Published on: 23rd June, 2019
At the end of each week, we will share with you our favourite reads. We would be grateful if you could reciprocate. This week’s reads focus on how analytics helped transform a baseball team, the disappearance of cash in the digital world, how Amazon’s efficiency drive might be hurting labour, why promotions in your career might be over rated, the hottest place in India and how a janitor became VP at Frito-Lay.
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- Long read: How the Houston Astros Disrupted Player Development to Become the Model MLB Franchise
Author: Ben Lindbergh and Travis Sawchik
Source: The Ringer (https://www.theringer.com/mlb/2019/6/3/18644512/mvp-machine-how-houston-astros-became-great-scouting)
In this article, authors Ben Lindbergh and Travis Sawchik, give a preview of their own book which describes the transformation of this baseball team from Houston from being one of the worst teams in the league to one the best. The book called “The MVP Machine: How Baseball’s New Nonconformists Are Using Data to Build Better Players” tells “the behind-the-scenes story of the players, coaches, and teams that are driving baseball’s current revolution in player development, which is transforming the sport from the Moneyball model of finding preexisting talent to one in which teams are competing to create talent…Houston Astros, who have used new techniques and technology to maximize players’ potential.”
So what exactly have the Astros done which is so revolutionary? There seem to be at least 3 ingredients to the Astros’ success: (a) Using analytics to tell players which of their balls to throw and which not to throw; (b) Using analytics to select the right kind of players i.e. those who throw certain types of ball which historical data crunching shows work more often that not; (c) Encouraging players to change their game in favour of doing things which analytics show have a high probability of success. In short, “the Astros implemented a model for finding and developing players that would be self-sustaining”.
In consonance with this model, the Astros’ junior teams dominate the minor leagues as well (where, presumably, their matches produce more data for their number crunchers to sift through).
As you would expect from a team with such an unusual operating model “the Astros aren’t led by lifelong baseball men. Luhnow was a McKinsey consultant before Cardinals owner Bill Dewitt Jr. hired him as a scouting executive to help the Cards catch up to the sabermetric movement. Sig Mejdal, a Moneyball disciple Luhnow hired to head up the team’s newly formed analytics department in 2005, was a former part-time blackjack dealer who went on to collect a long list of degrees and work as an engineer for Lockheed Martin and NASA. Mejdal’s amateur-player projections, which were based on painstakingly assembled college stats…The Astros’ string of spectacular successes in data-driven player development started in earnest in 2013, propelled in part by the 2012 hiring of Mike Fast as a front-office analyst. Fast, a tech engineer with a physics degree, started producing baseball analysis on his personal blog in 2007, then climbed the hierarchy of sabermetric sites. His pioneering PITCHf/x analyses soon drew the attention of teams, and the Astros spirited him out of the public sphere not long after Baseball Prospectus published his most influential article, a September 2011 piece that conclusively demonstrated the impact of pitch-framing.”
- Long read: Scotland is on the front line in the fight against “cash deserts”
Author: John Detrixhe
Source: Quartz (https://qz.com/1598949/scotlands-many-cash-deserts-result-from-bank-branch-closures/)
In order to meet clients, we often have to travel to smaller towns in India with population below 1mn. One of the most noticeable things about these small towns is how much harder it has become in the last couple of years to get cash from ATMs. Initially, we used to think this was because of demonetisation. Two years on we realised that something more fundamental has happened. This article describes the same phenomenon in the more remote parts of Scotland. Basically, what’s happening is the opposite of “network effects” i.e. as in the busy parts of the country, people are replacing cash with digital money, it is become less and less viable for banks to run ATMs and branches. However, since the banks dare not pull back significantly on ATMs and branches in the big cities, they are doing so in the countryside where, unfortunately, people are less able – due to age, literacy, etc – to migrate to digital money. This article’s description of the Scottish countryside is likely to soon apply to swathes of the Indian countryside.
“An average of 460 cash machines vanished every month in 2018, and the country has fewer than 8,000 bank branches now, down from nearly 18,000 in 1989. Around 1,500 previously banked towns no longer have one.
