Advertisement

Springer Nature is making Coronavirus research free. View research | View latest news | Sign up for updates

Enhancing firm performance through intra-group managerial experience: Evidence from group-affiliated firms in Korea

  • 85 Accesses

Abstract

Although business groups often benefit from tangible and intangible resource sharing across member firms, little is known about whether and how sharing managers’ human capital within a business group can contribute to the performance of group-affiliated firms. Combining the strategic human capital perspective and studies of business groups, we argue that a business group-affiliated firm can enhance its economic performance by acquiring experience-based human capital from managers from other affiliates within the same group, as such intra-group managerial experience provides a source of strategic benefit that is distinct from either internal (i.e., within the focal firm) or external (i.e., outside the business group) experience. Our analyses of South Korean managers’ career data suggest that managerial experience acquired from other affiliated firms within a business group has a significant and positive effect on the focal firm’s performance. We also show that such intra-group managerial experience is particularly beneficial for firms with weak resources, firms in less diversified groups, and firms in less stable environments.

This is a preview of subscription content, log in to check access.

Fig. 1
Fig. 2

Notes

  1. 1.

    Although both the strategic human capital approach and strategic human resource management (hereafter “SHRM”) recognize the strategic role of human assets as a source of competitive advantage for the firm, the strategic human capital approach differs from SHRM in an important way. SHRM scholars tend to emphasize the value of organizational policies and practices in staffing, compensation, and training that are designed to manage human capital to achieve sustained competitive advantage (e.g., Becker & Huselid, 2006; Schuler & MacMillan, 1984). Although these HRM practices can affect the attraction, motivation and retention of individual employees (Wright et al., 1994; Coff & Kryscynski, 2011), such practices can be imitated through direct observation or can be made widely available via management consultants and industry networks (Abrahamson & Fairchild, 1999; David & Strang, 2006). Thus, HRM practices alone are neither rare, inimitable, nor non-substitutable, falling short of the RBV’s requirements for resources that can contribute to sustained competitive advantage (Wright et al., 1994). In a similar vein, scholars have suggested that an excessive focus on HRM practices may obscure our understanding of how human capital contributes to firm performance (Chadwick & Dabu, 2009; Becker & Huselid, 2006; Coff & Kryscynski, 2011). For a useful discussion of the difference between strategic human capital and SHRM, see reviews by Delery and Roumpi (2017) and Boon et al. (2018).

  2. 2.

    Career research defines a person’s career as the unfolding sequence of a person’s work experience over time (Arthur, Khapova, & Wilderom, 2005). Particularly in the era of flexible careers (Bidwell, 2013; Osterman, 1999), managers differ widely in terms of the experience accumulated throughout their careers at different firms and industries. In the present study, we examine the cumulative experience of managers, considering heterogeneities among different types of experience over their careers.

  3. 3.

    Experience is a comprehensive construct of human capital that includes experiential knowledge of the firm’s unique resources and routines, collective shared knowledge of the firm’s strengths and shortcomings (including the trust embedded in specific relationships), and explicit and tacit knowledge of the key constituents and stakeholders of the firm (Kor & Sundaramurthy, 2009). Experience-based human capital has been extensively used in the literature on human capital: the managerial experiences of board members (Kor & Sundaramurthy, 2009), international experiences in multinational contexts (Carpenter & Westphal, 2001; Peng, Sun, & Markóczy, 2015), and professionals’ career experiences (Dietz & Bozeman, 2005; Miller, Xu, & Mehrotra, 2015). We follow this literature and use managerial experience as an important dimension of managers’ human capital.

  4. 4.

