|
Article Excerpt
The basic assertions of the resource-based view (RBV) are widely understood and accepted. Even most undergraduate business students will assert that firms have a competitive advantage when they control resources that are unique, inimitable, non-substitutable and value-creating. Despite the widespread acceptance of RBV, it has its critics. For instance, little attention has been focused on the process of aligning firm resources with environmental demands (Sirmon et al., 2007; Tegarden et al., 2003). Nelson and Winter (1982) understood the importance of this alignment when they declared that any good theory of the firm should shed light on how firms respond to changes in market conditions. Helfat and Peteraf (2003) suggest the resource-based view can take into account both temporal issues and environmental change if we use it to delve deeper into our assessment of the temporal nature of the resources.
To address this concern we adopt the dynamic view of RBV (Helfat and Peteraf, 2003; Sirmon et al., 2007) and investigate the importance of re source changes in response to environmental dynamism. This dynamic perspective proposes that firms can respond to environmental change by managing the resources and capabilities they possess. Thus, effective firms in dynamic environments will actively alter their profile of resources and capabilities in response to environmental dynamism. We select the banking industry as the dynamic context for the current study because this industry has undergone significant change as a result of deregulation, rapidly changing technology, major industry consolidation, and important macro-economic changes (Greenspan, 2007). As a consequence of this environmental dynamism we expect to observe relationships between changes in a bank's resources and bank performance.
Another concern of RBV critics is the nature of resources relevant for RBV (Priem and Butler, 2001). Miller and Shamsie (1996) argue that researchers should add precision to the theory by specifying the different types of advantages associated with different types of resources. Additionally, RBV treats knowledge as being equal in importance to other resources (e.g., physical and financial), thereby allowing for equifinality among numerous resource configurations (Foss and Knudsen, 2003; Priem and Butler, 2001). We focus on two critical resources in organizations: human capital and social capital. We conceptualize human capital as a function of individuals' organizationally-specific knowledge stocks about how the bank generates value. We interpret social capital as a function of the value of an individual's business relationships with other individuals. Thus, we view a firm's human capital as a result of individualistic processes, and a firm's social capital as a function of didactic processes. Both human and social capital have been explicitly identified as resources that can be directly linked to firm performance (Collins and Clark, 2003; Edvinsson and Malone, 1997; Hitt et al., 2001; Pennings et al., 1998; Subramaniam and Youndt, 2005; Youndt et al., 2004). As resources, human and social capital are consistent with efforts in RBV research to identify human and relational core competencies (Herremans and Isaac, 2004), and particularly well suited for the dynamic perspective because these resources can be adapted much more quickly than hard organizational assets such as plant and equipment (Dyer and Singh, 1998). These resources are also interdependent as strong social capital cannot exist without strong human capital.
The intended contributions of this study are twofold. First, we will interpret RBV in a dynamic rather than a static sense. We will accomplish this by linking changes in resources with changes in performance. Second, we define human capital, internal social capital, and external social capital, and investigate the relationship these variables have with performance in the context of the personal banking sector of the financial services industry. We then describe how this industry sector has been characterized by an elevated level of environmental volatility for the last several decades. This is followed by a description of our research methodology, particularly why we chose the banking industry for our sample and how our measures were constructed. We then discuss the results and draw inferences from them and pose questions for further research.
HUMAN CAPITAL, SOCIAL CAPITAL AND FIRM PERFORMANCE
The notion that many organizational capabilities are embedded in organizational participants is neither new nor earth-shattering. Currently, however, there are many different attempts to characterize the contributions organizational participants make towards firms' competitive advantage at multiple levels of analysis. The human resource (HR) literature adopts an individual level of analysis and assesses relevant attributes using labels such as knowledge, skills, and abilities. We are employing a social collectivity or "firm" (i.e., line of business) level of analysis and will use the terms human capital and social capital to more accurately describe the variables of interest at the firm level as described more fully in the methods section. We also found this to be more appropriate for capturing their interdependencies.
Human Capital
Human capital (HC) has long been argued to be a critical resource for differentiating financial performance among firms (Carpenter et al., 2001; Hitt et al., 2001; Pfeffer, 1994). Managing human capital requires attention both to knowledge stocks and knowledge flows (Pennings et al., 1998). While it is important to maintain knowledge stocks by hiring competent individuals from the start, it is the intangible knowledge flows component of HC--skill development and the ongoing institutionalization of firm and market-specific knowledge --which firms must manage to maintain a fit with the competitive environment.
In addition to environmentally-driven change, a firm's HC will change over time for reasons that are endogenous and exogenous to its employees. Exogenous reasons include hiring new people, mobility (transfers across business units), and turnover (Subramaniam and Youndt, 2005). Endogenous reasons are grounded in the life cycle logic of dynamic RBV and have more to do with the nature of HC. For instance, some employees' skills may become outdated or forgotten, while other employees continue to learn from experience (Nelson and Winter, 1982). As the rate of environmental variation increases, the firm's HC at one point in time may be ineffective at another point in time because it has not kept pace with environmental change and has become misaligned with the new environment. Thus, HC must be monitored and managed.
Youndt, Subramaniam and Snell (2004; Subramaniam and Youndt, 2005) suggest firms may invest in HC through the use of high-performance work practices such as hiring (external HC acquisition), training (internal HC development), and developing good employee retention policies (cf. Delery and Doty, 1996; Lawler, 1994; Pfeffer, 1994). Managers may hire new people with the requisite skills needed to fit the new environment or train existing employees contingent upon the speed with which firms need to respond to environmental changes. What is most important is that HC is a fungible resource that provides firms with the flexibility to respond to their environment. As it pertains to the banking industry, particularly the personal banking sector, a bank's HC will impact the quality of loans (in terms of minimizing the likelihood of default) made to individuals, the volume of loans made, as well as the revenue or interest earned on these loans. Thus, increasing the bank's HC will improve the bank's financial performance. More formally:
H1: Changes in HC will be directly related to changes in financial performance in the personal banking sector of the banking industry.
Social Capital
Broadly defined, social capital (SC) is an asset that resides in social relationships...
|
