Moneyball revolutionized baseball. The protagonist, Oakland A’s general manager Billy Beane, shattered the foundations of team strategy. Through data devised by his crew of number-crunching stat geeks, Beane discovered that certain players, namely those with high batting averages, were overvalued. Conversely, players with high on-base percentages (a statistic that accounts for getting on base by hits and walks) were undervalued. This knowledge became a major competitive advantage for Oakland. Beane could sign productive players no other team wanted on the cheap.
The impetus for this strategic shift was money. Other teams were spending more than $100 million on payroll costs alone. Baseball had become big business. But Oakland was poor. So basing the team’s strategy solely on the gut-feel of scouts, as had been done traditionally, would be reckless. With the stakes so high, how could Beane not use this new mountain of data to inform decision making? Tens of millions of dollars were on the line — not to mention a World Series.
The stakes for businesses have been similarly raised. Companies must also embrace any concept that may improve strategy. ERM has been a quantum leap forward for risk quantification. There are now oceans of information to help companies avoid the pitfalls of risk. Thirty years ago, without such data to consult, formulating a business strategy with your gut may have seemed logical. Not anymore. Now, failing to manage risk scientifically is a slap in the face to shareholders.
“Adapt or die” was the most memorable line from the movie version of Moneyball. It is unlikely anyone will ever make a movie glorifying the rise of ERM. And if Hollywood did, it is even less likely that Brad Pitt would play the lead role — risk managers look nothing like that. Still, when you, the risk manager, watch Pitt in Moneyball fight the current of status quo sentiments, you should see yourself. He revolutionized a sport. You just need to change one company.