Nobody knows anything

Hundreds of pieces will soon be written on what business “leaders” can learn from Leicester City’s triumph. I suspect, though, that the biggest lesson will be ignored – that it vindicates William Goldman’s famous remark that “nobody knows anything.”

City’s players are, mostly, a ragbag of rejects from modest clubs managed by a man whose appointment was greeted with consternation. Very few people took up those 5000-1 odds against them winning the league.

Although such improbable victory is unheard of in football, it is not so unusual in other spheres. Elvis Presley was told to go back to truck driving; George Lucas’s proposal for Star Wars was turned down by Universal and United Artists; and J.K. Rowling, Dr Seuss and C.S. Lewis all got rejected by publishers before going onto to sell gazillions. There’s a long history in business of predictions being horribly wrong.

In fact, in business more than in football, success is unpredictable. As Alex Coad has shown, corporate growth is largely random. For this reason, the performance of venture capitalists varies enormously.

In this sense, Alex Bellos might be right: all that City’s victory tells us is that we under-rate the importance of randomness. City won the title despite having less possession and fewer shots on goal than their opponents. They also had fewer injuries than most teams, and a narrow average winning margin. In these senses, they might just have been lucky.

However, there might be another reason why nobody knows anything. It is a cliché that the City team is more than the sum of its parts. This directs us to an important possibility - that even in quite small groups such as football squads, emergence matters. Some complex systems can display properties which their component parts do not. For example, Alan Kirman shows that demand curves can slope downwards in an aggregate market even if individuals’ behaviour shows no link between price and demand. And Shyam Sunder shows that asset markets can be informationally efficient even if many participants are stupid.

This tells us that what matters is not (just) individuals’ qualities, but interactions between them. City’s players might have been unheralded before this season, but they seem to bring out the best in each other by playing to each others’ strengths.

What matters in hiring, then, is the match between the individual and the organization. City seem to have got this spectacularly right. But many organizations aren’t so lucky. As Boris Groysberg says, “building capability by hiring stars does not work well.” This can be because there’s a lack of fit between the star and his colleagues, or because what looked like star performance was in fact due more to organizational capital than individual brilliance.

Herein, though, lies a problem: it might not always be possible to tell in advance whether you have the right match or not. The fact that there is usually a strong correlation between teams’ wage bills and performance suggests not*: it tells us that it is very rare for teams to succeed by hiring cheap players who are in fact good fits with each other.

This warns us that City might have simply gotten lucky in finding players who are good matches for each other, and perhaps it is only the hindsight bias that gives us the impression that they knew what they were doing.

This, though, only reinforces my point – that maybe the lessons of City’s victory are that even experts know less than they think; that success is unpredictable; and that organizations are complex and so less controllable than bosses think.

But then, maybe in saying all this I am following that old habit, of interpreting all events as corroboration of my prior beliefs.

* subject to the caveat that the correlation might reflect causality from performance to pay.

Comments

[Dave Timoney]

One notable thing about Leicester is that they had the oldest squad in the league. Of course, this doesn't in itself mean anything - Spurs had the youngest - but you can see the angle for "the story". I'm sure Golman would have appreciated it: Butch Cassidy and the Sundance Kid and Some Other Blokes

[Carol]

This: "or because what looked like star performance was in fact due more to organizational capital than individual brilliance." Superstars moving from one environment to another rarely perform well in the new environment and are often a psychological drag on the rest of the team.

[Mark]

It will be interesting to see how many players Leicester City sells and buys now it sits at the top of the Premiership. If your theory is right, setting go some less rated squad members and replacing them with expensive names might worsen performance, by breaking up the positive effects of emergence.

[Luis Enrique]

I wonder how much is explained by them stumbling upon a style of play other teams not set up to play against?

[Endrew]

How can it be true both that building talent by hiring stars is a bad strategy, and that there is a high correlation between wage bills and performance, (because predicting synergies is nearly impossible)?

[Jim]

If nobody knows anything, that rather p*sses on the chips of those who wish to centrally plan the economy then doesn't it?

[Dave Timoney]

@Luis,

Not so much. Many sage heads were predicting at Xmas that Leicester would struggle in the 2nd half of the season because everyone had already played them once and wouldn't be surprised again, but their results remained consistent. There's nothing particularly unusual about their style: defend in depth, break at speed.

Stats-wise, they scored fewer than Spurs and Man City and conceded more than Spurs and Man Utd. This suggests efficiency in the sense of not "wasting" goals in big wins, but it also suggests that they got lucky, as they did with injuries.

[BCFG]

"But then, maybe in saying all this I am following that old habit, of interpreting all events as corroboration of my prior beliefs."

I think this is what you are probably doing in reality. Still it beats your racism directed against the Palestinians.

[Igor Belanov]

"This suggests efficiency in the sense of not "wasting" goals in big wins, but it also suggests that they got lucky, as they did with injuries."

A bit unfair! Their 'luck' with injuries could be said merely to cancel out the advantage wealthier clubs have with bigger squads and experienced internationals to step into the team. The fact that they aren't the 'best' when it comes to either scoring or conceding goals could also score as a credit, as it shows that they can keep their nerve when under pressure, nicking the odd goal or keeping a clean sheet when up against it. I certainly never thought they would remain so calm when closing in on the title- Spurs certainly bottled it.

[Dave Timoney]

@Igor, all clubs have the same size squad of 25 (8 of whom must be "homegrown"), though there's no limit on the number of U21 players they can select in addition. The advantage the big clubs have is squad depth, in the sense of more proven quality on the bench.

However, the issue with injuries is largely about the balance of the team - i.e. not having to chop and change and try to fit square pegs into round holes. Rotation can be counter-productive. You may recall a fella they named "Tinkerman" at Chelsea a few years back.

[Luis Enrique]

fate

gpwm

[Igor Belanov]

@ FATE

I should have said 'deeper'!

On your second point, rotation can indeed be counter-productive, but it is often voluntary and not due to injury. Some clubs (like Chelsea under the 'Tinkerman') seem to use it in an attempt to keep big egos happy, while players like Ulloa looked eager to make an impact for Leicester when they got the chance. Maybe Ranieri is older and wiser now, or it could be luck again in that he didn't have as many options to 'tinker' with!
(Having seen Wasilewski play in the cup I think they'd be glad they didn't need him in the league!)

[Igor Belanov]

I'd add as well that some wealthier clubs make bad use of their 25-man squads, having much too many players in certain positions. I'd argue that Arsenal's midfield glut and attacking dearth is an example, Man City and Everton's weak defences, etc.

[smoth]

Chris, it's skill and luck.

You - and your much loved ex table tennis guy - like to find "the" important factor. But with exceptional things it's silly to look for the important one. These things are going to be fairly exceptional in the range of all the factors that really matter.

With top sports people, it's nature and nurture. They're genetically gifted, they train very hard, and they had an environment that helped.

And so, with Leicester, it's luck and skill. They got lucky in a number of ways, but obviously managed the team well too and some of the players are undeniably excellent players.

[Digitalscirocco]

"But then, maybe in saying all this I am following that old habit, of interpreting all events as corroboration of my prior beliefs."

Wonderful read - my head is still spinning.

Thanks!