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Organizations have traditionally sought to gain and sustaincompetitive advantage through the acquisition of critical tangibleresources. But more recently, management scholars have come toappreciate the importance of human resources as a source ofcompetitive advantage. Human resources are especially valuable toknowledge-based firms because of their ability to create, use, andshare knowledge. Once knowledge assets are acquired, organizationsand HR systems must be designed in a way that best enablesemployees to use that knowledge and make the firm competitive. Butwhile these tasks include processes that are familiar to industrial/organizational (I/O) psychologists, many in the field are notsufficiently familiar with the relevant theory, research, andpractice to understand how to apply their unique expertise.
This eighteenth volume in the Jossey-Bass Organizational FrontiersSeries provides an in-depth examination of how I/O psychologistscan help find, recruit, and manage knowledge. The authors explainthe nature of different types of knowledge, how knowledge-basedcompetition is affecting organizations, and how these ideas relateto innovation and learning in organizations. They describe thestrategies and organizational structures and designs thatfacilitate the acquisition and development of knowledge. And theydiscuss how continuous knowledge acquisition and innovation ispromoted among individuals and teams and how to foster the creationof new knowledge. In addition, they explain how to assess theclimate and culture for organizational learning, measure andmonitor knowledge resources at the organizational level, andmore.
Managing Knowledge for Sustained Competitive Advantage will benefitall I/O practitioners and researchers who want to acquire the mostup-to-date data and theory regarding the important role knowledgeplays in organizations and how organizations can best acquire,develop, retain, and strategically use that information to be moreproductive.
Foreword (Neal Schmitt).
Part One: Introduction.
1 The Knowledge-Based Approach to Sustainable CompetitiveAdvantage (Angelo S. DeNisi, Michael A. Hitt, Susan E.Jackson).
Part Two: Work and Organizational Designs for Knowledge-BasedCompetition.
2 Alternative Strategies for Acquiring Knowledge (David L.Deeds).
3 Organizing for Knowledge-Based Competitiveness: AboutPipelines and Rivers (C. Marlene Fiol).
4 Designing Work for Knowledge-Based Competition (Susan AlbersMohrman).
Part Three: Staffing Organizations for Knowledge-BasedCompetition.
5 Managing the Human Resource Architecture for Knowledge-BasedCompetition (David P. Lepak, Scott A. Snell).
6 Hiring for Knowledge-Based Competition (Elaine D. Pulakos,David W. Dorsey, Walter C. Borman).
7 Contracting Talent for Knowledge-Based Competition (AlisonDavis-Blake, Pamsy P. Hui).
Part Four: Developing and Motivating Employees forKnowledge-Based Competition.
8 Knowledge Management: Developing Intellectual and SocialCapital (Raymond A. Noe, Jason A. Colquitt, Marcia J. Simmering,Sharon A. Alvarez).
9 Stimulating and Supporting Creativity in Organizations (GregR. Oldham).
10 Reward Systems in Knowledge-Based Organizations (Edward E.Lawler III).
11 Retaining Knowledge by Retaining Technical Professionals:Implications of the Unfolding Turnover Model and the JobEmbeddedness Construct (Steven D. Maurer, Thomas W. Lee, Terence R.Mitchell).
Part Five: Measuring Knowledge-Based Resources.
12 Assessing the Culture and Climate for Organizational Learning(Lois E. Tetrick, Nancy Da Silva).
13 Strategic Knowledge Measurement and Management (John W.Boudreau).
Part Six: Conclusion.
14 Managing Human Resources for Knowledge-Based Competition: NewResearch Directions (Susan E. Jackson, Michael A. Hitt, Angelo S.DeNisi).
Angelo S. DeNisi Michael A. Hitt Susan E. Jackson
In the twenty-first-century landscape, firms must compete in a complex and challenging context that is being transformed by many factors, from globalization, technological development, and increasingly rapid diffusion of new technology, to the development and use of knowledge (Hitt, Keats, & DeMarie, 1998). This new landscape requires firms to do things differently in order to survive and prosper. Specifically, they must look to new sources of competitive advantage and engage in new forms of competition. This, in turn, requires a clear understanding of the nature of competition and competitive dynamics.
One popular approach to understanding competitive dynamics is the resource-based view of the firm. According to this view, the explanation for why some firms ultimately succeed and others fail can be found in understanding their resources and capabilities. A firm's resources and capabilities influence both the strategic choices that managers make and the implementation of those chosen strategies. (The recent debate over this model suggests there are challenges involved in applying it; see Priem & Butler, 2001; Barney, 2001.)
