UDK 330

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I.V. Onyusheva, PhD,

Professor of RAM, RANH,

International Leadership Institute, Turan University,

Almaty, Kazakhstan

 

The Features of Human Capital within the Knowledge-Based View of a Firm

 

Key Words: human capital, knowledge-based view, knowledge creation, competitive advantage, firm.

Introduction. In the field of strategic management, a major purpose of theorizing is to explain performance differences between firms. The knowledge-based view of the firm consists of theories that attempt to explain competitive advantage and firm performance in terms of the firm’s knowledge asset endowment.

Literature review. The knowledge-based view of the firm con­sists of theories that attempt to explain competitive advantage and firm performance in terms of the firm’s knowledge asset endowment. The predecessor of the knowledge-based view, the resource-based theory of the firm (Wernerfelt, 1984: Barney, 1991; Peteraf, 1993), proposed that costly-to-imitate resources such as knowledge constitute sources of competitive advantage. The knowledge-based view complemented the resource-based theory by providing a more fine-grained analysis: knowledge in the firm is dynamic, process-related, individual, collective, tacit, and explicit (Grant, 1996; Kogut and Zander, 2002; Nonaka, 2004). Knowledge assets originate in organizational knowledge creation and can be put to productive use in the firm.

Meanwhile, the human capital literature may inspire scholars to achieve a greater understanding of the function and competitiveness of the firm by homing in on the rela­tionship between the firm and the individual in knowledge creation. Some scholars have argued that one weakness in knowledge-based theory is its neglect of individuals’ interests and motivation to learn, create, share, and apply knowledge (Gottschalg and Zollo, 2007). Undoubtedly, individuals who learn, play, experiment, solve tasks, make decisions, collaborate, and so on, form a necessary condition for firms to create the knowledge assets that bring competitive advantage.

The problematic issue is disclosed in better understanding the relationship between the firm and the individual in organizational knowledge creation. That is the motivation behind, in which we consider the indispensability of the concept of inter­est alignment to this relationship. While there are areas of interest alignment between the firm and the individual. The research objective is study of peculiarities of human capital in context of knowledge-based view of a firm.

Main part: summary. There are two important attributes of the human capital theory, which are of par­ticular relevance to the knowledge-based theory of the firm. Although the concept of knowledge is central to both the human capital tradition and the knowledge-based view of the firm, it is used quite differently and for different purposes. In the human capital tradition, the individual has a prominent role. In empirical terms, both independent and depend­ent variables can be at individual level; for example, when trying to explain how individual investments in human capital impact on wage levels. In the knowledge-based view of the firm, however, it is the nature of the firm and its knowledge assets that are of interest, and the specific knowledge and interest of the individual (micro-foundations) are rarely taken into account. This view aims to explain firm-level performance, rather than individual-level performance, through firm-level invest­ment in knowledge. In the knowledge-based view, the individual is mainly a means to increase firm-level knowledge; in the human capital tradition, the firm is mainly a means to increase individual human capital and subsequently the individual’s private returns. And herein lies the chance to investigate what opportunities a human capital perspective can provide for the knowledge-based view of the firm. One opportunity consists in marrying key insights from both streams of literature, and focusing on the relationship between the firm and the individual.

It is important to consider the interest alignment by turning to adjacent literature on incentives, conflicts of interest, and well-known principal-agent. The commonly held view is that alignment occurs when the firm motivates employees to behave in a particular way, according to what is contractually stipulated. However, our discussion differs in two ways. Firstly, it is arguable moment that organiza­tional knowledge creation occurs when the participating individuals contribute beyond what is specified in a labor or service contract - because the contractor can neither know entirely what the individual knows, nor contract for systemic inter­action effects between individuals and the firm. Secondly, like Grant [2], it is arguable for a less hierarchical and managerially dominated firm, in favor of a more demo­cratically managed firm. Interestingly, Rousseau and Shperling’s report [6] on the issue of employee ownership as a particular characteristic of knowledge-in-tense firms, due to the mobility of highly skilled workers and the subsequent power of labor. But we consider it should be understood broader what motivates indi­viduals to contribute in a firm setting, beyond the purely financial incentives that are the common focus.

The knowledge-based view has established that both close and distant social interaction between employees (shared language, information, knowledge, rou­tines) set firms apart from markets for knowledge and expertise. The firm is there­fore conducive to organizational knowledge creation and individual knowledge acquisition. Here the interests of the firm and the individual may meet (as explained in the human capital literature), improving their human capital. However, as it has been noticed earlier, there are occasional tensions between the interests of firms and indi­viduals. As a result, our framework suggests that managerial action needs to be directed precisely at this tension, where management has a reward allocation struc­ture at its disposal. However, the firm cannot simply acquire human capital through transaction.

When a firm acquires an employee through an employment or service contract, it can only benefit from the outcome produced and appropriated. For the sake of argument, if compulsory service was permitted, the firm would still face challenges about actual production; that is, whether or not employees put human capital to the best possible use (from the firm’s perspective). This is a more fundamental problem than monitoring and measuring output. Management may not know all solutions to this problem, because the human capital is inseparable from the human being. The contract between the firm and the employee usually only covers either a specific period of time served or a specific work outcome. But the firm cannot contract for the best use of the employee’s human capital, as this is known only to the individual. Instead, in order to align the interests of firms and individuals, managers may need to use the reward structure of the firm to induce contributions along the lines for cooperative management, as opposed to the top-down authoritarian model that characterizes classical organization theory. Three important results emerge from cooperative, democratic management. First, firm-level knowledge accrual necessitates that individuals contribute human capital beyond what is explicitly and contractually stipulated. Second, delivering non-pecuniary rewards, such as increased human capital, might induce contributions. Third, aspects of individual motivation to participate, contribute, share, and acquire knowl­edge become critical aspects of the firm. These are related issues that can be explored further.

To conclude, there is a threefold competitive advantage that stems from the firm’s ability to produce human capital: first, learning-by-doing that grows as the firm creates its knowledge assets, and feeds directly into the products and services provided to cus­tomers; second, the firm’s ability to produce training below the price that employees can acquire in markets; and third, the firm’s ability to provide new knowledge acquisition opportunities, resulting from the competitive dynamics in the industry.

References:

 

1.        Barney, J.B. (1991) Firm Resources and Sustained Competitive Advantage, Journal of management, 17(1).

2.        Grant, R. (1996) Toward a Knowledge-Based View of the Firm: Implications for Management Practice, Long Range Planning, 30(3).

3.        Kogut, T. at al. (2002) Knowledge of the Firm, Combinative Capabilities, and the Replication of Technology, Organizational Science, 3(3).

4.        Nonaka, I. (2004) A Dynamic Theory of organizational Knowledge Creation, Organization Science, 5(1).

5.        Gottscchanlg, O. at al. (2007) Interest Alignment and Competitive Advantage, Academy of Management Review, 32(2).

6.        Rosseau, D. at al. (2010) Pieces of the Action: Ownership and the Changing Employment Relationship, Academy of Management Review, 28(4).