3. Organizational capital resources

These three main resources, and the many that fall under their heading, will always give teams the potential to create a competitive advantage if they contain four crucial attributes. Before I get into those attributes I need to mention another major qualifier for the the resource-based framework to be applied properly. For a team to be able to sustain a competitive advantage and in turn string together multiple playoff runs, the baseball industry must be heterogeneous. If all teams contain the same resources then logically no one could create an advantage based on this model. Luckily, baseball teams most certainly contain unique resources and I do not see this changing anytime soon. OK, back to the four attributes that a resource must hold for it to have the potential to generate a sustainable advantage for the team.

First, the resource must be valuable, in the sense it exploits opportunities and neutralizes threats to the team’s environment.

Take the resource of human capital. Using this logic a team could hire very experienced front office personnel and take advantage of their wisdom in assembling a team. At the same time, if the front office is truly a cut above the rest, then their proprietary knowledge would also neutralize any threat from competing teams. Other teams could not hire employees that matched the front office’s level of experience and judgement. Another example comes with the resource(s) of organizational capital. For instance – and this is completely hypothetical – a team could set up a network of academies and scouts in Russia and establish relationships that would give them a first mover advantage. This would exploit opportunities and neutralize threats if along with this resource the team were to hire or train scouts that could build unique relationships with prospects, their coaches, and managers.

Second, the resource must be imperfectly imitable.

To be imperfectly imitable the resource must meet three criteria: 1) The ability of the team to obtain the resource is dependent upon unique historical conditions. Think about how the collective bargaining agreement has changed over the years. At one time teams had a lot more power than the players. Let’s say a resource (player) was obtained by an organization during a period when teams had more power than the players thus making the contract more advantageous for the team. Let’s also say this player was a superstar and that he gave his team a great advantage on the field. A few years later a new agreement comes out giving more power to the players, but the superstar has already signed a contract with the team before that new agreement. In this case, history was on the side of the team who acquired the superstar. Other teams would not have the same advantage after the agreement was changed. They could not sign a similar caliber player for the same inflation adjusted rate as the team who signed the superstar during the time of the old agreement.

2) The link between the resource possessed and the team’s sustained advantage is casually ambiguous. This would exist when the resource controlled is not understood or only slightly understood. In Lehman’s terms this is the “it” factor that no one can put their finger on. This may be accomplished intentionally by a team or it may come about by accident. An example would be the Cardinals recent success. We know they have had some good players, but there also seems to be something going on behind the scenes – unavailable to the public – that has led to their continued winning ways. Maybe the entire strategy or process of the Cardinals is so complex that others can’t rap their head around it. The key here is that other teams cannot replicate their strategy because they can’t understand how they have done it. In my opinion, this sub-attribute crucial to baseball team’s sustaining success.

3) The resource generating the team’s advantage is socially complex. For example, the ball club may have superior interpersonal relationships between managers and front office staff. Also, the club may have a better reputation with prospect regions meaning one team is looked at as a better organization to play for over the others. Maybe all of the prospects in Panama see the Red Sox as the best team to play for and would be willing to make trade-offs in order to sign with them. Another example could have to do with the technology used by front offices. Teams may possess the same technology, but only one may be able to use it’s complex social resources (scouts, managers, etc.) to harness it. Think about the problems with Dipoto and Scioscia in Anaheim. The Angels were clearly not able to successfully utilize the technology throughout the entire organization.

Third, for a resource to have the potential to sustain a competitive advantage for a team it must be rare among current and potential competition.

An obvious example of this are drafted players that turn out to be superstars. These types of players are scarce and shows you just how important that drafting talent is to the sustainability of organizational success. However the notion of substitutes comes into play here and brings us to the final attribute a resource must possess to have the potential to help a team sustain a competitive advantage.

Forth, there cannot be strategically equivalent substitutes to the resource.

If other teams can create close substitutes of having a superstar then the resource (superstar) will not be able to sustain an advantage for his team. This doesn’t have to be limited to just one player either. If a team has three or four superstars on their team, but another team is able to use substitutes to match the capabilities then those superstars would not be a source of sustainability. They may lead to short term success, but if another team can duplicate that success by manipulating a different set of resources than the superstars cannot create sustained success.

This may be confusing so I will use a very easy example. In 2002, the Oakland A’s – using advanced statistics – were able to outperform teams who possessed considerably better individual talent aka superstars. In that year, it was proven that the Yankees superstar players could be substituted for an optimized roster of average to slightly above average players. Around the time the Angels fired Dipoto, Scioscia may have thought that his close knit highly experience management team was a close substitute for the use of Dipoto’s analytics department. In some respects he might have been right. I am by no means saying that a team should not use sabermetrics, but that there could be a substitute – that is very different – that produces similar results. In my opinion, a baseball organization with a close knit highly experienced management team that also embraces and uses a unique and intelligent analytics department would have an advantage over a team like what Mike Scioscia presumably envisioned.

If team’s truly hold the ability to create a formula that can sustain winning, it is my belief that the key lies within the resources of the entire organization. How team’s uses their resources is just as important. I laid out four attributes that a resource must hold in order for it to have the ability to create a sustainable advantage. As you can see – and I assume already suspected – this is very hard to produce. In fact, according to the chart it has only been done a few times in history and – depending on how you are judging – the Yankees are really the only ones to do this frequently throughout history. One might say this is unfair because the Yankees typically have the higher payroll. This is true, but money is very much a resource and a team who controls that particular resource is able to deploy additional resources unavailable to teams without the said resource. This is a harsh reality for some teams, but it has been proven in the past that in baseball their are close substitutes to having money. If there wasn’t then the Yankees and Red Sox would win every year.

I hope everyone understands what I was trying to accomplish here. Mostly I wanted to take a high-level approach to constructing a strategy for teams. It may not be enough in the future to simply be good at sabermetrics. If nothing else, it should be clear why it is so difficult for teams to win year in and year out. Correct resources must be decided upon by team’s to be used in their overall strategy (ones that contain the four attributes). Those resources must be distributed almost perfectly and then in some cases a good deal of luck is involved. The resource-based framework is not the only form of strategy, but in my mind it could work if applied in baseball.