By: Luis González School of Economics and Enterprise University of Salamanca
Our vision, ideas and beliefs, our images of a Company are frequently formed by elements such as installations, productive processes, machines, tools, management methods, etc. However, in companies – in all companies – there has always existed another component and it is present in all the departments, in all the activity areas. This component, that has received different names throughout history, such as workers, personnel, human resources or employees, is the human capital.
Several theoretical frameworks have been suggested to support and set the basis to manage this company component, amongst which the human capital theory, transaction costs theory, resources dependence theory, institutional theory, agency theory or behavioral theory are outstanding. However, it is the companies resource-based view (RBV) or resources and capabilities theory, the most solid and accepted framework to explain the mechanisms through which human resources and their management can generate a sustainable competitive advantage. Besides being the most accepted, it represents the convergence of strategic management and human resources management.
The appearance of RBV assumed a change in perspective in the companies’ strategic analysis. In accordance with traditional strategic thinking, the company’s sustainable competitive advantage basically depends on the adjustment between its resources and the environment’s conditions, what determines a unique and superior position in front of competitors in terms of costs, differentiation or segmentation. However, since the beginning of the 90s, it has been proven that companies in the same sector and with the same strategy may obtain different and even opposite results. The explanation of these results is not found in the characteristics of the environment, which are the same, or in the adjustment strategy, which is also the same. In order to explain these differences in results, it is necessary to change the point of view from outside to inside the company. This look inside the company discovers the elements that are in the source of these differences in the results, without questioning the need to adjust to the environment through the entrepreneurial strategy. RBV considers that companies are different and heterogeneous in the resources they have and the capabilities they develop by combining the resources, and that it is precisely in these resources and capabilities where the source of sustainable competitive advantage is found.
An organization, a company, is seen as a system or configuration integrated by some objectives and values, a set of resources and capabilities that are necessary to compete in the market, structures, and a strategy in a concrete environment. This conception is not very different from the traditional approaches. This conception comes from the importance granted to the resources and capabilities which are at the base, at the source of the mechanisms through which the company obtains and maintains a competitive advantage. The resources are the tangible as well as intangible factors, the assets owned and controlled by the organization, that participate in the production of goods and services. The capabillities are the dynamic mechanisms that allow companies to carry out activities by integrating the resources to reach a higher performance than their competitors. The joining of resources and capabilities generate organizational competences; that is, that which the organization is capable of doing better than the competition.
One of the main classifications of resources divides them into tangible and intangible resources. The tangible resources are those that have physical support like machines, facilities, tools, financial capital, etc. They can easily be identified, valued and integrated in the company’s accounting statements. Besides the tangible resources, the company also owns and controls intangible resources that do not have physical support, such as patents, brands, culture or human capital amongst others. Unlike tangible resources, the intangible resources are hard to identify, value, and incorporate in the company’s accounting records. This difficulty stems from its main characteristics, amongst which are their specificity, causal ambiguity and social complexity.
From the initial approach of RBV (Barney, 1991) the key role human capital plays in the generation of mechanisms of a sustainable competitive advantage for the company was recognized. However, and as it was recently recognized by Barney, Ketchen and Wright (2011), there has not been an attempt to delve in the knowledge of these mechanisms. This is partly due to an almost exclusive macro focus, centered at the strategic level of RBV. It is necessary to establish the micro foundation of RBV and specially, of human capital and the role it plays in creating a sustainable competitive advantage. This is one of the conclusions derived from the works published in the special issue of the magazine Journal of Management published in September, 2011 and exclusively dedicated to analyze the current and future status of RBV.
In our opinion, the necessary micro foundation of RBV and therefore, of the strategic management of human resources, goes through a new conceptualization of human capital and its articulation with strategic management (González, 2002; 2004). Reducing human capital to the stock of knowledge, capabilities, and skills contributed by the employees to the company does not allow us to know or explain the mechanisms through which value is generated. It is necessary to incorporate to the human capital concept the behavior of employees after they acquire this stock of knowledge, capabilities, and skills. What generates value is the behavior of employees, along with the company´s objectives and strategies. Therefore, in this new conceptualization, human capital is integrated by two components: stock and flow.
