Scott A. SnellCornell University393 Ives HallIthaca, NY 14853(607) 255-4112scott.snellcornell.eduCompeting through Knowledge:The Human Capital ArchitectureIBMIBM“You can get capital and erect buildings, but it takes people to build a business.”Thomas J. Watson, IBMDid IBM forget? $168 billion (Tobins Q = 2.1) Hardware, software, and services Nobel prize-winning scientists 3,768 patents (1993-1995)Whats Happening Today? Industry Changes Globalization Information technologyNeed for Organizational agility Speed Innovation Cost Knowledge-based strategies Core competencies Innovation External partnershipsLeading toNew Business EquationCore Competenceis a bundle of skills and technologies that enables a company to provide a particular benefit to customers. Hamel and Prahalad, 1994 SONY Miniaturization PocketabilityFEDERAL EXPRESS Logistics On-time deliveryHONDAEngine design/mfg.Reliable performanceMOTOROLAWireless technologyUntethered comm. Core Benefit toCompetence CustomerKnowledgeKnowledgeTechnologiesTechnologiesProcessesProcessesRelationshipsRelationshipsCRITERIA valuable unique extendable learning Benefits VALUE = -Costs UNIQUE = (social complexity + causal ambiguity) LEARNING = (experience x challenge)Competing Through People Identify & develop core skills Integrate diverse activities Respond with agility & speed Empower action InnovateCore Competenceis a bundle of skills and technologies that enables a company to provide a particular benefit to customers. -Hamel and Prahalad KNOWLEDGE - customer - technology - operations - managing PROCESSES - customer segmentation - just-in-time (hrs) - mass customization - build to order (AIM) - ROIC metrics - experimentation TECHNOLOGY - Premier pages - software installation - TPM triggers (parts, service) - customer purchasing systems RELATIONSHIPS - customer intimacy (Boeing) - Platinum councils - supplier partnerships (Sony) - employee involvement - third party service maintainers (TPMs) - distribution agreements (UPS, Airbourne)“Virtual Integration”Leading to ValueValue Uniqueness Uniqueness Learning Learning“A low-value product can be made by anyone anywhere. When you have knowledge no one else has access to -thats dynamite. We guard our intellectual assets even more carefully than our financial assets.” -Roy Vagelos, former CEO Merck KNOWLEDGE - customer - technology - operations - managing PROCESSES - customer segmentation - just-in-time (hrs) - mass customization - build to order (AIM) - ROIC metrics - experimentation TECHNOLOGY - Premier pages - software installation - TPM triggers (parts, service) - customer purchasing systems RELATIONSHIPS - customer intimacy (Boeing) - Platinum councils - supplier partnerships (Sony) - employee involvement - third party service maintainers (TPMs) - distribution agreements (UPS, Airbourne)“Positively Outrageous Service”Southwest Airlines KNOWLEDGE - microbiology - biochemistry - microbiology - imunodiagnostics (antibodies/conjugates) PROCESSES - R&D/Mfg. - bioconjugation - antibody purification - PCR amplification - DNA hybridization - TQM - commercialization TECHNOLOGY - immunoassays - ELISA (serum/blood) - rapid diagnostics - DNA based RELATIONSHIPS - CRC-DT, CDC - U.S. Army - World Health Org. - universities - distribution network - employee (science/mkt)C2 = “Rapid Learning”Leading toAn organization at the frontier of its intellectual field is more likely to stay at the frontier. It can attract and challenge more and better intellect than its competitors. By solving more advanced problems, it has more capacity to solve others. And so on.” - JB Quinn ValueValue Uniqueness Uniqueness Learning LearningBIOTECH INC. Benefits = - CostsCombination of people and systemsleads to.Human CapitalSocial CapitalOrganizationalCapitalBioTech, Inc.: Intellectual capitalPeopleSystems KNOWLEDGE - microbiology - biochemistry - bioconjugation - imunodiagnostics PROCESSES - R&D/Mfg. - bioconjugation - antibody purification - PCR amplification - DNA hybridization - TQM - commercialization TECHNOLOGIES - immunoassays - ELISA (serum/blood) - rapid diagnostics - DNA based detection RELATIONSHIPS - CRC-DT, CDC - U.S. Army - World Health Org. - universities - distribution network - employee (science/mkt)C2 = “Rapid Learning”PEOPLESYSTEMSCore CompetenceHow does human capital contribute to the core competence?ValueUniqueResources need to be: Benefits VALUE = - CostsDrives innovationResponds to customer demandsProvides excellent customer serviceAchieves highest qualityInstrumental in process improvementsDevelops new business opportunitiesDirectly affects efficiency and