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IJRAR1AXP005 International Journal of Research and Analytical Reviews (IJRAR) www.ijrar.org 78

Strategic human resource management, human

capital and competitive advantage:

is the field going in circles?

Dr. Kiran R. Naik.

Director’ Skill Development

Vision Fly

2nd Floor, Above Malabar Gold,

Adarsha Mall, Beside Hotel Adarsha Palace,

Opposite RLS College,

College Road

Belagavi -590001

Abstract

The resource‐based view (RBV) of the firm has been consistently used as a backdrop in strategic human resource

management (SHRM) research and has the potential to bridge the ‘micro–macro’ divide. The tension between the

SHRM and the strategic human capital literature, however, signifies that RBV has not reached its potential. In this

paper, we begin with a brief review of the conceptual logic linking human resource management (HRM) practices

and firm outcomes that aim at highlighting the different treatment of RBV in the SHRM and strategic human capital

literatures. We then propose a conceptual model that suggests that HRM practices are not simple levers that enable

firms to create sustainable competitive advantage, as most of the strategic human capital research postulates. On the

contrary, we argue that HRM practices can contribute to a firm's sustainable competitive advantage not only by

enhancing employees' ability, and offering motivation and opportunities, but also by shaping supply‐side and

demand‐side mobility constraints.

Introduction

The resource‐based view (RBV) (Penrose, 1959; Wernerfelt, 1984; Barney, 1991) arguably constitutes one of the

most popular theoretical frameworks in the management literature. RBV, suggesting that sustainable competitive

advantage can be achieved through valuable, rare, imperfectly imitable and non‐substitutable resources

(Barney, 1991), is especially appealing for both human resource management (HRM), particularly strategic human

resource management (SHRM) and strategy scholars. Thus, RBV has the potential to narrow the micro–macro divide

(e.g. Wright et al., 2001; Nyberg and Wright, 2015). The extent to which RBV has managed to bridge this gap is,

however, questionable.

On the one hand, SHRM scholars argue that HRM practices can be a source of sustainable competitive advantage

(e.g. Pfeffer, 1994; Becker and Gerhart, 1996; Boxall, 1996). HRM practices, when viewed as systems of

‘interrelated and internally consistent’ practices (MacDuffie, 1995: 198), can be unique, causally ambiguous,

synergistic and difficult to imitate (Lado and Wilson, 1994). In line with these conceptual arguments and despite

some substantive (Kaufman, 2010) and methodological concerns (Cappelli and Neumark, 2001), the SHRM

research has provided compelling evidence for the relationship between HRM practices and various firm‐level

outcomes (e.g. Arthur, 1994; Huselid, 1995; MacDuffie, 1995; Delery and Doty, 1996; Ichniowski et al., 1997;

Delery, 1998; Boselie et al., 2001; Combs et al., 2006).

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On the other hand, advocates of the ‘human capital advantage’ (Boxall, 1998) postulate that ‘it is virtually impossible

for HR practices to be rare, inimitable and non‐substitutable’ (Wright et al., 1994: 318). Others contend that the

evidence for the impact of HRM practice on workforce behaviours and skills is inadequate. For instance, Wright et

al. argue that even though RBV constitutes an appealing underlying rationale for the SHRM literature, ‘as yet no

study has demonstrated anything close to a full causal model through which HR practices are purported to impact

firm performance’ (2001: 709). Thus, HRM practices are treated in most of the human capital literature, at best, as

simple ‘levers’ in the relationship between human capital resources and sustainable competitive advantage.

With the tension between the SHRM and human capital camps in mind, the purpose of this paper is twofold. We

begin with a brief review of the conceptual logic linking HRM practices and firm outcomes. The intent is not to

present a comprehensive review but rather to emphasise some of the major perspectives over the past three decades

regarding what has been termed as the HRM practices‐firm outcomes ‘black box’ (Becker and Gerhart, 1996;

Guest, 1997; Wright and Gardner, 2003; Wall and Wood, 2005). The ultimate goal of this journey through the

SHRM conceptual logic is to highlight the debate between SHRM and strategic human capital research regarding

the treatment of RBV. Acknowledging the strategic human capital literature has made important steps forward in

theory development by explicating the differences between basic concepts (e.g. human capital and human capital

resources) and offering complex models of human capital resources (e.g. Ployhart and Moliterno, 2011; Brymer et

al., 2014; Ployhart et al., 2014), we emphasise that the inability to test these complex human capital models, the

broader measurement issues and the imperfections of the labour market (e.g. Campbell et al., 2012b) constitute

important drawbacks in this research stream. We further argue that, given the criticality of the management of human

capital resources in creating and capturing value (e.g. Wright et al., 1994; Sirmon et al., 2007; Wright and

McMahan, 2011; Nyberg et al., 2014), the human capital stream of research brings us back to the importance of

HRM practices and systems in generating and sustaining competitive advantage.

The second objective of this paper is to add to this ongoing debate between SHRM and human capital scholars by

arguing that HRM practices are not simple levers that enable firms to generate sustainable competitive advantage.

Drawing on Campbell et al. (2012b) framework and the ability–motivation–opportunity (AMO) model

(Appelbaum et al., 2000; Purcell and Hutchinson, 2007), we offer a conceptual model that sheds light on how high‐

performance work practices (HPWPs) not only enhance employees' knowledge, skills, abilities and other

characteristics (KSAOs), and offer motivation and opportunities to leverage these resources, but also contribute in

shaping the supply‐side and demand‐side mobility constraints thought to enable firms to generate competitive

advantage through these resources. Thus, we propose that firms can gain competitive advantage only through the

interplay between human capital resources and HRM practices – each shaping and bringing about the other.

