How important is leadership for business success? Soccer may provide an answer. Workforce Analytics should do the rest

09/09/2014 at 13:13 5 comments

Value of the CEO

How important is leadership really for business success? It is obviously difficult to answer. Perhaps we could start by asking; how important are the top leaders for a company’s success? While more specific, this question is also difficult to give a brief and unambiguous answer to. However, we can begin to approach an answer by starting a completely different place; in the world of football (or soccer to you US readers).

Many sports have for several years been working quite intense with numbers, data and analysis in order to make the best decisions and to prove (or disprove) common myths in sports. Michael Lewis’ fantastic book “Moneyball”, which has been made into a movie with Brat Pitt in the lead role, describes how Billy Beane, the manager of the small team Oakland A’s used figures, facts and analysis to produce results in baseball beyond what one could and should expect. The same has happened to some degree over the past 10 years in football (soccer).

In their equally great book “Soccernomics” by Simon Kuper and Stefan Szymanski, the two authors show that the correlation between the wage expenditure of each club in England compared to average and the average league position is a staggering 91%. This is illustrated in the figure below from the same book. In the conclusion of the full study, the authors says that “the size of the wage bills explained a massive 92% of variation in the league positions, if you took each club’s average for the entire period”. In other words, if you know how much each club spends on salaries compared to the average, you can pretty much predict where in the table the team will finish on average.

Soccer analytics

If 92% of the variation of the league postion is explained alone by the salary it goes without saying that the rest do not mean that much. The rest in football (soccer) is a lot of things like training facilities, the size and quality of the field, tactics, medical staff, fans, coaching staff and of course the manager (which is equivalent to the CEO). Only some 8 variance percentage points are left.

And before the obvious point is raised; you cannot just take a random group of players and double their salaries and then win the league the following season. The high explanatory effect is present because there is a fundamental mechanism at play in international football; you know who the best players are and the best players get the highest pay. Over the last 10 years the transparency level has increase a lot about how good a player is and therefore the salary that player deserves. In the business world, there is also a significant difference between different CEO’s pay but it is more questionable if the best are also the ones who are paid the most and visa versa.

If 92% is explained chiefly by the level of the total remuneration of the squad, you can – with a couple of assumptions – measure how good the managers are relative to each other. Kuper and Szymanski make that analysis by measuring managers are at achieving the positioning in relation to the statistical position that the team should reach based on the total amount of wages they pay. If you take a squad of players who statistically should finish in 6th place, but due to the manager’s motivation, tactics, gut feeling, management and everything else can get the team to end up in 3rd place, then you can conclude that the manager performed better than expected. This analysis shows that there are some football (soccer) managers who have performed on that metric much better than others. These include Bob Paisley, Bobby Robson, Alex Ferguson and Arsene Wenger. In those and other cases, one can statistically prove that the coach has added value, by how much and how consistent.

So to summarize; the manager of a professional football (soccer) club does not matter that much and the game is best explained as Kuper and Szymanski cites Jamie Carragher (a British footballer) for; “The bottom line is this: if you assemble a squad of players with talent and the right attitude and character, you will win more football matches than you lose, no matter how inventive your training sessions, what system you play or what team-talk you make.”. However some managers are significantly better than others and this can be measured and evaluated.

What about manages, leaders and CEO’s of companies? Is the same true as with football (soccer), that the impact of the leadership team has little explanatory power in relation to the overall business performance? That it is ‘just’ about finding the right employees? We must take an evidence-based approach. Which is not without problems.

I believe that there are many reasons why the wage of the employees (or talent as popular lingo is) do not predict a company’s performance to the same extend as is the case in football (soccer). Firstly, the fundamental mechanism around pay is not as efficient in companies as in global sports; the transparency of global talent is lower and it is not always the case that the best person gets paid the most. Performance Management systems are simply not that effective and efficient.  At the same time, I expect that the IT infrastructure, processes, products and brand contributes significantly more to business success than it is the case with a football clubs – although it is probably much lower than business books in general assume.

So the question is how much? How much does a leadership team mean for the business outcome. I would like for Workforce Analytics to come up with the answer to that. We should have the data. We have the software. We have the clever data people. But do we have the insight and the incentive to find the right answer?

Entry filed under: Analytics. Tags: , , , .

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5 Comments Add your own

  • 1. Emil Wolter  |  28/09/2014 at 10:16

    Working in a private partnership where the objective is for every employee to be a partner (revenue generating as well as support), i wonder how the dynamics of foorball would change if the players were long-term stake holders (from buying part fo the capital of the club they play for) rather than simply being mercenaries for a few seasons. Although football is different from business in that time spent playing may not make you better at least after a certain point, I suspect the re-allignment of interest, the creation of a common goal with shared incentives may well result in greater consistency and higher levels of results on the pitch.

    Reply
    • 2. Morten Kamp Andersen  |  28/09/2014 at 21:31

      That is a very interesting point. I think you might be right. Many players are however paid a bonus at the end of each season which is very linked to business outcomes so to speak. Many strikers have bonuses linked to number of goals, most – if not all – players have a bonus which is a mulitiplier of place in the league etc. These are however only short term goals and your question what will happen if they are linked to long term goals is interesting. My guess is that it will have very little impact as 92% of the variance already is explained by wage & skill.

      Reply
  • 3. Don Rottman  |  07/10/2014 at 15:50

    I believe you are right…that the information is there. How we assemble it and use it….and get others to value/utilize it is another issue. You have to find senior leaders open to stepping into the possibility they and the organization can do better. That first takes an admission of guilt that they aren’t as good as they could be today. While that may sound simple, you are asking for paradigm and then practice shifts…..that could be radical vs. the status quo. My perception is that most would rather tweak than actually reform. When reformation is forced based on very poor performance, then you have both the wrong leader to begin with and the wrong circumstances…..very reactive vs. proactive. You don’t do your interior decorating when the house is burning down. Finding those already good to make better, and better to make best….is a very challenging audience to find and get to from the outside.

    Reply
    • 4. Morten Kamp Andersen  |  08/10/2014 at 11:46

      Hi Don. Thanks for your comments. I agree with most of what you write. Showing the performance of each manager is the first step in reforming the quality. I believe data and analytics can do that.

      Reply
  • […] 16. How important is leadership for business success? Soccer may provide an answer. Workforce Analytics … – Morten Kamp (twitter @MortenKamp) […]

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