So I was watching football on Sunday night (Tivo is the single best product I have purchased in the last 5 years) and doing some thinking on recruiting metrics and organizational efficiencies, and it struck me that organizations (companies, sports teams, others) should measure their organizational efficiency with respect to talent in a different way. Incidentally, if you are reading this, then you might have an interest in football, and also talent acquisition and talent management, in which case you should also read this article but it's a clear digression from this post (so don't stray too far).
Quarterbacks all have a passer efficiency rating. The algorithm is complex. Too complex, actually, and in that respect it reminds me of recruiting organizations that measure far too many metrics and create unnecessary complexity and unclear direction for the people who are actually doing the work. I'm a huge fan of simplicity when it comes to organizational metrics, as any dilution in the line of sight from the metric to true downstream value creation creates wasteful inefficiencies.
All organizational or company components (like the recruiting department) drive business results in terms of market share, profits, and/or revenue in discrete ways, whether we see or are able to measure the connections or not. Understanding exactly how and getting everyone on the team rowing together is the key to organizational success. Hedgehogs unite.
A quarterback's passing efficiency ratio (ER) is calculated as follows (by the way, the metric is different in college, which brings me quickly back to complexity and the ambiguous HR metrics discussion):
To calculate pass-efficiency ratings points, simply (sic) multiply a passer's yards per attempt by 8.4; add the number obtained by dividing pass completions (PC) by pass attempts (PA), multiplied by 100; add the number obtained by dividing touchdowns by pass attempts, multiplied by 330; and subtract the number obtained by dividing interceptions by pass attempts, multiplied by 200. A passer rating of 100 or better is considered great in the NFL. A rating of 158.3 is perfect in the NFL. However, certain percentages in the NFL are capped, although the same measures are used.
Note: Each bracketed value below is capped at 0.0 (min) to 2.375 (max);
Total = [((100 * PC/PA) – 30.0) * .05] + [((TY/PA) – 3.0) * .25] + [20 * TD/PA] + [2.375 – (25 * I/PA)]
ER = Total / 6.0 * 100
So now you get my first point about complexity. Too many measures and one begins to lose the point.
All of that said, however, what is unique about a standardized passing efficiency ratio is that football fans all know that 100 or better is considered 'good'. Which brings me to the following point: Organizations (companies, sports teams,others) all have a burn rate and and ROI when it comes to people. People, like dollars, are simply a flow through an organization. Some organizations flow quickly, others hardly at all. I met with some folks from Costco last year, and they have nearly a 100% internal promotion rate for filling jobs and low turnover. Low burn rate for sure. ROI? Difficult to measure without more data. One could simply measure revenue and profit per person though, to get an idea over time with how things are shaping up.
So my second point is: should organizations be measured on their 'human capital efficiency ratio'? How fast an organization acquires talent, the quality of the talent, and the acquisition cost, but also how fast the flow is of departing the organization (turnover) but also the quality of the talent that is leaving. What's the flow rate, and is it efficient?
Most organizations measure turnover, cost per hire, internal promotion rate, but they don't measure the flow of talent through the organization, and the efficiency of that flow. At least within same industries, it might be an interesting metric. How does Microsoft, Oracle, and other software development firms stack against each other in terms of efficicent use of human capital? How does Starbucks rank against other competitors in the retail industry?
Maybe it's overly complex, which would dismantle my whole argument I suppose, but if I were a CEO, I'd want to know how efficiently my organization was acquiring, consuming, and extracting value from its human capital compared to our competition.
And if anyone knows who developed the passing efficiency ratio and what went into it's development, I'd love to hear from you. Now where did I put that remote?