Review of the Conceptual Logic

This review of the conceptual logic linking HRM practices and firm outcomes focuses on identifying the major

perspectives, namely, early SHRM, behavioural perspective, AMO and RBV that have dominated the relevant

literature. Even though we discuss these four rationales as distinct from one another and in a specific order, in reality,

the evolution of the SHRM conceptual logic is more complex: their boundaries are not always clear, their

development is more simultaneous rather than sequential and they are complementary rather than conflicting.

Early strategic human resource management

During the late 1970s and early 1980s, the conceptual foundations of SHRM emerged. Dyer (1984), Fombrun et

al. (1984), Kochan et al. (1986) and Walker (1980) were among the pioneering scholars who linked HRM and

business strategy. For instance, Dyer (1984) presented a research agenda that explicitly acknowledged the role of


























business strategy and HRM systems in influencing firm outcomes. This early work triggered seminal empirical

studies (e.g. Arthur, 1992, 1994; Huselid, 1995; MacDuffie, 1995; Delery and Doty, 1996) that provided evidence

for the HRM–firm performance relationship. This work, however, led to questions regarding the underlying logic of

this relationship, shifting the attention to the mediating mechanisms of the HRM‐performance ‘black box’ (Boxall

and Purcell, 2008). This ‘black box’ constitutes the underlying driving force for the theoretical and empirical

research that followed.

Behavioural perspective

One of the first efforts to describe the ‘black box’ of the HRM–performance relationship was the behavioural

perspective (e.g. Schuler and Jackson, 1987; Jackson et al., 1989). The behavioural perspective, grounded in

contingency theory (Fisher, 1989), suggests employee behaviour as the mediating mechanism between the HRM

practices and performance. HRM practices are viewed as a firm's most direct means of eliciting and sustaining

desired employee behaviours, such as task‐related behaviour and organisational citizenship behaviours (Coff and

Kryscynski, 2011).

The work of Schuler and Jackson (1987) pushed research beyond the universalistic approach which suggests there

are ‘best practices’ that yield superior organisational outcomes across situations (Delery and Doty, 1996). This

research stream (e.g. Lengnick‐Hall and Lengnick‐Hall, 1988; Gomez‐Mejia and Balkin, 1992), on the contrary,

adopts a contingency approach (Delery and Doty, 1996). This approach focuses on ‘external’ or ‘vertical’ fit (Baird

and Meshoulam, 1988; Wright and McMahan, 1992) highlighting the importance of alignment between HRM

practices and the broader identity and characteristics of the firm, including its strategy (Boxall, 1992). As an attempt

to explain how specific HRM activities can elicit strategically desired employee behaviours, the AMO framework

emerged.

Ability–motivation–opportunity model

Extending the behavioural approach and building on expectancy theory (Vroom, 1964; Lawler, 1971), the AMO

model (Appelbaum et al., 2000; Purcell and Hutchinson, 2007) evolved as an effort to better explicate how HRM

practices elicit desired outcomes. This model proposes that the relationship between HRM practices and employee‐

level and firm‐level outcomes is mediated by the direct effect these practices have on employees' abilities, motivation

and opportunities.

An important contribution of the AMO model is that it emphasises the need to look beyond vertical fit. The systems

approach that emerged suggests that it is the appropriate combination of different HRM practices rather than

individual practices that can ensure the enhancement of all three components of the AMO model and ultimately lead

to high employee or workforce performance. At the core of this rationale lies the concept of ‘internal’ or ‘horizontal’

fit (Baird and Meshoulam, 1988; Wright and McMahan, 1992) highlighting the significance of fit and interplay

among HRM practices (Wright and McMahan, 1992; Delery, 1998; Boxall and Purcell, 2000). This line of research

does not necessarily disregard the importance of vertical fit but usually adopts a configurational approach that

emphasises the need for both horizontal and vertical fit (Delery and Doty, 1996).

Along these lines, MacDuffie (1995) proposed the notion of ‘HRM bundles’ and demonstrated empirically that

systems of HRM practices can interact in complex ways to lead to superior performance. Extending this concept,

Becker et al. emphasised that firms should avoid ‘deadly combinations’ [HRM practices that in isolation lead to

beneficial firm outcomes but when taken as a group are a ‘recipe for disaster’ (1997: 43)] and aim for ‘powerful

connections’ (HRM practices with synergies or complementarities). Ichniowski et al. (1997), in a sample of steel



































finishing lines, used cluster analysis to group HRM practices and demonstrated that plants using an ‘innovative’

HRM system (including practices such as flexible job assignments and incentive pay) were leading in terms of

productivity and product quality. More recently, Delery and Gupta (2016) conducted a more direct examination of

the systems perspective. The authors, on the basis of theory and comparing the results from different methodological

approaches, found that ability‐enhancing, motivation‐enhancing and opportunity‐enhancing HRM practices interact

in an intricate manner to influence organisational effectiveness. Thus, there seems to be strong support that AMO

helps explain establishment effectiveness. Given, however, that the ultimate goal of the SHRM literature is to link

HRM practices with firm‐level outcomes, SHRM researchers turned to strategy literature for conceptual rationales

that would legitimise the macro‐level nature of SHRM. RBV emerged as a conceptual approach that has the potential

to support SHRM in its attempt to bridge the micro–macro divide.

Resource‐based view

Resource‐based view (Penrose, 1959; Wernerfelt, 1984; Barney, 1991) has been consistently used, explicitly or

implicitly, as a backdrop in SHRM and strategy research. However, RBV is treated differently by HRM and strategy

researchers (e.g. Nyberg and Wright, 2015). Thus, despite its potential to narrow the gap between the micro and

macro research, RBV has triggered an ongoing debate: Are the HRM practices or the human capital resources, the

resources that have the potential to generate sustainable competitive advantage?

