Joumal of Management Studies 33:2 March 1996 0022-2380, …...The RC model builds on the existing work to generate research perspec-tives that might bridge this gap. While acknowledging

Joumal of Management Studies 33:2 March 19960022-2380, pp. 213-233

STRATEGIC HUMAN RESOURCE MANAGEMENT WITHIN ARESOURCE-CAPABIUTY VIEW OF THE FIRM*

KEN KAMOCHE

Birmingham Business School, University of Birmingham

ABSTRACT

This paper takes a critical look at the field of strategic human resource manage-ment and in particular the debate about the strategic value of the humanresource. We identify the contribution as well as the problematic nature of thesituational-contingency perspective. Drawing from the strategic management lit-erature and the concept of resource heterogeneity, we then posit a resource-cap-ability view of the firm and argue that the mutually reinforcing interactionbetween the stock of knowledge, skills and expertise (resources) and the organiza-tional routines and human resource policies and practices (capabilities) generateshuman resource competencies whose strategic value is realizable to the extentthat they are linked with core competencies. We thus offer a reconceptualizationof human resource competencies which goes beyond existing trait, behaviouraland systems approaches. Finally, we identify the circumstances surrounding thegeneration and distribution of rents arising from the utilization of humanresource competencies by drawing from transaction cost theory and industrialrelations.

INTRODUCTION

The strategic human resource management (SHRM) literature is increasinglyconcerned with whether human resources (HRs) can be a source of competitiveadvantage. More recently, this literature has begun to draw from the resource-based view of strategy. This paper seeks to refocus the debate by proposing aconception of human resource competencies (HRCs) within a resource-capability(RC) view of strategy and then examining the social and political concerns thatimpact on the use of HRCs. In articulating a strategic role for HRs in organiza-tions, it is worth noting the significance of the situational-contingency perspectiveand the concomitant concept of strategic integration, the roots of which lie in the'matching school' (Fombrun et al., 1984; see also Guest, 1987; Schuler, 1992;Schuler and Jackson, 1987). Others have located SHRM within a broadercontext of stakeholder interests and environmental diversity (e.g. Beer et al.,1984; Brewster, 1993; Hendry and Pettigrew, 1990; Kamoche, 1993; Poole,1990). Kochan and Dyer (1993) point out, however, that despite the plethora of

Address for reprints: Dr. K. Kamoche, The Graduate Centre, Birmingham Business School, Universityof Birmingham, Priorsfield, 46 Edgbaston Park Rd, Edgbaston, Birmingham B15 2RU, UK.

© Blackwell Publishers Ltd 1996. Published by Blackwell Publishers, 108 Cowley Road, Oxford OX4 IJF, UKand 238 Main Street, Cambridge, MA 02142, USA.

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models and SHRM writings there has been littie progress in the development ofsystematic theory or empirical evidence on HR as a source of competitive advan-tage. The RC model builds on the existing work to generate research perspec-tives that might bridge this gap. While acknowledging the significance of themultiple stakeholder, environmental diversity thesis, our point of departure is onrefocusing interest on the robust paradigm of intemal resource heterogeneity,particularly at the level of theory development in order to articulate the concemsthat should guide research and practice.

A RESOURCE-GAPABIUTY MODEL OF SHRM

In the resource-based view, the firm is seen as a bundle of tangible and intangi-ble resources and capabilities required for product/market competition (e.g. Amitand Schoemaker, 1993; Bamey, 1991; Conner, 1991; Grant, 1991; Mahoneyand Pandian, 1992; Rumelt, 1984; Wemerfelt, 1984). A range of definitionsexists as to what resources and capabilities are. Resources have been described as'anything that could be thought of as a strength or weakness of a given firm'which includes tangible and intangible assets (Wemerfelt, 1984, p. 172); as skill-based competencies (e.g. Hall, 1993); tiie collective learning embodied in 'corecompetencies' (e.g. Prahalad and Hamel, 1990); or core skills (e.g. Klein et al.,1991). Barney (1991) considers firm resources to include all assets, capabilities,organizational processes, firm attributes, information and knowledge. The defini-tions which correspond more closely to the RC view posited here are thosewhich distinguish between and at the same time stress the interaction betweenresources and capabilities.

An early reference is Penrose (1959, p. 25) who sees resources as 'a bundle ofpotential services', but which can normally be defined independentiy of their use,while the word 'service' implies a function or activity. This is echoed in DieHckxand Cool's (1989) distinction between stocks and flows. For Grant (1991) resour-ces are the inputs into the production process; capabilities are what the firm cando with those resources. Amit and Schoemaker (1993, p. 35) define resources as'stocks of available factors that are owned or controlled by the firm', and cap-abilities as 'a finn's capacity to deploy Resources'. Finally, Mahoney's (1995)'resource-learning theory' sees resources and capabilities as a driver for strategy.By introducing the RC view to SHRM this paper aims to highlight the criticalrole of the knowledge that resides in people. This argument draws from Penrose's(1959) work on how the heterogeneity of the productive services available orpotentially available from its resources confers uniqueness on each firm. We notethat the resource-based view of the firm is not an 'altemative' theory of strategy;the stress on resource should not replace but complement the stress on marketposition (Collis, 1991; Porter, 1991). Also, it is compatible witii and com-plementary to other organizational perspectives including industrial organizationanalysis (see also Conner, 1991; Mahoney and Pandian, 1992; Seth and Thomas,1994). As Penrose (1959) points out, inducements and obstacles to expansion andhence in the utilization of resources exist both inside and outside the firm. Simi-larly, Collis (1991) observes that resources must be evaluated against the compe-tition because only a competitively unique and superior competence can be a

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STRATEGIC HUMAN RESOURCE MANAGEMENT 215

source of economic value. The creation of HR strategic assets depends on theintemal organizational processes, the firm's ability to recruit from the extemallabour market in the first place and its capacity to prevent the loss and erosion ofvalued expertise. Thus by retaining the significance of the dynamism in industry,this paper avoids the pitfalls of a narrow, inward-looking perspective on resource-based analysis.

