human assets and management dilemmas: coping ...

~e~ Academy of Management Review

1997, Vol. 22, No.2, 374-402.

HUMAN ASSETS AND MANAGEMENT DILEMMAS: COPING WITH HAZARDS ON THE ROAD TO RESOURCE-BASED THEORY RUSSELL W. COFF Washington University in St. Louis Resource-based theorists argue that human assets can be a source of sustainable advantage because tacit knowledge and social complexity are hard to imitate. However. these desirable attributes cause dilemmas that may prevent firms from generating an advantage. This article develops a framework for analyzing and coping with these challenges. Although the problem arises from the strategy literature. the solutions are drawn from the organizational behavior. human resource manageIIlent. human capitaL and professions literatures. Finally. I examine implications for how insights from these diverse literatures can be integrated to guide future strategy research.

Like human assets, an oil field may be a strategic asset. However, once acquired, an oil field 1. 2. 3. 4.

Cannot quit and move to a competing firm. Cannot demand higher or more equitable wages. Cannot reject the firm's authority or be unmotivated. Need not be satisfied with supervision. coworkers. or advancement opportunities.

Resource-based theorists argue that sustainable competitive advantage stems from unique bundles of resources that competitors cannot imitate (Barney, 1991; Wernerfelt, 1984). Following this, prescriptive advice to managers revolves around identifying and acquiring these critical resources. Thus, Barney (1991: lID) noted, "physical technology, whether it takes the form of machine tools or robotics in factories or complex information management systems, is by itself typically imitable." In contrast, human assets are often hard to imitate due to scarcity, specialization, and tacit knowledge (Lippman & Rumelt, 1982; Polanyi, 1962; Teece, 1982). However, human assets differ from an oil field. Merely having talented employees does not mean that a sustainable advantage exists. Such assets are hard to imitate because they are difficult to understand and observe

I w-ant to thank Jay Barney, Bill Bottom, Lynnea Brumbaugh-Walter, Connie Helfa!, Bob Hoskisson, Julia Leibeskind, Judi McLean Parks, Laura Poppo, Bill Schulze, Ken A. Smith, Todd Zenger, and many others for their suggestions. I also ow-e special thanks to Alison Davis-Blake, Susan Jackson, and three anonymous review-ers for their guidance and w-isdom.

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(Barney, 1991; Peteraf. 1993). If tacit knowledge cannot be conveyed, how can management organize employees to attain an advantage? Tacitness may be desirable because it is hard to imitate, but as a result, firms must face serious management problems. Unfortunately, while resource-based theory extols the benefits of human assets, it does not examine how the related management dilemmas may prevent firms from generating an advantage. Compared to physical assets, human capital is associated with serious information problems and the threat of voluntary turnover (Cascio, 1991; Chiang & Chiang, 1990; Steffy & Maurer, 1988). In this article, I argue that firms cannot achieve a sustainable advantage from human assets unless they are able to cope with the associated management dilemmas. The most obvious problem is that the firm's assets walk out the door each day, leaving some question about whether they will return. Although the problem of managing human assets arises from the strategy literature, insight into coping strategies emanates from the organizational behavior, organizational theory, and human resource management literature. Accordingly, the first part of this article draws on the strategy literature to analyze how attributes that make human assets hard to imitate also lead to management dilemmas. The second half uses a variety of literatures to describe coping strategies that may help to mitigate the problems. The final section outlines implications for research and practice.

ANALYSIS OF HUMAN ASSETS AND MANAGEMENT DILEMMAS Before discussing how firms can cope with human assets, it is important to define what is meant by the term human asset and examine the challenges that such assets pose. Human assets are a special form of strategic asset (Amit & Schoemaker, 1993). Specifically, they are human capital under limited organizational control that have the potential to generate economic rent. l This definition is similar to the economic concept of human capital. From that standpoint, the concept explored here is neither new nor controversial. However, the management dilemmas associated with human assets have not been fully articulated in the human capital literature. The framework in Figure 1 helps to illustrate how the attributes that make employees strategic assets also make them difficult to manage. The first column shows the properties of human assets that make them so promising. These, in turn, are associated with the challenges in the second column. The third column lists a typology of strategies that may help firms

j Economic rent refers to profit in excess of normal economic returns. Thus. it is not just profit. but unusually high profit. A sustained competitive advantage means that rent is generated for an extended period.

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Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.

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FIGURE 1 Framework for Human Assets and Management Dilemmas a HUMAN-ASSET ATTRIBUTES

MANAGEMENT DILEMMAS

COPING STRATEGIES Retention

• Nonfinancial job satisfaction

. Asset Specificity

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• Firm-specific pay and skills

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While this is a hazar~ for all human assets, the nsk IS greater for skills other firms can apply. " ...

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