According to the first line of RBV research, HRM activities, when appropriately designed and implemented, have

the potential to generate and maintain competitive advantage (Lado and Wilson, 1994; Pfeffer, 1994; Becker and

Gerhart, 1996). MacDuffie and Kochan (1995), for instance, found that higher investments in training were

associated with higher levels of productivity. Snell and Dean (1992) showed that firms investing in selective staffing,

performance appraisals for developmental purposes and intensive training are more likely to successfully implement

sophisticated new technological systems. Overall, it can be inferred from the relevant literature (e.g. Lado and

Wilson, 1994; Becker and Gerhart, 1996) that competitive advantage may emerge when HRM activities focus on

developing firm‐specific skills (less transferable than generic skills), the HRM function invests in team building

(team outcomes are less imitable and transferable due to causal ambiguity and social complexity), and HRM

activities are combined in highly integrated and coherent bundles (harder to imitate).

Drawing on Osterman's (1987) differentiation of the workforce rationale, several authors (e.g. Delery and

Shaw, 2001; Becker et al., 2009) argued that firms should treat different groups of their workforce with different

sets of HRM practices. Lepak and Snell (1999) suggested that jobs can be differentiated on the basis

of value and uniqueness and each of the emergent job families should be treated with the corresponding employment

mode. It has also been suggested that firms should pay particular attention to employees possessing core

competencies or strategic capabilities, which are conceptualised as the resources leveraged to achieve strategic

objectives (Becker and Huselid, 2006), because the better management of the core workforce is more likely to have

the greatest impact on the firm's value creation (Delery and Shaw, 2001).

The second RBV‐based stream of literature advocates that human capital resources constitute the main source of

sustainable competitive advantage. Based on the argument that HRM practices can be replicated over time by

competitors (Wright et al., 1994; Chadwick and Dabu, 2009), human capital resources, via their unique

combinations (Ployhart et al., 2014), have the potential to generate sustainable competitive advantage (Nyberg et

al., 2014). The underlying assumption is that firm‐specificity constrains the mobility of the valued human capital

(Williamson, 1988; Hatch and Dyer, 2004). Some scholars (Barney and Wright, 1998; Campbell et al., 2012b),

however, have highlighted some concerns regarding this assumption.






























In line with these concerns, Campbell et al. (2012b) attempted a more in‐depth analysis of the workings of the labour

market and the conditions under which human capital leads to competitive advantage. On the demand‐side, the

authors, in arguments consistent with Barney and Wright (1998), suggest that generic human capital, under specific

market conditions, can also generate competitive advantage. Given that employees usually possess both firm‐

specific and general human capital (Lazear, 2009), viewing firm specificity as an effective demand‐side mobility

constraint is a myopic approach because competitors might perceive as valuable what the focal firm considers as

generic (Campbell et al., 2012b). In addition, the labour market information imperfections (Chiang and

Chiang, 1990) might lead to undervaluing general or overvaluing firm‐specific human capital. On the supply‐side,

Campbell et al. (2012b) indicated two important imperfections. First, mobility costs go above and beyond search,

bargaining and switching costs; idiosyncratic preferences (e.g. geographic preferences and non‐pecuniary rewards)

and legal restrictions are also included in the costs employees encounter when switching employers. Second,

employees, due to information asymmetries, are not always able to appropriately estimate their employability (value

in the external labour market).

Another important concern about much of the human capital literature is the implicit assumption that individual

KSAOs are automatically translated into positive firm outcomes (Barnes et al., 2016). Human capital only has the

potential to generate sustainable competitive advantage – it has to be leveraged appropriately to do so (Wright and

McMahan, 2011; Nyberg et al., 2014). HRM practices can create and leverage human capital resources. As

Wright et al. noted, ‘sustained competitive advantage is achieved only by the interaction between the human capital

pool and the HR practices’ (1994: 320). The human capital approach, consequently, brings us back to square one –

the relationship between HRM practices and performance.

Following the calls for a more refined approach to the HRM‐firm performance relationship, in the next section, we

explore a model that builds upon the AMO model and the framework of Campbell et al. (2012b). The objective of

this model is not to offer new ideas in exploring the HRM practices–firm outcomes relationship, but rather to bridge

the SHRM literature and strategic human capital research by emphasising the criticality of HPWPs not only in

developing KSAOs, motivation and opportunities but also in building supply‐side and demand‐side mobility

constraints for human capital resources.

High‐Performance Work Practices, Human Capital and Sustainable Competive Advantage

As the journey through the conceptual logic of SHRM revealed, current research is divided in two streams: the

‘organisational processes advantage’ (stemming from superior organisational processes) and the ‘human capital

advantage’ (stemming from superior human capital resources) (Boxall, 1998). Compelling arguments and evidence

exist for both approaches. Proponents of the ‘organisational processes advantage’ have provided evidence that

HPWPs may, when aligned with the overall strategy and targeted towards the core workforce, generate the KSAOs,

motivation and opportunity required for achieving superior firm outcomes (e.g. Arthur, 1994; Huselid, 1995;

MacDuffie, 1995; Delery and Doty, 1996). An important deficit of this research, however, is the lack of consensus

regarding which practices should be considered as HPWPs (Combs et al., 2006; Kepes and Delery, 2007).

The human capital perspective, resting on the assertion that HPWPs can be replicated by competitors over time

(Wright et al., 1994; Chadwick and Dabu, 2009), suggests that the kernel of sustainable competitive advantage is

the human capital resources. Human capital is not only considered as the source of sustainable competitive advantage

simply because of its competencies but also because of its capacity to provide solutions to managerial dilemmas,

such as the recruitment of high‐quality applicants (Coff and Kryscynski, 2011). In support of the human capital

advantage perspective, the meta‐analysis of Crook et al. (2011) indicates that there is a positive relationship between
























human capital and firm performance (the human capital‐global firm performance path coefficient was 0.10), which

is stronger for firm‐specific human capital.