Grant (1991) offers two reasons why the full implications of the resource-basedtheory are yet to be realized: firstly, there is no single integrating framework, andsecondly, there has been little effort to develop the practical implications of thetheory. Hall's (e.g. 1993) work on 'intangible resources' exemplifies the empiricalside of resource-based competition without explicitly acknowledging the theore-tical contribution of the resource-based view. Hall found that 'employee know-how' was rated by chief executives as one of the most important contributors tobusiness success. This identified 'a clear requirement for the continuous enhance-ment of the quantity and quedity of the "stock" of knowhow .. . by training . . .[or] by "learning by doing'" (p. 617). This paper proposes to address theconcems above by positing a conceptual framework for SHRM within aresource-capability view of the firm. By opting for the term resource-capability(RC), we aim to emphasize the significance of these two elements and in parti-cular their interaction.

The capability-based view is concemed with actions, processes and relatedbehavioural efforts to attain a competitive posture (e.g. Bartmess and Cerny,1993; Stalk et al., 1992; Ulrich, 1993; Ulrich and Lake, 1990, 1991). Kay (1993)sees 'distinctive capabilities' as arising from the nature of a firm's relationshipswith suppliers, customers and employees, and which is a source of competitiveadvantage. Following Penrose's (1959) view that the value of a resource is seen interms of its potential to yield a service, the RC model emphasizes that value ismaximized when capabilities are deployed to utilize resources in their mostsuitable activities.

The RC model builds on and provides a unifying framework for the emergentSHRM literature which has begun to examine the resource-based view. Thiswork has examined how employment practices - human resources and labourrelations - affect competitive advantage (Cappelli. and Singh, 1992); the relation-ships among strategy, HR practices and die HR capital pool (Wright andMcMahan, 1992; Wright et al., 1994); how HR systems facilitate or inhibit thedevelopment and utilization of competencies (Lado and Wilson, 1994); the suit-ability of the resource-based view vis-a-vis the ideologically problematic industrialorganization perspective (Kamoche, 1994); the rent generating capacity of man-agerial knowhow (Castanias and Helfat, 1991); the contribution of executiveexpertise to firm performance (Roth, 1995); human resources as a source of com-petitive advantage at the national level (Aryee, 1994); the contribution of humanresources and capabilities to success in intemational management (Kamoche,forthcoming); and the strategic utilization of human resources (Mueller, 1994).This growing research perspective recognizes the strategic value of HR practicesand the knowledge that resides in individuals or teams, and is thus consistentwith the notion of knowledge as a strategic tool (Winter, 1987), in particularwhen the human resources and capabilities within which it is embodied areimperfectly imitable and imperfectly mobile (Bamey, 1991). This point is pursued

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in a later section. We next define the two roots of the RC concept: resources andcapabilities.

Human Resources

What exactly constitutes a resource is problematic especially in regard to theparticular characteristics in employee skills that provide value. Should it refer toinherent ability, dexterity, ability to leam, or cognition? (See Boudreau, 1983;Wright et al., 1994.) In the past, attention has focused on employee behaviourand HR practices (e.g. Schuler and Jackson, 1987), but as Wright et al. (1994)have observed, practices are imitable and may not therefore lead to sustainedcompetitive advantage. Resources on the other hand, are a potential source ofcompetitive advantage as the resource-based view shows. We, however, retain thenotion of employee behaviour to the extent that competence is manifest inaction. We suggest that the human resource refers to the accumulated stock ofknowledge, skills, and abilities that the individuals possess, which the firm hasbuilt up over time into an identifiable expertise (see also Cappelli and Singh,1992). The effectiveness with which organizational activities are achieved throughHRCs is both a measure of the firm's ability to link its human resources to itsstrategic objectives and a behavioural manifestation of expertise.

This view that expertise is manifest in behaviour is consistent with thatadvanced by Klein et al. (1991) on the formation of skills which become a basisfor competition. These authors argue that as employees' skills are applied to par-ticular tasks, products and projects they become 'dedicated skills'. Throughlearning, strategic combinations of dedicated skills are converted into 'core skills'.As these core skills are applied across new products, new markets and acrosstime, new dedicated skills come about through innovation and the cycle con-tinues. The ultimate stock of knowledge and expertise from this cycle constitutesthe essence of the 'human resources' in our RC concept.

Human Resource Capabilities

Following Amit and Schoemaker's (1993) view of capabilities as the capacity todeploy resources, we argue that the firm's capacity to secure, nurture, retain anddeploy human resources through HR policies and practices forms a basis for theHR 'capabilities' as defined here. Policies and practices are therefore vital to theextent that they constitute the firm's chosen approach to acquire and utilizehuman resources as described above. We consider 'organizational routines' - 'therelatively constant dispositions and strategic heuristics that shape the approach ofa firm to the non-routine problems it faces' (Nelson and Winter, 1982, p. 15) - avital basis for viewing the intricate linkages between the firm's pattems andsequences of actions and how these constitute the building blocks for the HRcapabilities. This includes the mediation of social relations and the establishmentof guidelines and procedures for day-to-day functioning. Examples are norms andprocedures for hiring, rewarding, training and so forth. Human resource policiesand practices must be seen not merely as administrative procedures for managinghuman resource flows, but as the behavioural pattems that underpin the HRcapabilities.

