Triple Bottom Business

Perhaps in the greatest single piece of evidence that I have gone basketball crazy, I realised some hours after posting yesterday that I failed to draw the lines between the effectiveness vs entertainment issues and how it relates to the 'triple bottom line' mentality somewhat ineffectually adopted by business.

Anyway, in the NBA you can simplify the interests of any given match into three stakeholder groups: Your team, their team, the audience.

So your team is simple, you are a coach, team member, manager, owner or fan of one of the teams, say the San Antonio Spurs (the most illustrative team). Your interest is in winning, win-win-win, take home the championship and get the best season record.

Their team is simple, their interests are exactly the same, they want to win too. It's just that they aren't your team, they are the competition.

The audience is different though. These people don't have particularly strong affiliations to a team and overall simply love the game and want to be entertained.

Under the traditional business model, everything relates to a bottom-line, profit. On the assumption that people want to support a team that wins and goes deep into the exciting playoff series, your team would focus on winning.

If that means running a tight zone defence instead of an entertaining box-and-one for some mano-e-mano showdown then that's what you do. If it means sticking your hand in the vision of the player instead of a less reliable but more spectacular volleyball esque spiked block then that's what it means. If it means waiting for open looks instead of driving the lane then that's what it means. If it means layups instead of alley-oops then that's what it means. If it means running a slow tempo on each possession into a stale half court game then that's what it means.

Basically remove all flair in deference to effectiveness. (clearly this is a bogus dilemma, some highly effective manuevres such as the slam dunk with it's highest accuracy percentage are also highly entertaining). Then the team's chances of winning significantly increase, which over a large number of games should return higher profits.

This is the same as a business introducing some highly effective strategy to lock in profits, a good example is loyalty cards, a bad example the recent hikes in transaction fees for using a competitors ATM by banks.

Which is time to look at their team. If they don't adopt the same effective practices they get rolled, this manifests in basketball as the Cleveland Caveliers vs San Antonio Spurs finals series of 2005-06. The Cavs have Lebron that puts in touch-and-go effective superstar performances, that have about a 50:50 chance of resulting in a win, and a 100% of entertaining fans worldwide, such as when he scored the last 35 successive points to beat the Pistons and close out the Eastern Conference playoffs.

The Cavs have gotten better since then, better balanced with one or two decent players in supporting roles to Lebron. But in the Finals the Spurs did what they always do, slow down their teams offence to a snail crawl while Tony Parker or Manu Ginobli shoot holes in their defence.

They swept the best of 7 series and Lebron went home to punch holes in his bathroom wall.

As their fans, you might demand they get their defence working and the efficiency of the offence up. Meaning more sharing between the superstar and other near-no-name players to make the offence less predictable. Instead of the ferocity of Lebron driving the lane and doing vicious dunks, you get Mo Williams shooting a 3-pointer from some corner off an open look.

But happily their team starts winning, and the competition becomes two-sided with both teams following their interests of winning, resulted in the new zero-sum game of both teams being more effective.

So here you get healthy immitation and unhealthy immitation in the business world. When the Airlines introduce loyalty programs, by giving out rewards to consumers for consistently using the same service, they created a cost to switching. If you use a competitor airline, even though it's cheaper you won't be able to accumulate the reward points you would buying a more expensive flight on your regular airline.

This switching cost in turn gives an airline room to raise their prices and subsequently profits. If their competitors (their team) adopt the same effective strategy they recieve the exact same benifits of switching costs which if they didn't would result in them getting rolled by the competition. So in turn they both can increase their effectiveness.

Unhealthy immatation is something like cutting prices, Coles have a sale so Safeway start losing business. Safeway slash their prices in response and so both end up losing money, albeit competing to the new effective standard.

In basketball healthy immatation might be introducing super useful power forwards like Sir Charles, Kevin Garnett and Dirk Nowitzki that have made the role more exciting and entertaining. Unhealthy immitation would be the John Koncack example, where the Atlanta Hawks signed a completely useless bench player for a multi-year $13 million contract making him more 'valuable' than Jordon, Magic Johnson, Hakeem and so fourth at the time. The Atlanta Hawks did it to prevent the Detroit Pistons from poaching John 'Contract' in an act of rampant stupidity that financially ruined them and lead to a league wide inflation of player contracts, making money making that much harder.

So too I would argue that effective play such as Shane Battier's admirable and intelligent though it is would ultimately be a detriment to the spectacle. And of course in the above examples from both Basketball and Business, the 'triple' in triple bottom line has to be the most important interest group - the audience/the consumers/the fans.

If everybody played like the Spurs, then the ultimate loser would be fans, who would switch to a more exciting sport like lawn bowls. If 'champions' and 'superstars' all immatated 'the big fundamental' not even the Onion would give press coverage.

Yes teams would be more effective, but ultimately in their self centered desire to win, the sport andsubsequently teams would lose.

And this works in practice at the NBA. When Michael Jordan staged his third (arguably disasterous) comeback with the Washington Wizards for charity, the Washington Wizards were elevated to playoff contenders, but never really Championship contenders. Furthermore there's n argument to be made that Jordan's presence on the team was to the detriment of the development of the younger players.
But the Washington Wizards lined their pockets with a sold out season or two, tribute events and the general spectacle, such that an 'effective' team with more 'effective' selections of players than an aged Jordan (still better than many star rookies).

The LA Lakers make more money when they have a non-competitive season such as 2005-06 from one arguably 'selfish' superstar in Kobe than teams like the Golden State Warriors (whose superstar Baron Davis was 'reborn' later, then traded to the Clippers to await the third 'rebirth').

One can even goto the business that is AFL where it is clear it is still better to own the Collingwood FC in thier wooden spoon years than the Brisbane Lions in their triple Premiership years. (although this has something to do with a failure of Darwinian natural selection than entertainment).

But the use of flooding tactics of the backline, made teams more effective on defence but where detrimental to the entertainment of the game. So much so that whilst I was happy for Sydney Swans to win their first premiership in 50 years on stoppages, I was even happier for them to taste the bitter bitter pill of losing the premiership the next year on stoppages.

The worst Grand Final I have ever seen was Geelong's history making blowout of Port Power. I liked the outcome, but it just was not worth watching any of the second half, and arguably even the second quarter onwards. Geelong fans loved it, but that was it. Hawthorns victory last year over Geelong was better, being both more entertaining and a closer contest.

In business, when the Banks all hike their transaction fees on competitor ATMs it is win-win-lose. Win for bank, win for competitors, deadweight loss for consumers, who either lose their money, or lose the convenience of using whatever ATM is at hand.

This ultimately must then be, the role of regulatory bodies, to block effective policy that harms the community. The NBA should somehow come up with rules that leave the alley-oop effective whilst preventing 'the fundamentals' that make Tim Duncan a superstar. After the 05-06 finals, the NBA should have looked at the ratings and said 'we need to take evey measure we can to make sure this never happens again' even if all they could come up with is introducing the 'No-Tim-Duncan' rules.

Just as the government should regulate that a bank can't charge transaction fees on transactions that cost them virtually nothing, or regulate that the profit margin can't be greater than 100% (which would result in 5c transaction fees) since banks just send electronic messages to eachother over secure lines. It doesn't cost me 5c to send an email. The banks have economy of scale on their side, and automation!

so that took longer than I thought, but that's the real lesson from Basketball. Winning really isn't everything. Or as my father is prone to saying 'you can win by so much you end up losing'.