The weak positive relationship between human capital and firm performance along with the concerns regarding the

effectiveness of the human capital isolating mechanisms (Campbell et al., 2012b) make it questionable whether the

human capital perspective is more informative in explaining and predicting superior firm performance than the

HPWPs perspective. In addition, some of the arguments that human capital scholars have used seem to be inherently

flawed. For instance, if HPWPs were that easy to imitate and given the accumulating evidence regarding the

relationship between specific HRM practices and firm performance, one would expect that by now such practices

would have been adopted by all firms. However, HRM practices are likely not as easily imitable as suggested. The

complexity and the causal linkages when looking at HRM practices as a system rather than isolated deployments

make it harder for competitors to successfully replicate them (Becker and Gerhart, 1996; Lado and Wilson, 1994).

Moreover, the argument that human capital resources are inimitable and less mobile can also be questioned. Human

capital is not an organisational ‘property’ (Coff, 1997; Castanias and Helfat, 2001; Ganco et al., 2015). Employees

can leave their employers at any time taking with them their valued human capital. Even when considering human

capital resources as the outcome of social complexity, they can still be transferred. There are numerous examples of

firms poaching entire teams from their competitors (Bordwin, 1999; Agarwal et al., 2016). More importantly, the

simple possession of high‐quality human capital resources would not necessarily yield superior outcomes. Human

capital resources without the HRM practices that generate the appropriate levels of motivation and opportunities

would be unable to lead to the desired outcomes.

In concert with arguments suggesting that added value rests on the interaction between individuals and their

environment (Felin and Hesterly, 2007), we agree that a firm's competitive advantage is contingent on the

combination between HRM practices and human capital resources. However, even though the complex human

capital models that have been proposed (e.g. Ployhart et al., 2014) offer a compelling story, when giving applicable

advice to managers on how to create competitive advantage, assuming that firm leadership has free will to adopt

different strategic and practices, it comes down to what is under their control: what can firm leaders do in order to

create sustainable competitive advantage? And the answer to this question may be found in the adoption systems of

HRM practices appropriate for their particular competitive environment: it is the HRM practices that can influence

the characteristics of a firm's human capital resources and determine the extent to which these resources will be

effectively combined with other resources and ultimately used to achieve the strategic goals of the firm. The role of

HRM systems, however, does not end there. HRM systems are also key in turning competitive advantage into

sustainable competitive advantage by influencing the workings of labour markets.

In the remainder of the paper, we briefly summarise the extant research regarding the effect of one such systems of

HRM practices, HPWPs, on human capital characteristics (Figure 1). We then focus more extensively on the often

neglected ability of firms to influence, to some extent, the supply‐side and demand‐side mobility constraints for

human capital through HRM practices (Figure 2). We employ Pfeffer's (1998) parsimonious list of seven HPWPs

(employment security, selective hiring, self‐managed teams or teamworking, high pay contingent on performance,

extensive training, reduction of status differences and information sharing) for illustrative purposes.












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Figure 1

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The complex relations between high‐performance work practices (HPWPs) and the ability–motivation–opportunity

framework

Figure 2

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The complex relations between high‐performance work practices (HPWPs) and the supply‐side and demand‐side

mobility constraints

High‐performance work practices and human capital characteristics

Despite the lack of consensus regarding the HRM practices that are or should be included under the umbrella term

HPWPs (Boselie et al., 2005; Kepes and Delery, 2007), there is a common thread across the different proposed sets

of practices: they address the aspects of the AMO model (Kehoe and Wright, 2013). In other words, HRM practices

that combine as HPWPs can be viewed as ability‐enhancing or skill‐enhancing, motivation‐enhancing and

opportunity‐enhancing or empowerment‐enhancing (Huselid, 1995; Combs et al., 2006; Subramony, 2009).


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First, HPWPs, such as extensive training, compensation, selective hiring and teamwork, can have an impact on the

workforce's ability (Subramony, 2009), which is conceptualised as the employees' KSAOs (Delery and Shaw, 2001).

By employing extensive and thorough recruitment and selection processes, firms are able to select highly valued

human capital and through training firm‐specific, and generic human capital can be enhanced (Arthur et al., 2003;

Takeuchi et al., 2007; Subramony, 2009). Less obvious but not less important are the effects of pay and teamwork

on the ability of human capital. In terms of pay, a pay‐for‐skill compensation system motivates employees to engage

in activities that enhance their KSAOs (Gomez‐Mejia and Balkin, 1992; Youndt et al., 1996). Additionally,

consistent with the sorting effect of pay (e.g. Cadsby et al., 2007), job candidates who believe they do not meet the

KSAOs‐requirements are likely to self‐select out of the process, enhancing the quality of the applicant pool. Finally,

when working in teams, employees develop social connections that enable the exchange of ideas and perspectives

and the correction of errors, which can be considered as learning processes (Argyris and Schön, 1978;

Edmondson, 1999) that enhance employees' ability and the firm's knowledge creation capability (Nahapiet and

Ghoshal, 1998; Smith et al., 2005).

The second aspect of the AMO model, namely, motivation, reflects the direction of the effort that the workforce

exerts (Subramony, 2009). On the basis of social exchange theory (Blau, 1964), when employees perceive that their

contributions are valued, they are more likely to reciprocate by engaging in valued behaviours. As such, high‐

compensation contingent on performance, employment security and the adoption of self‐managed teams can be

argued to comprise the motivation‐enhancing HPWPs. The obvious link among motivation and pay for performance

is well established by a plethora of conceptual and empirical studies (e.g. Bartol and Locke, 2000; Stajkovic and

Luthans, 2003; Rynes et al., 2005; Peterson and Luthans, 2006). Employment security, when valued by employees,

can also increase employees' motivation (Pfeffer, 1998; Gong and Chang, 2008). Finally, inherent in the nature of

self‐managed teams are the concepts of effective peer control and enhanced sense of responsibility (Pfeffer, 1998).

