Today I’d like to combine some human resources and economics knowledge and try to demonstrate why recruiting baseball stars isn’t always the best move. First, it’s important to point out that everybody knows that the “prime years” of baseball are often in the ages 26-31 and can be narrowed down further if you’d like. I realize that stats diminish after that time and that is the primary reason for free agents decreases in skills. However, I’d also like to point out some alternative theories.
The Idea of Hiring Away Stars
Although baseball is often held up to a different pedestal than others, it’s actually got many of the facets of a normal job, but with a much higher acceptance of demotion and an inclusion of constant public opinion. I’d like to point you to an article written by Groysberg, Nanda, & Nohria (2004) titled The Risky Business of Hiring Stars published in the Harvard Business Review. In this article they conducted a study in which they observed top performing research analysts who were in the process of switching companies because they were being lured away by higher pays, not unlike what happens in free agency.
The study confirmed that essentially three things happen. First, the star’s luster fades. The research found that 46% of the analysts did poorly in the year after they had left their previous company for another. Many of the other managers at the firm would refuse to operate with them, often resentful or jealous of their pay and having been sought out. This ultimately hurts the star’s ego. In the end, around 36% of the analysts left their investment banks within 36 months and another 29% in the next 24 months.
Secondly, the group’s performance slips. When a high-flying “star” arrives, there is a tendency towards interpersonal conflicts and a failing of communication within groups. I’m sure you can see how this could affect you in your own personal job – if your employer sought outside help for a position one step higher than you, do you not believe you would take this personally as them suggesting that you were unable to fill that role? This decreases motivation to try to move up the “business chain” since they do not see the opportunity. As a result of that, individuals would often start looking for outside organizations to obtain a leadership position.
Finally, the company’s valuation ended up suffering. Investors would perceive these additions as value-destroying rather than value-adding. Similar to free agency, shareholders would seem to believe that stars often leave firms when they believe they are at their peak and can maximize their returns (in short, they are selling themselves high). Although I’ll admit the main point here is that they believe it is going to decrease profitability for the firm, it is because they believe they are paying too much for the amount of productivity that is going to be provided.
Now the research does point out that there were a few successful cases which happened when companies drew up detailed plans of how to assimilate these new people into their company and hopefully Major League teams do embark on such a process. However, the point is that stars often underestimate their success being dependent on organization-specific factors. Every team has different resources and capabilities, systems and processes, leadership, internal networks, training, and team-approaches. In essence people have been coming to this type of conclusion for decades, though often through specific things. Think of how often you heard the Cincinnati Reds or the St. Louis Cardinals or the Minnesota Twins or the Los Angeles Dodgers speaking of their “way” in which they train individuals. Think of how often you’ve heard that the reason player X was so successful was because he had player Y hitting behind him or in front of him (the team). Think of how often you’ve heard that the reason player X was so successful was because he was hitting in ballpark Y (systems). Think of how often you’ve heard that the reason player X was so disciplined and given his opportunity was because of the managing style of manager Y (leadership). No, this is perhaps not some drastic conclusion, but perhaps you can take a moment and see how baseball players can relate to “real-life job” personnel.
We can come to the conclusion that it is likely in the best interest for personnel to realize the benefit they receive from playing for the same team. Indeed, the article argues that “few stars would change employers if they understood the degree to which their performance is tied to the company they work for.” Now I can see how it is very easy to see those millions of dollars and come to a conclusion that it’s worth taking a risk in free agency leaving your team, but on the other hand, a slightly more rational individual may choose to remain with his current team if he is not motivated purely by monetary rewards, but also by some intrinsic success. But if we are to come to the conclusion that the team knows that the player knows that some of the benefits he gains are from the team itself, do you not think that they can monetize this? This forms the basis for the idea of hometown discounts as the team is the only one that can offer this specific benefit compared to the market.
Of course there are also other costs, such as the player having to move his children out of school and away from their friends, having to buy/sell a house, having to learn a new city’s best restaurants, etc, and in no way do I intend to minimize this (this leads to the idea of fit, but I have no desire to write on that right now). Instead the point is to realize how these benefits can combine to lead to a significant hometown discount and allow you to understand why players may be more willing to take a below-market rate. Finally, I realize that players and coaches move on and are fired or retire even if a player is to remain with his current team which might mitigate some of those organization-specific benefits. I’d argue that this happens in any organization regardless, but I will submit that turnover is much higher in such a high-profile industry. This may make it slightly less beneficial than say your regular job.
Hopefully you followed my logic here and found this interesting. I’d like to thank Groysberg, B., Nanda, A., & Nohria, N. (2004) for their research into this area. This is one of those things that you can hopefully take into consideration in your own life too.
Credit: Groysberg, B., Nanda, A., & Nohria, N. (2004). The Risky Business of Hiring Stars. Harvard Business Review.