“Moneyball” by Michael Lewis, or “How AI Changes Strategy?”

Moneyball is my favorite book on the application of AI. It has a trifecta amongst all books:  Baseball, Brad Pitt, and a story of the underdog. What can be more American and more appealing?

But the real reason I love this book is the way it demonstrates how AI drives a strategy change in an industry dominated by the “in the box” thinkers.

“The evaluation of young baseball players had been taken out of the hands of old baseball men and  placed in the hands of people who had what Billy valued most  (and what Billy didn’t have), a degree in something other than  baseball.” 

Lewis’s book is about the extraordinary success of Beane, who has produced a terrific baseball team despite one of the lower payrolls in baseball. Since 1999, when Beane took over, the  Athletics have compiled an amazing record:

1. in 1999, the Athletics ranked eleventh (out of fourteen teams) in the American League in payroll and fifth in wins.
2. In  2000, the Athletics ranked twelfth in payroll and second in wins, a feat that they duplicated in 2001.
3. In 2002, they ranked twelfth in payroll again, and first in wins.

How did Beane get this done? Defying the current wisdom, and bringing key actionable insights to baseball recruiting, aided by Data science.

But maybe the bigger question of the book is: Why do professional baseball executives make so many colossal mistakes?  They are paid super well, and they are THE specialists. They have every incentive to evaluate talent correctly. So why do they blunder on such a large scale? 

The other question is “How do you keep this talent”? Red Sox hired general managers who follow Beane’s method, and then the new general manager of the Red Sox, just twenty-eight years old, hired James, the data scientist, as a consultant. 

How AI Changes the strategic game for the corporations

It’s been three decades since professor Ranjay Gulati introduced me in the MBA class of Strategy to the “Five forces” by Michael Porter. At that time was considered the best book on strategy, and had the most used framework. As you might know, Porter is best known for his work on the “Five Forces” model of competitive analysis, which is a framework for analyzing the forces that shape the competitive landscape in a given industry. He has also developed a number of other influential concepts and frameworks in the field of business strategy, including the value chain, the generic strategies, and the diamond model of national advantage. Porter has published numerous articles and books on business strategy and competitiveness, and his work has been widely cited and influential in the business world.

The “Five Forces” model is a framework for analyzing the competitive forces in an industry, developed by Michael Porter. The five forces are:

•            Threat of new entrants: This force looks at the ease with which new firms can enter the industry and compete with existing firms. Factors that can make it difficult for new firms to enter the industry include high barriers to entry, such as significant capital requirements or strong brand recognition for existing firms.

•            Threat of substitute products or services: This force looks at the extent to which products or services in the industry are interchangeable with those of other industries. If there are many substitute products or services available, it can be easier for customers to switch to a different product or service, which can make it more difficult for firms in the industry to raise prices.

•            Bargaining power of buyers: This force looks at the extent to which customers in the industry have bargaining power, or the ability to influence the price and other terms of the products or services they purchase. If buyers have a lot of bargaining power, they may be able to negotiate lower prices or better terms from the firms in the industry.

•            Bargaining power of suppliers: This force looks at the extent to which suppliers in the industry have bargaining power, or the ability to influence the price and other terms of the products or services they sell to firms in the industry. If suppliers have a lot of bargaining power, they may be able to negotiate higher prices or better terms from the firms in the industry.

•            Rivalry among existing competitors: This force looks at the intensity of competition among firms already in the industry. Factors that can increase rivalry include a large number of firms in the industry, slow industry growth, and high fixed costs.

Overall, the “Five Forces” model is a tool that can be used by firms to analyze their industry and develop strategies to achieve a competitive advantage.

Now, the strategy framework applied to baseball tells us that the suppliers (the players) have high bargaining power, especially the top players, and the limited number of these players dictates the strategy: buy as many great players as you can afford. If you have the money. Oakland Athletics did not have it. So they needed a different strategy.

What is the “Moneyball” book about?

“Moneyball” is a book by Michael Lewis that tells the story of the Oakland Athletics baseball team and their innovative approach to building a successful team. The team’s general manager, Billy Beane, used statistical analysis to identify undervalued players and build a competitive team despite having one of the smallest payrolls in Major League Baseball. The book explores the concept of sabermetrics, a form of statistical analysis that is used to evaluate players and make strategic decisions in baseball. “Moneyball” was a New York Times bestseller and has been widely praised for its insight into the business of baseball and the role of data and analytics in sports.

It is a fascinating and informative look at the world of professional baseball and the innovative approach that the Oakland Athletics took to building a winning team.

One of the key themes of the book is the concept of sabermetrics, a form of statistical analysis that is used to evaluate players and make strategic decisions in baseball. Beane and his team of analysts used sabermetrics to identify undervalued players who were not being properly recognized by traditional scouting methods and were able to build a successful team by taking advantage of this market inefficiency.

In addition to discussing the use of sabermetrics in baseball, the book also touches on a number of other interesting topics, including the role of data and analytics in sports, the business of professional sports, and the cultural and institutional forces that shape the way that the game is played and managed.

Overall, “Moneyball” is a well-written and engaging book that offers a unique perspective on the world of professional sports. It is an essential read for anyone with an interest in baseball, statistics, or the business of sports.