How do interdependences among human-capital deployment, development, and diversification strategies affect firms' financial performance?

Yasemin Y. Kor, Huseyin Leblebici

Research output: Contribution to journalReview articlepeer-review

Abstract

Using key insights from the resource-based view of the firm, we develop and test a theory of how firms can successfully deploy and develop their strategic human assets while managing the tradeoffs in their service and geographical diversification strategies. In a sample of large law firms we find that, even though firms profit from expert human-capital leveraging strategy and service and geographical diversification strategies individually, pursuing these strategies simultaneously at high levels produces negative interaction effects on firm profitability. In addition, the internally developed, firm-specific associate human capital strategically fits better with high levels of expert human-capital leveraging. While lateral hiring helps firms build new knowledge bases and take advantage of growth opportunities, pursuing high levels of both expert human-capital leveraging and lateral hiring of associates results in lower profitability. To fully capture the economic benefits from strategies of diversification, human-capital leveraging and lateral hiring, firms should understand and manage the complex interdependences among multiple levels of strategy.

Original languageEnglish (US)
Pages (from-to)967-985
Number of pages19
JournalStrategic Management Journal
Volume26
Issue number10
DOIs
StatePublished - Oct 1 2005

Keywords

  • Diversification strategy
  • Firm performance
  • Human resources
  • Professional service firms
  • Resource-based view

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management

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