For a PDW, I was asked to develop a short list of paradoxes linked to the strategic human capital (spoiler alert for those of you planning to be at the session at 8am on Friday). I’m sure some of them would not surprise you in the least. Others might spur some discussion though. Here is the short list:
- Rent from human capital may not show up in profitability
- “Who” is a firm?
- Firm-specificity isn’t as important as we might think
- HR Departments may not matter much
- High performance work systems don’t tell us much about such advantages
Rent. The first point is what you would expect from me so let me dismiss it quickly. Obviously, if rent is linked to human capital, some portion of it is likely to be captured by people. Nuff said.
Who is a firm? A sharp distinction is made between hiring on the spot market and an internal labor market. Rightly so. However, one might think that once labor is “internal” such people are part of the firm. Read the rest of this entry »
A recent paper by Chad Syverson (2011, JEL) has created a bit of a buzz in strategy research circles. Entitled, “What determines productivity?” this paper surveys work in economics over the past decade or so on persistent differences in levels of firm productivity. As I have pointed out elsewhere, one of the traditional differences between economics and strategy is the focus on efficiency versus distributional issues. Economists tend to be motivated by the former – loosely, how much aggregate value is created in an industry or economy? – and strategy scholars by the latter – loosely, how and why is that value divvied up? Going by the title of this paper, my strategy colleagues might easily pass it up as yet another example of work in economics that doesn’t quite match up with our specific interests.
That would be a mistake. Indeed, I urge all strategy scholars (and those working to become strategy scholars) to take a very careful read of this paper and the papers it cites. Firm “productivity” is, of course, theoretically defined as output per unit of input. In practice, however, empirical measures are often constructed using revenues in the numerator and costs in the denominator. Simply subtract the denominator from the numerator and you have … profit . Thus, many of the citations here are about persistent differences in profit performance among firms … which is exactly the object of interest in strategy.
What surprised me about this paper is just how much work has been done on these issues in the last ten years. Among the sources of systematic and persistent performance heterogeneity examined in recent work are: competition, sunk costs, technology spillovers, organizational structure, human capital, incentive systems, information, learning-by-doing, and managerial talent & practices. I believe that list includes pretty much all the sources of competitive advantage contemplated in the strategy literature. By the way, the paper focuses only on empirical contributions, no theory. One of the striking things about this is the sophistication of the methods used to identify causal effects. Among a raft of others, work by Bloom and Van Reenen (2010) and Forbes and Lederman (2011) stand out as exemplary. Over 100 papers published in the past decade are cited and, again, that’s not counting any theoretical contributions.
On the one hand, it is great to see so much interesting research activity on a topic near and dear to strategy. On the other hand, it seems that strategy has lost interest in the foundational questions that animated it early-on. In the 1990s our field felt alive with big-think empirical work by people like McGahan, Porter, Rumelt, and Henderson. Are we ceding our core issues to economics? Or, does the increasing popularity of these issues in economics just mean more outlets for our work? Either way, my guess is that the indirect competition is good and, to the extent journal editors are paying attention, will tend to raise the research quality bar.
Some time later I was the faculty advisor for a small MBA readings group and one of the books we decided to read was Moneyball. I quickly discovered that the book indeed is a good introduction and case study of some central issues in strategy: human capital, appropriation and competitive advantage. Billy Beane and Paul DePodesta’s strategy was brilliant. As the students read the book, they immediately understood the power of a more scientific approach to managing human capital (e.g., selection) and the power of differentiation. It seems, though I’m no baseball fan (it’s hockey or soccer for me, since I grew up in Finland), that the game of baseball has changed as a result. (Though, of course sabermetrics had been around for quite some time).
I have also now seen the movie. I quite liked it. And the movie stayed relatively true to the book. I may use the movie in future classes, as some sort of extra assignment.
There are certainly some more academic-y strategy issues to discuss related to Moneyball – but perhaps I’ll highlight those in a later post. As Google Scholar shows, Moneyball seems to have influenced research in various disciplines (psychology, decision-making, human resources, economics).
Here are some academic blogs that have recently reviewed Moneyball, the movie:
- Christine Hurt at the Conglomerate.
- Fabio Rojas at orgtheory.net.
- Greg Mankiw only makes a remark about the Harvard-Yale issue.