This context of constant peer evaluation and accountability can be argued to enhance employees' motivation.

Opportunity or empowerment, the last aspect of AMO, refers to the extent to which employees have at their disposal

all the necessary resources for completing job‐relevant tasks as well as the discretion to decide how to perform tasks

(Delery and Shaw, 2001). Opportunity, of course, does not stem only from HRM practices. Organisational structures

and control mechanisms also influence opportunity. For the purposes of this paper, we focus only on the opportunity‐

enhancing HPWPs, such as sharing of information, reduction of status differences and self‐managed teams. Sharing

information with employees and minimising status differences enhance communication among employees

(Pfeffer, 1998), while self‐managed teams offer autonomy to employees in terms of determining how their outcome‐

related tasks will be performed (Pfeffer, 1998; Mathieu et al., 2006). Thus, these three HPWPs create an

organisational climate and describe an organisational structure that not only welcomes but also expects employees'

involvement and participation in influencing work processes and decisions, which have been shown to be associated

with superior work outcomes (Subramony, 2009).

As briefly discussed earlier, the relationship between specific HRM practices and organisational outcomes via the

enhancement of ability, motivation and opportunity is well established, particularly at the individual employee level.

What has not been sufficiently addressed yet is how, within the context of a labour market, firms can retain their

valued, motivated and empowered human capital resources. In the following section, we take this step by

conceptually exploring the potential of HRM practices to shape supply‐side and demand‐side mobility constraints.

High‐performance work practices and human capital mobility constraints






























The HPWPs approach and the human capital perspective, despite their differences, have a very important deficit in

common: they either ignore the workings of the labour market or they rely on the efficiency of questionable isolating

mechanisms (i.e. firm specificity). It is important, therefore, to acknowledge, as we did previously, that human

capital, unlike other resources cannot be ‘owned’ (Coff, 1997; Brymer et al., 2014). In order for an employer to

utilise the KSAOs of its workforce, a mutually agreed upon employment relationship is required (Roth and

Sotomayor, 1992). This temporally bounded employment relationship along with the mobility of employees

constitutes important barriers towards creating and sustaining competitive advantage. Firms, however, are not

defenceless against the forces of the labour market. In order to understand how firms can guard their human capital

resources, it is important to connect and explicitly indicate how HRM practices help firms in shaping supply‐side

and demand‐side mobility constraints (Campbell et al., 2012b). The question then becomes: Which HPWPs can

increase the retention of the valued human capital by influencing mobility barriers?

Supply‐side mobility constraints

As previously discussed, there are two main supply‐side mobility constraints (Campbell et al., 2012b): information

asymmetries in the labour market, which limit employees' ability to accurately evaluate their external labour market

value, and mobility costs (i.e. search, bargaining, and switching costs, costs associated with idiosyncratic preferences

and non‐pecuniary rewards and legal restrictions). Consequently, firms can retain their valued human capital through

HPWPs that minimise employees' willingness to specify their market value and shape mobility costs in such a way

that switching employers will be cost‐ineffective. Before discussing which HPWPs constrain the supply‐side

employee mobility, it is important to clarify two basic underlying assumptions. First, our focus is on voluntary

turnover or the quit rate. Second, as Coff and Raffiee (2015) underscored, in terms of the workings of the labour

market, employees' perceptions and perceptions the market holds regarding a firm's human capital are more

important than reality.

We expect that HPWPs can influence supply‐side mobility constraints via two routes: employer attractiveness and

job‐embeddedness. Employer attractiveness has been described as the extent to which individuals perceive a firm as

a great place to work (Chapman et al., 2005), and it is linked with Person‐Organisation (P‐O) fit perceptions

(Uggerslev et al., 2012), as well as the inducements and investments that the firm offers (Tsui et al., 1997). Job‐

embeddedness, conceptualised as a constellation of financial and non‐financial (psychological and social) factors

(Mitchell et al., 2001; Holtom et al., 2008), has been argued to result in lower quit rates (Crossley et al., 2007; Lee et

al., 2014). Specifically, job‐embeddedness shapes a ‘web’ in which the employee can be ‘stuck’. This ‘web’ is

shaped via three mechanisms: links (formal and informal connections with people inside and outside of the firm),

fit (perception regarding the value and demands‐needs congruence with the focal firm) and sacrifice (psychological,

social and/or material cost associated with leaving the firm).

Undoubtedly, there are a number of constructs that we could use to explain the potential impact of HPWPs on

supply‐side mobility constraints. For instance, organisational commitment and job satisfaction are two of the most

oft‐cited predictors of employee turnover intentions and actual turnover (Mathieu and Zajac, 1990; Eisenberger et

al., 1997; Meyer and Allen, 1997; Kwon et al., 2010). However, job‐embeddedness, unlike organisational

commitment and job satisfaction, encapsulates not only on‐the‐job but also off‐the‐job aspects (Mitchell et

al., 2001). In a similar manner, even though employer attractiveness can be argued to partially overlap with the

concept of job‐embeddedness, it adds a unique feature: it reflects an individual's perceptions before he or she enters

the employment relationship.






















Firms can influence the likelihood of turnover even before the employment relationship begins through selective

hiring processes. For instance, Huselid (1995) showed a link between turnover and selective staffing practices (as

part of a system of practices). By ensuring a high‐value congruence between the employee and the firm, as well as

a fit between the requirements and the offerings of the firm and the abilities and needs of the employees

(Kristof, 1996), employees are less likely to leave their ‘ideal’ employer (Kristof‐Brown et al., 2005). These

enhanced fit perceptions are also associated with employees' perceptions regarding the complementarities between

their own abilities and other firm characteristics (e.g. values, structures and other resources). Such perceptions

further enhance job‐embeddedness via the belief that employees can reach their full potential only within the specific

context.

