I hope this letter finds you well and at least to some degree, resonates with you. I’m aware that the thoughts of a basement-dwelling Canucks fan are unlikely to heavily influence your decision-making process, and moreover, as a member of the “media”, I’m a part of the group you’re often told to ignore.
In our blog’s last communication with you, Money Puck warned of the “little things” Jim and his team had a habit of committing. You’ll notice that after you didn’t listen, he took the liberty of joining the Florida Panthers’ hockey operations department and separating you from a prospect and a second-round draft pick.
Money Puck identified early symptoms of a woefully inadequate process. Today, going through evidence of this inadequate process would take even more time than this letter cares to commit. I think it’s best to instead ask how the organization needs to develop itself to make good decisions. Laying these cultural and structural tracks builds a road map to good thinking and enables long-term outperformance. It’s the primary job of the general manager, and one I fear your organization has woefully neglected.
It’s become a myth in a post-Moneyball age that a single insight can build a long-term competitive advantage. In reality, the roots of a well-functioning hockey operation are formed through marginal improvements in every facet of the organization. This is a massive undertaking, and it’s one that requires a leadership group well-versed in economics, cognitive science, technology, human performance, and organizational science. It requires analyzing the trade-off between centralizing and decentralizing various processes, and it requires off-ice personnel with intrapersonal relationships that simultaneously enable healthy disagreement and a commitment to a shared vision.
You don’t need me to tell you that your team’s value has stagnated significantly over the past seven years. The future of your investment depends on adopting a new approach and rebuilding the Canucks brand in the eyes of your customers. Everything I lay out here can be directly communicated to key stakeholders without inviting intense competitive pressure. Moreover, doing so allows you to match the marketing of your organization with the team’s strategic direction to unlock significant value. Not only will you have a strong on-ice product, you’ll have an enterprise with an enviable competitive position. With that said, here we go…
1. Be contrarian
Charlie Munger quips that mimicking the herd invites regression to the mean. Average processes create average results. In the NHL, asset values are set by 31 GMs in a market-like system. This system is powerful, and by design incorporates multiple perspectives to form a generally well-rounded evaluation of an asset.
But the herd makes mistakes. Most notably, when market agents all follow the same process in their assessment of a player, important drivers are left out of the equation. Those with a willingness to look for insights the market has ignored can harvest significant asset value.
This concept overlaps with your work as an investor. There are two important facts every active investor needs to consider before a big decision. Number one, how much a business is worth and number two, how much the market thinks a business is worth. This, almost by definition, requires differentiated thinking. If a company’s exceptional long-term prospects are obvious, then the price reflects that fact.
Put bluntly, in investing or hockey, you can’t do the same thing everybody else is doing and expect superior results. The fact that most of what the NHL knows is dead wrong makes this much easier. Players are consistently valued on attributes that don’t impact their on-ice play, and executives are hired on the basis of friendships with media members. The low-hanging fruit can be captured through a willingness to be misunderstood and look where nobody else is willing to go. How do you arrive there? Well….
2. Embrace disruption – pursue lifelong learning and regularly destroy your favourite ideas
Lifelong learning is the engine of a well-functioning hockey operation. It builds underappreciated insights, creates more effective and relatable leaders, and helps coordinate proper technology implementation (more on that later). The only way to get to constant learning is through humility. It’s through the recognition that there is some piece of information or framework you’re missing that could make things better. It’s a rare trait, and one that needs to be celebrated, not ridiculed.
Normalize idea destruction in your operation. The more frequently you can prove the old way of doing things is misguided, the higher number of superior insights you can generate. In a copycat league, building an organizational culture that embraces and internalizes innovation ensures always staying one step ahead. The next noted inefficiency or underappreciated insight only comes through constant learning. It only comes through the humility to go out and find what you don’t know.
3. Build around a strong technology strategy
Implicitly, your front office is in the business of making predictions — predictions that go beyond guessing future player value. Which scouting regions should you most likely cover? Who will matchup best against another team’s top star? Which human performance initiatives may yield the highest return on your investment?
Prediction-problems exist everywhere, and the digital age offers a plethora of new solutions. There’s a reason large corporations are increasingly going direct-to-consumer (think Disney +, Nike’s shift to omnichannel etc etc), these platforms enable larger-scale data collection and improved predictions of customer demands. Executives in these industries are also beginning to recognize a simple truth: the advantage in a data-driven approach isn’t derived from simply adopting data, it’s from developing superior processes that start with the data.
To this end, there are several myths that underpin data utilization. In hockey, the most common of which claims that well-versed experts can significantly outperform algorithms. It’s an idea which inherently contradicts itself, because the conditions that lead to strong expertise development also create algorithmic outperformance.
To start with, let’s think about expertise itself. The late Anders Ericsson wrote about experts for decades, with his studies ranging from classical musicians to professional athletes. Ericsson viewed the intensity and deliberation of practice as the most important predictive variables for future success. He noted that experts practiced precisely at the edge of their circles of competence, sought to break down specific skills, and looked to coaches for immediate feedback. To borrow from Nassim Taleb, this method tapped the “antifragility” (the ability to gain from disorder) equipped in humans. Resulting pattern-matching abilities developed, which reverted expertise to a series of “if” statements. If x, execute y. If t, execute z.
