Forget going after the big blockbuster acquisition - successful baseball teams also know organic growth is better
I’d recently written an article which appeared in Business Finance magazine’s September 2007 issue titled "The Care and Feeding of Plus-Sized Portfolios". (Click here to be taken to online article or to see a .pdf of the article as it appeared in the magazine, download the article. Download business_finance_magazine_article_anand_sanwal_corporate_portfolio_management.pdf)
In the article, I talk about the growth levers that organizations have at their disposal to grow. Two primary growth levers are mergers & acquisitions (M&A) and organic growth. While M&A is "sexier" and often potentially transformational in nature (or at least that is what we are told), it is risky and has a decidedly poor historical track record. On the flipside, organic growth is less seemingly ‘visionary’ but much more reliable as a predictor of long-term revenue and net income growth as well as shareholder returns.
And it appears that this idea of organic growth being healthy doesn’t apply only to corporations and financial metrics but also to baseball teams who wish to win more and get further into the post-season. Friday, October 12th’s Wall Street Journal contains an article titled "Baseball Promotes from Within: Teams with Homegrown Stars Outperform Rivals Staffed by Hired Guns" which demonstrates that three of the four remaining postseason teams, the Colorado Rockies, Arizona Diamondbacks and Cleveland Indians, have had significant contributions from players they "signed as amateurs, drafted, or trained in the minor leagues". The Boston Red Sox are the only team in the post-season with lesser contribution from ‘home-grown’ players. Developing and having contributions from these types of players is effectively organic growth for a baseball team.
As a Yankees fan, this is obviously not ideal because the Yankees’ boss, George Steinbrenner, obviously believes in acquiring mega-players as a means to be successful (A-Rod, Giambi, etc). So in a sense, the Yankees and Red Sox are proponents of using the M&A lever. Acquiring the big, hot star gets you press, supposedly shows your commitment to winning, etc and paints the picture of that one visible intervention which will hopefully save the day. This is like M&A in the corporate world with its talk of synergies, strategic vision, etc.
But its the organic growth as evidenced by this year’s post-season teams and the likes of the Minnesota Twins, the Oakland As who’ve won using a similar strategy that seems to work especially for teams that don’t have bottomless budgets to pay for the mega-stars. Focusing on the development of talent and having players ‘grow up’ with each other and play together consistently over many years allows for teams who are budget constrained to compete even with their better funded peers.
The value of prudent, well-constructed, organic growth with a long-term outlook appears to be significant irrespective of where you are competing - whether in the markets or the ballpark.