Despite the mixed empirical findings regarding the relationship between training and voluntary turnover (Gardner et

al., 2011), training has the potential of increasing the supply‐side mobility barriers for human capital. As Tharenou et

al. (2007) conclude in their review of the relevant literature, training can reduce voluntary turnover when it is

‘framed as a positive organisational contribution to employees' human capital development’ (262). Firm investments

in training trigger a series of employees' perceptions regarding their employer and their employability. Training

signals to employees that the firm cares about them, values their contributions and is interested in their development

and continued employment (Pfeffer, 1998), enhancing employees' perceptions of employer attractiveness (Tsui et

al., 1997). Participation in employer‐sponsored training and developmental activities also enhances employees'

perceptions that they are investing time and effort in developing firm‐specific human capital. Employees are

expected, therefore, to be more embedded with their current employer and less willing to search for alternative

employment fearing that the time and effort they have invested in developing firm‐specific KSAOs will be in vain

and not appreciated by the external labour market.

High‐compensation contingent on performance is another of Pfeffer's (1998) proposed HPWPs that influences

perceived employer attractiveness and job‐embeddedness. Conceptual and empirical papers (e.g. Osterman, 1987;

Shaw et al., 1998; Conroy et al., 2014) have linked pay satisfaction and turnover. Pay‐for‐performance, when

appropriately designed and implemented, rewards high performers who will be more satisfied and less likely to leave

(McEvoy and Cascio, 1987; Nyberg, 2010). In addition, when pay‐for‐performance is properly communicated, then

the pay dispersion among high‐performing and low‐performing employees has a negative relationship with the

turnover of high performers (Shaw and Gupta, 2007). Thus, firms offering pay‐for‐performance will be perceived

as attractive by those employees that firms wish to retain: high performers. The willingness of high performers to

terminate their employment relationship will be further reduced when employees perceive that their high

performance and their subsequent high compensation are embedded in the specific firm (e.g. complementarities with

other firm‐specific resources).

Perceived employer attractiveness and job‐embeddedness are also expected to be enhanced by employment security.

Job security, according to existing research (e.g. Arnold and Feldman, 1982; Luna‐Arocas and Camps, 2007), is

negatively related to turnover intentions and actual turnover via various mediating mechanisms, such as affective

commitment. As Shaw et al. (1998) emphasised, when a firm does not offer job stability, the perceived attachment

with the firm is diminished. Inherent in the concept of job security is also the notion of the continuance of one's

income and employment in the future. Employees who decide to explore alternative employment opportunities face

the risk of losing this sense of stability (Pfeffer, 1998).

Finally, sharing of information, teamwork (self‐managed teams) and reduced status differences are expected to

increase the supply‐side mobility constraints via perceptions of embeddedness. First, sharing of information can be






















viewed as a signal by employees regarding the extent to which the firm trusts them (Pfeffer, 1998), and trust, in turn,

can create a link between employees and the firm that enhances perceived job‐embeddedness (Mitchell et al., 2001).

Similarly, firms emphasising teamwork and reduced status differences are likely to create an organisational

environment that nurtures the development of social ties among employees and, ultimately, increase embeddedness

perceptions and decrease voluntary turnover (Gardner et al., 2011). These HPWPs boost the sense of common fate

which further cultivates employees' attachment with their coworkers and the firm (Pfeffer, 1998).

Proposition 1.HPWPs create supply‐side mobility constraints through increasing employer attractiveness and/or job‐

embeddedness perceptions.

Demand‐side mobility constraints

Demand‐side mobility constraints are arguably less explored, but no less important than supply‐side mobility

constraints. On the demand‐side, competitors ‘show their teeth’: they engage in tactics, such as aggressive

recruitment and extending ‘unsolicited offers’ to their rivals' employees (Rynes and Barber, 1990; Lee et al., 2008),

in order to deplete their rivals from their valued human capital (Finlay and Coverdill, 2002; Rao and Drazin, 2002).

Gardner (2005), for instance, showed that, in a sample of 661 companies in the software industry, 135 attribute the

loss of human capital resources to their competitors' purposeful depletion tactics. The need to establish effective

demand‐side mobility constraints is further highlighted by the fact that firms have sometimes engaged in illegal anti‐

poaching pacts (e.g. the case of Adobe, Apple, Google and Intel). It is highly critical, therefore, for firms to employ

legal strategies not only for ensuring that their human capital stays with them but also for safeguarding, to the extent

that it is feasible, their valued human capital from being ‘stolen’ by rival firms. HPWPs have the potential to assist

firms in building demand‐side mobility constraints.

As noted in the case of the supply‐side mobility barriers, the workings of the demand‐side of the labour market is

highly contingent on perceptions (Coff and Raffiee, 2015). Thus, even though firms have important limitations in

directly influencing demand‐side mobility constraints, we argue they can do so by shaping the external market's

perceptions regarding their human capital's firm specificity, as well as the complementarities between their human

capital and other firm‐specific resources. Firm specificity signifies that the particular human capital is not readily

deployable in other firms (Coff and Kryscynski, 2011), thus decreasing the exchange value in the external labour

market (Klein et al., 1978). As Campbell et al. (2012b) emphasised, however, the labour market does not always

hold accurate perceptions about the nature of the human capital. From a demand‐side perspective, we are not

interested in the actual firm specificity of the human capital but the perceptions that competitors hold. Given the

importance of complementarities (Teece, 1986; Prahalad and Hamel, 1990; Dess and Shaw, 2001; Campbell et

al., 2012a), we argue that the synergies between human capital and other firm assets (e.g. organisational culture and

structure, and other human capital) and, in particular, the market's perceptions about these complementarities (Coff

and Raffiee, 2015) raise demand‐side mobility barriers. We propose three HPWPs that have the potential to influence

the demand‐side of the labour market via the market's perceptions of human capital's firm specificity and

complementarities: teamwork, investment in extensive training and selective hiring.

