Monday, January 3, 2022

"You can't take it with you...or can you?"

It's that time of year again, at least theoretically.  If it weren't for this year's major league baseball lock-out, fans would be sitting back and watching all the free agents signing with new teams.  Here's a great opportunity for baseball teams to recruit and bring in new talent, fill any gaps in their line-up, and make the moves that can put a competitive team on the field in the next season.  It's always a big gamble to sign a free agent to a big contract - win or lose, it's always a costly endeavor.  

Here are a couple of examples.  Several years ago (December, 2014), the Chicago Cubs signed free agent starting pitcher Jon Lester from the Oakland Athletics to a six-year contract worth $155 million.  Lester won 77 games with the Cubs (his W-L record was 77-44), and he was a two-time All Star (2014, 2016), NLCS MVP (2016), World Series champion (2016), and NL wins leader (2018).  He became a free agent again at the end of the 2020 season, eventually signing with the Washington Nationals.  Clearly this free agent signing worked out for the Cubs.

After winning the World Series in 2016, the centerfielder and lead-off hitter for the Chicago Cubs, Dexter Fowler, became a free agent and signed with the St. Louis Cardinals with a five-year contract worth $82.5 million.  While Fowler was a key component of the Cubs World Series championship team, his play in St. Louis was nowhere close to his previous level of play.  He spent most of his time in St. Louis battling injuries and hitting slumps.  He was traded to the Anaheim Angels on February 4, 2021 for cash and the proverbial player to be named later.

The question then becomes - are superstar free agent signings more like Jon Lester or Dexter Fowler?  I can frame the question in another way - can superstars be just as successful with their new team?  Is superstar talent transferable from one team to the next?  As it turns out, this question has been studied extensively, both within sports and in other organizations.  Harvard Business School professor Boris Groysberg has both studied and written extensively on this topic (see, for example, his book Chasing Stars: The Myth of Talent and the Portability of Performance).  While most of his research has focused on the financial sector, many of his findings (called the "Portability Paradox") are directly applicable to other industries as well.

Building upon a framework that the economist Gary Becker developed in the 1960's, Groysberg proposed that the specific nature of a job determines whether a superstar performer at one company can replicate that level of performance at another company.  There are at least two kinds of knowledge and skills at play here.  Broadly speaking, general skills are those that can be applied to any industry or organization, while specific skills are likely to be applicable only in a specific organization or industry.  For example, knowing how to access information (e.g. who to call) or use proprietary software are specific skills, while knowing how to look at a balance sheet or income statement would be a general skill.  Groysberg's research suggests that individuals with firm-specific skills and knowledge are not only less likely to move to another organization, they probably won't be as successful in that new organization.

As I mentioned, most of Groysberg's research focused on financial analysts and investors, though I think his findings are applicable to almost all knowledge-based industries (at least, though likely to almost all industries).  He looked at the success of "superstar" analysts for a period of five years after moving to a new organization.  In general, Groysberg found that superstars who moved from one organization to the next experienced a significant decline in their performance, which persisted for at least five years!  The following factors had the most significant impact on he "portability of superstars" (i.e. whether these individuals continue to be superstars at the new organization):

1. The relative quality of the two firms - Stars who moved to a superior firm (better level of organizational performance) did not experience a decline in individual performance, while stars who moved to inferior firms failed to live up to expectations at the new firm.

2. The orientation of the employee's firm of origin - Customized, firm-specific resources (information systems, firm-specific training, elements of culture, etc) can be difficult to replicate by other organizations.  Stars who left organizations with a lot of these customized resources generally saw significant declines in performance after leaving.

3. The hiring and integration capacities of the new firm - Onboarding and integration into a new organizational performance is important.  Superstars who joined firms that focused on these issues usually maintained their superstar level of performance.

4. The function an analyst is hired to perform - Superstars who leave firms for similar roles at the new organization (exploitation) performed far better than those who left for new roles (exploration).

5. Leaving solo or with a team - If the superstar takes her/his team to the new organization (versus going to the new firm alone), they were able to maintain their superstar level of performance. 

6. Gender - Interestingly, women superstars generally were more successful at the new firm compared to men.

If these results weren't compelling enough (and I think they are absolutely fascinating), Groysberg's team applied their research methodology to an entirely different industry - professional football (the National Football League).  They compared the performance of superstar wide receivers and punters who switched teams with those who did not.  Wide receivers were felt to have more team-specific knowledge (offensive strategy, playbooks, an interactions with other players on the field, specifically the quarterback), while punters were felt to have more general knowledge.  Again, consistent with their previous results with financial analysts, superstar wide receivers who switched teams suffered a decline in performance.  However, in contrast to the financial analysts whose performance declines persisted up to 5 years after a move, the superstar wide receivers' performance recovered in about a year.  The performance of superstar punters did not decline.  

It's always good when an independent group of investigators can validate the findings of another research team.  For example, a study on player trades from 1900-1992 in Major League Baseball found that the players with the most team-specific knowledge (catchers and shortstops) are the least likely to be traded compared to those with more general knowledge and skills (outfielders).  Middle infielders ranked somewhere in between.  Another study performed with lobbyists found similar findings to the studies above.

One could argue that health care is a knowledge-based industry.  Is there evidence to the "portability paradox" in health care?  The answer might surprise you.  Several years ago, investigators at the Harvard Business School asked this question in a study of nearly 40,000 coronary artery bypass graft procedures performed by 203 cardiac surgeons at 43 different hospitals.  Many of these surgeons performed multiple procedures at several different hospitals, so the investigators looked at the volume-outcome relationships for each surgeon.  Historically, studies show that the more procedures that a surgeon performs, the better her/his outcomes will be over the long run - this makes perfect sense and is consistent with other industries.  Practice does make perfect.  Of interest, the greater the number of procedures performed at a given hospital, the better the outcomes.  In other words, an individual surgeon's outcomes improved, not with the overall number of procedures performed amongst all the hospitals, but with the number of procedures performed at a specific hospital.  The surgeon's outcomes were different at each hospital!  The investigators suggested that as the surgeon became more comfortable working with a particular operating room team (anesthesiologist, nurse, surgical assistants) and the equipment at a specific hospital, her/his outcomes improved.

All of these studies suggest that, as the old saying goes, you really can't take it with you ("it" being your specific performance at one institution).  Groysberg's study also suggests a few ways that we can mitigate the so-called "portability paradox."  More on that in the next post.

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