How to Outthink Your Competition -- with a Lesson from Sports | Rasmus Ankersen | TED

80,760 views

2022-11-15 ・ TED


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How to Outthink Your Competition -- with a Lesson from Sports | Rasmus Ankersen | TED

80,760 views ・ 2022-11-15

TED


Please double-click on the English subtitles below to play the video.

00:04
Do you remember this one?
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(Laughter)
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It's a Nokia 3310.
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Once recognized as the greatest phone ever produced.
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I guess most of you in this room owned one, didn't you?
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Please raise your hand if you owned a 3310.
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Wow, so almost 100 percent market share here.
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(Laughter)
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So you'll remember that it never ran out of battery.
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(Laughter)
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You could play Snake on it.
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(Laughter)
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It was world-famous for being the indestructible phone.
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So in the mobile industry,
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the saying used to go that if someone drops an iPhone,
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the screen breaks.
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If someone drops a Nokia 3310,
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the floor breaks.
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It was unbelievably solid.
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The 3310 embodied exactly what Nokia stood for as a brand:
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resilience, quality and innovation.
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It was products like this one
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that turned Nokia into one of the most successful companies
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on the planet.
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But as you will also remember,
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there is another and a more tragic side to this story.
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Because today, the 3310 rests in peace at the gadget's graveyard.
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It's become a symbol of the collapse of Nokia,
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a company that went from 50 percent global market share
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to three percent in less than five years.
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And it made me think that,
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while we talk a lot about how an organization achieves success,
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maybe we don't talk enough about the psychological challenges
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that often follow success.
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Because if you think about it,
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almost every industry has its own Nokia story.
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Companies that once dominated their industry
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but then somehow completely lost the mojo.
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They all leave us with that million dollar question.
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Why do successful companies actually fail?
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And what could they have done to stay ahead of the pack?
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So I'm going to try and answer that question today,
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not by using traditional management thinking
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but by using an idea from football analytics,
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which I believe explains why many successful companies
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so often hesitate to change until it's too late.
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Before I start, I need to ask a very important question.
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Do we have any Newcastle United supporters in the room?
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Audience: Yeah!
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RA: Yeah, there’s a couple there.
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So, guys, I'm just going to warn you, the next 10 minutes will be painful.
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I know the last 25 years have been painful,
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but don't take this personally.
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This is the stadium of Newcastle United,
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St James' Park.
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Every other week, 50,000 die-hard supporters
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flock to the stadium to watch their team play.
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And instinctively, Newcastle United has all the building blocks
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to become a really successful football club.
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They got a billionaire businessman owner,
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they got a fan base most other clubs would die for.
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03:03
But despite all that,
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Newcastle is also known as the team
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that never really fulfilled its potential.
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03:11
But then a little bit more than five years ago, in 2012,
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the fortune seems to change for Newcastle
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because they sensationally finished fifth in the English Premier League,
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the strongest league in the world.
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That was an amazing achievement.
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All the experts predicted Newcastle to be battling [to] avoid relegation.
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Now they were fifth.
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Inside Newcastle,
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the excitement was bubbling too.
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The management team was convinced this is the start of a new era
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in the football club's history.
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So they decided to reward the head coach and his whole coaching staff
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a historic-long, unbreakable eight-year contract.
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And they really tried to do everything they could to keep the squad together
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for the following season,
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because that's how successful organizations
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are supposed to think, right?
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The following season this happened.
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Newcastle almost relegated.
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They finished 16th,
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and no one had a clue what was going on.
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Because they had the same players,
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they had the same coaching staff,
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they even played in the same stadiums.
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I mean, nothing's changed.
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How could a largely unchanged team go from fifth to 16th
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in less than 12 months?
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I'm going to try and answer that question.
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But first, I’m going to give you a little bit of background.
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Because in football, there’s a good old expression
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that's frequently used by coaches,
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players, commentators, experts.
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It goes like this:
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the league table never lies.
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It kind of assumes that once the last game of a season is played,
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justice prevails.
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The team that finishes top of the table is the best-performing team,
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and the teams that relegate are the worst-performing teams.
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04:54
At the end of the day, everyone gets what they deserve.
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04:57
It's not that simple, actually.
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04:59
And let me explain why.
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05:01
Please meet Matthew Benham.
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He's a gambler.
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He convinced me the brightest guys in football
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don't work for the football clubs.
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They work in the gambling industry.