    Our intention in this paper is not to identify a set of HR policies or practices in business groups. We suggest that intra-group managerial experience may not be viewed simply as constructed through a group headquarters’ deliberate strategy but through emergent practices from complex multilevel processes (Mintzberg & Waters, 1985). As we elaborate in the empirical section, manager transfers in business groups are formed by hiring and retention practices of legally independent affiliates influenced by a multilevel process that involves the group headquarters, affiliate firms, and individual managers, with a significant degree of heterogeneity across groups and affiliates. Given the complexity involved in this process, we do not attempt to provide any ex ante explanations of why and how manager transfers occur. Instead, our focus is on capturing the variation in the process of human capital aggregation and distribution driven by this complex process of manager transfer in a business group, i.e., variations in the composition of managerial experience by group-affiliated firms within a business group. This focus is reflected in our key measure: the proportion of intra-group managerial experience compared to inside-firm and outside-group managerial experience.

  5. 5.

    In this study, we do not focus on the events of the recruitment or transfer of managers at a specific point of time. Instead, we investigate managers’ stock of experience that has been acquired as a result of a series of recruitments or transfers over their careers. We suggest that this stock of managerial experience, in addition to the flow at a specific point of recruitment or transfer, is also an important factor of firm performance.

  6. 6.

    This weighting factor assumes that the magnitude of the positional influence reduces towards to the bottom of the management hierarchy, but the rate of reduction slightly diminishes in lower positions. Our test of assigning no weight or other weighting factors (i.e., 1/p in which p is the rank order of an executive manager) provided no difference in results.

  7. 7.

    In operationalizing the position-weighted career-volume of managerial experience, we also considered the manager’s position in the focal firm and applied this weightage factor in the operationalization process.

  8. 8.

    To avoid any potential multicollinearity among certain control variables (e.g., firm size, firm age, group size, and group age), we also performed regressions by adding variables one by one. The results were consistent.

References

  1. Abrahamson, E., & Fairchild, G. 1999. Management fashion: Lifecycles, triggers, and collective learning processes. Administrative Science Quarterly, 44(4): 708–740.

  2. Almeida, H., Kim, C. S., & Kim, H. B. 2015. Internal capital markets in business groups: Evidence from the Asian financial crisis. The Journal of Finance, 70(6): 2539–2586.

  3. Amit, R., & Schoemaker, P. J. 1993. Strategic assets and organizational rent. Strategic Management Journal, 14(1): 33–46.

  4. Argote, L., Beckman, S. L., & Epple, D. 1990. The persistence and transfer of learning in industrial settings. Management Science, 36: 140–154.

  5. Argote, L., & Ingram, P. 2000. Knowledge transfer: A basis for competitive advantage in firms. Organizational Behavior and Human Decision Processes, 82: 150–169.

  6. Arthur, M. B., Khapova, S. N., & Wilderom, C. P. M. 2005. Career success in a boundaryless career world. Journal of Organizational Behavior, 26: 177–202.

  7. Augier, M., & Teece, D. J. 2009. Dynamic capabilities and the role of managers in business strategy and economic performance. Organization Science, 20: 410–421.

  8. Bae, J., Rowley, C., & Sohn, T.-W. 2012. Managing Korean business: Organization, culture, human resources and change. Routledge.

  9. Baek, J. S., Kang, J. K., & Lee, I. 2006. Business groups and tunneling: Evidence from private securities offerings by Korean chaebols. The Journal of Finance, 61(5): 2415–2449.

  10. Bailey, E. E., & Helfat, C. E. 2003. External management succession, human capital, and firm performance: An integrative analysis. Managerial and Decision Economics, 24(4): 347–369.

  11. Barney, J. 1991. Firm resources and sustained competitive advantage. Journal of Management, 17: 99–120.

  12. Barney, J., & Felin, T. 2013. What are microfoundations? Academy of Management Perspectives, 27: 138–155.

  13. Becker, B., & Huselid, M. A. 2006. Strategic human resource management: Where do we go from here? Journal of Management, 32: 898–925.

  14. Bidwell, M. J. 2011. Paying more to get less: The effects of external hiring versus internal mobility. Administrative Science Quarterly, 56: 369–407.

  15. Bidwell, M. J. 2013. What happened to long-term employment? The role of worker power and environmental turbulence in explaining declines in worker tenure. Organization Science, 24: 1061–1082.