Then came two psychologists, Danny Kahneman and Gary Klein, each of whom arrives from diametrically opposed camps on the utility of expertise. Klein noticed that expert firemen could identify a potential building collapse with just intuition, while Kahneman claimed that experts consistently underperformed in areas like geopolitical forecasts.
They teamed up, and their studies concluded that experts only added value when the conditions for deliberate practice exist. There’s lots of clear feedback. There are clear correlations. The objective is obvious.
These clear correlations make expert intuition powerful, but as the famous chess match between Gary Kasparov and Deep Blue demonstrated, algorithms can perform far more effectively in these domains than humans. They lack our biases on a subconscious level. They’re able to train off a larger dataset in a smaller time frame. They can ignore outside noise.
So where do people come into play?
There’s plenty of signal outside the data. Hockey is, after all, a complex game, and there are times at which correlations are very very unclear. When a Russian player comes to an entirely new environment, is he going to be Nikita Tryamkin or Nikita Kucherov? When an immature, highly skilled player jumps from junior, is he going to mature while equipped with a high-salary and a new level of independence?
To properly answer these complex questions we need to think from first principals. We start with the most basic truth we know: hockey is a game in which you must outscore your opponents, and work from there. The key question is always: will this piece of qualitative information enhance our ability to predict that end?
This is why we should adopt “evidence-based” decision-making as opposed to “data-driven” or “analytics-based”. Look at a problem, identify (objectively) if the data can add value, start with the data-point, and then add the relevant qualitative information. Don’t use data to confirm predispositions, rather, make it integral to the decision-making process. If the data is wrong, be readily equipped with concrete evidence supporting the contrary. Be mindful of our innate tendency to avoid algorithms, and always think backwards.
4. Reset leadership – lead with context, not control
The goal of leadership isn’t to have all the answers. It is not to be an omnipotent hockey-man able to identify top-tier talent in a way that the rest of us can only dream of. The goal of leadership is to set the bar for how the organization is expected to think and act. It’s to serve your employees, not to force them to serve you. Dee Hock, the founder of Visa has a quote here that resonates. “If you do not understand that you work for your mislabelled ‘subordinates’ then you know nothing of leadership. You know only tyranny.”
Netflix is a great example of a cultural ideal. The company’s ethos is the subject of so much curiosity that Reed Hastings teamed up with Professor Erin Meyer to write a book on the subject. It’s a great read. Netflix offers unlimited vacations to employees, doesn’t set expense budgets, and radically refuses to keep secrets.
In an entire chapter, Hastings gets to a foundational idea behind all of this: give employees the information they need, and lead with context, not control.
Leading with context means embracing the role of a teacher. It means hiring capable thinkers and building supportive organizational processes. It means that in asking for the justification of an idea, you’re curious and not critical. You don’t claim that an employee is misguided, rather you look for the process that generated their conclusion. If their opinion contradicts yours, so long as they’ve adhered to an adequate process, theirs wins out. It’s the point of decentralization. Build a diverse team with strong thinking processes, and let capable employees generate their own conclusions.
5. Adopt the internal scorecard and think for the long-term
Long-term thinking is a great idea that frequently sees poor implementation. On the one hand, organizations can generate remarkable results by compounding seemingly meaningless pieces of incremental progress daily. On the other, “thinking for the long-term” can become a justification to stay on a sinking ship.
A long-term view means many things. On one side, it means understanding that the type of franchise-shifting players a team needs to contend are often only available at the age of 18. On another, it means recognizing that small daily changes in the organization compound into something greater than the sum of parts.
That compounding effect is powerful and effective. It happens in the off-ice relationships among key decision-makers who see trust and collaboration improve over time. It happens through a consistent willingness to make decisions that inflict short-term pain for a long-term vision. It happens through strong cultural development, where good decisions reinforce the parameters of good process, creating better adherence to that process and subsequently stronger decisions. It happens only by consistently executing against an internal scorecard that measures short-term contributions to a long-term vision. As these processes become habit, over time they build something incredibly challenging for competitors to replicate.
In conclusion, the last seven years have been miserable for all of us. We’ve watched a team with every intention of contending miss the playoffs repeatedly by a country mile. We’ve seen a management team that’s allowed a mass-exodus of talent, including Laurence Gilman, Eric Crawford, Judd Brackett, and possibly now, Travis Green, to walk away.
The youth of this core won’t last forever. It’s time to rethink your front-office and look to build a superior off-ice culture that enables strong decisions and great results. In 2008 you hired Mike Gillis as general manager and demonstrated the type of leadership that’s missing in owners across professional sports. You ignored hockey’s old guard and made a move that saw your franchise richly rewarded over the next half-decade. It leads me to believe you can do it again. Maybe someday, things can be better than they are now, but first, it’s your job to get there.
Best of luck. I’ll be rooting for you,