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05:12
And I’m not talking about the amateur gambler,
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the guy that is placing a bet every Saturday morning
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to trigger his weekly rush of adrenaline.
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05:21
I'm talking about the pros,
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the guys that are using sophisticated mathematical models to place the bets.
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That's the brightest guys, and Matthew is one of them.
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He's an Oxford graduate in physics
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that decided to set up his own betting syndicate in North London,
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basically an office full of PhD statisticians
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calculating the probabilities for the outcome of football games.
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That has made him a rich man.
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So rich, he decided to buy the football club
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he supported since he was a teenager:
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Brentford in West London.
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And that's where I met him five years ago,
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at Jersey Road, the training ground of Brentford.
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At the time we met, Brentford was third in League One,
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06:02
which is the third tier of English football.
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There was only five games remaining of the season,
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and Brentford was pushing for a promotion.
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So I said to Matthew,
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"What do you think?
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Are you going to promote this season and what does your gut feel say?"
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He gave me an answer I didn't quite expect.
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It was not an answer full of excitement.
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The guy just looked at me and then he said, very dry,
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“Well, at the moment there’s a 42 percent chance we’ll promote.”
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That comment made me realize that I met someone
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who thought completely different about the game than I ever met before.
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Over the next couple of months,
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Matthew and I started to meet regularly to exchange ideas
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about how you could run a football club differently.
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In particular,
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how would it be possible to break the correlation
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between spending and results that seems to exist?
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Is it possible to not outspend but outthink the competition
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by using the weapons of a gambler, data and analytics?
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07:01
One day we had lunch at a restaurant together
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in Soho in London,
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and Matthew said to me he'd been looking to buy another football club.
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And I immediately responded, "Why don't you take a look at the club
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I supported when I was a teenager,"
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FC Midtjylland,
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based in the western rural Denmark, in the middle of nowhere.
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Midtjylland was almost broke at the time,
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so it was a perfect place to start testing radical ideas.
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A week later, we flew to Denmark, and we had a look at the club.
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Eventually, he decided to buy the club.
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He made me the chairman of the club,
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and we've run the club together for the past four years.
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In the first season, we won the first championship in the club’s history,
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and a year later we became world-famous
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because we beat the mighty Manchester United
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in the Europa League.
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Unfortunately, in the UK, that's more perceived
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as the absolute embarrassment of Manchester United
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than the genius of Midtjylland,
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but we will live with that.
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(Laughter)
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Suddenly, media, newspapers, TV stations from all the world
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were flying to western Denmark to learn more about this little club
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no one can pronounce the name of,
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which is run by an English gambler
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using data and analytics to find a competitive edge.
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So here's the thing.
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If you want to understand how a gambler thinks,
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there’s one concept you must get, it’s this:
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the league table always lies.
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Why is a gambler saying that?
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Because he understands football is a very random game.
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It's a much more random game than basketball, for example.
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Why is that?
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Because football is a low-scoring sport.
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There's not a lot of goals in football.
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No, the average number of goals in a football game is 2.8.
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The average number of goals in a basketball games is above 200.
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Here's the principle.
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The fewer goals there is in a sport,
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the more impact random events have.
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09:00
Random events like the ball getting deflected and spins into the net,
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or the referee making a wrong call in the last minute of the game.
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Ultimately, this means that the best team wins less often in football,
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a low scoring-sport,
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than in a high-scoring sport like basketball.
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And that's why the league table lies.
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It lies more after ten games than after 20 games.
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But even 38 games, that is a full season,
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38 games is a very small sample size.
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You know, not enough to strip out the randomness from the equation.
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So a gambler is in the business of making predictions
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and backing those predictions with his bets.
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And when he decides to back a team and place a bet,
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he doesn't look at where that team is in the league table.
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He looks at underlying performance indicators
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that have more predictive value,
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tells him more about where that team is likely to go in the future
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than its current league table position.
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So let's go back to Newcastle's glory season
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when they finished fifth
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and revisit that through the lens of a gambler.
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Because whereas experts in the game
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were overly impressed by Newcastle's performance,
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the gamblers were very skeptical.
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Their analysis showed that this was a fragile bubble
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that could burst any time.
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Here's why.
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One of the statistics a gambler trusts a lot
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is the statistic called goal difference.
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It's the difference between the number of goals a team scores