  16. Boeker, W., & Goodstein, J. 1993. Performance and successor choice: The moderating effects of governance and ownership. Academy of Management Journal, 36: 172–186.

  17. Boon, C., Eckardt, R., Lepak, D. P., & Boselie, P. 2018. Integrating strategic human capital and strategic human resource management. International Journal of Human Resource Management, 29: 34–67.

  18. Boone, C., Van Olffen, W., Van Witteloostuijn, A., & De Brabander, B. 2004. The genesis of top management team diversity: Selective turnover among top management teams in Dutch newspaper publishing, 1970–94. Academy of Management Journal, 47: 633–656.

  19. Campbell, B. A., Coff, R., & Kryscynski, D. 2012. Rethinking sustained competitive advantage from human capital. Academy of Management Review, 37: 376–395.

  20. Carney, M., Gedajlovic, E. R., Heugens, P. P., Van Essen, M., & Van Oosterhout, J. H. 2011. Business group affiliation, performance, context, and strategy: A meta-analysis. Academy of Management Journal, 54: 437–460.

  21. Carpenter, M. A., Sanders, W. G., & Gregersen, H. B. 2001. Bundling human capital with organizational context: The impact of international assignment experience on multinational firm performance and CEO pay. Academy of Management Journal, 44: 493–511.

  22. Carpenter, M. A., & Westphal, J. D. 2001. The strategic context of external network ties: Examining the impact of director appointments on board involvement in strategic decision making. Academy of Management Journal, 44(4): 639–660.

  23. Carroll, G. R. 1984. Dynamics of publisher succession in newspaper organizations. Administrative Science Quarterly, 29: 93–113.

  24. Chadwick, C., & Dabu, A. 2009. Human resources, human resource management, and the competitive advantage of firms: Toward a more comprehensive model of causal linkages. Organization Science, 20(1): 253–272.

  25. Chadwick, C., Super, J. F., & Kwon, K. 2015. Resource orchestration in practice: CEO emphasis on SHRM, commitment-based HR systems, and firm performance. Strategic Management Journal, 36: 360–376.

  26. Chang, S.-I. 2012. Study on human resource management in Korea’s chaebol enterprise: A case study of Samsung Electronics. International Journal of Human Resource Management, 23: 1436–1461.

  27. Chang, S. J. 2003. Ownership structure, expropriation, and performance of group-affiliated companies in Korea. Academy of Management Journal, 46: 238–253.

  28. Chang, S. J., Chung, C. N., & Mahmood, I. P. 2006. When and how does business group affiliation promote firm innovation? A tale of two emerging economies. Organization Science, 17: 637–656.

  29. Chang, S. J., & Hong, J. 2000. Economic performance of group-affiliated companies in Korea: Intragroup resource sharing and internal business transactions. Academy of Management Journal, 43: 429–448.

  30. Chang, S. J., & Hong, J. 2002. How much does the business group matter in Korea? Strategic Management Journal, 23: 265–274.

  31. Chittoor, R., Kale, P., & Puranam, P. 2015. Business groups in developing capital markets: Towards a complementarity perspective. Strategic Management Journal, 36: 1277–1296.

  32. Cho, Y. H., & Yoon, J. 2001. The origin and function of dynamic collectivism: An analysis of Korean corporate culture. Asia Pacific Business Review, 7: 70–88.

  33. Coff, R. W. 1997. Human assets and management dilemmas: Coping with hazards on the road to resource-based theory. Academy of Management Review, 22: 374–402.

  34. Coff, R. W., & Kryscynski, D. 2011. Drilling for micro-foundations of human capital–based competitive advantages. Journal of Management, 37: 1429–1443.

  35. Colpan, A. M., & Hikino, T. 2010. Foundations of business groups: Towards an integrated framework. In A. M. Colpan, T. Hikino, & J. R. Lincoln (Eds.). The Oxford Handbook of Business Groups: 15–66. Oxford University Press.

  36. Cooke, F. L., Saini, D. S., & Wang, J. 2014. Talent management in China and India: A comparison of management perceptions and human resource practices. Journal of World Business, 49: 225–235.

