Here's what business can learn from football

Moses Dyer of NZ contests possession with Marcus Maier of Austria, in a warmup match before the Under 20 FIFA World Cup. Photo / Jason Oxenham

Opinion

As we play host to the biggest football tournament ever to hit these shores, Massey University Economics Professor Christoph Schumacher and Masters student Nigel Espie have a look at what football can teach business.

The Under 20 FIFA World Cup is coming to New Zealand this week. Kiwis will be among some 170 million viewers who are expected to tune in, offering our nation a small reprieve from football's oval-ball counterpart. But the event not only gives New Zealanders the chance to admire the football masterclass on display, but also the opportunity to garner some valuable business insights.

Economists often use sports as a testing ground for business ideas. In many ways sporting competitions are a condensed version of business: highly competitive and skilled people competing for big money. So it is not surprising that football and business have striking parallels that can be better understood through the rich vein of data the sport provides. This short series looks at what businesses can learn from the beautiful game.

Part 1: Scoring first and responding to change

Unlike basketball or rugby, football is a comparatively low scoring game. While Germany's 7-1 victory over Brazil in last year's FIFA World Cup may make you question this, data collected from professional football matches suggests that the average number of goals scored per match is usually in the range 2.6 to 2.9.

If you look at the previous ten Under 20 FIFA World Cups, this is indeed the case. In total, 1420 goals were scored across 500 matches, so the average number of goals scored per match was 2.8. The low-scoring nature of football matches means that it is crucial for teams to get ahead in the game by scoring first. But how important is this advantage? Specifically, what is the likelihood that the team that scores first goes on to win the game?

The importance of scoring first is not unique to football or even sport in general. In many types of business there are benefits that come with being the first to develop a new product, enter a new market, or approach a new client.

This importance was highlighted by the character John Tuld in the film Margin Call: "There are three ways to make a living in this business: be first, be smarter, or cheat. I don't cheat. And although I like to think we have some pretty smart people here in this room, it sure is a hell of a lot easier to just be first."

Examples of companies that have benefited from 'scoring' first are plentiful. Being first into the smartphone market has seen Apple develop a cult-like following, while Coca-Cola has grown to dominate the soft drink market after it was the first commercial producer of cola in 1886.

Coca-Cola has grown to dominate the soft drink market after it was the first commercial producer of cola in 1886.

There are a couple of explanations to explain why the first-mover advantage exists in business. The economic perspective suggests that the presence of an initial firm in a market creates barriers to entry for subsequent entrants. Meanwhile, behavioural perspectives argue that the first firm in a market can cement itself as the esteemed 'original' product in the minds of consumers.

But let's get back to our football match. If you think that scoring first matters more in a low-scoring match than in a high-scoring match, you would be right. History tells us to expect 2.8 goals in an Under 20 FIFA World Cup match, but it does make a difference if the first goal is scored early in the first half rather than late in the second half.

If you look at the large amount of data available on Under 20 FIFA matches, you will see that if the initial goal is scored in the first half, the expected number of goals scored increases to 3.3. If both teams are scoreless after the first half, the expected number of goals is 2.4. So, as a game unfolds, you need to adjust your expectations of the total number of goals scored.

Businesses also need to adjust their expectations and respond to rapid changes. Books like Innovate or Die capture the harsh reality that markets and industries are constantly changing, and that companies need to change with the times if they want to survive.

This is illustrated by the composition of any stock market index. Compare today's companies to those listed in the index 30 years ago and you will find that the majority of companies are different. Take the Dow Jones Industrial Average as an example - only one-third of the companies that were on the index in 1985 are still there today.

The changing nature of business means companies need to be fluid in their thinking and update their expectations as new information arises.

The changing nature of business means companies need to be fluid in their thinking and update their expectations as new information arises. Just as you would update your expectations for the number of goals that will be scored as a football match unfolds, companies need to constantly update their performance expectations as things change in their operating environment.

This might include revising growth targets with the arrival of new competitors or as changes in consumer preferences alter the size of your market. It might even mean reassessing the prospects for your industry in the face of disruptive technological advancements.

Christoph Schumacher, Professor in Economics and Innovation (left) and Nigel Espie, Masters student at Massey University.

McDonald's is one company that is presently at the crossroads of a swiftly changing industry. With stern competition from the likes of Subway, Taco Bell and Carl's Jr and evolving consumer preferences, McDonald's is currently implementing changes so that its business is consistent with its new understanding of the fast food industry.

The lesson for businesses is simple - being first offers significant advantages. While you can't infer that the probability of winning in business will be the same as for a football match, countless examples suggest that the first mover advantage can be very valuable.

To finish our football analogy, let's see just how important is it for a team to score first. Our analysis suggests it is immensely important. Results from the previous four Under 20 FIFA World Cups show that the team that scored first has won, on average, 71.73 per cent of the time.

Heading into the upcoming Under 20 FIFA competition in New Zealand, the best estimate is that the first scoring team will win about two-thirds of the time. But as the match unfolds and the expectations surrounding the total number of goals updates, then the probability of the first scoring team also winning the game will change accordingly.

The lesson for businesses is simple - being first offers significant advantages. While you can't infer that the probability of winning in business will be the same as for a football match, countless examples suggest that the first mover advantage can be very valuable. If you couple being first with fluid thinking and constantly updating your beliefs, you can create a market position that is the envy of the competition.

Christoph Schumacher is a Professor in Economics and Innovation and Nigel Espie is a Masters student at Massey University.