Cautious Optimist - Getting So Much Better All The Time

 

Foundational Principles

All organizations are designed to solve for three issues.  Briefly, these are: 

Who has decision making authority?  Who is accountable for the outcomes of those decisions?  How is information that forms the basis of those decisions gathered and transmitted to decision makers?

Organizations that efficiently solve for these problems can add value to an organization's ability to pursue its goals.  Organizations that do not cannot offer comparable value, are often counter-productive, and, in extreme cases, downright destructive. 

What does solving for these issues amount to?   

I will have more to say on another occasion. For now, it is enough to note that healthy organizations are defined by several interwoven features, including, but not limited to: (1) alignment of decision-making authority and the information on which decisions are made with accountability, (2) Integration of access of those with information to those with decision making authority.  They are also characterized by the cultivation, endorsement and reward of various traits of character, mind and personality, including: (1) self-awareness, (2) mutual respect, (3) confidence, and (4) modesty.

Authority and Accountability 

How many times have you heard someone in authority say, 'I take full responsibility' for some event that has gone terribly wrong, and wonder what taking full responsibility amounts to, what the consequences of having taken full responsibility are?  Accountability must amount to more than being required to answer soft-ball questions at a press conference.  

Authority and Information

If the decision maker is to be held accountable for outcomes, their decisions should be informed.  It is natural to suppose that if they are to be accountable for the decisions they make and the plans they implement, then they should be the ones who decide what information they need.  

Yes and no. 

While they have final authority, smart decision makers turn to experienced information gatherers to help them distinguish relevant information from noise.  Baseball scouts, for example, develop informed judgments about what matters to success on the diamond that C-suite executives do not have.  

Formulating the right questions is a matter of integrating epistemic authority with practical authority -  who is in the best position to know with who has the authority to decide.  

The most important trait anyone granted practical authority needs is self-awareness, in particular, knowing what you don't know.  The second most important trait is willingness to learn from others.  

Real expertise is reflected in quiet confidence and a hard-earned freedom to be modest. 

Three Axioms for understanding what the Mets are doing 

Any effort to understand what the Mets are doing as an organization requires treating three statements as nearly axiomatic' givens.'   

1. Stearns and Cohen are entirely aligned on goals, the importance of getting the right structures in place; that the ability of the structure to add value requires that various components of that structure mesh efficiently with one another; that there is a distinctive Mets way of reaching decisions; and commitment to discipline in implementing those decisions.  

2. Cohen's wealth is an asset that helps frame the strategy, shape the plans, insure against both unexpected and foreseeable challenges that will invariably emerge, and allow the team to seize genuine opportunities that arise, and to do so quickly and unequivocally. 

Money is no substitute for planning and judgment, certainly not for the Mets.

Taken together, 1&2, constitute the fundamental way in which the Cohen stewardship differs from the prior one.  The Wilpons spent plenty of money-- poorly -- on players and inadequately on structure. At the deepest level the difference between Cohen and the Wilpons is not about the money.

3. Integration or meshing applies not only within the organizational structure, but within the baseball operation vertical: in particular, as a way of conceptualizing the relationship between the major league team and the minor league and developmental league teams. 

In contrast

For as long as I can remember, I have been taken aback by three prominent features of the relationship between the development of Mets' prospects and the major league team.  

First, management consistently over and underestimated player talent.     

Second, the Mets have historically displayed both over and under-confidence in the judgments they made about the talent they had.  If you consistently display both over and under confidence in the judgments you make (by holding on to some players too long while setting others adrift too quickly), you don't have a good system in place for assessing or projecting talent

Third, too many of the players who have gone through the Mets system to join the major league roster have seemed unprepared to perform at that level. This is not just a failure of talent, but of preparation, or both. 

Intentionality and Risk Management - the Mets' Decision Making Framework 

Every aspect of the organization is relevant to the success of the both the team and organization more broadly: some are more important than others; some are more important to some aspects of the organization than to others; and so on.  But all must fit together in ways that are, where possible, mutually reinforcing, as opposed to being merely compatible with one another.  Because everything matters, the Cohen/Stearns team is intentional about alignment, fit and integration -- both horizontally across the organization, and vertically, within particular operations of the organization.

Hedge funds manage risk.  Managing risk is not about eliminating risk.  It is about reducing risk, incentivizing behavior to reduce it when warranted, and distributing it to minimize its impact. This leads to three general principles that together constitute the framework of risk management.

Risks can be reduced by taking precautions that reduce the probability of their occurrence, but there are costs to taking precautions.  Suppose there is 100% chance that a risk will materialize into a harm that would set you back $50 in damages. If it costs you less than $50 to prevent the harm by taking precautions, you should take the precautions.  If it costs more than $50 to prevent the harm, you shouldn't.  You don't want to spend more to reduce or eliminate the risk than it would cost you if the risk materializes. The general principle is:

P1. Minimize the sum of the (expected) costs of the risk and the (expected) costs of avoiding (preventing) them. 

You want to incentivize individuals in an organization to take cost-justified precautions -- those where the costs of precaution are less than the cost of the risk materializing (discounted by the probability of its occurrence).  The general principle is:

P2.  When risks that should have been prevented materialize into actual harm, place the costs of those harms on the individual who is in the best position to take precautions, thus incentivizing them to take cost saving precautions. 

This is the principle of accountability within a risk management framework, and most importantly it explains why accountability which should generally fall to those who make decisions, should also sometimes fall to those who provide the information on which those decisions are reached.  Just another way of expressing not only the importance of information, but the need to incentivize its accuracy, transparency and reliability.  

The costs of taking risks can fall differentially.  The full burden can fall to just one person or be more broadly spread.  Insurance spreads risks.  The general principle:

P3. Whenever possible, spread risks maximally over persons and time to minimize their impact on individuals or time frames.

In upcoming posts in the series I hope to explain how the Mets approach to roster construction is guided by this approach to risk management, and in doing so, explain the ways in which various decisions they make and plans they implement should be understood. It doesn't mean that all the decisions will turn out as planned or that they are correct. We remain free to criticize them, as called for.  But it does put us in a better position to more accurately interpret what they are up to, and what their thinking is likely to have been. It also helps make our criticisms more pointed and thoughtful.

 Next

The Cohen/Stearns stewardship of the Mets features strategies and plans designed to adequately assess and develop talent and improve evidence-based confidence in projecting how talent will perform at the next level.

My particular interest is the projection of talent and the information required for it.

Historically, projection has been largely a matter of guesswork.  The Mets mean to change that.  Next week we will take a look at what they have been doing to take as much of the guesswork out of the equation as possible and explore with one another additional steps they may want to consider.