High Reliability Organizations in Major League Baseball

1. High Reliability Organizations in Major League Baseball Bryan Berg QM 290 November 29, 2012

2. Definition of Quality

3. Problems in Baseball • Over-reliance on old methods • Afraid to make mistakes • Poor talent evaluation • Few self-checks • One bad contract kills a team

4. MLB GMs in Free Agency

5. Defects • Anything that prevents a team from reaching its potential • Overpaying for talent • Injuries • Age • Unrealistic expectations SELF-INFLICTED

6. High-Reliability Organizations • Sensitivity to Operations • Preoccupation with Failure • Deference to Expertise • Commitment to Resilience • Reluctance to Simplify Interpretations

7. Sensitivity to Operations • Everyone understands the big picture • Knowledge sharing throughout organization • System-wide knowledge of operations

8. The Problem • MLB teams have no top-down identity • Teams are thrown together • No attention to cohesiveness or culture • Moves are made based on whims • Reactions instead of proaction

9. The Solution • All teams should have a core identity • Young players • Forward-looking statistics • Teams should communicate its policy with players • All members of organization should have the ability to offer suggestions • Players • Front office staff • Stadium concierge staff

10. Preoccupation with Failure • Failure is always possible • Small mistakes may become catastrophic • Active evaluation of operations • Identify errors before they happen

11. The Problem • Teams routinely shoot themselves in the foot • Improper evaluation of talent • Bad contracts • Ill-conceived signings • Poor talent evaluation • Teams think too much about what could be • Not enough about what actually is • The mistakes of today have tremendous future consequences • Instant gratification • Contract year syndrome

12. The Cost of a Bad Contract WAR: Wins Above Replacement Average Starter: +2 WAR

13. The Solution • Make sure all talent fits the bill • Don’t force square pegs into round holes • Only sign affordable talent • No aging/injury prone players • Consider intangibles • Media pressure • Ability to handle success/money

14. Deference to Expertise • Decisions should be made by people with the most relevant expertise • Those with the most knowledge make the decisions regardless of rank • Blindly following the hierarchy can lead to mistakes

15. The Problem • Baseball talent evaluation favors the wrong stats • Wins • RBI • Batting Average • Teams are unwilling to embrace new methodologies • Teams act before they think

16. The Solution • Bring in stats experts from outside of baseball • New perspective • Incorporate new stats • New methods + common sense • Give the “numbers guys” a voice

17. Advanced Stats • On-Base Percentage (OBP) • Patience and discipline • Ultimate Zone Rating (UZR) • Advanced look at fielding • Batting Average on Balls in Play (BABIP) • Quantifies luck for pitchers • Wins Above Replacement (WAR) • Measures a player’s true value

18. Statistics – Old vs. New

19. Commitment to Resilience • All errors cannot be prevented • Minimize the escalating consequences of unpreventable errors • Anticipate errors • Don’t be caught by surprise

20. The Problem • Most people believe defects cannot be predicted • Teams quickly stray from plans when adversity strikes • Rebuilding efforts • Financial responsibility • Teams listen too much to outside sources • Media • Fans

21. 2012 Boston Red Sox • Record: 69-93 • Last in AL East • Worst season in franchise history • Opening Day Payroll: $173,186,617 • Traded $73 million of salary during season • 2013 Outlook • “I know that we'll have a very strong payroll, a large payroll… I'm confident in saying that we'll be amongst the larger payrolls in the game.” –Ben Cherington, Red Sox GM

22. The Solution • Tunnel vision • Stick to the budget • Keep statistical analysis above all else • Don’t listen to critics • Communicate plan with fans • Treat fans like shareholders • Convince them to buy into your plan

23. Reluctance to Simplify Interpretations • Don’t accept simple answers to complex questions • Drill down to find the real heart of the matter

24. The Problem • Teams often act impulsively • “Gut” feelings • Focus on getting “a” player instead of “the” player • Whack-A-Mole mentality

25. The Solution • Bring in only necessary players • No “second choices” • Focus on the whole team • Not just one position • Look for new ways to interpret data • Advanced stats

26. Threats to High Reliability • Revenue Sharing • Every team gets a piece of a leaguewide pool • Teams don’t have to work to make money • Miami Marlins • TV Money • Teams receive tens of millions each year • Payments have increased exponentially

27. TV Money – Texas Rangers • 2010 • Declared bankruptcy • Reached World Series • Payroll: $55,250,544 • Payroll Rank: 26 out of 30 • Signed 20-year TV deal • Pays $80 million annually • 2012 • Lost Wild Card play-in game • Payroll: $120,510,974 • Payroll Rank: 6 out of 30

28. TV Money – LA Dodgers • Declared bankruptcy in 2011 • Taken over by Major League Baseball • Purchased for $2 billion in 2012 • Previous record purchase: $700 million (Chicago Cubs, 2009) • Payroll • Start of 2012 season: $95,143,575 • Current payroll: $198,314,286 • TV Deal • Negotiating with Fox Sports • Rumored Deal: 25 years, $6 billion total

29. Conclusion • High reliability is the way of the future • Yankees: 1 World Series since 2000 • Rays: 3 playoff appearances in last 5 years • Patience and smarts trump money • Embracing HRO now is ideal • TV money has potential to ruin baseball • Teams must be smart with added funds

30. Questions?