As I’ve previously established, I’m a rabid baseball fan and have been for nearly half a century.  (Oh, that hurt!)  I love the pace of the game, the finesse skills of the athletes, and the strategy involved in pitch selection, positioning, player substitutions, etc.  Don’t even get me started about the designated hitter rules.

I’ve always loved reading and analyzing baseball statistics.  Each day when I open the newspaper (I’ve already established my age so, yes, I do read a newspaper), I’ll skim the front page to make sure that global annihilation is not imminent and then I’ll peruse the sports page, particularly, the box scores and stats leaders.  Baseball is loaded with measurable statistics.  At Bats, Runs, Hits, Runs Batted In, Home Runs, Strikeouts, Walks, Earned Runs, Innings Pitched.  (In short hand, AB, R, H, RBI, HR, K, BB, ER, IP.)  These measurements are then used to create other stats, such as Batting Average, On-Base Percentage, Slugging Percentage, Earned Run Average (ERA), Walks + Hits per Inning Pitched (WHIP), and on and on. 

The obsession with statistics in baseball has led to an entire field known as sabermetrics, “the search for objective knowledge about baseball.”  It is the quest for the holy grail when comparing players from different eras or different leagues (“Who was better, Willie Mays or Mickey Mantle?”) or to predict the future value of current players (“What is Pablo Sandoval’s future value based on his current production?”)  Sabermetricians have even come up with new statistics, such as OPS (On-base + Slugging) and Runs Produced.

My interest in baseball stats comes from the same curiosity that drives me to look at business metrics.  Every business has certain measurements or statistics that can be used to measure the performance of the company or individuals within the company.  There are also measurements that can help predict the future profitability of the company.  The key is to find the right metrics.  Sabermetrics for business.  It’s not quite the search for the holy grail, but it is critical to find the right mix of drivers.

You see, by identifying the business’ key performance indicators (KPIs), we can address several critical questions, similar to the Mays vs. Mantle question above.  How does this period stack up against last period?  What trends can we spot in revenue and expenses?  How do we compare to the industry as a whole?

While these are interesting questions, KPIs can be even more useful as predictors of future outcomes.  Just as baseball owners look at critical stats to see which areas need the most improvement, business owners need to know which KPIs to improve in order to give them a better chance of improving profits and cash flow.

We are fortunate to have several tools that allow us to analyze KPIs across multiple periods against industry averages and to use that analysis to predict and plan for future outcomes.  Whether we’re looking to improve cash flow from operations, net profit before taxes, or debt-to-equity ratios, we can analyze a company’s performance to determine where to focus the business owner’s attention and to develop strategies to implement the necessary tactics.

My parents probably thought I was wasting my time reading the sports page so much.  Little did they know I was building my professional tool chest.