  37. Crocker, A., & Eckardt, R. 2014. A multilevel investigation of individual- and unit-level human capital complementarities. Journal of Management, 40: 509–530.

  38. Crossland, C., Zyung, J., Hiller, N. J., & Hambrick, D. C. 2014. CEO career variety: Effects on firm-level strategic and social novelty. Academy of Management Journal, 57: 652–674.

  39. David, R. J., & Strang, D. 2006. When fashion is fleeting: Transitory collective beliefs and the dynamics of TQM consulting. Academy of Management Journal, 49(2): 215–233.

  40. Delery, J. E., & Roumpi, D. 2017. Strategic human resource management, human capital and competitive advantage: Is the field going in circles? Human Resource Management Journal, 27(1): 1–21.

  41. Dess, G. G., & Beard, D. W. 1984. Dimensions of organizational task environments. Administrative Science Quarterly, 29: 52–73.

  42. Dietz, J. S., & Bozeman, B. 2005. Academic careers, patents, and productivity: industry experience as scientific and technical human capital. Research Policy, 34(3): 349–367.

  43. Granovetter, M. 2005. The impact of social structure on economic outcomes. Journal of Economic Perspectives, 19: 33–50.

  44. Gupta, A. K., & Govindarajan, V. 2000. Knowledge flows within multinational corporations. Strategic Management Journal, 21: 473–496.

  45. Haleblian, J., & Finkelstein, S. 1993. Top management team size, CEO dominance, and firm performance: The moderating roles of environmental turbulence and discretion. Academy of Management Journal, 36: 844–863.

  46. Hambrick, D. C. 1995. Fragmentation and the other problems CEOs have with their top management teams. California Management Review, 37(3): 110–127.

  47. Hambrick, D. C., & Mason, P. A. 1984. Upper echelons: The organization as a reflection of its top managers. Academy of Management Review, 9: 193–206.

  48. Hatch, N. W., & Dyer, J. H. 2004. Human capital and learning as a source of sustainable competitive advantage. Strategic Management Journal, 25(12): 1155–1178.

  49. Ingram, P., & Baum, J. A. 1997. Opportunity and constraint: Organizations' learning from the operating and competitive experience of industries. Strategic Management Journal, 18: 75–98.

  50. Jaffe, A. B., Trajtenberg, M., & Henderson, R. 1993. Geographic localization of knowledge spillovers as evidenced by patent citations. Quarterly Journal of Economics, 108(3): 577–598.

  51. Jia, N., Shi, J., & Wang, Y. 2013. Coinsurance within business groups: Evidence from related party transactions in an emerging market. Management Science, 59(10): 2295–2313.

  52. Joe, D. Y., & Oh, F. D. 2017. Spillover effects within business groups: The case of Korean Chaebols. Management Science, 64(3): 1396–1412.

  53. Khanna, T., & Palepu, K. 2000. The future of business groups in emerging markets: Long-run evidence from Chile. Academy of Management Journal, 43: 268–285.

  54. Khanna, T., & Rivkin, J. W. 2001. Estimating the performance effects of business groups in emerging markets. Strategic Management Journal, 22(1): 45–74.

  55. Khanna, T., & Yafeh, Y. 2007. Business groups in emerging markets: Paragons or parasites? Journal of Economic Literature, 45: 331–372.

  56. Kim, B., Pae, J., & Yoo, C.-Y. 2019. Business Groups and Tunneling: Evidence from Corporate Charitable Contributions by Korean Companies. Journal of Business Ethics: 1–24.

  57. Kim, H. 2010. Business groups in South Korea. In A. M. Colpan, T. Hikino, & J. R. Lincoln (Eds.). The Oxford Handbook of Business Groups: 157–179. Oxford University Press.

  58. Kim, H., & Hoskisson, R. E. 1996. Japanese governance systems: A critical review. Advances in International Comparative Management, 11: 165–190.