The angst in these villages and towns shows that a swath of people can’t, or don’t want to, leave the analog world behind, even as the number of ways to manage money online is exploding. And they have a point: Research shows that online finance isn’t yet a full replacement for its physical predecessor. Banks like RBS, Lloyds, and Barclays, meanwhile, are under pressure from impatient shareholders to cut costs, as digital rivals brag about their lack of costly physical branch networks.
In banks’ eagerness to embrace more profitable digital alternatives, they are scrapping branches and ATMs faster than society is ready for. As they retreat, the UK is becoming a laboratory for what the rest of the developed world can expect as financial apps rise and storefronts get boarded up”
- Long read: The Singular Pursuit of Comrade Bezos
Author: Malcolm Harris
Source: Medium (https://medium.com/s/story/the-singular-pursuit-of-comrade-bezos-3e280baa045c )
In our Consistent Compounders portfolio, we try and identify companies with significant competitive advantages to the extent that some of them are quasi monopolies except that much of the competitive edge is built on supreme efficiencies which keeps their customers better off as opposed to monopolistic trade practices. In this Feb’ 18 piece in the Medium, Malcolm Harris features Amazon on similar lines where dominance of the marketplace such as that for books built on clockwork efficiencies has actually delivered immense value to the consumer. “…All 10 or so bookstores I frequented as a high school and college student have closed, yet our access to books has improved — at least as far as we seem to be able to measure. It’s hard to expect consumers to feel bad enough about that to change our behaviour”. Yet Malcolm’s point is less about value to the consumer as much as it is about how Amazon’s efficiencies have hurt labour and wages. Malcolm compares Amazon to a communist styled planned economy as opposed to a product of a free market economy albeit one that has crushed labour.
“From a financial point of view, Amazon doesn’t behave much like a successful 21st-century company. Amazon has not bought back its own stock since 2012. Amazon has never offered its shareholders a dividend. Unlike its peers Google, Apple, and Facebook, Amazon does not hoard cash. It has only recently started to record small, predictable profits. Instead, whenever it has resources, Amazon invests in capacity, which results in growth at a ridiculous clip. When the company found itself with $13.8 billion lying around, it bought a grocery chain for $13.7 billion… More than a profit-seeking corporation, Amazon is behaving like a planned economy.
…Although they attempt to grow in a single direction, planned economies always destroy as well as build. In the 1930s, the Soviet Union compelled the collectivization of kulaks, or prosperous peasants. Small farms were incorporated into a larger collective agricultural system. Depending on who you ask, dekulakization was literal genocide, comparable to the Holocaust, and/or it catapulted what had been a continent-sized expanse of peasants into a modern superpower. Amazon’s decimation of small businesses (bookstores in particular) is a similar sort of collectivization, purging small proprietors or driving them onto Amazon platforms. The process is decentralized and executed by the market rather than the state, but don’t get confused: Whether or not Bezos is banging on his desk, demanding the extermination of independent booksellers — though he probably is — these are top-down decisions to eliminate particular ways of life.
Responding to reports that Amazon will begin offering free two-hour Whole Foods delivery for Prime customers, BuzzFeed’s Tom Gara tweeted, “Stuff like this suggests Amazon is going to remove every cent of profit from the grocery industry.” Free two-hour grocery delivery is ludicrously convenient, perhaps the most convenient thing Amazon has come up with yet. And why should we consumers pay for huge dividends to Kroger shareholders? Fuck ’em; if Bezos has the discipline to stick to the growth plan instead of stuffing shareholder pockets every quarter, then let him eat their lunch. Despite a business model based on eliminating competition, Amazon has avoided attention from antitrust authorities because prices are down. If consumers are better off, who cares if it’s a monopoly? American antitrust law doesn’t exist to protect kulaks, whether they’re selling books or groceries.