Besides the differentiation of these two components of human capital, it is also necessary to expand the elements that traditionally have been associated to the human capital stock. The human capital stock should be formed by all the determining factors of the employee´s behavior. That is, not only by knowledge, capabilities, and skills, that to date have been considered the exclusive elements of human capital, but also by the values, personality traits (such as place of control, self-esteem, self efficacy, resistance to change, etcetera), learning, perception and attribution, attitudes in the work place (satisfaction, commitment, and implication), psychological contract, dedication and motivation at work, just to mention some of the most relevant factors. This expansion is not merely taxonomical, it is rather that the micro foundation of human capital is supported in the articulation with RBV of the knowledge corpus and tools that one has over these elements derived from behavioral sciences. Likewise, the human capital flow component should incorporate all the knowledge background and techniques available on the behavior of employees and that allow us to explain their behavior: performance, absenteeism or turnover, their response to work teams, the processes through which they make decisions or communicate, the way they settle conflicts or the behavior that leads to leadership amongst other things.
Both components of human capital are inseparable. In order to acquire the conduct that allows the company to obtain a sustainable competitive advantage, the employees should have a series of characteristics, specific knowledge, capabilities, skills, personality traits, attitudes, motivation, etc. However, the possession of these characteristics does not generate value to the company if this is not transformed into a behavior. Lastly, we should highlight another one of the human capital characteristics directly related to the mechanisms to obtain a competitive advantage. Lastly, we should highlight another one of the human capital characteristics directly related to the mechanisms to obtain a competitive advantage. The mere possession of a human capital stock does not automatically become the behavior that is required by the Company. It is necessary to manage this human capital stock in order to obtain that behavior. Therefore, the strategic direction of human resources should allow the company to obtain the human capital stock and turn it into flow, in the behavior that will allow it to reach its objectives.
To integrate and develop this resource, strategic direction of human resources carries out a series of activities and practices so that the company acquires the human capital stock it lacks so as to turn it into behavior. Amongst these activities we find, for example, the recruiting, selection, motivation, evaluation of performance, etc. These are dynamic mechanisms of human capital integration and, therefore, capabilities of companies related to the management of human resources. However, regarding human capital, we also find another type of capabilities in companies related to human capital and not to its management; for example, the dynamic mechanisms that integrate and develop the resources that form a self-team. The nature of these capabilities is found in human capital and not in the management modes.
Figura 1. Components of human capital
Therefore, human capital is a strategic asset that can be used as a basis so that the company obtains a sustainable competitive advantage. As shown in figure 1, the two inseparable components of human capital, the static component of the stock and the dynamic one of flow, form the company’s strategic value that allows it to obtain and maintain a competitive advantage. Definitively, human capital is translated to value for the Company through the behavior of the employees, but the necessary conducts to obtain and maintain a competitive advantage do not happen without human capital that has specific characteristics.
Figura 2. Strategic management of human capital
The strategic management of human resources through configurations or high yield practice systems that constitute the human capital management capabilities, gives the Company a human capital stock and transforms it into a specific behavior. This human capital and its management form the competences that organizations related to human resources management and that, articulated with the company’s strategy, will allow it to obtain a sustainable competitive advantage. In figure 2 this conceptual scheme of human resources strategic management and its effect on human capital through the capabilities of human resources management are graphically represented. This means that the human resources management gives the company, develops and maintains a human capital stock with a set of characteristics and enables the development of a specific behavior that is susceptible of becoming a strategic asset for the company.
This new conceptualization of human capital and its integration with strategic management assumes a horizon in the development of the strategic management of human resources. It contributes elements, theoretical models and tools of intervention to know the mechanisms through which it generates value. This integration is also the future challenge that opens this new horizon.?
Bibliography
Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17, 99-120.
Barney, J. B., Ketchen, D. J. y M. Wright (2011). The Future of Resource-Based Theory: Revitalization or Decline? Journal of Management, 37, 1299-1315.
González, L. (2002). Gestión del conocimiento y gestión de recursos humanos: una convergencia necesaria. Revista de Psicología del Trabajo y de las Organizaciones, 18, 177-203.
González, L. (2004). Condiciones para una gestión estratégica de recursos humanos. Encuentros en Psicología Social, 2, 208-213.