HR capabilities are difficult to identify, but we suggest that they may berefiected in the HR philosophy such as corporate welfarism in Cadbury



Schweppes, the 'caring company' reputation of Johnson & Johnson, or the senseof belonging and job security associated with lifetime employment in someJapanese firms. Below we consider in some detail the case of retention to illus-trate an HR capability and the concept of resource barriers.

HR retention capacity and resource barriersSome writers suggest that the decision relating to retention should be based onindividual performance because of the relatively higher costs of replacing highperformers vis-a-vis low performers (e.g. Abelson and Baysinger, 1984; Cascio,1982; Peters and Sheridan, 1988). Given the intangible nature of expertise, we donot see retention capacity as a quantifiable heuristic but rather as a qualitativeconcept that supports the sustainability of HR capabilities by retaining high per-formers and enabling low performers to better themselves. The firm's ability tocreate and fortify a stock of expertise depends on its long-term capacity to retciinkey personnel who are identifiable through performance evaluation. Dierickx andCool's (1989) concept of 'time compression diseconomies' highlights the potentialcompetitive advantage for a firm that has built up an investment in resources overa period of time. Such a position can be strengthened if skills have a high degreeof firm-specificity and low mobility and are imperfectly imitable (e.g. Barney,1991). Bartlett and Ghoshal (1989) describe these attributes as 'administrativeheritage'. These writers found that 'a company's ability to build and manage newstrategic capabilities depends on its existing organizational attributes - its config-uration of assets and capabilities, built over the decades; its distribution of man-agerial responsibilities and influence, which cannot be shifted quickly; and anongoing set of relationships that endure long after any structural change' (p. 33).

Retention can be achieved through rewarding systems, job security, trainingand career development, autonomy and the fostering of a sense of belonging.Organizational cultural norms have also been found to be related to retentioncapacity (e.g. Kerr and Slocum, 1987; Sheridan, 1992). In particular, Sheridanfound that a culture emphasizing interpersonal relationship values is more attrac-tive to professionals than one emphasizing work task values. Training and careermanagement are also crucial in retention (e.g. Lahteenmaki and Paalumaki,1993), and in developing expertise that is central to the firm's core tasks. Indeed,firm-specific skills acquired through on-the-job training have been found to beassociated with high economic returns (e.g. Bishop, 1991; Castanias and Helfat,1991).

Skills that are highly specific and non-transferable can be a source of addedvalue and therefore need to be embedded in a protective governance structure toprevent the loss of value (Williamson, 1987). The application of HR policies/practices can help prevent the loss of value. This can be achieved through 'tour-nament' promotion and compensation systems (Huselid, 1992), firm-specific skills,collusion between firms to reduce labour mobility, deferred compensation such aspensions, creating better opportunities in intemal labour markets, and the syner-gies of teamwork (Cappelli and Singh, 1992). In conclusion we note that buildingan HR capability based on retention capacity is a preliminary step in thecreation of HR strategic assets. This must be complemented by the firm'scapacity to appropriate the benefits from the utilization of human resources(Kamoche and Mueller, 1995). This strand is pursued in a later section.


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HUMAN RESOURCE COMPETENCIES

This section demonstrates how the interaction of resources and capabilities bringsabout human resource competencies (HRCs). The need to determine the individualcharacteristics necessary for organizational performance has preoccupiedresearchers for many years. The best known definition of a competence isprobably Boyatzis' (1982) view of a competence as an individual's underlyingcharacteristic which is causally related to superior performance. The focus on theindividual's characteristics has its intellectual roots in the literature on traits, skillsand personal dispositions (e.g. Chatman, 1989; Katz, 1974; Mintzberg, 1973),and intellectual and cognitive processes (e.g. Carroll and Gillen, 1987; Hunter,1986).

Competencies have also been conceived of in terms of values and mindsets(Morgan, 1989), as 'work-related knowledge, skills and abilities' (Nordhaug andGronhaug, 1994), and as abilities needed for non-routine tasks (Kanungo andMisra, 1992). The awareness that these personal attributes are realized througheffective job performance highlights the behavioural theme of competencies.Thus, competencies have been characterized as sets of behaviour pattems (e.g.Woodruffe, 1992). This perspective has led writers and firms to compile beha-vioural profiles of generic competencies and to relate these to performance (e.g.Boam and Sparrow, 1992; Cockerill, 1989; Dulewicz, 1989; Glaze, 1989;Greatrex and Phillips, 1989; Jackson, 1989; Schroder, 1989; Spencer andSpencer, 1993). It is noteworthy that the behaviour profiling approach has beencriticized on methodological grounds and for being too general and unspecific,for example in the labelling of competencies (e.g. Jacobs, 1989; Sparrow, 1994).This critique is pertinent in those cases where firms have simply compiled a setof personal characteristics and job requirements which they then label 'compe-tencies' and use in a mechanistic fashion as a yardstick for performance evalua-tion.

