Lever design is a method for developing competitive advantage with limited resources.
Michael Lewis published an entertaining and educational account of how the Oakland Athletics in the early naughts led an economic revolution in how teams in the Major League baseball assessed the value of their players, built their teams and planned their ascent into the playoffs.
After losing the penant race to the Yankees in 2001 and three of their top players to free agency, the Athletics, under manager Billy Beane, faced the rather stiff challenge of rebuilding the club without an adequate budget to compete with richer teams for talent.
The first step in designing a lever is to set a compelling objective.
In any athletic contest, there is always a trophy to win, which comes with the lucrative and coveted payout of pride and profit. Victory one season accumulates as a competitive advantage in successive years. Winning the World Series requires winning the National or American league penant, which requires getting into the playoffs, which requires a certain number of wins and a certain number of runs for and against. These statistics and probabilities are well known by the managers of each team. The objective is clear and well understood by everyone. Less obvious are the strategies available to compete against teams with formidable positions of strength.
The conventional strategy at that time in baseball history was to buy the trophy by buying the "best" talent, based on an accepted convention of what the "best" meant. Performance statistics, like batting average, homeruns, runs-batted-in, were the foundational assumptions that drove the market for offensive players. But that was a battle of budgets and an expensive lever only available to well-funded teams.
The second step in designing a lever is to identify the chokepoint.
A chokepoint is the place in a workflow or process that is most constricted or limited. This where innovation lives. Wherever there is a chokepoint there is a possible lever. The Oakland Athletics were a relatively poor team. They lacked the money to pay premium salaries and did not have the resources to compete for talent against the better funded teams. This chokepoint was the primary obstacle to achieving the objective of making a viable run for the Big Trophy.
The third step in designing a lever is to understand which needle to move.
The Athletics needed to generate 169 net runs (814 runs for while not allowing more than 645 runs against) to make it into the playoffs (the playoffs are more of a wildcard). This number is the transposition of winning the American League penant into a performance context that expressed the best chance of achieving the big goal.
The choke point and real problem was a lack of funding to buy top talent. At that time in 2002, Oakland had a $41M payroll budget (compared to the Yankees' $125M payroll). The primary objective may be further transposed into more economic terms by relating payroll and net runs. To have the best shot at winning the Penant with their limited budget, the Athletics had to generate each net run for les than $243,000 (compared to $740K per net run for the yankees). The leading indicator for a cash strapped team seeking the penant is different than one with lots of cash.
The expression of the primary objective in practical performance-minded and economic terms primes the strategic thinking engine to do two things. The first is seeing the leading indicator with the most leverage.
Conventional thinking held that homeruns or RBIs were the best leading indicators of generating runs but this is not the only way because it did not account for getting walked to first base. It also did not account for the defensive contribution of limiting runs against. This lead to the insight that on base percentage was a better leading indicator of a player's offensive contribution to net runs.
The fourth step in designing a lever is to look for unconventional value.
Operating levers are effective competitive strategies that, like any innovation, always seem obvious in retrospect. They are difficult to see looking forward through the haze of the future and noise of the present. A compelling objective, a clear chokepoint and a counterintuitive key performance indicator prime the process for the final creative leap.
The moneyball operating thesis was that a player with a higher base percentage was more useful than one with a higher batting average or number of homeruns or RBIs because it included getting walked to first base. OBP was a less sexy and less obvious measure of a player's value in creating net runs. The second insight was the relatively straightfoward jump in logic to find lower priced players who were judged to be defective based on the conventions of the day but not relative to their capacity to get on base. The metric was to reduce the $/net run. If the player had a low salary expection but was adept at getting on base, they made for a good choice (assuming other important things were true like defensive play, contrbution to team spirit and other factors). This was the operating lever for recruiting a roster of affordable players with a hhigh probability of winning a penant. And they did very well that season.