When human capital is embedded in teams not only the ‘output is more than the sum of the separable outputs of

each cooperating resource’ but also ‘it is difficult, if not impossible, to identify the specific source of competitive

advantage’ (Barney and Wright, 1998: 39). Studies have indicated that when rivals have managed to attract the focal

firm's star performers, the latters' post‐mobility performance declines (Groysberg and Lee, 2009), but this decrease

in performance is less pronounced when whole teams are poached (Groysberg et al., 2008; Campbell et al., 2014).

Poaching entire teams, while not impossible, can be particularly costly. Thus, firms having a reputation for


























emphasising teamwork send the signal to the external labour market that their superior performance is the outcome

of complementarities rather than a few star employees. These firms' practices simultaneously decrease their

competitors' ability to appropriately value the firm‐specific and generic human capital that each employee holds.

As mentioned previously, the information asymmetry that characterises the labour market (Campbell et al., 2012b)

forces competitors to rely on signals to estimate the nature of the human capital of the focal firm (Coff and Raffiee,

2015). Firms, therefore, by signalling that their employees possess firm‐specific human capital can shape the

perceptions their competitors hold and lessen the likelihood that their employees will be poached. In intensifying

competitors' perceptions regarding the firm specificity of the focal firm's human capital, selective hiring and

extensive training can be useful. Firms that engage in highly selective hiring processes can create the reputation that

they hire only employees who either have firm‐specific KSAOs or the ability to develop firm specificity. This

reputation can be further enhanced when the firm invests heavily in training. On the basis of the aforementioned

arguments, it is proposed that

Proposition 2.HPWPs create demand‐side mobility constraints via the labour market's perceptions regarding the firm

specificity of human capital and the complementarities of the human capital with other firm assets.

Discussion

The so‐called ‘micro–macro divide’ (e.g. Molloy et al., 2011) is illustrated vividly in the RBV literature. On the one

hand, the SHRM perspective argues and provides some evidence that HPWPs are responsible for generating and

leveraging the appropriate human capital resources that lead to superior organisational outcomes (e.g. Arthur, 1994;

Huselid, 1995; MacDuffie, 1995; Delery and Doty, 1996; Ichniowski et al., 1997). Thus, HRM practices and

systems can be considered the source of sustained competitive advantage (Lado and Wilson, 1994; Pfeffer, 1994;

Becker and Gerhart, 1996). On the other hand, strategy scholars make compelling arguments that HRM practices

are transferable and imitable and, consequently, cannot generate sustainable competitive advantage (Wright et

al., 1994; Chadwick and Dabu, 2009). Proponents of this perspective, acknowledging the multilevel nature of human

capital within the firm (e.g. Fulmer and Ployhart, 2014), advocate that human capital and its three isolating

mechanisms, namely, firm specificity, social complexity and causal ambiguity (e.g. Williamson, 1975; Lippman and

Rumelt, 1982; Barney, 1991), enable firms to generate and sustain competitive advantage.

In this paper, we shift the attention away from the ‘Is it the chicken or the egg?’ question. We argue that, even though

the human capital perspective provides compelling arguments, there are some inherent flaws in the underlying

rationale. For instance, as discussed previously, empirical evidence and theoretical arguments exist that question the

effectiveness of human capital isolating mechanisms. In addition, models indicating how human capital resources

are built via the combinations and complementarities among individual human capital (e.g. Ployhart et al., 2014) are

very difficult or impossible to empirically test. Finally, the argument that HRM practices cannot be the source of

competitive advantage due to their imitable nature (e.g. Wright et al., 1994; Chadwick and Dabu, 2009) is rather

tenuous considering the variability in the HRM practices that different firms adopt and implement. Even though this

variability has been attributed by some scholars (e.g. Kaufman, 2012) to the theoretical and empirical flaws of the

SHRM literature that have only an anaemic convincing power over practitioners, we argue that the aetiologies behind

these variations are different. It is our belief that HRM practices, or at least coherent systems of HRM practices,

meet to some extent the criteria (as summarised by Ployhart, 2012) that contribute to a resource's inimitability: social

complexity (their interplay with a firm's human capital generated value), interconnectedness with other resources

(the value of an HRM practice is highly contingent on the other practices, the structure, the human capital, the culture
























and other resources of the firm), causal ambiguity (competitors do not necessarily understand the importance of the

specific practices) and path dependency (their development and specific characteristics have followed a specific

trajectory over time within a specific firm). We contend, therefore, that in bridging these two approaches it may be

more practical to focus on HRM practices and systems and the resources they create. Specifically, we suggest that

HPWPs not only build firm‐specific and/or general KSAOs and provide necessary motivation and opportunity for

employees to utilise their human capital but also aid in shaping supply‐side and demand‐side labour marker mobility

constraints.

Our intent in this paper was to simply highlight and stimulate thinking regarding the issues that reinforce the divide

between SHRM and strategic human capital and to provide a conceptual model that summarises the importance of

HPWPs. In doing so, we made a few assumptions. For instance, we utilised in our model Pfeffer's (1998) list of

seven HPWPs, but there is no consensus in the relevant literature regarding which practices should be considered as

HPWPs (e.g. Becker and Gerhart, 1996; Kepes and Delery, 2007). Optimistically, other researchers will build on

this conceptual model and explore the role of other HRM practices. Similarly, one could argue there are numerous

other constructs, besides employer attractiveness, job‐embeddedness, firm specificity and complementarities that

could be considered as the mediating mechanisms between HPWPs and supply‐side and demand‐side labour marker

mobility constraints. Finally, multiple arguments can be made in support of or against the suggested links between

specific HPWPs and the mediating constructs. However, the purpose of our model was not to offer novel or

undeniable ideas but rather to demonstrate how the strategic human capital and SHRM literatures constitute two

perspectives that, in tandem, offer a better understanding of the same phenomenon thereby paving the path for future

research.

