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Work Teams: What’s the Risk?


The following is a guest post written by Therése Palmiotto, senior underwriter for Travelers Select Accounts.

Many companies today are turning towards the integration of work-teams into the traditional office environment. Managers are hopeful that this new work structure will help the organization improve in areas of efficiency, production and effectiveness.

The alignment of employees into individual work teams is a relatively new concept in the United States.  Although it is growing in popularity within many different organizations, there is still not enough historical information gathered in order to establish a coherent set of rules, values or formulas. Companies adopt the concept and it is uniquely applied to each work situation since we are essentially still in the learning process when it comes to developing strong work teams within an organization.

Teamwork can be exciting and can lead to some of the most rewarding experiences of an individual’s working career. It can also be frustrating, difficult, and challenging, however.

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Any change to the way that a company operates internally can also be a potential risk to it’s reputation in the marketplace. Aligning your staff into a more team-focused environment may mean better collaboration and communication behind the scenes, but the shift in roles could also expose your employees to negative perception. Competitors’ ears seem to perk up just enough to catch wind of organizational changes and opportunities to poke holes in a company’s reputation. Most difficulties can actually be predicted and with the use of proper tools, can be tackled and overcome. Recently, Billy Beane, the general manager of Major League Baseball’s Oakland Athletics and the subject of the best-selling book and Academy Award-nominated film Moneyball discussed  how risk and data play a part in running a baseball team. In his discussions, Beane speaks about how using risk management techniques had helped him develop and lead a successful baseball team. If risk management skills can benefit a professional sports team, then we can apply the strategies of successful sports teams to help risk management and insurance professionals in developing successful work team environments within their own organizations.

The design of work teams is based on the theory of synergy. The productivity of the whole is greater than the sum of its parts.

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This is a concept that sounds like something I remember hearing many times, beginning with the first practice at t-ball at age five. Teams that are well-functioning offer mutual support of its members, which helps increase morale and generally brings out the best in its members. These are positive by-products that any manager would want to see among baseball players or office employees. Both on the field and behind a desk, the creation and maintenance of successful teams comes down to effective management, strong leadership and clear communication.

MANAGEMENT starts from the top down. Key decisions on the baseball field start well in advance of opening day. The entire baseball season starts at the top with the owners — in the business world, we call them high-level executives. Deciding to incorporate work teams is a major organizational change. It needs to be well-supported at the top and clearly communicated down the lines. When the foundations and concepts are established at the senior management level, employees are more apt to buy into the change. In the story of Moneyball, the coach desperately wanted to build ateam with big names and high salaries, but that was not the message that Billy Beane had in mind. Using a theory based on data analytics and risk management, Beane could not see paying for skill sets that didn’t correlate with winning. It was his unique strategy and in order for it to work, it had to be established at the top and carried out and supported by the lower level managers and coaches.

ACCOUNTABILITY is crucial. Baseball players know exactly what is expected of them. They know what their responsibilities are and they know how they fit into the big picture. A pitcher knows that a bad pitch will impact the catcher’s performance. The same rules apply when talking about work teams in an office environment. Establishing accountability will also hold very strong to the success of the ultimate change. Specific objectives are important not only to identify the achievement goal, but also to pinpoint who will be responsible for these changes. The human resource department will most likely have to develop new approaches towards incentive pay and bonuses, and depending on the strategic nature of the objectives, new performance metrics may also be necessary.

COMMUNICATION that is clear and consistent is the absolute key to success. Managers need to communicate with employees who are affected by an organizational change, not at them. For any change efforts to be effective, there must be a level of buy in from those who are affected by it. Early involvement and communication are two ways this can be accomplished. It is important to recognize the value of involving employees when planning change through various methods, including task force committees, focus groups, surveys hotlines or conversations, both formal and informal. Ball clubs also communicate by collecting feedback from those on the field. After each game, players go into the locker room, where the managers, coaches and players all talk about what went well and what didn’t. The team’s performance is analyzed and teammates offer recommendations on how to do better next time. Much like players spend hours watching game tapes, organizations should be stepping back to review and evaluate the organization’s performance amidst such a change.

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 Seeking feedback from their employees is another way to analyze the situation. Asking people how they feel and what they think makes people feel more involved. When employees feel involved, they’re more accepting of change and feel more support for the change initiative.

Managers of baseball teams have relatively easy ways of measuring success. If the team makes it to the playoffs, it’s a pretty clear sign that the team is working well together. When ticket sales are low, and the team finishes the season with a losing record, owners understand immediately that the team is seriously lacking. In business, we don’t have the luxury of such cut and dry performance feedback, but we can rely on reputation as a litmus test for success. Don’t forget that internal changes don’t just impact the employees. Using strategies from the field to develop strong workteams will help to successfully manage your organization.

The Oakland A’s Billy Beane Addresses RIMS 2012

As the saying goes, “Winning isn’t everything.” That is unless you’re the general manager of a Major League Baseball team. Then it’s probably the main thing. But in the baseball world, winners and losers are often separated by millions and millions of dollars. The smaller market have-nots can’t easily compete with their wealthier large-market counterparts that can spend much more money acquiring star players. Famously, however, the Oakland Athletics’ GM Billy Beane was able to buck this trend in the 1990s by using data analysis to craft a winning team on a relatively small budget. The subject of the book and movie Moneyball, Beane recounted his story in his keynote address this morning at the the RIMS 2012 Annual Conference & Exhibition in Philadelphia.