  59. Kim, T., & Rhee, M. 2009. Exploration and exploitation: Internal variety and environmental dynamism. Strategic Organization, 7: 11–41.

  60. Kim, Y., & Cannella, A. A. 2008. Social capital among corporate upper echelons and its impacts on executive promotion in Korea. Journal of World Business, 43: 85–96.

  61. Kor, Y. Y., & Sundaramurthy, C. 2009. Experience-based human capital and social capital of outside directors. Journal of Management, 35(4): 981–1006.

  62. Lee, J.-H., & Gaur, A. S. 2013. Managing multi-business firms: A comparison between Korean chaebols and diversified U.S. firms. Journal of World Business, 48: 443–454.

  63. Lepak, D. P., & Snell, S. A. 1999. The human resource architecture: Toward a theory of human capital allocation and development. Academy of Management Review, 24: 31–48.

  64. Lincoln, J. R., Gerlach, M. L., & Ahmadjian, C. L. 1996. Keiretsu networks and corporate performance in Japan. American Sociological Review, 61: 67–88.

  65. Luo, X., & Chung, C.-N. 2005. Keeping it all in the family: The role of particularistic relationships in business group performance during institutional transition. Administrative Science Quarterly, 50: 404–439.

  66. MacDuffie, J. P. 1995. Human Resource Bundles and Manufacturing Performance: Organizational Logic and Flexible Production Systems in the World Auto Industry. Industrial and Labor Relations Review, 48: 197.

  67. Mackey, A., Molloy, J. C., & Morris, S. S. 2014. Scarce human capital in managerial labor markets. Journal of Management, 40: 399–421.

  68. Mahmood, I., Chung, C. N., & Mitchell, W. 2013. The evolving impact of combinatorial opportunities and exhaustion on innovation by business groups as market development increases: The case of Taiwan. Management Science, 59: 1142–1161.

  69. Mahoney, J. T., & Kor, Y. Y. 2015. Advancing the human capital perspective on value creation by joining capabilities and governance approaches. Academy of Management Perspectives, 29: 296–308.

  70. March, J. G. 1991. Exploration and exploitation in organizational learning. Organization Science, 2: 71–87.

  71. Michel, J. G., & Hambrick, D. C. 1992. Diversification posture and top management team characteristics. Academy of Management Journal, 35: 9–37.

  72. Miller, D., Xu, X., & Mehrotra, V. 2015. When is human capital a valuable resource? The performance effects of Ivy League selection among celebrated CEOs. Strategic Management Journal, 36(6): 930–944.

  73. Mintzberg, H., & Waters, J. A. 1985. Of strategies, deliberate and emergent. Strategic Management Journal, 6(3): 257–272.

  74. Ndofor, H. A., Sirmon, D. G., & He, X. 2015. Utilizing the firm's resources: How TMT heterogeneity and resulting faultlines affect TMT tasks. Strategic Management Journal, 36: 1656–1674.

  75. Nyberg, A. J., Moliterno, T. P., Hale, D., & Lepak, D. P. 2014. Resource-based perspectives on unit-level human capital: A review and integration. Journal of Management, 40: 316–346.

  76. Osterman, P. 1999. Securing prosperity. Journal of Labor and Society, 3: 5–8.

  77. Peng, M. W., Sun, S. L., & Markóczy, L. 2015. Human capital and CEO compensation during institutional transitions. Journal of Management Studies, 52(1): 117–147.

  78. Penrose, E. T. 1959. The theory of the growth of the firm. New York:John Wiley.

  79. Ployhart, R. E., & Hale, D. 2014. The fascinating psychological microfoundations of strategy and competitive advantage. Annual Review of Organizational Psychology and Organizational Behavior, 1: 145–172.

  80. Ployhart, R. E., & Moliterno, T. P. 2011. Emergence of the human capital resource: A multilevel model. Academy of Management Review, 36: 127–150.

  81. Ployhart, R. E., Nyberg, A. J., Reilly, G., & Maltarich, M. A. 2014. Human capital is dead; long live human capital resources! Journal of Management, 40(2): 371–398.