…From the perspective of the average consumer, it’s hard to beat Amazon. The single-minded focus on efficiency and growth has worked, and delivery convenience is perhaps the one area of American life that has kept up with our past expectations for the future. However, we do not make the passage from cradle to grave as mere average consumers. Take a look at package delivery, for example: Amazon’s latest disruptive announcement is “Shipping with Amazon,” a challenge to the USPS, from which Amazon has been conniving preferential rates. As a government agency bound to serve everyone, the Postal Service has had to accept all sorts of inefficiencies, like free delivery for rural customers or subsidized media distribution to realize freedom of the press. Amazon, on the other hand, is a private company that doesn’t really have to do anything it doesn’t want to do. In aggregate, as average consumers, we should be cheering. Maybe we are. But as members of a national community, I hope we stop to ask if efficiency is all we want from our delivery infrastructure. Lowering costs as far as possible sounds good until you remember that one of those costs is labor. One of those costs is us.
Just because a plan is efficient doesn’t mean it’s good. Postal Service employees are unionized; they have higher wages, paths for advancement, job stability, negotiated grievance procedures, health benefits, vacation time, etc. Amazon delivery drivers are not and do not. That difference counts as efficiency when we measure by price, and that is, to my mind, a very good argument for not handing the world over to the king of efficiency. The question that remains is whether we have already been too far reduced, whether after being treated as consumers and costs, we might still have it in us to be more, because that’s what it will take to wrench society away from Bezos and from the people who have made him look like a reasonable alternative.”
- Short read: How a janitor at Frito-Lay invented Flamin’ Hot Cheetos
Author: Zachary Crockett
Source: The Hustle (https://thehustle.co/hot-cheetos-inventor/)
Whilst POTUS pursues his wall building ambitions, here is a heart-warming story about how a first generation Mexican immigrant who dropped out of fourth grade, went on from being a janitor at Frito Lay to Vice President. A story of self belief and the will to succeed through a pursuit of excellence best captured by this advice from his grandfather when he got the janitor’s job “…his grandfather imparted a piece of advice that would always stick with him: “Make sure that floor shines,” the man told his grandson. “And let them know that a Montañez mopped it.” Montañez decided he was going to be the “best janitor Frito-Lay had ever seen” — and he quickly made his presence known. “Every time someone walked into a room, it would smell fresh,” he says. “I realized there’s no such thing as ‘just a janitor’ when you believe you’re going to be the best.”
“On an early morning in the late 1980s, a group of the highest-powered executives at Frito-Lay — the CEO, CMO, and a platoon of VPs — gathered in a California conference room to hear what Richard Montañez had to say. Montañez didn’t share their pedigree. He wasn’t an executive. He had no fancy degree. He had a 4th-grade-level education, and couldn’t read or write. Montañez was a janitor. But he was a janitor with an idea — an idea that would make the company billions of dollars and become one of history’s most celebrated and iconic snack foods: Flamin’ Hot Cheetos. But first, he had to convince the world to hear him out.
…Today, Flamin’ Hot Cheetos are one of Frito-Lay’s hottest-selling commodities — a multi-billion-dollar snack celebrated by everyone from Katy Perry to middle-schoolers on meal vouchers. There’s even a rap song about them. And Montañez is no longer sweeping floors: Over a 35-year career, the former janitor rose through the corporate ranks and is now the vice president of multicultural sales for PepsiCo America (the holding company of Frito-Lay). Before Montañez joined the executive team, Frito-Lay had only 3 Cheeto products; since then, the company has launched more than 20, each worth $300m+.
Recognized by Newsweek and Fortune as one of the most influential Hispanic leaders in America, Montañez is a gifted speaker who often tours the country giving keynotes. And soon, his story will hit the silver screen: Fox Searchlight Pictures is currently working on a biopic about his life, appropriately titled “Flamin’ Hot.” He still lives in Rancho Cucamonga, where he gives back to his community through a nonprofit he launched and teaches MBA classes at a nearby college. Recently, a student asked him how he was teaching without a Ph.D. “I do have a Ph.D.,” he responded. “I’ve been poor, hungry and determined.””
- Short read: The promotion curse
Author: Bartleby
Source: The Economist (https://www.economist.com/business/2019/06/20/the-promotion-curse )
The Peter principle states that workers get promoted until they reach their level of incompetence. This week’s Bartleby column in The Economist, revisits this principle to show why promotions (often leading up to a managerial role from being a functional specialist) may not necessarily be the best thing to happen to you from a career progression perspective. Nor is it ideal from an employer’s perspective to reward every top performer with a move up into a supervisory role without considering the relevance of the said individual’s skills for the new job. Of course with investments to upskill and training on behalf of the employee and the employer, it is very much possible for people to grow into larger roles but the article points to the norm that is prevalent in today’s organisations, which does create a sub-optimal outcome for both the individual and the organisation.