Micro Foundation Bases of Human Capital Management
School of Economics and Enterprise
University of Salamanca
Our vision, ideas and beliefs, our images of a Company are frequently formed by elements such as installations, productive processes, machines, tools, management methods, etc. However, in companies – in all companies – there has always existed another component and it is present in all the departments, in all the activity areas. This component, that has received different names throughout history, such as workers, personnel, human resources or employees, is the human capital.
Several theoretical frameworks have been suggested to support and set the basis to manage this company component, amongst which the human capital theory, transaction costs theory, resources dependence theory, institutional theory, agency theory or behavioral theory are outstanding. However, it is the companies resource-based view (RBV) or resources and capabilities theory, the most solid and accepted framework to explain the mechanisms through which human resources and their management can generate a sustainable competitive advantage. Besides being the most accepted, it represents the convergence of strategic management and human resources management.
The appearance of RBV assumed a change in perspective in the companies’ strategic analysis. In accordance with traditional strategic thinking, the company’s sustainable competitive advantage basically depends on the adjustment between its resources and the environment’s conditions, what determines a unique and superior position in front of competitors in terms of costs, differentiation or segmentation. However, since the beginning of the 90s, it has been proven that companies in the same sector and with the same strategy may obtain different and even opposite results. The explanation of these results is not found in the characteristics of the environment, which are the same, or in the adjustment strategy, which is also the same. In order to explain these differences in results, it is necessary to change the point of view from outside to inside the company. This look inside the company discovers the elements that are in the source of these differences in the results, without questioning the need to adjust to the environment through the entrepreneurial strategy. RBV considers that companies are different and heterogeneous in the resources they have and the capabilities they develop by combining the resources, and that it is precisely in these resources and capabilities where the source of sustainable competitive advantage is found.
An organization, a company, is seen as a system or configuration integrated by some objectives and values, a set of resources and capabilities that are necessary to compete in the market, structures, and a strategy in a concrete environment. This conception is not very different from the traditional approaches. This conception comes from the importance granted to the resources and capabilities which are at the base, at the source of the mechanisms through which the company obtains and maintains a competitive advantage. The resources are the tangible as well as intangible factors, the assets owned and controlled by the organization, that participate in the production of goods and services. The capabillities are the dynamic mechanisms that allow companies to carry out activities by integrating the resources to reach a higher performance than their competitors. The joining of resources and capabilities generate organizational competences; that is, that which the organization is capable of doing better than the competition.
One of the main classifications of resources divides them into tangible and intangible resources. The tangible resources are those that have physical support like machines, facilities, tools, financial capital, etc. They can easily be identified, valued and integrated in the company’s accounting statements. Besides the tangible resources, the company also owns and controls intangible resources that do not have physical support, such as patents, brands, culture or human capital amongst others. Unlike tangible resources, the intangible resources are hard to identify, value, and incorporate in the company’s accounting records. This difficulty stems from its main characteristics, amongst which are their specificity, causal ambiguity and social complexity.
From the initial approach of RBV (Barney, 1991) the key role human capital plays in the generation of mechanisms of a sustainable competitive advantage for the company was recognized. However, and as it was recently recognized by Barney, Ketchen and Wright (2011), there has not been an attempt to delve in the knowledge of these mechanisms. This is partly due to an almost exclusive macro focus, centered at the strategic level of RBV. It is necessary to establish the micro foundation of RBV and specially, of human capital and the role it plays in creating a sustainable competitive advantage. This is one of the conclusions derived from the works published in the special issue of the magazine Journal of Management published in September, 2011 and exclusively dedicated to analyze the current and future status of RBV.
In our opinion, the necessary micro foundation of RBV and therefore, of the strategic management of human resources, goes through a new conceptualization of human capital and its articulation with strategic management (González, 2002; 2004). Reducing human capital to the stock of knowledge, capabilities, and skills contributed by the employees to the company does not allow us to know or explain the mechanisms through which value is generated. It is necessary to incorporate to the human capital concept the behavior of employees after they acquire this stock of knowledge, capabilities, and skills. What generates value is the behavior of employees, along with the company´s objectives and strategies. Therefore, in this new conceptualization, human capital is integrated by two components: stock and flow.