productivityMinimizes costs of production, service, deliveryNot widely available in the marketCannot be bought or appropriatedDifficult to imitate or duplicateSpecialized KSAsDifficult to replaceCustomized to our firmDeveloped through on-the-job experiencesDistinguishes us from our competitorsR&DManufacturing/Operations Distribution SalesSales TMTCustServHRR&D RapidsFinCustomerServiceMfgR&DR&DPartnersCore KnowledgeLow VALUE highLow UNIQUE highBIOTECH, INC: Mapping Human CapitalKEY Finance HR TMT MIS Mfg/Operations Market/Sales R&D Quality Biologicals Cust. Service Rapid Diag. Legal/Reg. Distribution RapidsScott A. Snell, Cornell UniversityC2 = Rapid LearningHRLegalMISBiologicalsFinQualityTMTCompulsory KnowledgeIdiosyncratic KnowledgeAncillary KnowledgeHigh ValueHigh ValueLow ValueLow ValueGenericGenericCoreIdiosyncraticAncillaryCompulsoryUniqueUniqueHuman Capital ArchitectureHumanCapital unique value HRMSystem Employ Mode Core Human Capital High Value: Direct link to core competence High Uniqueness: Firm-specific knowledge and skillsEmployment Mode: knowledge workEmployment Relationship: organization-focusedExamples: software developers (Microsoft) drug researchers (Merck) fund managers (Fidelity)“gold-collar” workersHigh ValueHigh ValueLow ValueLow ValueUniqueGenericGenericIdiosyncraticIdiosyncraticAncillaryAncillary CompulsoryCompulsoryHuman Capital ArchitectureCoreHigh ValueHigh ValueLow ValueLow ValueUniqueGenericGenericCoreCoreIdiosyncraticIdiosyncraticAncillaryAncillaryHuman Capital ArchitectureHuman Capital ArchitectureHuman Capital ArchitectureHuman Capital ArchitectureCompulsoryEmployment Mode: traditional jobEmployment Relationship: job-focusedExamples: staff accountants (Andersen)sales people (Sears)truck drivers (UPS)HighValue: Direct link to strategyHigh Uniqueness: Generic knowledge and skills Compulsory Human Capital High Value: Direct link to core competence Low Uniqueness: Generic knowledge and skillsEmployment Mode: contract workEmployment Relationship: transactionalExamples: assemblers (Nike)clerical workers (Halliburton)payroll (Continental)catering (ARAMARK)High ValueHigh ValueLow ValueLow ValueUniqueGenericGenericCoreCoreIdiosyncraticIdiosyncraticCompulsoryCompulsoryHuman Capital ArchitectureHuman Capital ArchitectureHuman Capital ArchitectureHuman Capital ArchitectureAncillaryAncillary Ancillary Human Capital Low Strategic Value: Operational role Low Uniqueness: Generic knowledge and skillsEmployment Mode: partnershipEmployment Relationship: collaborativeExamples: “wild ducks” (IBM) design engineers (w/ Boeing) trainers (Merck/Forum) authors (McGraw-Hill)High ValueHigh ValueLow ValueLow ValueUniqueGenericGenericCoreCoreIdiosyncraticIdiosyncraticAncillaryAncillaryCompulsoryCompulsoryHuman Capital ArchitectureHuman Capital ArchitectureHuman Capital ArchitectureHuman Capital Architecture Idiosyncratic Human Capital Low Strategic Value: Intermittent link to competence High Uniqueness: Specialized knowledge and skillsTRADITIONAL JOB-BASED EMPLOYMENTALLIANCE/ PARTNERCONTRACT WORKKNOWLEDGE WORKS-specific jobT&D-short-termT&D-current jobT&D-external$-internal equityS-immediate perform$-groupJob-narrow/simple$-short-termPA-qualityJob-customized$-bonus$-performance$-industry experienceS-strategy contribute$-salaryJob-rotationS-solve problemsS-best Job-security$-highJob-empowerPA-strategy contributeT&D-investmentPA-work w/othersT&D-OJTT&D-teamT&D-continuousS-potentialS-promote w/inPA-developJob-dynamicJob-standardized$-hourlyKEY Job design Staffing Training Appraisal CompensationLow VALUE highLow UNIQUE highPlotting HR PracticesSTUDY:152 multi-product firms 200 employeesCEO, VPHR, line execsLepakLepak & Snell, 2001 & Snell, 2001RewardsAppraisalDevelopmentStaffingJob Design enriched & empowered customized aptitude (able to learn) promote from within continuous on-the-job firm-specific focus on strategic contribution developmental external equity (high wages) pay for knowledge, experience, seniority ownership and perksCOMMITMENT-BASED HRM SYSTEMHigh ValueHigh ValueLow ValueLow ValueUniqueGenericGenericIdiosyncraticIdiosyncraticAncillaryAncillary CompulsoryCompulsoryHuman Capital ArchitectureCoreCore Human CapitalEmployment Mode: knowledge workEmployment Relationship: organization-focusedRewardsAppraisalDevelopmentStaffingJob Design clearly defined moderately empowered external recruitment achievement limited to firm-specific short-term focus developmental focus on performance external equity (market rate) pay for performanceHigh ValueHigh ValueLow ValueLow ValueUniqueGenericGenericCoreCoreIdiosyncraticIdiosyncraticAncillaryAncillaryHuman