Such characteristics are often ambiguously defined as 'leadership skills', 'analy-tical abilities', 'sociability' and so forth. The value of the behavioural competenceapproach is that it provides a conduit for the realization of the 'human resources'as defined in this paper. It is through behaviour at work, i.e. through job perfor-mance, that expertise is demonstrated. However, while acknowledging the valueof both the skill-based and the behavioural approaches this paper aims to gobeyond the micro-level analysis and to relate the concept to the firm's core com-petencies which are 'the roots of competitiveness' (Prahalad and Hamel, 1990).This facilitates the combination of strategic and behavioural competencies whichSparrow (1994) contends is the most appropriate competency approach. Grant(1991) observes that the rationale for basing the firm's long-term strategy on itsresources and capabilities rests on the premise that the resources and capabilitiesprovide the basic direction for the firm's strategy, and that they are the primarysource of profit for the firm. Hence we argue that to the extent that HRCs are atthe heart of the organizational process, they are a potential root of competitive-ness. Nordhaug and Gronhaug (1994) also see competencies as a critical resourcefor competitiveness especially where competencies are treated as a portfolio con-figured with regard to the firm's value activities. In the case of Procter &Gamble, Bardett and Ghoshal (1992) have shown how firms can co-ordinate a



wide range of expertise across different countries to sustain competence in mar-keting and product/service delivery. Competence in high-quality service deliverythat actively supports the business strategy is also evident in the case of Singa-pore Airlines (SIA). In addition to being at the cutting edge in aviation technol-ogy, SIA has successfully competed on innovation in high-quality in-flightfacilities and services sustained by a congruent HR development function (Chee,1994). At the broader national context in Singapore, this policy is consistent withstrategic approaches to create and sustain competitive advantage on the basis ofsocial organization of expertise and careers in selected industrial clusters (Aryee,1994).

The foregoing suggests that HRCs should be conceived of in terms of skill-based and behavioural capabilities, and the firm's ability to generate the stock ofknowledge and collective learning that enable it to provide core products/servicesprincipally through people. HRCs are a source of value to the extent that theyare integrated with the finn's core competencies. To the extent that the deliveryof core services/activities is essentially dependent on knowledge that resides inthe organizational members, HRCs facilitate the realization of the strategic valueof core competencies. A stock of knowledge is built up and reinforced throughconstant application of expertise and over time, this helps the firm to establish adistinctive competence (e.g. Snow and Hrebiniak, 1980) in its human resources.Following Prahalad and Hamel (1990), we argue that it is the HRCs as con-ceived above which lead to the development of end products, such as strategyportfolio models, sophisticated travel booking services, quality management pro-grammes, architectural designs and so forth. In this way, core competencies areoperationalized and become manifest in the HRCs. By building HR strategiesaround competencies, competencies become a behavioural reflection of the finn'sstrategic capabilities (Sparrow, 1994).

Thus, the significance of analytical and cognitive abilities, interpersonal andsocial skills derives from their association with the core services/activities. Thisscenario can be illustrated more succinctiy in professional and consultancyservices where a firm accumulates expertise to ofler core services, for example inengineering, finance, litigation, strategy analysis, advertising or sociopoliticalanalysis. In practice this means that managers should be able to relate beha-vioural profiling not merely to the job but to the core business activity. This mustgo beyond current eflbrts at behavioural profiling which are based on certain'key' or 'critical' elements of the job. Kandola and Pearn (1992) take this debatefurther by suggesting that competence identification might be based on the typeof change desired, for example from technology-led to marketing-led, from paro-chial outiook to innovative and open-minded, and so forth. However, thisapproach may not be suitable where no particular strategic change is envisaged.Another recent contribution is Lado and Wilson's (1994) treatment of compe-tencies within an open systems perspective. These writers focus on how the visionand actions of managers can foster or hamper the generation of competencieswhich they refer to as managerial, input-based, transformational and output-based. The core competence approach to HRCs - which does not precludechange management - can be illustrated further by elaborating the case ofSony's competence in miniaturization (see Prahalad and Hamel, 1990).

These writers point out that core competence is about harmonizing streams of


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technology, the organization of work and delivery of value. We suggest that thecore competence can be linked to HRCs by identifying those skill-based andbehavioural elements that constitute the knowledge base in miniaturization. Thiswould include the skills necessary for sustained innovation within the core compe-tence and the extent to which individuals are actually able to achieve results thatare consistent with miniaturization. Thus the firm can foster the requisite techno-logical and innovation skills through the application of HR policies and practicesof selection and training, and to compile relevant behavioural profiles that reflectan observable Jink between those particular skills and actual results. Therefore,behavioural competencies such as leadership, anedytical skills and so forth areonly relevant to the extent that they demonstrate the achievement of the corecompetence through actual job performance. Similarly, rather than asking whatcompetencies are essential for IHRM and strategic alliances, managers mightbegin by identifying the strategic intemational objectives. At the practical level,therefore, requisite 'competencies' such as adaptability, cultural sensitivity and soforth derive their legitimacy from the degree to which the strategic alliancesrequire adaptability and cultural sensitivity at the individual behavioural level.

Renewing and Levera§.ng Competencies

The concept of HRCs is not inherently static, though competence can, con-ceivably, degenerate into incompetence. The fortification of HRCs is achieved bythe constant renewal and sustainability of the firm's stock of knowledge. The testof value in competencies is their sustainability: how durable are they in the faceof competing resources and what can the firm do to ensure' that they continuegenerating superior products and services? Prahalad and Hamel (1990) note thatalthough core competencies do not deteriorate with use like physical assets, theystill need to be nurtured and protected. More categorically Dierickx and Cool(1989) contend that all asset stocks are subject to 'decay' in the absence ofadequate 'maintenance' expenditures. Inappropriate HR systems (Lado andWilson, 1994), complacency, lack of innovation and failure to embrace changemay tum competence into incompetence or an inability to sustain a winningformula. This was the case in IBM's difficulties in the 1980s vis-a-vis the stiffcompetition from 'leaner' and more innovative rivals, particularly in softwareapplication.

