The Triad Perspective
     


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Command and Control, or Divide and Conquer?

I once was a Los Angeles Rams fan--oh, wait--I just remembered, they're back in Los Angeles, so yes, I'm once again a loyal Rams fan.  Sorry Saint Louis, but we donated the Rams to you for 21 seasons--that's long enough.  While the Rams were in their Midwest exile, I didn't spend too much time watching them, or NFL football at all.
 
My Rams came to mind as I recently read a story in the Wall Street Journal about pro football coaching philosophies.  I saw a connection between the way successful football teams and successful businesses are managed. 
 
First, for the non-sports fan, a little background.  Like the world of big business, coaching a professional sports team has gotten rather complex, with specialization taken to an extreme.  The average NFL team now has a Head Coach plus 15 assistant coaches, including separate coaches for offense, defense, quarterbacks, special teams, quarterbacks, linebackers, secondary, etc.
 
Coaching philosophies generally can be divided into two camps.  Camp one, let's call them the Command and Control camp.  The Head Coach under this style retains significant game control, determining the offensive and defensive strategies, calling some or all plays during the game, and impacting many aspects of game-day strategies and tactics.


 
Camp two is the Delegate camp.  These Head Coaches are involved in devising overall game strategy, but delegate major decisions--such as offensive and defensive strategies, and even individual plays, to their assistant coaches.  Head Coaches willing to delegate major decision-making have a few key considerations.  First, they need to hire good people who can learn and implement the overall team strategy.  Second, they must be able to trust these coaches to make good decisions and avoid the temptation to micromanage and second-guess them.
 
My take is that the Delegate camp has the edge in this contest.  Example?  Bill Parcells, a Hall of Fame football coach, was promoted from Defensive Coordinator to Head Coach of the New York Giants in 1983.  He continued to call the defensive plays during games.  He might have told himself " hey, I'm a former defensive coordinator, I can do this."  The Giants won 3 games, lost 12 (and tied 1) that year.  Oh well.
 
As he reached his third season (which he may not have in today's short-term focused NFL), Parcells decided he needed to delegate the defensive play-calling duties.  He did so, to a fellow named Bill Belichick.  Parcells did both things well.  He hired well--an understatement, as Belichick later earned 5 Super Bowl rings as head coach of the New England Patriots.  Most importantly, Parcells got out of the way and let him do his job. The next year, the Giants won the Super Bowl. 
 
It turns out most successful NFL teams today have a Head Coach who has adopted a Chief Executive Officer (CEO) approach, letting their offensive and defensive coaches make the play-calling decisions.  These guys--sorry it's all guys so far--are the experts and can do a far better job in these specialized areas.  It's just too much for a Head Coach to try to absorb all the data and make quick decisions during a game.
 
We've observed this phenomenon in the world of business and investing.  Most successful businesses get to a point where the complexity requires the CEO to relinquish authority to his or her "assistant coaches", whether it be the President, Chief Operating Officer, Chief Marketing Officer, Chief Financial Officer, Senior Vice-Presidents or Vice-Presidents.  And it doesn't stop with the executives.  Well-run, modern corporations, much like modern sports teams, are complicated systems that can be difficult for one person to manage effectively. 
 
When we analyze a business for investment, assessing the management team is part of our process.  Understanding the decision-making process and level of delegation can be important to evaluating management's ability to operate effectively and grow the business.  Especially in today's world where many companies aren't making widgets in a factory but are in service-oriented businesses, giving authority to employees interacting with customers can be the critical difference between ruling the road or being "road-kill."  These traits don't usually appear in the "numbers" but they're important nonetheless.
 
As for my Rams, I hope they can channel the successes of the Giants of the past and other "Delegate" teams as they attempt to win more than four measly games this season!  I'll be watching.

-John Heldman, CFA


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