For the past more than 20 years, I have had a great passion for a particular Danish soccer team and had my fair share of up's and down's with it (lately mostly downs). On gameday my mood could almost entirely depend on the result of the match. Irrational you might say, but that is not why I think every finance professional should be interested in sports either. Having a passion is one thing, but following something that can inspire you to make game changing decisions at work is another. You don't have to have a passion about it, but simply recognize that what is going on in the world of sports is also something you can make use of at work no matter what industry you are in.
Although you would probably say there are many differences between sports predominantly played in Europe vs. those played in US for me the main difference is how there is a measurement for everything in American sports. This is what peaks my interest in the first place. Do I have a passion for any particular US based sports team? No I don't yet I still find myself following tons of matches in NFL, NBA etc. The fact that in every game something truly unique could happen, a record could be broken etc. I find very interesting. However were it not for all the measurements and all the stats it would be completely different.
So how does this transpire into your daily work you might ask? Most of you have probably watched Moneyball and most likely for the same reasons I find sports in US interesting. You have also heard about Big Data and how companies should try and leverage all their data better. So there is definitely a link there already, but let me try and make it even more concrete. Since we are just out of March Madness and with the NBA playoffs just around the corner let me give you an example from basketball.
Kevin Durant from Oklahoma City Thunder and Carmelo Anthony from New York Knicks are currently competing for the title as leading scorer in NBA. At the end of the day what matters is how many points you score (of course providing you can keep the opposing team from scoring just as many) so this should be a pretty important measurement. Since the two teams have a fairly similar record let's also assume they are good at scoring more points than their opponents. Where it then becomes interesting is when you look at another measurement in conjunction with points scored per game. The +/- measurement will tell you how many more points the team scored while the particular player was on the field compared to the opponent. During the course of the 2012/13 season Oklahoma has outscored its opponents with more than double as many points with Kevin Durant on the field as has New York with Carmelo Anthony (656 vs. 309). It would therefore seem that Kevin Durant is a bigger asset to Oklahoma compared to Carmelo Anthony for New York. You might also say that Carmelo Anthony uses a lot more of the teams resources (could be measured as % of shots the player has taken out of the number of shots taken by the team) than Kevin Durant. Of course there are most likely many other factors that play into this particular comparison, but it's a pretty good simplification of how one measurement (stat/KPI) is not necessarily the best way to measure contribution to the overall success of the team.
Let's try and look at your business/company then. What matters for you at the end of the day is what is left on the bottom-line. Let's consider you have multiple assets that contribute to the bottom-line (could be factories, products etc) and some make a high bottom-line contribution whereas other make a low contribution. You will probably find yourself most satisfied with the high contributing assets while you are troubled with how you can improve the performance of the low contributors. However what if your top contributors also required most of the company's resources (tangible as well as intangible) so when you did a full cost allocation or Activity Based Costing you found that actually some of your low contributors are contributing more to the bottom-line than the top contributors. That would probably change your course of action. This is of course not new information and most finance professionals know how to use allocation models to measure profitability and bottom-line contribution however you would still ask yourself: who would you rather have on your team? Kevin Durant or Carmelo Anthony? The assets that require little resources from your company while still delivering a reasonable return or those that require the majority of your resources yet don't deliver an equivalent return?
Can we learn from how the world of sports uses Big Data? Sure, we can even if you are not even remotely passionate about or interested in sports. This is of course back to the plot in Moneyball although you probably can't base your whole business on just one KPI as illustrated with the basketball example. So what is interesting for you as a finance professional and your company in general? What else you can learn from the world of sports, and what have you already learned?