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versus the number of goals the opponent scores.
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It's a very reliable indicator for a team's strength.
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So let's look at that.
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Newcastle finished fifth
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with a total shot differential of plus-five.
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A long way behind the four top teams.
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And if you look at that column, it's by far the lowest number.
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This indicates what a gambler calls
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an extremely effective goal distribution
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All goes in football are important.
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Not all goals are equally important.
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So here's an example.
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Let's say Newcastle scores two goals over two games
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and the opponent scores six goals.
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Newcastle will be better off winning 1-0 in the first game,
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losing 6-1 in the second,
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rather than losing twice 3-1.
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Same goal difference but different number of points.
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So if a team is able to produce,
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concede a number of goals throughout the season,
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how effective those scores follow the goal distribution,
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there's a big degree of randomness to that.
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And if you break down Newcastle's 65 points this season,
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you’ll see that it was driven by a very effective goal distribution:
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eight wins with one goal
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and three major losses with more than three goals.
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It's very unlikely statistically
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to be able to repeat 65 points with a plus five goal difference.
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Another statistic a gambler trusts
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is something called shot differential:
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the difference between the number of shots a team produces
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versus the number of shots the opponent produces.
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It's statistically very well-documented in football
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that the best team over time produces more shots than the worst teams.
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So let's have a look at that.
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And as you can see,
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Newcastle finished fifth with a total shot differential of -1.4.
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Clearly they don't belong in this company.
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This indicates unsustainably high conversion rate.
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When you have a positive goal difference
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driven by a negative shot differential,
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it indicates unsustainably high conversion rates.
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How many of those shots were converted to goals?
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And Newcastle had especially one player this season
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who stood out, Cisse, their top scorer.
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A key component of their success.
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He converted 33 percent of his shots.
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Ladies and gentlemen, that's a freaky number.
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Here is how I would put it.
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Newcastle's fifth place is the equivalent
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of a publicly traded company
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having a very high share price
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and a very low customer satisfaction at the same time.
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You can have that for one year,
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but you can't maintain that over time.
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Here's a visualization of how a gambler perceived the situation.
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The black line shows the number of points Newcastle achieved
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throughout those two seasons
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when they were fifth and when there were 16th.
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The red line is the underlying performance,
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what a gambler calls expected points.
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So as you can see,
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Newcastle got a lot more points in the first season
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when they finished fifth,
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than the underlying performance justified.
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Actually, Newcastle performed almost the same way in those two seasons.
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They just got less lucky.
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And this reframes the original question.
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Because why did Newcastle’s management team not see this downturn coming?
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Why did they decide to reward the head coach with a historic, long,
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unbreakable contract
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when the results were clearly unsustainable?
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I believe that Newcastle was blinded
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by one the most common management delusions,
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what psychologists call outcome bias.
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The assumption that good results
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are always the consequence of good decisions
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and superior performance.
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Or, let’s put it in another way:
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success turns luck into genius.
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And this is where the message becomes about much more
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than just football analytics, right?
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Because when an organization fails,
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it becomes very natural for us to dig for reasons,
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to ask the tough questions.
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Why did we fail?
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How can we do things better?
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But when we are successful, we don't ask those questions.
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We tend to just cruise on blinded by outcome bias.
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We expect results to continue automatically.
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We don’t dig into them and ask,
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“What was actually the underlying reason for the success?”
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Was it because of the oil price?
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Was it because of good leadership
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or because of exceptional market conditions?
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How many companies do you think confuse good leadership
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with good market conditions?
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Here's the thing.
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Successful organizations should think more like a good gambler.
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Because a good gambler has trained his brain
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to resist the human tendency
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to assume that good outcomes always mean that someone acted brilliantly.
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A good gambler treats success with the same skepticism
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as he treats failure.
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And this is what successful organizations should do too,
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if they want to stay relevant:
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ask themselves the questions of a gambler.
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Why were we actually successful?
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How do we separate luck from skill?
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Is it possible that our league table sometimes lied too?
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Thank you very much.
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