Capital ArchitectureHuman Capital ArchitectureHuman Capital ArchitectureCompulsoryPRODUCTIVTY-BASED HRM SYSTEMEmployment Mode: traditional jobEmployment Relationship: job focusedCompulsory Human CapitalRewardsAppraisalDevelopmentStaffingJob Design well-defined limited scope outsourced (perhaps) contract for a specific task limited to rules & procedures administrative hourly or contract-contingent High ValueHigh ValueLow ValueLow ValueUniqueGenericGenericCoreCoreIdiosyncraticIdiosyncraticCompulsoryCompulsoryHuman Capital ArchitectureHuman Capital ArchitectureHuman Capital ArchitectureAncillaryAncillaryCOMPLIANCE-BASED HRM SYSTEMEmployment Mode: contract workEmployment Relationship: transactionalAncillary Human CapitalRewardsAppraisalDevelopmentStaffingJob Design team-based enriched & autonomous ability to collaborate achievement continuous on-the-job firm-specific team-oriented goal accomplishment group-based incentives contract, salary, pay-for-knowledge High ValueHigh ValueLow ValueLow ValueUniqueGenericGenericCoreCoreIdiosyncraticIdiosyncraticAncillaryAncillaryCompulsoryCompulsoryHuman Capital ArchitectureHuman Capital ArchitectureHuman Capital ArchitectureCOLLABORATIVE HRM SYSTEMEmployment Mode: partnershipEmployment Relationship: collaborativeIdiosyncratic Human CapitalHuman Capital ArchitectureHuman Capital Architecturelow Uniqueness high low Strategic Value high HumanCapital unique value HRMSystem Employ ModeRelational ExchangeTransactionalInternalizationExternalizationIdiosyncratic HC Mode: Partnership HR: Collaborative - select on past experience - develop the relationship - evolving scope - rewards for ideas Core HC Mode: Knowledge work HR: Commitment-based - staff based on potential - develop (firm-specific) - extensive pay & benefits - autonomy/self-direction - mistakes are importantCompulsory HC Mode: Traditional job HR: Productivity-based - staff based on current skill - less development - market wage - focus on ST performance - mistakes above the water line Ancillary HC Mode: Contract work HR: Compliance-based - standardize/simple (outsource) - focus on rules & procedures - narrow scope - error avoiding - hourly payOne flaw in knowledge management is that it often neglects to ask what knowledge to manage and toward what end. Knowledge should be managed within the context where value is created.-Tom StewartLink Back To Core Competence.Low VALUE highLow UNIQUE highBIOTECH INC: Mapping Social CapitalTMTRapids &Ext. PartnerR&D &GovernmentQuality TeamProduction & TMTMarketing& SalesFOCUS ON: Governance TMT Culture Value Chain Task Environment Stakeholders Remote EnvironmentProduction &Raw Mat SupR&D & SuppliersR&D & ProductionTech Support & CustomerR&D & CustomerR&D & QualityTMT /R&D &U.S. RegulatoryCust. Service &CustomerCulture (TMT)TMT &U.S. R&D *TMT &U.S. R&D *TMT/R&D &U.S. Mfg.TMT &U.S. R&DTMT &CustomerR&D &External R&DGovernanceMarketing& CustomerR&D TeamProduction & SalesMIS & R&DProduction TeamProduction &QualityR&D & SalesSales/TMT &DistributorsScott A. Snell, Cornell UniversityPATTERNS: Explicit - TacitTransactional - Relational Effectiveness - Efficiency Low VALUE highLow UNIQUE highMapping Organizational CapitalFOCUS ON: Databases Patents Processes Systems ManualsLN: FeelingsLN: Sexions(Suggestions)LN: Gen NewsLN: Contact DatabaseLN: Research Databases (20+)R&D ProcessProduction Plate CoatingLN: New ProductsProduct ImprovementLN: CustomerIndustry NewsProduction ProcessesQualityShippingCustomerServiceManagementInfo. SystemPatentsScott A. Snell, Cornell UniversityBiotech, Inc.COREENABLINGSUPPORTINGLINKING Summary PointsMapping human capital helps structure the conversation.Different types of human capital are (should be) managed in different ways. In addition to HC, there are social and organizational dimensions of IC.The architecture of these knoweldge-based assets underlies a firms core competence. CheckpointCheckpointDynamique Yachts KnowledgeIntegrationHumanCapitalSocialCapitalOrganizationCapitalCore Competence.a bundle of skills and technologies that enables a company to provide a particular benefit to customers. It represents the sum of learning across these resources. ( Hamel & Prahalad)Human Resource Management PracticesStaffing, training, work design, participation, rewards, appraisal, etc.SystemsKnowledgeCreationIntellectual CapitalDynamic CapabilityPeopleKnowledgeTransferLearning and InnovationFlowStockChangeProcesses to integrate, reconfigure, gain, and release resourcesto match and even create market change. RenewalValuableRareInimitableOrganizedModel of Strategic HRMUnique