  82. Rosenkopf, L., & Almeida, P. 2003. Overcoming local search through alliances and mobility. Management Science, 49: 751–766.

  83. Schuler, R. S., & MacMillan, I. C. 1984. Gaining competitive advantage through human resource management practices. Human Resource Management, 23(3): 241–255.

  84. Siegel, J. 2007. Contingent political capital and international alliances: Evidence from South Korea. Administrative Science Quarterly, 52(4): 621–666.

  85. Song, J., Almeida, P., & Wu, G. 2003. Learning-by-hiring: When is mobility more likely to facilitate interfirm knowledge transfer. Management Science, 49(4): 351–365.

  86. Szulanski, G. 1996. Exploring internal stickiness: Impediments to the transfer of best practice within the firm. Strategic Management Journal, 17: 27–43.

  87. Tanriverdi, H., & Venkatraman, N. 2005. Knowledge relatedness and the performance of multibusiness firms. Strategic Management Journal, 26: 97–119.

  88. Tushman, M. L., & Rosenkopf, L. 1996. Executive succession, strategic reorientation and performance growth: A longitudinal study in the U.S. cement industry. Management Science, 42: 939–953.

  89. Tzabbar, D. 2009. When does scientist recruitment affect technological repositioning? Academy of Management Journal, 52: 873–896.

  90. Virany, B., Tushman, M. L., & Romanelli, E. 1992. Executive succession and organization outcomes in turbulent environments: An organization learning approach. Organization Science, 3: 72–91.

  91. Walsh, J. P. 1988. Selectivity and selective perception: An investigation of managers' belief structures and information processing. Academy of Management Journal, 31: 873–896.

  92. Wiersema, M. F. 1995. Executive succession as an antecedent to corporate restructuring. Human Resource Management, 34: 185–202.

  93. Wiersema, M. F., & Bantel, K. A. 1992. Top management team demography and corporate strategic change. Academy of Management Journal, 35: 91–121.

  94. Williamson, O. E. 1975. Markets and Hierarchies: Analysis and Antitrust Implications, A Study in the Economics of Internal Organization. New York:Free Press.

  95. Wright, P. M., & McMahan, G. C. 2011. Exploring human capital: putting ‘human’ back into strategic human resource management. Human Resource Management Journal, 21: 93–104.

  96. Wright, P. M., McMahan, G. C., & McWilliams, A. 1994. Human resources and sustained competitive advantage: a resource-based perspective. International Journal of Human Resource Management, 5(2): 301–326.

  97. Yang, et al. 2012. Individualism-collectivism as a moderator of the work demands-strains relationship: A cross-level and cross-national examination. Journal of International Business Studies, 43: 424–443.

  98. Zhang, Y., & Rajagopalan, N. 2004. When the known devil is better than an unknown god: An empirical study of the antecedents and consequences of relay CEO successions. Academy of Management Journal, 47: 483–400.

  99. Zhang, Y., & Rajagopalan, N. 2010. Once an outsider, always an outsider? CEO origin, strategic change, and firm performance. Strategic Management Journal, 31: 334–346.

Download references

Acknowledgements

The authors are grateful to Senior Editor Ajai Gaur and two anonymous reviewers for thoughtful and constructive feedback. The authors also thank Sea-Jin Chang for generously sharing the data used in this study. All three authors contributed equally to this study.

Funding

This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2018S1A5A2A03032736) to Young-Choon Kim. The funding source had no involvement in study design, data collection, analysis and interpretation of data, writing of the report or the decision to submit the article for publication.

Author information

Correspondence to Taekjin Shin.

Additional information

Publisher’s note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

All three authors contributed equally to this study.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Kim, Y., Shin, T. & Park, S. Enhancing firm performance through intra-group managerial experience: Evidence from group-affiliated firms in Korea. Asia Pac J Manag (2019). https://doi.org/10.1007/s10490-019-09671-3

Download citation

Keywords

  • Business group
  • Competitive advantage
  • Managerial experience
  • Human capital
  • Korea