In a detailed study of six firms, Bartlett and Choshal (1989) demonstrate inter-esting contrasts between 'winners' and 'losers'. For example, incompetence isinferred in Ceneral Electric's failure to rise up to the Japanese challenge in theconsumer electronics business after years of innovativeness due in part to lack ofglobal efficiency; on the other hand, NEC expanded internationally by success-fully leveraging home country assets, while Matsushita developed a competencein responding to new demands. In the soaps, detergents and personal careproducts where responsiveness was the dominant strategic task, Kao failed totransfer competencies developed in the Asian market to Europe and NorthAmerica, while Unilever built upon a successful formula of cultivating localentrepreneurialism and leveraging leaming across the dispersed units. It isevident from the foregoing that incompetence can be avoided by leaming newcompetencies or extending old ones. For example, Sony reversed the decline inthe radio industry by applying their innovative expertise to new products such as

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radio cassettes and the walkman (Ohmae, 1982). Similarly, when the Swiss watchindustry came under threat from quartz technology, survival depended on a suc-cessful shift from competence in precision mechanics to innovative design in'Swatches' (Nordhaug and Gronhaug, 1994).

HRCs will decay due to the loss of valued employees, inadequate training, anineffectual retention capacity, lack of integration between HRCs and core com-petencies and possibly imitation by rivals. The role of preventing asset erosionthrough HR policies is a corollary to that of fostering HRCs described earlier. Atthe practical level, the 'maintenance' function can be fulfilled by HR policies andpractices. For example ensuring that appropriate selection methods are bringingin people with the requisite skills or potential, or regularly reviewing trainingprogrammes to ensure that training is in line with the strategic objectives ofdeveloping a stock of expertise and rectifying competency gaps. At the heart oforganizational capabilities are human resource practices which ensure the con-tinued development of human resource competencies (e.g. Ulrich and Lake,1991).

Leveraging competencies is consistent with the concept of the learning organi-zation (e.g. Argyris, 1992; Senge, 1990) especially as it relates to the accumula-tion and utilization of knowledge (Kamoche, forthcoming). The importance ofacquiring and diffusing knowledge across the firm is now recognized as criticalfor success (see Mahoney, 1995, for a detailed discussion). A possible applicationof the learning concept for our purposes may be found in diversification.Research has pointed to a strong relationship between knowledge-based resourcesand related diversification (Chatterjee and Wemerfelt, 1991). Diversificationoffers scope for the exploration of the RC view to the extent that resource basesand strategic capabilities can be applied in different competitive arenas (e.g.Cappelli and Singh, 1992; Mahoney and Pandian, 1992; Montgomery and Har-iharan, 1991; Porter, 1991; Wemerfelt, 1984).

In particular, Montgomery and Hariharan (1991) have shown that the direc-tion of diversification does not occur at random but is specifically guided by thefirm's resource profile. This reinforces Penrose's (1959, 1960) earlier observationthat growth is determined by capabilities. Thus, asymmetries in the rate ofresource utilization signal opportunities and incentives for growth. Such aresource-based motivation for growth is particularly relevant in HRM becauseunutilized or underutilized human resources signify both a waste and an oppor-tunity. This requires a knowledge of the organization's human resource profiledown to the fine details of the full range of skills and the scope for their applica-tion. Knowledge of management and in particular the expertise embedded incompetent management teams have a vital role to play in identifying and devel-oping unused productive services and opportunities (Chandler, 1992; Grant,1991; Mahoney, 1995; Prahalad and Hamel, 1990).

The failure to identify, cultivate and leverage productive services may be foundin the management of universities. University finance, treasury and public rela-tions functions seldom benefit from the knowledge found among specialists inbusiness and/or law departments for example. Kim (1993) describes this as 'frag-mented learning'. Klein et al. (1991, p. 2) stress the need for firms 'to engineer asubde mix of people, organization and capital, and ensure that they meshtogether'. This form of strategic integration has been found to contribute to


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organizational performance (e.g. Fox and McLeay, 1992). By leveraging leamingand innovation (Bartlett and Ghoshal, 1989; Prahalad and Hamel, 1990) differ-ent competencies can be brought together and applied to new products andmarkets. This functional interdependence recognizes that the achievement of theorganization's objectives ultimately depends on the utilization of the stock ofknowledge which resides in people. A TQM programme in manufacturing andcustomer service may lead to decentralization of decision making, and theempowerment and motivation of employees which may in tum elicit commit-ment and engender a sense of belonging. This would help to fortify the retentioncapacity.

In IHRM, competencies developed in one country/region can be transferredto another to facilitate organizational leaming (e.g. Bartlett and Ghoshal, 1989).There is a need for further research to establish the flexibility of human resourcecompetencies in these scenarios and the scope for 'cross-poUination' of compe-tencies. This leveraging of HRCs will depend on whether the firm has suitablemechanisms for doing so, such as multi-national product teams, intemationalassignments, and the transferability of other competencies in technological andmarketing know-how. Not only does this enable the firm to orchestrate its com-petencies across subsidiaries and functions through inter-unit linkages (Schuler etal., 1993), it also helps to balance the pressures of integration and differentiationin intemational business activities (Kamoche, forthcoming), as noted in the caseof Unilever and Procter & Gamble.

