Download Play Ball: Baseball Strategies that Empower Executives to Win the

Play Ball: Baseball Strategies that
Empower Executives to Win
the Human Resources Game
By Alan D. Leib
The biggest challenge for the general manager of
any Major League baseball team is to figure out
which players to acquire, given payroll constraints
imposed by management (except maybe for the
Yankees), to give the team the best chance to win.
For years, team management has used statistical
data (i.e. “metrics”) as a vital tool for use in
making multi-million dollar personnel decisions.
Baseball team managers and player agents
commonly use statistics to compare and
benchmark players as part of determining market
value.
Unquestionably, the inflated egos of many
baseball owners continue to drive players’ salaries
to astronomical levels. However, in recent years
several teams such as the Oakland Athletics,
Anaheim Angels and Florida Marlins have been
able to achieve extraordinary success on the field
with very limited payrolls. As chronicled in
Michael Lewis’ best selling book “Moneyball,” a
new breed of computer savvy Major League
Baseball general mangers have developed
methodologies to find the “hidden gems”—those
sometimes obscure players that actually contribute
to achieving the most wins.
Analysis models have been developed which
crunch statistical information and enable
management to target players that have the skills
that impact wins. A player may hit for a good
batting average, but does he perform well in
“clutch” situations or is he a liability in the
outfield?
Clearly, a pitcher has a
disproportionately dramatic impact on the number
of wins or losses than other positions. The
powerful impact of these decision models has
dramatically increased the power and influence of
executives who understand how to use those tools
_________________________________________________
Alan D. Leib is a member of the Chicago law firm of
Horwood Marcus & Berk Chartered where he represents
closely held businesses. Mr. Leib is also a
Certified Public Accountant.
and gotten them to the table in making vitally
important personnel decisions.
As outlined below, key concepts used by cuttingedge baseball franchises for making enlightened
player personnel decisions provide useful
guidance to corporation’s in developing a decision
framework to maximize human resources
investments.
Define your “Win.”
At first blush, the success equation in sports
appears to be pretty simple—win enough games to
make the playoffs and win enough playoff games
to win the championship. However, the Holy
Grail for a sports franchise is not merely to win a
championship, but to create a dynasty. The saga
of the Chicago Bulls is a telling example. With
Michael Jordan on the team, the Bulls won six
championships in eight years. However, after he
and some other key players left the team several
years ago, the Bulls have been not come close to
achieving a consistent level of success.
In order for a business to “win”, business
managers must not only meet short-term financial
goals, but are charged with building long term
shareholder value. A long-term strategic plan
outlines the steps required to attain meaningful
and sustainable growth, profitability and
competitive advantage—attaining these strategic
objectives is the business “win.” Executives must
first and foremost understand what constitutes a
“win” in order to provide management with
suitable metrics to guide resource allocation
decision-making.
Allocating Responsibility for Wins
In baseball, the metric for determining wins is
obvious--scoring more runs then the opponent.
Responsibility for a team’s wins is divided equally
between offense which is responsible for scoring
runs (batting and base running) and defense which
is responsible for preventing the other team from
scoring runs (pitching and fielding). Within the
defense, statistics show that pitching is generally
allocated with 60% to 75% of the defensive
responsibility for wins. Thus, the impact each
group has on achieving a win has been quantified.
Allocating responsibility for business wins,
although much more difficult, follows the same
general process. Each separate strategic objective
must be analyzed in order to determine which
group or groups of talent has the greatest impact in
reaching the objective. For example, strategic
objectives may apply to specific business
processes, business disciplines, etc. After looking
at each individual objective, business managers
can use statistical weighting techniques to quantify
the impact that each identified talent pool has on
achieving an overall corporate “win.”
Using HR Metrics to Field your Team
Like sports statistics, there has been a tremendous
proliferation of HR data and metrics available to
business managers. Unfortunately, like the old
school baseball executives, HR executives and
business managers’ use of these metrics has
generally been limited to benchmarking employee
salary and benefit costs against industry norms.
