In the 20th century, mankind became enamored of technical solutions to life's problems. Many of the advances that improve our work and personal lives--telephones, computers, suspension bridges and medicines, and even improved processes such as mass production and Six Sigma--have arisen from seemingly sudden innovations. Along with these great improvements, we have developed a myth around the power and value of solutions. This myth is best demonstrated by the saying, "Build a better mousetrap, and the world will beat a path to your door." It seems as if these innovations were instantly accepted, propelling the inventors to fame and fortune.
In reality, creating a fantastic, useful solution, no matter how brilliant it is, does not guaranty that it will be adopted. Those who have developed enterprise risk management programs, for example, know that finding the answer to a problem is only the first step. Getting a team, business unit or company to actually accept and implement the solution is a huge challenge. The world does really care about your sinking mouse trap as long as the old one works, even poorly.
This is a universal challenge for innovators. Human nature is such that new solutions are often not only rejected, but sometimes are actively fought against even after they have been proven to work. This phenomenon is masterfully illustrated by Michael Lewis in his book, "Moneyball: the Art of Winning an Unfair Game." While the book is ostensibly about the Oakland A's baseball team, its real focus is on the mystifying challenge of getting people to accept proven new solutions.
For many years baseball used a set of standard statistics to measure player performance. Managing the team was done using a mixture of these statistics and gut feelings. In the 1980s, some baseball fans began to reassess these statistics and found that they were not only inadequate, but were also misleading. In fact, they found that by measuring a different sent of statistics, they could create models that would fairly accurately predict a player or team's performance. They made this information public. Many fans began using it to develop their own fantasy league teams. Professional baseball teams, understandably, were reluctant to follow the example of a bunch of fantasy league fans. However, Billy Beane, the manager of the Oakland A's, had a budget that was a fraction of the budget of clubs like the Yankees and yet was still tasked with fielding a winning team. Like many people in business, he could not afford the proven solution and so had to get creative in order to meet his goals on budget.
The results were fantastic. For example, in the 2002 season, with a budget of $42 million, the A's ended up 31 games ahead of the Rangers, who had a budget of $107 million. This is the business equivalent of quadrupling your return on investments when your competitors are eking out a measly 10 percent return. Billy Beane was a genius! He should have been imitated by every team in the league.
That is not what happened. Not only were his methods rejected by others in the baseball community, he was vilified. As one paper put it, "He's a shameless self-promoter who wrote a book about his imagined genius and is despised by scouts around baseball." This is a poignant example for those of us who are working on new innovations within risk management. It really does not matter how good or well proven a solution is. In order to win acceptance, it takes time and a well-thought-out sales strategy. This aspect of risk management is largely ignored. Hopefully, leaders in the profession will change that. But we should not wait. There is a lot of very good literature on this subject, and it should be part of a risk manager's required reading.
BEAUMONT VANCE manages risk for Sun Microsystems Inc.
May 1, 2007
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