To understand why certain competitive strategies are more effective thanothers, one must consider the distribution of resources in competing firms. Although a given firm may possess more or less of any particular resource, only those resources that are rare, valuable, and difficult to imitate provide a sustainable competitive advantage (Amit & Schoemaker, 1993; Barney, 1991; Schoenecker & Cooper, 1998). When the strategies employed are successful in leveraging the firm's rare, valuable, and difficult-to-imitate resources, that firm is likely to gain an advantage over its competitors in the marketplace and thus earn higher returns (Hitt, Nixon, Clifford, & Coyne, 1999). Competitive advantages that are sustained over time lead to higher performance (Peteraf, 1993).
These arguments are somewhat clear when we consider tangible resources such as buildings, machinery, or access to capital. And in the more traditional competitive landscape, these tangible resources were the most important potential sources of competitive advantage. Thus, if a firm could modernize its plant, or develop a more efficient distribution process, or access cheaper credit, it could compete successfully and prosper. But firms employ both tangible and intangible resources in the development and implementation of strategies, and as the nature of work and competition changes, intangible resources are becoming more important. Examples of intangible resources are reputation, brand equity, and-for our purposes the most important of these-human capital. In fact, in any competitive landscape it has been argued that intangible resources are more likely to produce a competitive advantage because they often are truly rare and can be more difficult for competitors to imitate (see Black & Boal, 1994; Itami, 1987; Rao, 1994).
Among a firm's intangible resources, human capital may be the most important and critical for competitive advantage because it is the most difficult to imitate. For example, Miller and Shamsie (1996) discussed the role of stars, or "talent," in the success of the Hollywood studios in their heyday, the 1930s and 1940s. The stars were developed so that each had a unique reputation or image that was difficult for a rival studio to imitate. Yet as Miller and Shamsie note, rival studios often did try to develop their own versions of other studios' stars by trying to imitate their "image"-for example, Warner Brothers developed Tyrone Power to compete with MGM's Clark Gable. But this approach was generally unsuccessful because it focused on the star alone.
In the competitive environment of the motion picture industry at that time, imitating only the star was rarely enough to create similar value. This was because the star's value to the studio was enhanced through integration with other studio resources. Thus, having a great musical talent was an important resource for a studio. But in order for the studio to turn that talent into a competitive advantage, it also needed people who could successfully write musicals, someone to direct them, and still others who could costume a star in a musical, design the right makeup, and film the movie in the best way. In other words, the star's value was partly a function of the others at the studio with whom he or she worked. Therefore, social complexity and ambiguity is created, making the integration of these resources difficult to imitate.
A firm's access to such bundles of integrated resources and the difficulty of imitating them are the ultimate source of competitive advantage. Any organization that seeks a competitive advantage through human resources thus must both acquire the "right" resources and take the steps required to leverage them.
Generally speaking, human capital is more mobile than other intangible resources (see Teece, Pisano, & Shuen, 1997). Therefore, it may seem an unlikely source of sustained competitive advantage. The Hollywood studios sought to reduce the mobility of human capital by signing their stars to long-term exclusive contracts. Such contracts are no longer feasible in the movie industry, nor are they usually feasible elsewhere. Yet the mobility of human capital is less a threat to competitive advantage than it would first seem to be. Once an organization integrates human capital with other complementary resources (as explained earlier) and uses this integration to create organizational capabilities (that is, leverages them), losing one or a few individuals may not lead to a loss of competitive advantage. Instead, a competitor would have to gain access to all of the resources and the system in place to leverage those resources. Thus, returning to the studio example, a rival studio would have had to lure away the star, the writer, the director, the costume designer, and the cameraperson in order to gain a sustainable advantage-an extremely difficult task. As a result, despite the mobility of talented employees, human capital is now seen as one of the most important sources of competitive advantage.
Human Capital as a Strategic Resource
Human capital is a general term that refers to all of the resources that individuals directly contribute to an organization: physical, knowledge, social, and reputational. However, we need to understand what it is about human capital resources that helps individuals contribute to gaining and sustaining a competitive advantage. During the industrial age, human capital was valued because of physical resources such as strength, endurance, and dexterity-these were the aspects of human capital that were most likely to lead to competitive advantage. But as new machinery and technology were introduced, these characteristics became less important. In the current economic landscape, human capital is more likely to be valued for intellect, social skills, and reputation.
For example, Miller and Shamsie (1996) noted that the studios' reliance on long-term contracts with well-developed stars (or "properties," as they called them) was successful only as long as the competitive environment was predictable and stable. When the studios lost their movie theaters, the stars gained more power, and the television grew as an entertainment alternative for the general public, this approach to gaining competitive advantage was no longer successful. In the more dynamic environment, managing knowledge-based resources, or intellectual resources, became the key. In today's competitive environment, where there is even more uncertainty and dynamism, these knowledge-based resources are even more important than they were in the past.
The term knowledge-based resources refers to skills, abilities, and learning capacity. People can develop these through experience and formal training. Social resources (now sometimes referred to as social capital) include the personal relationships that bind together members of an organization as well as relationships that link organizational members to other external sources of human capital. Through social capital, individuals can gain access both to other human resources (the physical and intellectual capital, for example) and to other forms of capital (financial, for example). Reputational capital is less personal. Often it accrues through associations with prestigious organizations. For example, people with degrees from the more respected educational institutions have greater access to valued resources simply because of the reputation of their alma maters.