Beane talked about how his unsuccessful playing career first gave him experience with the proper valuation of assets. As a young prospect, Beane was a first-round draft pick and projected to be a star. But it turned out he was an “overvalued asset” and as he said, he just didn’t have the skills. Beane only played for a few years, compiling a meager .219 career batting average. As an executive, Beane didn’t want to make the same mistakes, particularly since his team didn’t have the money to spend on a pick that didn’t pan out. His cash-strapped team had to get the most bang for its buck, and in order to do that the Athletics needed to identify and invest in undervaled assets that other teams missed.

“The biggest risk for the Athletics was doing things like everybody else,” he said. Beane and his assistant, Paul DePodesta, looked at years of baseball statistics and found that many teams were “paying for skill sets that didn’t correlate with winning.” By concentrating on these areas, such as on-base percentage rather than stolen bases, for instance, Beane put together a baseball team that may not have been glamourous, but it was effective. Throughout the 1990s and early 2000s, the A’s became a frequent contender, depsite their low payroll.

Throughout his career, this adherence to data-driven decision making has meant that Beane has had to make some unpopular and seemingly illogical personnel choices, including trading some of his best players. “The riskiest thing as an A’s fan is to buy a jersey with your favorite player’s name on the back,” he said.

Ultimately, however, the metrics are what rules out. His strategy may not always be popular with the fans, but for Beane, it’s all about what benefits the team. Kind of sounds like what many risk managers have to go through, doesn’t it?

Billy Beane and Baseball’s Big Spenders

For me, the surest sign that spring has arrived is the beginning of the baseball season. And although the season officially kicked off with a series of games between the Oakland Athletics and Seattle Mariners last week in Japan, it really began in earnest last night when the defending World Series champion St. Louis Cardinals beat the new-look Miami Marlins on Opening Night.

In the spirit of the new baseball season, I recently had the chance to speak to Billy Beane, the general manager of the aforementioned Oakland A’s and the subject of the book and movie Moneyball, for the latest issue of Risk Management. Beane will also be delivering a keynote address at the upcoming RIMS 2012 Annual Conference & Exhibition in Philadelphia. In our interview, Beane discussed how he uses data to run a competitive baseball team and addressed some of the risk management and insurance concerns that a general manager of a baseball team has to face.

One comment I found particularly interesting was the following:

About 10 years ago, we’d insure player contracts. What’s interesting is that, for years, say you signed a player to a five- or six-year contract, you could get that entire contract insured. And I remember one time [our insurer] came to us and said they’re no longer going to insure contracts for longer than three years. After three years, they need to be underwritten again. And my assistant and I said, “that’s an insurance company telling us that it’s not a good idea for us to sign players beyond three years.”… So that was basically them telling us these aren’t good bets.

What makes this comment so interesting is that it doesn’t seem like this philosophy is shared around the league. For instance, this past offseason the Los Angeles Angles of Anaheim signed first baseman Albert Pujols to a 10-year, $240 million contract while the Detroit Tigers gave first baseman Prince Fielder $214 million over 9 years. Not to be outdone for the privilege of paying players $20 million a year, just last week the Cincinnati Reds gave their star first baseman Joey Votto a 10-year, $225 million contract extension, while the San Francisco Giants extended pitcher Matt Cain’s contract by 5 years for $112.5 million.

Regardless of the value of these contracts, they all go against Beane’s (and his insurer’s) no-more-than-three-years rule and it’s hard to see how these players will deliver full value on their deals. Granted they are some of the best players in the game right now but injury and age could take their toll on performance at any time. Pujols, in particular, may be one of the greatest baseball players of all time, but he is 32. Not many players, no matter how good, are still productive (or even able to play) in their 40s. These signings seem to illustrate the difference between baseball’s big markets haves and it’s small market have-nots like the Oakland A’s. The richer clubs are simply able to take on risks that Beane cannot.

Or maybe there’s a more insidious method to their madness, as Jonah Keri writes on ESPN’s Grantland:

Sweating potential value, opportunity cost, and other related principles might be focusing on the wrong details. The recent $2 billion Dodgers sale points to a baseball landscape that has changed dramatically. Current and prospective owners see an industry that grew revenue through a tough recession and now stands poised to rake in far more money, with media deals rising, the economy improving, and the game in the midst of its longest period of uninterrupted labor peace since the advent of free agency.

According to Keri, these owners are making what they think are smart choices given the current market. But these choices may be based on the assumption that that the value of their clubs can only go up into the rarefied billion-dollar air.  So what’s a few hundred million here and there? A baseball team is basically a license to print money. Obviously, nothing can ever go wrong with that strategy. Right, housing market?

April Issue of Risk Management Now Online

The April issue of Risk Management is now online here. Along with this month’s columns and features, it also includes a special RIMS 2012 Conference & Exhibition Preview.

Included are features covering:

This issue’s columns cover:

If you enjoy what you seen online, you can subscribe to the print edition to enjoy even more content.

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