on the Job to be Done has enabled the A?s to uncover a wellspring of hidden talent in players who do not fit the traditional mould of success (and are therefore available at bargain rates). They have signed and developed players who other teams considered too fat or too slow, batters who didn?t hit for enough power to draw attention, and pitchers who do not throw particularly hard. Many have grown into competent ? and even excellent ? ball players (three early stage experiments featured in 2003?s Moneyball, Nick Swisher, Mark Teahan, and Kevin Youkilis, have blossomed into legitimate stars this season), and year after year the A?s field winning teams. In Disruptive Innovation terms, athletic skill is overshot when it comes to talent evaluation. Things like mental makeup and plate discipline are often misunderstood and consequently undervalued. Aggressively pursuing market opportunities ? in this case, signing and developing undervalued players ? produces sustained success. The ultimate lesson here is that the forces underlying Disruptive Innovation are based on common sense and can be readily applied to pursuits beyond the business world (well?fine, baseball is ultimately a business too). Always think carefully about how closely prevailing notions of value track with Jobs to be Done, and be bold about seizing opportunities that are not commonly seen or understood.