We must emphasize again, however, that it is not enough to acquire individuals who have such attributes. It is also necessary to develop structures, systems, and strategies that allow the organization to exploit the resources and gain competitive advantage. For example, a football team that acquires a strong passing quarterback only gains a competitive advantage when it shifts its offensive strategy to focus on passing. Professional baseball teams often have groundskeepers cut the grass closer (or not) depending on whether the team currently includes players who tend to hit ground balls into the infield. In these ways, the teams leverage their resources to gain an advantage.
Professional service firms leverage their human capital by forming project teams led by senior experienced professionals, often partners in the firm. The other members of the project teams usually are younger, less experienced associates. In this way, they leverage their most valuable human capital to complete projects for clients. Working together on the project also allows the associates to gain some of the tacit knowledge possessed by the more senior partners; they learn by doing (Hitt, Bierman, Shimizu, & Kochhar, 2001).
Of course, some scholars and practitioners have always understood the role of human capital in creating an organization's success. Carly Fiorina, CEO of Hewlett-Packard, emphasized the role of human capital in an address she made to MIT graduates: "The most magical and tangible and ultimately the most important ingredient in the transformed landscape is people. The greatest strategy ..., the greatest financial plan ..., the greatest turnaround ..., is only going to be temporary if it is not grounded in people" (Fiorina, 2000). The field of I/O psychology has also recognized the important role human capital plays in organizational effectiveness and performance, and has long suggested better ways to select and develop employees.
Nevertheless, I/O psychology has traditionally been concerned only with the acquisition and development of these resources. There has been little concern with how to integrate them into an overall strategy that would enable a firm to leverage the resources it acquires or develops. Furthermore, I/O psychologists have been primarily concerned with improving individual performance, and more recently, work group performance. They assume that improving performance at these levels will lead to improvement at the organizational level, but this assumption is seldom tested. For example, psychologists have recommended hiring "better" employees, which often means employees with greater intellectual or knowledge resources, but mostly because these employees could be expected to perform their jobs with greater proficiency. The assessment of performance has been almost exclusively at the level of the individual or the team, and little attention has been paid to the processes or structures by which individual or team-level performance could be translated to organizational-level performance or competitive advantage (for example, DeNisi, 2000).
Utility analysis (see Boudreau, 1991; Cascio, 1987) has allowed the fields of I/O psychology and human resource management to demonstrate further how these increases in performance can be expressed in real dollars. Usually, work in this area (for example, Huselid, 1995) calculates the value of human resource practices rather than the value of the human resources themselves. Research in other areas, however, has demonstrated how human resources can produce higher organizational performance (Wright, Smart, & McMahon, 1995; Pennings, Lee, & van Witteloostuijn, 1998), especially when these resources are used explicitly in the implementation of a firm's strategies (Hitt, Bierman et al., 2001).
This brings us to one of the primary purposes of this volume: to encourage I/O psychologists to think more about the implications of their work for firm performance and competitive advantage. Some I/O scholars have begun to think about their work in these broader terms, but it is still the exception rather than the rule (for example, Jackson & Schuler, 2001; Klein, Dansereau, & Hall, 1994; Klein & Kozlowski, 2000; Schuler & Jackson, 1987; Schweiger & DeNisi, 1991). We hope to change that. We also want to focus attention on a specific but very important subset of human capital resources: knowledge-based resources. As noted earlier, in the new competitive landscape knowledge-based resources are the most critical for gaining sustained competitive advantage.
We also believe it is important for I/O psychologists to appreciate that organizations do not achieve and sustain a competitive advantage simply by possessing knowledge-based (or any other unique) resources. The firm must effectively manage those resources in ways that allow it to leverage and exploit them. Capabilities refer to a firm's ability to integrate and deploy its resources to achieve a desired goal (Hitt, Ireland, & Hoskisson, 2001). Thus, we also have created this volume to help I/O psychologists understand how they can work with organizations and assist them in developing the strategic capabilities they need to gain and sustain a competitive advantage. We begin by discussing in more detail exactly what we mean by knowledge-based resources.
Knowledge-based resources include all the intellectual abilities and knowledge possessed by employees, as well as their capacity to learn and acquire more knowledge. Thus, knowledge-based resources include what employees have mastered as well as their potential for adapting and acquiring new information. For several reasons, these resources are seen as being extremely important for sustaining competitive advantage in today's environment.
First, the nature of work has been changing over the past several decades, so that many jobs require people to think, plan, or make decisions, rather than to lift, assemble, or build. This kind of work requires both tacit and explicit knowledge (see the following section) and the ability to apply that knowledge to work.
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