FROM HRCs TO STRATEGIC ASSETS

The foregoing has explored the significance of competencies within an RC per-spective. The discussion now tums to the strategic value of HRCs with particularregard to how competencies are related to firm performance and sustained com-petitive advantage. We begin by considering the problems in delineating a strate-gic role for human resources. Difficulties exist in isolating HRM initiatives ormechanisms that are correlated to firm performance; also, a strict concem with'bottomline analysis' in SHRM falters on epistemological grounds because theintangible nature of the value of human resources and human resource outcomesdoes not easily lend itself to quantitative analysis (Kamoche, 1994). However,evidence from the literature suggests that human resources can enhance organi-zational performance on the basis of the configuration of HR activities and howthese are utilized to manage know-how and skills. Studies show a positive rela-tionship between financial performance and the degree of integration betweencorporate strategy and the HRM function (e.g. Fox and McLeay, 1992); the stra-tegic implications of activities such as selection, deployment, compensation andmotivation (e.g. Gomez-Mejia, 1988; Huselid, 1992), for example in the manage-ment of employee know-how (e.g. Hall, 1993) and innovative individual skills(e.g. Chatterjee and Wemerfelt, 1991).

Others demonstrate the value that 'human capital' can confer on a firm (e.g.Flamholtz, 1985; Odiorne, 1984; Steffy and Maurer, 1988) and the economicand financial implications of human resource activities and programmes (e.g.Boudreau, 1983; Cascio, 1982; Fitz-enz, 1986; Lawler, 1992). HR activities also


STRATEGIC HUMAN RESOURGE MANAGEMENT 223

have an important role in innovation and strategic change (e.g. Clark, 1993;Hendry et al., 1989; Kochan and Dyer, 1993). However, Cappelli and Singh(1992) caution that firms that are doing better have tiie resources to plan for tiiefuture. Also, a strategic role for human resources is likely to be mediated by con-textual and other organizational circumstances. For example, Bamberger et al.(1990) found the relationship between human resource strategy and firm perfor-mance tenuous. This implies a need to assess cases on individual merit.

The discussion now tums to the contribution of the RC concept to firm per-formance and competitive advantage. HRCs are capable of being converted intostrategic assets if they satisfy the following conditions: scarcity, inimitability, non-substitutability, and appropriability (see also Amit and Schoemeiker, 1993;Bamey, 1991; Grant, 1991). Wright et al. (1994) focus on tiie conditions ofvaluable, scarcity, non-substitutability and inimitability with regard to the man-ageitient of the 'human capital pool'. We advance this debate further by arguingthat these conditions might be better understood within the context of the morespecific concept of 'human resource competence'. Regarding the condition of'valuable', this paper argues that resources are only valuable and meaningful inthe context of performing certain activities that create advantage in particularmarkets (see also Porter, 1991). As such, HRCs will be deemed to be 'valuable' ifthey satisfy the other conditions above.

Scarcity is found in the combination of high-quality skills and expertise as wellas the organizational capabilities that interact with them to generate HRCs. Atthe heart of this scarcity is the condition of uniqueness arising from resource het-erogeneity (Penrose, 1959). The concepts of resource heterogeneity and humanresource diversity define a context in which the firm is able to generate HRCswhich are unique and inimitable. For example, even though rivals might copy afinn's quality programme, the notion of 'uncertain imitability' (Iippman andRumelt, 1982) suggests that the absence of special assets and circumstances canprevent imitation, for example the inability to commit funds on a long-termbasis, a weak retention capacity, or the absence of a supportive culture. Hencetiie notion of'cospecialized assets' (Teece, 1986). Also, when key personnel leavea firm they take their unique expertise with them but by itself this expertise is oflittle value to the new employer unless it is effectively harnessed to the firm'sorganizational capabilities. For example, a star football player may fail to excel ina new club if he does not get the fuU support - psychological and technical - ofhis teammates, or if his style is at variance with that of the hew team.

Due to the intangibility of competence, rivals may be unable to discern how afirm's HRCs contribute value, or indeed what the HRCs are. This causal ambiguity(e.g. Dierickx and Cool, 1989; Iippman and Rumelt, 1982; Reed and DeFillippi,1990) leads to the raising of barriers to imitation and enhances the uniqueness ofHRCs. For example, in Japanese firms, the overall effect of culture, peerpressure, commitment, lifetime employment and so forth may be evident to rivalsbut efforts to copy 'Japanese management' often feiil.

As noted above, original asset stocks may be rendered obsolete such that theyare no longer a source of value to the firm (Dierickx and Cool, 1989). Sustain-ability of the value of HRCs is achievable due to certain inherent limits to theirsubstitutability. For example, computers cannot replace human cognitive andsocial skills which may be central to the delivery of a service. It is conceivable


224 KEN KAMOCHE

that people will be reluctant to travel on computer-controlled, non-mannedflights. Similarly, even though new technology might render some skills obsoleteand lead to some job loss, the accumulated stock of expertise may not necessarilybe damaged. Technological change can actually enhance the potential of HRCs,for example through time-saving management information systems that improvethe quality of decisions. We conclude this section by noting that if the aboveconditions are sufficiently met and the erosion of HRCs is prevented, HRCsbecome a potential source of competitive advantage. The discussion now tums tothe final element of the RC concept.

Appropriability

This is the one condition that has received the least attention in the mainstreamresource-based debate, but a literature is now beginning to emerge (e.g. Castaniasand Helfat, 1991; Crant, 1991; Kamoche and MueUer, 1995; Kay, 1993).Appropriability has been defined as the capacity of the firm to retain the addedvalue it creates for its own benefit (Kay, 1993), and as the allocation of rentswhere property rights are not fully defined as in 'intangible assets' (Grant, 1991).Kamoche and Mueller (1995) develop an approach which sets out the learningimplications for appropriability. These conceptions of appropriability are useful inthat they deal with the important question of utilizing the firm's stock of knowl-edge. This section takes the discussion further to examine the difficulties andpotential tensions involved in the distribution of rents from the utilization ofHRCs.