Besides the differentiation of these two components of human capital, it is also necessary to expand the elements that traditionally have been associated to the human capital stock. The human capital stock should be formed by all the determining factors of the employee´s behavior. That is, not only by knowledge, capabilities, and skills, that to date have been considered the exclusive elements of human capital, but also by the values, personality traits (such as place of control, self-esteem, self efficacy, resistance to change, etcetera), learning, perception and attribution, attitudes in the work place (satisfaction, commitment, and implication), psychological contract, dedication and motivation at work, just to mention some of the most relevant factors. This expansion is not merely taxonomical, it is rather that the micro foundation of human capital is supported in the articulation with RBV of the knowledge corpus and tools that one has over these elements derived from behavioral sciences. Likewise, the human capital flow component should incorporate all the knowledge background and techniques available on the behavior of employees and that allow us to explain their behavior: performance, absenteeism or turnover, their response to work teams, the processes through which they make decisions or communicate, the way they settle conflicts or the behavior that leads to leadership amongst other things.
Both components of human capital are inseparable. In order to acquire the conduct that allows the company to obtain a sustainable competitive advantage, the employees should have a series of characteristics, specific knowledge, capabilities, skills, personality traits, attitudes, motivation, etc. However, the possession of these characteristics does not generate value to the company if this is not transformed into a behavior. Lastly, we should highlight another one of the human capital characteristics directly related to the mechanisms to obtain a competitive advantage. Lastly, we should highlight another one of the human capital characteristics directly related to the mechanisms to obtain a competitive advantage. The mere possession of a human capital stock does not automatically become the behavior that is required by the Company. It is necessary to manage this human capital stock in order to obtain that behavior. Therefore, the strategic direction of human resources should allow the company to obtain the human capital stock and turn it into flow, in the behavior that will allow it to reach its objectives.
To integrate and develop this resource, strategic direction of human resources carries out a series of activities and practices so that the company acquires the human capital stock it lacks so as to turn it into behavior. Amongst these activities we find, for example, the recruiting, selection, motivation, evaluation of performance, etc. These are dynamic mechanisms of human capital integration and, therefore, capabilities of companies related to the management of human resources. However, regarding human capital, we also find another type of capabilities in companies related to human capital and not to its management; for example, the dynamic mechanisms that integrate and develop the resources that form a self-team. The nature of these capabilities is found in human capital and not in the management modes.
Figura 1. Components of human capital
Therefore, human capital is a strategic asset that can be used as a basis so that the company obtains a sustainable competitive advantage. As shown in figure 1, the two inseparable components of human capital, the static component of the stock and the dynamic one of flow, form the company’s strategic value that allows it to obtain and maintain a competitive advantage. Definitively, human capital is translated to value for the Company through the behavior of the employees, but the necessary conducts to obtain and maintain a competitive advantage do not happen without human capital that has specific characteristics.
Figura 2. Strategic management of human capital
The strategic management of human resources through configurations or high yield practice systems that constitute the human capital management capabilities, gives the Company a human capital stock and transforms it into a specific behavior. This human capital and its management form the competences that organizations related to human resources management and that, articulated with the company’s strategy, will allow it to obtain a sustainable competitive advantage. In figure 2 this conceptual scheme of human resources strategic management and its effect on human capital through the capabilities of human resources management are graphically represented. This means that the human resources management gives the company, develops and maintains a human capital stock with a set of characteristics and enables the development of a specific behavior that is susceptible of becoming a strategic asset for the company.
This new conceptualization of human capital and its integration with strategic management assumes a horizon in the development of the strategic management of human resources. It contributes elements, theoretical models and tools of intervention to know the mechanisms through which it generates value. This integration is also the future challenge that opens this new horizon.?
Bibliography
Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17, 99-120.
Barney, J. B., Ketchen, D. J. y M. Wright (2011). The Future of Resource-Based Theory: Revitalization or Decline? Journal of Management, 37, 1299-1315.
González, L. (2002). Gestión del conocimiento y gestión de recursos humanos: una convergencia necesaria. Revista de Psicología del Trabajo y de las Organizaciones, 18, 177-203.
González, L. (2004). Condiciones para una gestión estratégica de recursos humanos. Encuentros en Psicología Social, 2, 208-213.