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.
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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).
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.
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.
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.
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.
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.
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.
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.
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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.
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.
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All three authors contributed equally to this study.
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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
- Business group
- Competitive advantage
- Managerial experience
- Human capital