"Moneyball" changed the game of baseball. Billy Beane did not invent sabermetrics or introduce the advanced use of statistical analysis to evaluate talent, but by fully embracing analytics to shape his team, the Oakland A's achieved extraordinary results. During the Moneyball years, the A's spent less money per win than any other team in Major League Baseball. In other words, the A's organization had the most productive workforce in their industry.
Analytics enabled Oakland A's executives to understand that on-base percentage (OBP) was, at the time, an undervalued statistic, though it proved critical to the team's ability to score runs. With limited resources, they would strategically invest in players strong in OBP to score enough runs to meet their goal of getting a certain number of wins. How does one apply this to everyday businesses?
Human resources executives refer to a statistic like OBP as a key performance indicator (KPI). Unfortunately, KPIs are not the same for every business. In 2004, the government of the United Kingdom established an "Accounting for People" task force to establish a standard set of human capital metrics to be published in public companies' financial reports. They hoped to establish the OBPs of the business world. It didn't work. The task force was unable to determine which metrics should be reported out to shareholders and how to establish metric validity and reliability. In baseball, every hitter steps up to the same plate and every pitcher steps up to the same mound. But in the business world, every industry, competitive set, and business plays a unique game.
A company's KPIs can vary from year to year, just like the A's. Diehard baseball fans may have noticed that a high OBP is no longer that prevalent a strength of the A's club. Why? Because other general managers in baseball saw the value in OBP when the A's used it to their advantage and invested accordingly, inflating the value of OBP. The A's now have a team built on speed, a trait found to be overvalued during the Moneyball years that is now undervalued in the baseball marketplace. The A's philosophy for investing in talent is similar to one used by Warren Buffett to invest in stocks: do not go after the hot item of the day, but instead invest your equity in people/stocks undervalued by the market.
This show us that business strategies are not set in stone. Metrics have to be tailored to an organization's business strategy, economic and competitive climate, and talent management priorities. Industries like healthcare and hospitality involve huge workforces that typically have high turnover—using analytics to understand the scope of attrition and identifying its root causes can be critical to the business. But with a company that is growing into new markets, cutting back on costs, or working in a difficult economy when unemployment is high, the strategy can be completely altered. And while every organization's number one metric should be different, there are groups of metrics that a business's HR leaders should be looking at. Those are:
- Core workforce facts: Metrics like full-time employees (FTEs), workforce age profile, and terminations provide a basic understanding of the workforce.
- Financial workforce metrics: Every CFO wants to talk to HR about models that quantify the financial impact of the workforce. Metrics might include operating revenue per FTE, operating profit per FTE, return on human capital investment, and cost of turnover.
- Productivity and performance: Look at metrics like workforce productivity and executive compensation to maximize performance.
- Talent development and succession: Measure leadership quality and the staffing rates of high performers and low performers to ensure that quality leaders are always in charge.
- Human capital risk: Succession risk (the absence of ready-now successors), staffing shortages in critical roles, and current-versus-future competency gaps are just a few measures of this.
While baseball produces large quantities of statistics, most businesses produce even more. The huge volumes of data pertaining to a company's sales, costs, strategic business objectives, and evolving (and in some cases global) workforce must be analyzed and applied correctly to realize a competitive advantage like the one the Oakland A's had during the Moneyball years.
Traditional technology infrastructure isn't good enough to capture this large amount of data, compute the analytics, and present information that is useful to one's business. Advanced business execution solutions in the cloud are essential to offering managers real-time analytics that ensure data integrity, comprehensive analysis, and predictive modeling. The cloud is the field where workforce analytics is played. I would encourage you and your business to get in the game.
Peter Howes is the vice president of workforce planning and analytics for SuccessFactors, an SAP company. SuccessFactors is a provider of cloud-based Business Execution Software, and delivers business alignment, team execution, people performance, and learning management solutions to organizations in more than 60 industries.