When Moneyball (the book by Michael Lewis, not the movie starring Brad Pitt) came out, it turned our traditional understanding of baseball on its head. Despite, or maybe due to, its popularity, it is often misinterpreted. The lesson that many took away from reading Moneyball was that walks were good and defense didn't matter. This is superficially true -- the Oakland A's management team of the early 2000s was able to field a competitive team on the cheap because they did not place a premium on defensive skill and acquired players who often walked. However, this is not the insight of Moneyball. The real lesson is about resource allocation.
Through the use of data and analytics, the A's had a better grasp on which types of resources (players) produced the best output (runs). They found market inefficiencies -- specifically that walks were undervalued and defense was overvalued. So, their roster of no-defense, high-on-base-percentage players was the outcome, not the cause.
In the following years, the market adjusted to the A's strategy and teams started paying more for high-walk players and less for good defenders. This sequence of trying to find market inefficiencies before the rest of the league is a never-ending game of Whack-a-Mole for MLB front offices. This cycle has been talked about so much that it has become a running joke among baseball fans. I encourage you to search "is the new market inefficiency" on Twitter.
For businesses, this concept is nothing new. You spend resources in the places that have the best return until that channel is saturated or its return is less than another channel. Conceptually, this makes sense, but in practice, the biggest challenge is measurement. Any business leader would spend more on employee engagement programs if they could prove that it had a better return than on marketing, pricing, technology, or any of the other myriad ways they could spend that incremental dollar.
Employee satisfaction, specifically, has been difficult to measure because it is several chain links removed from revenue generation. I think the links in that chain are beginning to be better understood. The work we've done here at Maritz revealed a ROI of employee-program spend of 5:1 (download a PDF of our book on the findings here), through increased retention and a lift in customer satisfaction. At 5:1, it looks to me like employee engagement is the new market inefficiency. Companies should be spending more in this area.
I find the results of this analysis exciting because of the downstream implications. If prioritizing employee engagement and happiness is indeed a market inefficiency, then it is only a matter of time before companies spend more money and effort in that area. Imagine a world where companies are spending the same amount on making employees happy as they do on their marketing campaigns.
Another implication from Moneyball is that first movers have an advantage. The A's were able to compete for a World Series on a shoestring budget because they jumped all over a market inefficiency. I think companies should have that same attitude with their employees. It is an immediate opportunity to jump ahead of their slower-moving competitors.
Jesse Wolfersberger is chief data officer for Maritz Motivation Solutions, and specializes in merging the fields of behavioral science and artificial intelligence. Contact him to discuss if you are using data in your programs to make them smarter at [email protected]
He will also be speaking at this year's Incentive Live hosted-buyer conference, taking place at the Fairmont Chicago Millennium on March 3-6, 2019. Jesse will be part of an extensive education schedule covering the biggest trends, the biggest influencers and the biggest spenders in the industry. Find out more here.