It is our conviction that the intersection between strategic human capital and SHRM research offers fertile ground

for future conceptual and empirical research. One important question that calls for research involves the

identification of the HRM practices that can actually generate the mobility constraints necessary for firms to retain

their valued human capital resources. As Barney and Wright (1998) and Campbell et al. (2012b) have argued,

regardless of the stance that we take, human capital's potential to generate sustained competitive advantage is

contingent upon labour market dynamics. Firms, however, are not defenceless against the workings of the labour

market. Firms, as we illustrate in our model, have a palette of HRM practices that can be used to shape, to some

extent, human capital resources and mobility barriers. Which specific HRM practices are more effective in shaping,

each is still an important topic for research. These research questions become more complicated considering that

HRM practices must play multiple roles: enhance ability, motivation and opportunity while, at the same time,

influence the employees' willingness to terminate the employment relationship and the perceptions that the rivals

hold regarding the value of the focal firm's human capital. An additional untapped research question meriting

exploration is whether firms are able to deploy and should deploy differentiated HRM practices for influencing the

mobility barriers for different groups of human capital. Following Lepak and Snell's (1999) differentiated workforce

arguments, one could argue that firms should utilise different practices for the different workforce groups in order

to enhance the mobility barriers for the employees that they wish to retain and relaxing these constraints for those

employees who are less important for the firm's success. To date, there has been very little research in this area.

Future research should also explore the relative effectiveness of investing in practices with the intent of enhancing

supply‐side and demand‐side constraints. As we discuss in our conceptual model, firms may be less able to influence

demand‐side mobility constraints. One of the most commonly used arguments associated with the demand‐side

labour mobility is that it is the visibility of high‐performers that enhances the likelihood of receiving alternative job

offers (e.g. Allen and Griffeth, 2001). It has been proposed, therefore, that firms can minimise the visibility of high











performers by embedding them in work groups. Today, however, the use of social networks, such as LinkedIn,

where individuals keep their networks informed regarding their roles and responsibilities within their teams and so

on, makes it questionable whether teams are an effective mechanism for weakening the perceptions that specific

employees drive their performance. Simultaneously, other practices that enhance supply‐side mobility constraints,

such as high compensation and promotions, constitute signals of high performance to the external labour market

(e.g. Waldman, 1990) and, essentially, increase the visibility of high performers. Consequently, it would be

particularly interesting from a research and practice standpoint to explore the impact of different HPWPs on both

supply‐side and demand‐side mobility constraints.

In this paper, we have argued for more attention to HRM practices, and systems, given they provide a more practical

approach for firms to gain, create and utilise strategic human capital resources and, ultimately, contribute to a firm's

competitive advantage. In the end, although, it is difficult to untangle the many factors that might influence

competitive advantage, and we have to acknowledge the critical role of human capital resources. For instance, one

can argue that a firm may need strategic human capital resources within the firm to provide the knowledge to adopt

HPWPs. In other words, a firm must have human capital management expertise to adopt appropriate human capital

management strategies that will ultimately create strategic human capital resources elsewhere within the firm. This

causal chain, however, is not a prerequisite for firms to achieve competitive advantage, given that there is at least a

small possibility that a firm might adopt the appropriate HRM practices by accident or luck. However, the endeavour

to provide an answer to the debate of whether it is the HRM practices or the human capital resources that have the

potential of creating sustainable competitive advantage is no different from the vain and unfruitful attempt to resolve

the ‘chicken or egg’ dilemma.

CONCLUSION

Finally, it should be clear from our review of the literature that the field is going in circles as it is evolving. Early

SHRM researchers emphasised HRM practices and systems as levers to achieve firm performance. This early

research was followed by attempts to explain the ‘black box’ between HRM practices and firm performance. What

has emerged is the acknowledgement that human capital resources are at least partially the mediating link between

HRM practices and firm performance. This, however, is nothing new to SHRM researchers who voiced this

relationship from the very beginning (Barney and Wright, 1998). The field is now engaged in an exploration of how

such human capital resources could lead to competitive advantage. We argue that this actually brings the field full

circle to the ‘basic’ quest of specifying the HRM practices and their combinations that are associated with higher

levels of organisational effectiveness. Expectantly, this time, researchers will better explore the ideas behind HRM

systems proposed in the 1990s. For instance, the often used indices of HRM practices are unlikely to uncover the

complexity in HRM system–human capital resources relationships. The idea that ‘more HRM’, as Kaufman and

Miller (2011) frame it, leads to better performance is certainly not what SHRM researchers have advocated, even if

it appears to be what they have measured. The idea is that higher firm performance is achieved by having the

appropriate system of HRM practices for the firm's particular strategic context. Along with other scholars

(e.g. Chadwick, 2010; Delery and Gupta, 2016), we hope that future research will explore, on the basis of strong

theory, the intricate interactions among practices. It is this complexity that is important to understand, and something

that the SHRM research to date has not explored well. In conclusion, RBV has the potential to generate truly

informative knowledge that will narrow the micro–macro divide. In doing so, however, as Kaufman (2015)

emphasised SHRM scholars need to broaden the paradigms they use by incorporating other approaches, such as

economic theory, in order to overcome some major problematic areas in the application of RBV in the SHRM










literature (e.g. potential employee relations ramifications resulting from HR practices that aim at capturing human

capital rents.


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