We propose to do so by opening a dialogue between the RC view on the onehand and transaction cost economics and industrial relations on the other wherethe power-political angle is well established. Edwards (1992) has noted the poten-tial for constructive dialogue between labour economics, which 'could not grasphow conflict inhered in the employment relationship' (p. 371), and transactioncost theory, which does recognize opposing interests. We aim to elaborate thisdebate by bringing in SHRM through the RC view. It is essential that the appli-cation of the RC view of strategy to SHRM is cognizant of the political andideological concems inherent in the generation and distribution of rents.Resource-based theorists are indeed addressing the transaction cost problemsassociated with trading in strategic resources (for an overview see Chi, 1994). Thediscussion here builds upon the critique of SHRM (e.g. Kamoche, 1994) whichhas set out the ideological underpinnings of the concept and explored the sig-nificance of the power-political dimension in the conception of SHRM.

Crant (1991, p. 128) identifies two complexities: the lack of a clear distinctionbetween the 'technology of the firm and the human capital of the individual',and the limited control employment contracts ofTer over employees' services. Of"central concem to this debate is the issue of 'ownership' of strategic assets (e.g.Amit and Schoemaker, 1993), or 'possession' as in Dierickx and Cool (1989). InSHRM, 'possession' raises the question of the legitimacy of a firm's proprietorialclaims over its staff and their skills. Rent appropriation by the firm cannot pre-suppose the institutionalization of human resources since organizations do not'own' people or HRCs in the same way they own patents or physical property.

Just as the collective action of employees through industrial action or the threatthereof constrains the firm's hand in generating and utilizing HRCs, the ability of

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employees - individually or jointly - to negotiate terms and conditions imposes aconstraint on the firm's capacity to appropriate the added value from the HRCs'for its own benefit'. Similarly, the loss of key employees prevents the firm fromaccumulating the stock of knowledge and skills necessary for creating HRCs. Italso undermines the firm's retention capacity and may ultimately jeopardize thesustainability of the value of the HRCs. The concept of appropriability as positedhere therefore brings to light the ideological and political obstacles in the conver-sion of HRCs into strategic assets.

These barriers have remained hidden because the dominant situational-con-tingent framework within which SHRM has evolved is unsympathetic to thenotion of incongruity of interests in organizational social relations. However, acritique of this narrow view is emerging, e.g. the ideological underpinnings ofSHBLM as noted above, the political infiuence perspective (e.g. Ferris and Judge,1991) and the notion of SHRM as a process of power-knowledge (e.g. Townley,1993). This debate needs to go further to acknowledge the contribution of indus-trial relations, and in particular the concept of collective bargaining (e.g. Clegg,1976; Crouch, 1979). In many different national contexts, collective bargainingarose in response to a recognized divergence in interests between managementand labour as well as a need to articulate the rights and obligations of therespective parties within some form of governance structure.

There exists an extensive debate about the manifestations and significance ofconflict and conflict management in capitalist society (e.g. Edwards, 1992;Hyman, 1978; Korpi and Shalev, 1979) and how this might culminate into State-sponsored violence (Kaniki, 1981). Eflbrts to reconcile ideological diflerences andachieve some form of consensus include 'integrative bargaining' (Walton andMcKersie, 1965); hence the existence of joint consultative committees, commit-tees for health and safety, employee share ownership, profit-sharing schemes, anda wide range of joint problem-solving mechanisms. These developments have notbeen sufllicienUy articulated in SHRM, partiy because of the manifestiy unitaristnature of the latter and partly because industrial relations concems are notviewed as particularly relevant to professionals and managers. Yet the existenceof some degree of asymmetry in the configuration of social relations impliespotential disagreement as to how skills are defined, nurtured and utilized. Henceour proposal that the RC view should sustain a debate with industrial relations todiscover how such differences might be mediated. Further useful insights are rea-lizable in the work on agency theory, which holds that the agent may not alwaysact in the best interests of the principal (e.g. Jensen and Meckling, 1976). Oppor-tunistic self-seeking has been explicated further in transaction cost theory (e.g.Jones and Hill, 1988; Williamson, 1987). Drawing an analogy with the efficientworking of mechanical systems, Williamson (1987) argues that the economiccounterpart of friction is transaction cost; hence: ' . . . do the parties to theexchange operate harmoniously, or are there frequent misunderstandings andconflicts that lead to delays, breakdowns, and other malfunctions?' (p. 552). It is amisrepresentation of social reality to apply the resource-based approach toSHRM by choosing selectively from conditions such as inimitability, scarcity andso forth, while ignoring the diverse 'delays, breakdowns, and other malfunctions'.From an industriid relations perspective, Edwards (1992) argues that even ifHRM eliminated conflict, the global extent of a shift to commitment - which.


