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Past Issue • Jan-Mar 2016

When Do Firms Invest in Developing Rookies? Answering the Make vs Buy Question on Human Capital

In order to augment human capital, firms have the option to either build the talent by hiring novice employees and developing them inside the firm or to hire experienced employees from other firms. Recent trends suggest they are pursuing both options to have some mix and balance of both strategies without necessarily considering the tradeoffs. In this paper AJ Chauradia analyses firms that pursue both strategies, and then investigates when their attributes can inform effective governance of one strategy vis-à-vis the other. The main empirical results suggest that a firm possessing slack resources is more likely to pursue building compared to acquiring strategies.

A 2011 government survey reports that firms have been pursuing building and acquiring strategies in relatively equal proportions (Jones & Rothschild, 2011). Additional publications of trends in the legal industry from 1999 to 2008 show that law firms build and acquire in relatively equal proportions. However, pursuing both human capital (HC) strategies in equal proportions does not automatically govern employees (Wang, He, & Mahoney, 2009), and may not increase a firm’s economic returns (Chauradia, 2014). According to Cappelli (2008: 13), how firms strike a balance between building and acquiring “differs across organisations and operations depending on internal capabilities.” Therefore, a strategy to pursue both human capital strategies needs to align with a firm’s attributes that make it conducive to earn a competitive advantage from this mix. The purpose of this paper is to investigate a firm’s internal attributes that can effectively govern and guide a firm’s decision to differentially rely on building vis-à-vis acquiring strategies.

ABOUT THE AUTHORS

  • aj

    AJ Chauradia

    Assistant Professor of Strategy at the Indian School of Business (ISB).
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