However, such basic benchmarking is just the
starting point for using metrics. Metrics can be
used to identify crucial skill sets, measure
performance and motivate talent to perform at
high levels to achieve corporate strategic
objectives. Corporate executives are now in a
position to “play ball” by taking a leadership role
in maximizing their company’s talent investment.
Example
Let’s apply these concepts to a hypothetical
company, XYZ Co., a closely held manufacturer
of specialized components. XYZ Co. has $20
million in revenues, profits of $2 million and 400
non-union employees (30 managerial) all at one
location. XYZ Co. has a reputation for good
quality, innovation, on time delivery and customer
service and has a substantial share of the domestic
market for its goods. XYZ Co.’s strategic plan
reveals that the two main drivers for future growth
are (i) penetrating foreign markets and (ii)
continued development of unique engineering
designs for its products.
Historically, XYZ Co. has paid its employees at or
above market based in industry survey data. XYZ
Co. has a discretionary cash bonus plan for
management with distributions based upon
company and individual performance.
The following is a very rudimentary example of
the application of the above- described
methodology in connection with XYZ Co.’s
budgeting process:
1. Assign Positions.
Assign each position
(existing and budgeted) to a “Functional
Talent Group.” Functional Talent Groups
are determined based upon the nature of the
key skills required to successfully perform the
function.
Functional Talent Groups
typically will cut across multiple business
units. XYZ Co. has established the following
nine Functional Talent Groups: Executive
Officers, Management, International, Sales,
Customer
Service,
Technical,
R&D,
Administration and Manufacturing.
2. Identify Starting Pitchers and Make Your
Lineup. Assign each Functional Talent
Group a weighting factor (“Impact Factor”)
on a scale of 1(low) to 5 (high) based upon the
assessment of the degree of impact such group
is projected to have on achieving key strategic
objectives.
3. Set Beginning of Season Payroll. Consistent
with budgetary constraints, allocate base
salary/wages and employee benefit costs to
individual positions (existing and budgeted)
within the Functional Talent Groups based
upon a combination of factors including
existing salary/wage levels, comparable
market data and performance review metrics.
Above-market base salary/wages and benefits
may be needed to attract/retain certain
individuals with high Impact Factors.
4. Establish Programs to Motivate Your Team
to Win. The amount determined in #3 is
subtracted from the projected total amount
available for compensation and benefits
(assuming XYZ Co. achieves its targeted
profit and cash flow for the year) to arrive at
the “Value Pool” amount. The Value Pool
represents the total value of incentive
compensation available for distribution if the
company attains its targeted operating profit
and cash flow. The Value Pool is scaled up or
down (or eliminated) based upon XYZ Co.’s
actual operating results for the year.
XYZ Co. then allocates the Value Pool among
each Functional Talent Group based upon
two weighting factors: seniority (XYZ Co. will
use base salary to approximate seniority) and
Impact Factor.
The aggregate base
salaries/wages for each Functional Talent
Group is multiplied by the Impact Factor for
each Functional Talent Group. The Value
Pool is allocated to each Functional Talent
Group based upon that group’s proportion of
the total weighted salary/wage dollars.
5. Identify and Reward MVP’s. XYZ Co.’s
HR then works with management to craft
vehicles for distributing the Value Pool among
the individuals in each Functional Talent
Group. Each such program incorporates
metrics that capture the success of the
Functional Talent Group in attaining such
group’s benchmarks and the success of each
individual in attaining individual benchmarks.
Such benchmarks map with the company’s
longer-term strategic objectives.
For
example, a meaningful portion of XYZ Co.’s
Executive Functional Talent Group program
incorporates metrics tied to success in
establishing a top notch international team and
the success of product innovation investments.
The Sales group’s program incorporates
metrics that place a premium on establishing
new customer relationships.
The R&D
group’s
program
incorporates
metrics
capturing new product innovation benchmarks.
Conclusion
In summary, corporate executives, like the new
breed of savvy baseball executives, can use
sophisticated tools and metrics to maximize their
company’s return on its talent investment.
Strategic thinking and decision frameworks will
enable executives to help their companies level the
playing field and lead their team to victory for
years to come.