Wanted: Human Capital Research(ers)

1 September 2009 at 5:46 pm RussCoff Leave a comment

| Russ Coff |

Human Capital Interest Group? First a self-serving announcement. I’m part of an effort to create a new SMS interest group on Human Capital & Competitive Advantage (HC&CA). I need to gauge interest and identify people who would want to be involved if the proposal moves forward. We need people who are interested in: 1) Program Chair or Associate Program Chair, 2) Launch Planning Committee, or 3) Friends of HC&CA (email list). Please nominate yourself or others here.

General Human Capital and Competitive Advantage. Now for the meat: Why I think human capital is such fertile ground. Strategy research tends to adopt very unrealistic assumptions about markets for human capital. As a result, shorthand like “firm-specific” human capital inaccurately reflects its strategic potential.

For example, I believe that there is a huge opportunity for research on general human capital as a source of competitive advantage. How could this be? If we examine the implicit assumptions, we can see beyond our blinders. First, general human capital (or industry specific) does not imply an abundant or commodity-like asset — merely that it is valued across firms. Such expertise can still be quite valuable and rare. If so, it can serve as a source of firm heterogeneity.

Second, there is an underlying assumption that markets for general human capital are highly competitive (and the asset’s value is fully bid away). However, labor markets are plagued with information asymmetries and other frictions so this is far from obvious (see the cartoon below ;-). Indeed, labor markets are the setting where Spence developed his classic work on signalling (not to mention Ivar Berg’s “Great Training Robbery“). How could we assume perfect competition in such markets?

Third, and the heart of some of my own work, even in the extreme case where human capital fully appropriates its value, the firm may still have an advantage over rivals in product markets. While rent may not be appropriated by shareholders, it would still be evident within the nexus of contracts. Most definitions of competitive advantage (Peteraf & Barney, etc.) would include this.

This strikes me as very fertile ground in which to grow new strategy theory.