In-person lectures
SCA = sustainable competitive advantage
HRA = Human Resource Advantage
HC = Human Capital
CC = Core Capabilities
Lecture 1
Cost-effective labor: achieving of the SHRM goal of cost-effective labor helps the firm ensure its
economic viability. It is a dual goal: making human resources productive at affordable cost. A low-
cost strategy means low HR investments. There are a few long-term managers and experiences
employees, but other workers have short-term contracts and minimum wages. It is aligned with a
firms competitive strategy and highly determines how work is designed and managed, and how
people are employed in organizations.
The pursuit of SHRM goals involves strategic tensions:
Problem of labor scarcity: this is a multilayered problem in HRM that occurs at firm, industry
and societal levels. Larger firms dominate labor markets: they can pay higher salary and
provide better development. Smaller firms may struggle to recruit and employ people with
the right set of skills. Shortages occur in different types of jobs:
o High skilled jobs: limited pools of workers (doctors, nurses) long training period, but
for some jobs low pay.
o Low-prestige vocational jobs: plumbers, electricians and construction workers
o Unattractive jobs: fruit pickers, cleaners, truck drivers
Many developed countries face shortages of skilled workers. Poorer countries face that their
capable managers and workers are being recruited to more challenging jobs. The problem of
labor scarcity is most strongly felt:
o Smaller firms
o High-skilled jobs, low-prestige jobs
o Richer countries with shortages of high-skilled workers
o Poorer countries where skilled workers are recruited to richer countries (brain drain)
Problem of employee motivation: in pursuing the HRM goals, managers use their power to
control employees motivation and performance, but this brings a lot of tensions. The effort-
wage bargain at the very beginning of the employment contract cannot fully control the
issue of employee motivation. The employment relationship is an ongoing exchange between
employer and the employee, including interactions about conflicting interests. Labor process
theory analyzes conflicts between employer strategies to control employee motivation and
worker strategies of resistance: conflicts about income/control etc.
, Voice literature recommends institutions for employee voice: management should work
with worker representatives and they should share power with employees to establish stable
social order. Organizational psychologists suggest that organizational justice in HRM
promotes employee motivation and cooperation:
o Procedural (fair processes of decision-making)
o Distributive (fair outcomes of decision-making)
o Informational (timely, transparent, consistent)
o Interactional (treating employees with dignity and respect)
Higher levels of the above can make negative HRM outcomes more bearable for employees.
Thus, employee motivation is concern for individual managers and for managers collectively.
At their worst, destructive management of motivational tensions can result in collective
action or individual employee resistance. Escalating of conflicting employer interest can
undermine managements legitimacy, depress productivity and threaten the firms viability.
Change tensions in labor management. The flexibility goal poses dilemma in strategic
management: need for stable production system VS need for flexibility in labor management.
Management tends to employ operating workers on short-term employment contracts
(numerical flexibility). As labor markets tighten, best workers move to more secure jobs.
Thus, management needs to balance stability and flexibility. There is a trade-off: capitalism is
a system in which employers require workers to be both dependable and disposable.
Resilient firms establish a balance between stability and flexibility while maintaining
employee trust and motivation.
Tension between management power and social legitimacy: management uses HRM to
enhance their own management power and to ensure social legitimacy of the firm. However,
the pursuit of these socio-political HRM goals can come with tensions. Identification of
exploitative HRM practices can badly damage company reputations. Ethical issues in HRM in
global supply chains give rise to dual questions of how to change both corporate and
consumer behavior. Management in MNC try to improve social legitimacy of HRM in both the
home country and around the world.
Complexity and politics in management: complexity and politics in SHRM grow as
organizations grow and become more divers. This is because bounded rationality and
cognitive biases inhibit managers from comprehending and appropriately addressing
complex SHRM goals and tensions.
Variations in institutional supports and societal resources: come companies can have
advantage from superior vocational education and training systems rooted in the society.
Managers in firms are not the sole masters of SHRM. They are always working in industry and
societal contexts, which both enable and constrain them in achieving goals for managing
human resources.
Lecture 2
A firm that is economically viable becomes engaged in a struggle to build competitive advantage
(CA) over rival firms. What is a competitive advantage? A firm has a CA when it offers customers:
Products/services at lower costs than rivals (cost advantage)
Greater benefits/services than rivals that justify higher prizes (differentiation advantage)
Greater benefits/services at lower costs than rivals (cost + differentiation advantage)
Sustainable competitive advantages (SCA) are enduring costs and differentiation advantages,
providing the firm long-run superior profits and returns for its stakeholders.
, What is human resource advantage (HRA)?
Superior human capital: a firm recruits, selects, develops and retains people with KSAs that
are superior to its rivals.
Superior social capital: a firm combines people’s KSAs across individuals, teams,
departments, divisions in collaborative activities in ways superior to its rivals.
HRA = f (human resource advantage, social capital advantage)
When does a firm have a HRA over its rival firms?
When a firm’s HC and SC are strategically valuable, scarce and difficult to imitate, substitute
and transfer to other firms.
How does HRA enable firms to build SCA?
Superior HC x superior SC enables the firm to develop core capabilities (CC). Core capabilities
are bundles of organizational skills and technology.
Do you know some examples of core capabilities that underpin SCAs of companies?
CCs: exeptional customer understanding (Apple), customer service (CoolBlue), innovation
expertise (Tesla), marketing communication (Nike).
There are 3 SHRM problems in building SCA from HRA
1. Employee isolation VS mobility
2. Employee investment dilemma
3. Portability of performance paradox
Problem 1: Employee isolation VS mobility
Most companies struggle to retain their top talents. Why is that a problem? Top talents are critical
for the development of HRA, CCs and SCA. Thus, workers’ HC and SC are a critical source of SCA.
Campbell et al. (2012) theorized how, why and when employees’ human capital can/cannot be
isolated in the firm and serve as a source of SCA. They:
Distinguish the HC of a worker in firm-specific human capital (FSHC) and general human
capital (GHC)
Challenge the assumption in strategy literature that FSHC always isolates workers in their
firm and serves as a source of SCA.
Identify 3 boundary conditions that regulate the extent to which workers FSHC cannot be
isolated in the firm and serve as a source of SCA.
The human capital theory (Becker, 1964) differentiates general human capital (GHC) and firm-specific
human capital (FSHC).
GHC:
KSAs that are broadly applicable inside and outside the employer firm, thus values by all
firms in the labor market.
Formal education provides GHC in the form of generic knowledge (HRM, economics,
accounting) and skills (conceptual, analytical, research, social skills).
