By Jeff Blount and Greg Ulrich¹



In both baseball and business, unconventional strategies are often ridiculed. But with opening day of the 2004 Major League Baseball season upon us and the summer travel season not far behind, it’s hard to argue with the success of the Oakland A’s or Southwest Airlines. Despite a payroll that is a third the New York Yankees’, the A’s have been one of the top three teams in total wins over the past five seasons, reaching the playoffs each year since 2000. For its part, Southwest sports a market capitalization and annual profits that are each greater than that of all its rivals combined, despite a revenue base that is only a third the size of its biggest competitor.

The Rich Don’t Always Win We are sure that many people will read this article and say, "Having unique information or many strategic alternatives really doesn’t matter – having enough money to get a superstar like Alex Rodriguez is what matters." They will point to the New York Yankees – winners of four world championships in six World Series appearances since 1996 – and claim that winning requires money, and lots of it. With a $200 million payroll this year (versus a Major League average of $71 million in 2003), the Yankees have been pilloried as the "best baseball team that money can buy." But is money the key factor in success? No, and that’s the case for both baseball and business. Let’s take baseball first. The Oakland A’s 2003 payroll of $50 million was a mere third of the Yankees’ $153 million, yet both teams made the playoffs. Further, the second-, third- and fifth-highest payrolls were those of the New York Mets ($117 million), Los Angeles Dodgers ($106 million) and Texas Rangers ($104 million).1 But their money didn’t buy them success. The Mets and Rangers finished dead last in their respective divisions. The Dodgers did better but still finished 15.5 games out of first place in their division. These findings hold true even if we go back further. Over the past five years, only the Yankees and Braves have won more games than the A’s, but only four teams have paid their players less than Oakland. Further, the Dodgers, Mets and Rangers collectively have made the playoffs three times in the last five years (i.e., three successes out of 15 chances), while their salaries place each of them in the top six in the league. Overall, the statistical correlation between payroll and winning games or making the playoffs is only 0.2 over this time frame. In business, companies such as Southwest Airlines, Dell and Wal-Mart all had severe capital constraints in their formative years – Wal-Mart in the 1960s, Southwest in the ‘70s and Dell in the ‘80s – and had competitors brimming with cash. Thus, before one curses Yankees’ owner George Steinbrenner, please take note: It’s not only about the money. 1 Source: USA Today based on opening day data.

But the A’s and Southwest Airlines are hardly unique when it comes to successful organizations in business and baseball. As management consultants and avid baseball fans, we spent more than a few winter nights this year comparing how the best businesses (defined by total return to shareholders) and the best baseball teams (defined by wins) of the last five to 10 years were managed (see "Research Methodology"). We discovered that the similarities between the A’s and Southwest Airlines extended to other top-performing baseball teams (e.g., the Yankees and Braves) and companies (e.g., Dell, Berkshire Hathaway and Target).

As a whole, the comparisons tell us this: Success in both business and baseball is largely mis-understood. While the parallels between sports and business have been discussed for years, the real drivers of success are far different than most people realize. Success in baseball and business isn’t a matter of who has the most financial resources, who has the most stars (be they ballplayers or brand names) or who can emulate the best "strategy" for their league or industry. Instead, winning baseball teams and businesses share four hallmarks:

• They are driven by a single overriding objective that reflects their core purpose. In baseball, it’s maximizing wins (not profitability or attendance levels). In business, it’s maximizing shareholder returns over time (not revenue growth, market share leadership or profit margins).
• They collect more and use better information than their competitors. The leaders don’t rely on conventional wisdom. Instead, they gather and use the right information – data critical to making the myriad decisions that will help them achieve their overriding objective.
• In formulating a strategy, they create and debate viable alternatives rather than seek quick consensus on the "right path." This inspires creativity and constructive dialogues. It also prevents them from falling back on a familiar but conventional strategy.
• They have a highly distinctive strategy. They know how difficult it is to copy a competitor’s strategy – even the leader’s. All great strategies, whether in business or baseball, are rooted in the unique capabilities, assets, competitive advantages and limitations of an organization.