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2012
Rethinking Sustained Competitive Advantage from Human Capital Rethinking Sustained Competitive Advantage from Human Capital
Benjamin Campbell
The Ohio State University
Russell Coff
University of Wisconsin-Madison
David Kryscynski
Brigham Young University
, dk@byu.edu
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Original Publication Citation Original Publication Citation
Campbell, B., Coff, R. & Kryscynski, D., 2012. Re-thinking Sustained Competitive Advantage from
Human Capital. Academy of Management Review. 37 (3): 376-395.
BYU ScholarsArchive Citation BYU ScholarsArchive Citation
Campbell, Benjamin; Coff, Russell; and Kryscynski, David, "Rethinking Sustained Competitive Advantage
from Human Capital" (2012).
Faculty Publications
. 1977.
https://scholarsarchive.byu.edu/facpub/1977
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Rethinking Sustained Competitive Advantage from Human Capital*
Benjamin Campbell**
The Ohio State University
744 Fisher Hall
2100 Neil Avenue
Columbus, OH 43210
Phone: (614) 292-1747
Email: campbell@fisher.osu.edu
Russell Coff
University of Wisconsin-Madison
4259 Grainger Hall
975 University Avenue
Madison, WI 53706
Phone: (608) 263-6437
Email: RCoff@bus.wisc.edu
David Kryscynski
Brigham Young University
567 TNRB
Provo, UT 84606
Phone: (801) 422-6829
Email: dk@byu.edu
January 2012
Forthcoming at The Academy of Management Review
* The authors are grateful for comments and suggestions from Nick Argyres, Jay Barney, Chip
Hunter, Joe Mahoney, Shad Morris, Charlie Trevor, Todd Zenger, Heli Wang, Janice Molloy,
Clint Chadwick, and seminar participants at the Atlanta Competitive Advantage Conference, the
Ohio State University, and the University of Tennessee.
**The authors are equal contributors to this paper and are listed in alphabetical order for
convenience.
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Rethinking Sustained Competitive Advantage from Human Capital
ABSTRACT
The strategy literature often emphasizes firm-specific human capital as a source of competitive
advantage based on the assumption that it constrains employee mobility. This paper first identifies
three boundary conditions that limit the applicability of this logic. It then offers a more
comprehensive framework of human capital-based advantage that explores both demand- and
supply-side mobility constraints. The critical insight is that these mobility constraints have more
explanatory power than the firm-specificity of human capital.
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RETHINKING SUSTAINED COMPETITIVE ADVANTAGE FROM
HUMAN CAPITAL
Extant strategy theory suggests that human capital can be a source of sustainable competitive
advantage (Coff, 1997; Hall, 1993), but only if isolating mechanisms prevent workers from taking
their valuable knowledge and skills to rival firms (Barney, 1991; Rumelt, 1984). One of the most
important isolating mechanisms is firm-specific human capital, or knowledge and skills embodied
in individuals that cannot be easily applied in other firms (Buchholtz, Ribbens, & Houle, 2003;
Hatch & Dyer, 2004; Kor & Leblebici, 2005). Building on Becker’s (1964) seminal work, the
prototypical logic in the strategy literature argues that firm-specific human capital limits
individuals’ mobility while general human capital does not. Thus, firm-specific human capital is
assumed to support sustained competitive advantage. Likewise, general human capital is assumed
not to support sustained advantages since mobility threats allow workers to appropriate the rents
associated with their skills and thereby erode any advantages.
This paper extends theories of human capital-based competitive advantage in two ways. We
begin by clarifying three key unstated boundary conditions that limit the usefulness of extant
theories connecting human capital and competitive advantage. The following three conditions
must be in place for traditional logics to hold: (1) the exchange value (i.e., market value) of
workers’ general human capital can be no greater than the use value (i.e., the value created in its
current application) of workers’ full portfolios of human capital in the focal firm, (2) the exchange
value of worker skills and the firm-specificity of those skills must be tightly coupled, and (3)
supply-side mobility constraints (i.e., factors that cause workers to choose to stay apart from
demand for their skills) cannot be so low that workers are willing to incur substantial financial
costs to move.
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Put simply, extant theory suggests homogeneous complementary resources across firms and a
strong form of labor market efficiency. Thus, our discussion of boundary conditions highlights the
need for a more robust framework connecting human capital and competitive advantage.
Accordingly, after articulating the boundary conditions, the paper contributes by developing a
more comprehensive framework predicting when human capital may lead to sustained advantages.
We focus on the interaction of both demand- and supply-side constraints on worker mobility,
where demand-side constraints affect labor market demand for workers and supply-side constraints
influence workers’ willingness to supply their labor externally. This differs from the extant strategy
literature that has focused primarily on demand-side factors. The framework captures the rich
variation in outcomes for real firms and, contrary to the received strategy literature, suggests that,
under certain conditions, even general human capital can support a sustained competitive
advantage. Thus, we contribute to the growing focus on micro-foundations of competitive
advantage by unpacking firm specificity from other reasons why human capital may facilitate
sustained performance differences (Felin & Hesterly, 2007; Foss, 2011).
HOW FIRM-SPECIFIC HUMAN CAPITAL FUNCTIONS AS AN ISOLATING
MECHANISM
A firm has a competitive advantage “if it is able to create more economic value than the
marginal (breakeven) competitor” (Peteraf & Barney, 2003: 314), and firms are positioned to
sustain such advantages when isolating mechanisms hinder rivals from acquiring key resources
(Rumelt, 1984). Thus, ex-post mobility limits on resources such as non-tradability, switching costs,
co-specialization of assets, and high transaction costs play a critical role (Peteraf, 1993). Firm-
specificity is one potential isolating mechanism since firm-specific resources cannot be redeployed
in other organizations “without sacrifice of productive value” (Williamson, 1988: 70). Hence,
