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I like an easy read as much as the next guy, but every now and then I really enjoy reading something that challenges me; something I can sink my teeth into and expand my understanding of a new subject. Imagine my delight then, when I came across a book that taught me about the NFL Football world and Wall Street investing (two areas I know very little about… at least in any level of detail).
Roger Martin (author of The Opposable Mind and The Design of Business) has taken these two seemingly disparate institutions and woven a fantastic message about the importance of focusing on the tangible, real-world in front of us… and the danger of instead choosing to focus on the siren song of short term profitability.
The Big Idea
Who are you playing for?
"In short, a real-market orientation creates individual and societal good, while an expectations orientation creates a downward spiral that threatens both individual well-being and the health of our economy."
A quick lesson to get you up to speed:
Professional football exists in two worlds. First, you have the “on-field,” 60 minute game. This is the “real world” game, one where two teams compete for a real victory. All round, the sport creates real value: fans are entertained enough to feel their money was well spent, players get paid, owners make money, and the organization thrives. We call this a positive-sum game – value is created. The other, darker world of professional football (and most sports for that matter) exists for the gamblers. The gambling world is a zero-sum game – one person wins when another person loses. Martin is quick to point out that this is not a book against the evils of gambling. It is, however, a book about the nature of betting, the manipulations that attempt to “balance” the odds… and the devastating impact such a mentality can have when it bleeds over into the corporate world.
In professional sports, balancing the odds through what’s known as a point spread is an accepted part of the gambling game. In essence, a point spread means that if a game has a spread of 10.4 points, the favored team needs to win the game by at least 10.4 points for it to be considered a true win for the gamblers.
Even if you’re not a football fan, you’ll likely recall the 2007 perfect season (16-0) for the New England Patriots, lead by MVP Quarterback, Tom Brady. What most of us aren’t aware of is that, as Brady continued to lead his team to victory after victory and speculators began to believe they’d never lose, the point spread that Brady had to beat grew to remarkable heights. So massive were the point spreads that the Pats only beat the odds 10 out of 16 times that season. Speculation grew at such an exaggerated rate that, despite playing a perfect season, there was no way the Patriots could beat the expectations market forever.
In the business world, we call this expectations market “The Stock Market”. And, as Martin brilliantly illustrates, the business world could do with some of the legislation that the professional football world has adopted.
Have your cake, and cash in on it, too
"As J&J, P&G, Apple and the NFL so aptly demonstrate, if you take care of your customers, shareholders will be drawn along for a very nice ride."
Imagine for a second that Tom Brady was betting on the games he was playing in (an act which is completely illegal, for the record). Looking at the impossible point spreads against him and his team, do you think he might have played differently? Do you think he might have taken a dive one game; bringing the point spread back down to a reasonable level for the next game? True Brady fans would argue that there’s no way their hero would even consider such tactics, but you’ve got to imagine the pressure that he would be under in such a situation. What if his financial contract was 10% of what it actually is, and the rest of his compensation was based on his ability to beat the points spread? You can imagine how quickly his focus would go from creating real-market value (winning football games) to expectations-market value (managing the point spread). This, sadly, is exactly the way the corporate compensation model works for executives of public companies. Their base salary is a small amount compared to the stock options they collect – stock options that only realize value if they manage stock analyst (Wall Street’s version of bookies) expectations. As a result, they face tremendous pressure to manage expectations rather than generate real value (read: win football games).
The NFL commission cracks down on players betting on their own sport for one reason: the benefit of the fans… the NFL’s customers. The games are better when the players are playing to win, legitimately. Because he had nothing riding on the expectations-market, Brady’s motivation was to win the Superbowl for his team, his fans, and for himself.
Where is your focus? On creating real value? Or is it on managing expectations? Many a salesperson’s compensation, for example, is based on “beating quota,” effectively overcoming the adjusted expectations of their manager. When you excel, your quota rises. When you excel again, your quota rises again. This cycle can continue until the expectations become unreasonable. If you’re involved in a cycle like this, there’s a longer conversation that needs to take place. Hitting quota is not the same as delighting customers and maximizing positive company impact.
Brady, for the record, signed a 4 year deal in 2010 for $78 million. Focusing on the customer can be profitable, too.
Who are you trying to impress?
"...everyone wants to be a part of a community, however unhealthy that community may be."
Focusing on creating value is crucial but, as any high-schooler will tell you, so is fitting in. And, just as you would caution that high-schooler, it’s important that we know who it is we’re trying to fit in with. Are they a positive, or negative influence in our lives?
Martin believes, as I do, that a fundamental part of what it is to be human is the desire to do good; to contribute to our societies and to be recognized for it. Working to impress the wrong group of people can fulfill the desire for acceptance in the short term, but can leave you feeling empty or lacking in the long run. Had Brady worked to the interests of the gamblers rather than the fans, he may have realized some short term financial success, and a sense of acceptance from that community, but in the long run would have likely been left feeling unfulfilled.
We all want to be accepted. But are you seeking acceptance from a group that has your authentic, long term interests at heart?
Fixing the Game is as brilliant as it is complex. Writing a two page article to cover the main points is no easy task, and I fear that I’ve done the book an injustice by attempting to do so. If you have any interest in the global stock market, the nature of corporate business practices (or football for that matter!) I would encourage you to pick up this book. Read it in long sittings, as the content is as dense as it is riveting. It’s truly been a long time since I’ve read something this mind expanding, and I look forward to seeing what Martin has up his sleeve in the future.