226 KEN KAMOCHE

Walton (1985) claims has replaced control in the workplace - would be question-able,

We suggest that the firm acts opportunistically through its retention activities,resource barriers, rent appropriation and through integrative mechanisms remi-niscent of 'hegemonic despotism' (Burawoy, 1979, 1985) - achieving controlthrough consent rather than force - e.g. through socijilization, corporate culture(e.g. Evans, 1992; Harrison and Carroll, 1991), metaphors and language (e.g.Kamoche, 1995; Wilson, 1992). Likewise, the individual seeks autonomy andchoice in degree of mobUity. Individuals also want to retain control over theirexpertise while the firm wants to enhance the firm-specificity of the HRCs and tolock the expertise into the organizational routines. Transaction cost theory sees ahigh degree of 'human asset specificity' as having a direct bearing on the incen-tive for union organization and governance structures (Williamson, 1987). Theseissues will become increasingly relevant in the application of the RC view toSHRM and this paper has sought to offer an initial exploratory context forfurther discussion.

CONCLUSION AND IMPLICATIONS

This paper offers new insights into the conception of strategic human resourcemanagement by assessing human resource competencies within a resource-cap-ability view of the firm. Linking the management of human resources to strategicmanagement is an ongoing debate that has existed largely within the functionalistperspective. Also, having noted the one-dimensional approach that is beingadopted with respect to either 'resources' or 'capabilities', we have proposed amore dynamic approach which brings these two dimensions together. The fullvalue of this synthesis is realizable if human resource competencies are alignedwith the firm's core competencies, which requires the firm to identify unambigu-ously its core competencies and strategic business activities. FinaUy, a critical lookat the process of converting HRCs into strategic assets has revealed that thequestion of appropriability deserves more attention, especially as it relates to theutilization of HRCs and the distribution of rents arising therefrom. In this regardwe have suggested that the RC view can benefit from entering into a dialoguewith transaction-cost economics and industrial relations. Such an endeavour willundoubtedly shed light on how social relations at work impact on the sustain-ability of the value of HRCs.

We conclude this section by proposing some additional directions for furtherresearch. A possible line of enquiry is whether appropriability is likely to behigher the lower the employees' propensity and scope for mobility and the higherthe firm-specificity of their skills. Imperfect resource mobility exists if assetscannot be freely traded (Bamey, 1991; Dierickx and Cool, 1989; Peteraf, 1993;Williamson, 1985). This applies to employee skills to the extent that they arefirm-specific. High transaction costs are one cause of imperfect resource mobility(e.g. Rumelt, 1987; Williamson, 1975; Wright et al., 1994). In the case ofemployee turnover, such transaction costs include both the resource barriers dis-cussed earlier and the costs, mainly personal and social, involved in the actual-move. Changing jobs may involve a major disruption in the individual's life style,

© BlackweU Publishere Ltd 1996


including readjustment to another organizational or national environment, loss offamiliar surroundings and social networks, and can be stressful. Further researchmight examine whether the firm's capacity to appropriate the rents accruing toits HRCs is higher where transaction costs of mobility outweigh the externalincentives.

With regard to strategic resources, Chi (1994) offers two general 'remedyingmechanisms' for transaction cost problems by drawing from Barzel's (1989) twotypes of remedies: 'apportionment of residual claimancy' (how parties distributethe variation in the outcome of their exchange), and 'assignment of residualcontrol' (how parties distribute effective control over the resources they mightcontribute). We identify a similar scenario within SHRM: the distribution of rentsand control over effort and the utilization of HRCs. This is now a familiar themein labour economics and industrial relations. By locating the RC view within asocio-political context it becomes evident that HR strategies are both an ideologi-cally driven organizational tool of control and a transaction-based approach tomediate the employment contract and define a configuration of social relationsby characterizing and grading people (Burawoy, 1979; Kamoche, 1994; Townley,1993). This analysis suggests that a quest for absolute control by the firm isuntenable on sociotheoretical grounds; in practice it ultimately hinders ratherthan assists the process of converting HRCs into strategic assets.

Similarly, Prahalad and Hamel (1990) observe that as businesses do not ownanybody, they are only entided to the services of employees so long as they canassure the highest possible pay-off on the investment in employees' sldUs. Thissuggests the need for a balance between the HR agenda and professionalautonomy to key personnel in the context of what we might call an appro-priability opportunity structure. We suggest, therefore, that in the same way thatthe firm engages in a particular productive activity if it can appropriate the con-commitant rents, individuals will provide their services if they can appropriate thebenefits of their expertise. In this regard, Castanias and Helfat (1991) haveargued that if managers can appropriate the rents associated with their skills theyhave disincentives to 'misbehave', i.e. to act self-interestedly. We suggest that thisphenomenon is not restricted to managers, as is evident in the industrial relationsliterature. This implies the need for research into how individuals' perceptions oftheir 'worth' and the perceived scope to appropriate the benefits from theirexpertise impact on the effort-reward bargain.

We argue that failure to establish a mutuaUy acceptable mode of rent distribu-tion may engender self-interested behaviour and conflict, eventually underminingthe HRCs and hindering their conversion into strategic assets. In conclusion, wenote that in light of the sociotheoretical circumstances within which we havelocated the utilization of HRCs, research in appropriability might examine howrent distribution serves not merely to reward effort but also to mediate theincongruity of interests between the individual and the organization, andamongst individuals.

NOTE

* Earlier versions of this paper were presented at the British Universities Industrial Rela-dons HRM Study Group, Templeton CoUege, Oxford University, and at seminars at

C) Blackwell Publishers Ltd 1996

228 KEN KAMOCHE

Chulalongkom University and the Thai Chamber of Commerce University. I would alsolike to thank Randall Schuler, Chris Hendry and Frank Mueller for valuable commentson an earlier draft.

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Joumal of Management Studies 33:2 March 1996 0022-2380, …...The RC model builds on the existing work to generate research perspec-tives that might bridge this gap. While acknowledging