Moneyball: How to gain a competitive advantage by tapping into undervalued talent
Several years ago I read a book that challenged my thinking about organisational performance and talent management. Notionally, it is a book about baseball and statistics, but its lessons extend to almost every aspect of the business world. So even if, like many people, you have no interest in baseball and a loathing for or innate fear of statistics, please do persevere with this article as it is going somewhere! In the book, Moneyball: The Art of Winning an Unfair Game (also to be released as a motion picture late in 2011 starring Brad Pitt), author Michael Lewis set about finding an answer to the question "How do the Oakland Athletics (the A's) consistently make the Major League Baseball (MLB) playoffs despite having a payroll substantially less than most other teams?".
For example, in 2002 the A's were spending $US41 million on player salaries compared with power house team the New York Yankees whose payroll was around $US125 million for the season. How could Oakland even be competitive let alone successful when they seemingly had such an inherent disadvantage?
Lewis discovered that Oakland had turned to Ivy League college educated statisticians (or sabermetricians, as baseball statisticians are known) who had identified the most important factors associated with winning a game of baseball, such as having players with a high 'on-base percentage'. Many of the statistics which the A's found to be predictors of success were dismissed or simply not utilised by other clubs. Oakland also found that many of the traditional statistics which baseball coaches, talent scouts, players and fans relied upon were in fact of limited value (e.g. 'runs batted in').
Lewis' premise at the time was that the identification and selection of talent across MLB was often subjective, flawed and based upon outdated thinking from within the insular baseball fraternity. Talent scouts tended to have a fixed idea of the typical attributes of a talented baseball prospect. This led them to overvalue players who looked the part (i.e. tall players with an athletic physique) and who measured up well against traditional baseball statistics, while they undervalued or overlooked those who didn't fit the stereotypical mould. It took a group of outsiders to the industry to look for, identify and utilise contemporary knowledge about high performance in baseball.
Oakland was able to exploit its use of statistical analysis and understanding of the drivers of success in baseball to give it a competitive advantage over other teams in recruiting and retaining players within its payroll constraints. For example, they would often select players late in the draft who went on to over-achieve relative to expectations. The A's would also frequently cheaply acquire experienced MLB players who were undervalued by their clubs and trade their own players whom the market overvalued, thereby collecting a cash windfall whilst maintaining a competitive playing roster. So Oakland were able to remain highly competitive despite spending much less on player payments than other MLB teams.
So what are the potential applications of Moneyball to organisations?
Firstly, the question should be asked in each organisation "Do we know the main capabilities, attributes or activities which actually drive our success?". If the answer is "no" then you have some work to get started on.
Next, once organisations know their success drivers they need to ensure that their recruitment and talent identification processes consistently utilise this information rather than primarily hiring and promoting people who fit the 'traditional' mould.
Finally, organisations should identify undervalued and overvalued talent (i.e. performance relative to salary) and utilise the information to gain an advantage over their competitors and/or to get more out of their talent budget. While the specifics of undervalued talent will likely differ for each company, my hypothesis is that there is a rich source of undervalued talent in almost every industry – those people who do not fit the exact profile of the traditional 'ideal' candidate for a position.
For example, a person may have less years of experience than desired by the hiring manager or they may have come from a different industry to that of the employer and are therefore overlooked or never considered for the position despite the fact they would have been able to perform to a high standard in the job. When the selection criteria for a role are defined too narrowly, inevitably talented people who don't fit the traditional mould are screened out.
Conversely, those candidates who do very closely match the profile of a typical person in a given role in terms of years of experience and industry specific experience may tend to be overvalued in the market, inflating salaries and driving labour market churn.
So, the talent management applications of Moneyball are clear. In today's highly competitive labour market with most employers identifying skill shortages as adversely impacting on their growth and profitability there is a large opportunity for organisations to challenge conventional wisdom, identify the true drivers of success within their business and to exploit imperfect labour markets by identifying and sourcing undervalued talent.
Where do you think the undervalued talent lies and how can your organisation use it to their advantage?
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AuthorStav Avramakis
CategoriesSports, Talent
TagsMoneyball, talent