Good Morning!

The proliferating use of data to help assess results of sports teams and sporting events in recent years threatens to turn sports fans into statisticians in order to gain a better understanding of the competitive field. Similar measures that are available in most businesses can help owners and managers improve their game.

Best regards,

Bradlee T. Howe
Financial Managers Trust

Last month for my birthday one of my kids gave me The Bill James Handbook, billed as "The complete up-to-date statistics on every major league player through last season." Paging through it, I've come to realize that baseball arcanity now involves such stats as "Runs Created" or the "Catcher's ERA". Beyond me to memorize, but not beyond the capacity of my 10-year-old friend Noah.

Extrapolating, I began to think about measurements applied to sports beyond the Big Four. In tennis, after Justine Henin-Hardenne beats Nadia Petrova to win the German Open, the match stats are more than just 6-3, 4-6, 6-3. One can readily access reports detailing points won on first serve/second serve by each player, the number of unforced errors, receiving points won, and so on. In volleyball, Penn State's official athletic website reported the fate of their #2-ranked men's team, losers to UCLA in the national semi-finals, including such stats as "Senior Keith Kowal tallied five kills on nine attacks while hitting .556. As a team, Penn State attacked at a .179 clip."

Everyone who's at all competitive, it seems, keeps score. And it's not just whether you won or lost, but how you played the game as reflected in the stats. The underlying numbers provide the analysis, the keys to unlock the secrets to success or failure.

Similarly in business. In the case of my clients, I work with each of them to develop a handful of critical stats that predict and explain how the final numbers will come in. Some examples:

• When Dan Deneault, President of Purity Services, a provider of linen to the health care industry, wants a quick measure of how his plant is running, he looks at "POH," Pounds per Operator Hour, a number which he receives after every shift, telling him how many pounds of shipped linen were processed per direct labor employee hour. He can track that in "real time" through weight scale links to his applications server—it's a key metric.
• For Pete McLaughlin, Production Manager of Fabrico, Inc., a significant measure is shipments vs. outstanding orders. During the past 18 years, Fabrico has built its reputation as a reliable fabricator of metal parts for gas turbines on the basis of meeting its promised delivery dates. At the end of every day, Pete's key metric is on-time delivery percentage—97, 98, 99%.
• Wendy Spivak and Sandy Lish, partners and co-founders of The Castle Group, a Boston-based public relations and events management firm, are in the business of selling their expertise and that of their 21 employees. Their concern is utilization and revenue per hour for each employee: 40 billed hours each week at 3–3½ times direct payroll cost for each employee is the goal.

Every successful company is built around an economic model that works. In most cases this is numerically well-described in an income statement produced at the end of each month: revenues less expenses yields profit or loss. Beyond this, however, lie critical data that track the vital signs for each company. Many of them are simple to collect and compile, and they often differ for each operating area of the organization.

In baseball, you track batters' averages against various pitchers to get the match-ups that work in your favor. In business, you track your success in bidding certain contracts in order to put your best efforts against the highest probabilities. And your "Gold Glove" performers are those whose dexterity and dedication greatly improve the stats of the defect reduction program.

These numbers are reassuring when your wins outnumber your losses, and they become the first line of inquiry when things start going wrong. Identify them, monitor them, and compare them—with last month's and last year's results and with those of the other players in your industry.

Then, when that 10-year-old tells you that your pitching stinks, you can at least say, "I know."

In pursuing critics' attacks on Wal-Mart's health plans, NYT staff writer Tracie Rozhon tried to cut through the spin of Mona Williams, a Wal-Mart VP and chief spokeswoman for the company, "[who] rattles off statistics: 30 percent of the company's 1.5 million employees had no health insurance at all when they were hired, hourly wages are comparable to — or greater than — Target's, and half of the company's workers are full time."

"[Williams] said she resented accusations that Wal-Mart's wages were not enough to support a family. 'Only 7 percent of our workers are trying to support a family,' she said. 'The rest are seniors, college kids, people working to supplement the main wage earner. Those are the people we're recruiting. The average wage is $9.68 an hour.'

Rozhon's article continues, "It may stay there for a while. Mr. Scott [H. Lee Scott, Jr., CEO] was characteristically blunt last week when he dismissed the idea he might re- examine Wal-Mart's wage and price structure, if only to satisfy some of his more vocal critics. 'No' was all he said."

Let's see… if 1.5MM employees average 30 hours a week and their wage goes up a penny…

Yup, that can be a significant number in no time, except in the context of annual revenues of $288,000,000,000.