“…If you are good at your job, you rise up the career ladder. Eventually, there will be a job you are not good at and at that point your career will stall. The logical corollary is that any senior staff members who have been in their job for an extended period are incompetent.
There is another problem with chasing the promotion chimera. In a recent article for VoxEU, the records of almost 40,000 salespeople across 131 firms were studied by Alan Benson, Danielle Li and Kelly Shue. They found that companies have a strong tendency to promote the best sales people. Convincing people to buy goods and services is a useful skill, requiring charisma and persistence. But, as the authors point out, these are not the same capabilities as the strategic planning and administrative competence needed to lead a sales team.
The research then looked at what happened after these super-salespeople were promoted. Their previous sales performance was actually a negative indicator of managerial success. The sales growth of workers assigned to the star sellers was 7.5 percentage points lower than for those whose managers were previously weaker performers.
Scott Adams, the cartoonist, described this problem in his book, the “The Dilbert Principle”. In his world, the least competent people get promoted because these are the people you don’t want to do the actual work. It is foolish to promote the best salesperson or computer programmer to a management role, since the company will then be deprived of unique skills. That’s how the workers in the Dilbert cartoon strip end up being managed by the clueless “pointy-haired boss”.
People get promoted until they reach a level when they stop enjoying their jobs. At this point, it is not just their competence that is affected; it is their happiness as well. The trick to avoiding this curse is to stick to what you like doing. If you enjoy teaching, don’t be a headmaster or college principal. If you like writing articles and columns, editing other people’s work may not give you the same degree of satisfaction (let alone conducting career reviews).”
- Short read: How people keep their cool during summer in Churu, India’s hottest place
Author: Ritwik Sharma
Source: Business Standard (https://www.business-standard.com/article/beyond-business/how-people-keep-their-cool-during-summer-in-churu-india-s-hottest-place-119061401444_1.html )
For those who claim climate change is a myth, this summer’s global heatwave should have busted it without doubt. Last week, Kuwait recorded the world’s hottest temperatures with almost 63 degrees Celsius under direct sunlight. There are reports of cars melting in Saudi. In India too, 36 lives have been lost to the heat wave. Here’s a story about India’s hottest place – Churu and how residents here manage to fight the heat.
“The heat wave has claimed 36 lives in India this year. None of these casualties was from Churu, despite its extreme weather. This is partly because of the people’s resilience and partly owing to the measures the administration has taken.
The district administration has directed hospitals to treat patients suffering from heat stroke as a result of loo (the dry, dusty summer wind from the west that blows over North India) as emergency cases. It has advised Mahatma Gandhi National Rural Employment Guarantee Act workers to start early, at 6 am instead of 10 am, and return home by 2 pm. Advisories ask people to stay indoors between noon and 3 pm, and also warn against making beasts of burden toil during these hours.
“People here have raabdi, which aids the enzymes allowing the body to adjust to the weather. Even Border Security Force jawans have it.” Raabdi is prepared by mixing the flour of bajra (pearl millet) and moth beans with chaach, to which water is added. When the temperature soars, the gruel is kept out in the sun. The froth is separated from the fermented mix, which is then cooked and kept overnight. Many, in rural areas especially, start the day with this drink mixed with chaach, cumin seeds and salt. Locals claim it’s the best way to protect oneself from the loo. With its sour flavour, it is similar to an alcoholic drink that can induce sound sleep, they add.
Since the Indira Gandhi Canal closed for repairs from March-end to April, the administration has been monitoring water provisioning for the peak summer months. Nayak says that except for a crisis in some interior areas, there is no shortage of drinking water in Churu. The only infrastructural problem, he adds, is posed to the grid substations where power lines risk catching fire if the mercury shoots to 50 and above, as it has this year. “So every hour, we have a power cut to ease pressure on the substations.””
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