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Firm-Specific, Industry-Specific, and OccupationalHuman Capital and the Sourcing of Knowledge Workby Mayer, K.J., Somaya, D., and Williamson, I.O. (2012) in Organization Science. Presented by Bradley Skousen

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About the Authors

• Kyle J. Mayer: PhD at Berkeley (1999) and chaired by Oliver Williamson

• Deepak Somaya: PhD at Berkeley (2002) and chaired by David Mowery

• Ian O. Williamson: PhD at UNC (2000) in Organization Behavior.

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Purpose and Key Definitions

• Purpose: To explore the relationship between knowledge based capabilities with prior make or buy decisions and buyer-supplier differences in the management of skilled employees.

• Knowledge Work: Consists of activities, tasks, or projects that require the application of knowledge to solve business problems.

• Firm-specific Human Capital (HC): Knowledge and skills that are unique to a firm.

• Industry Specific HC: Knowledge about the industry setting or domain in which a project is situated, and thus it is re-deployable across the (limited) set of firms with projects in the same industry domain.

• Occupational HC: Knowledge and skills required to perform work within a professional or functional area.

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Data

• 1989 Survey of Fortune 500 Firms

– Sample includes all 129 Publicly listed Firms

– All firms are in technology-based industries

– 5 industries included:• Chemicals (39 firms)• Computer Manufacturing (22 firms)• Electronics (40 firms)• Pharmaceuticals (12 firms)• Scientific and Photographic Equipment (16 firms)

– Patents from 1990-1995

– Sample size included 59,590 patents

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Model Specification

• Fixed Effects Logit Model for Outsourcing of Patent Legal Work• DV: Probability of Outsourcing

IVs

Industry Level

Controls

Patent-Level

Controls

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Hypothesis 1

• H1: Firms are less likely to outsource knowledge projects the greater their relevant firm-specific human capital developed by performing prior related projects.

• Theory: Governance Inseparabilites (Argyres and Liebeskind,1999); Time Compression Diseconomies (Dierickx and Cool, 1989); among others.

• Operationalization: Firm-specific HC was measured as the

number of backward citations to patents of the same company that were also processed in-house during the previous five years.

• Findings: H1 Supported.

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Hypothesis 2

• H2: Firms are less likely to outsource knowledge projects the greater the relevant industry-specific human capital developed by previously internalizing knowledge projects in the same domain.

• Theory: Mixture of KBV and TCE logic (e.g., Argote & Ingram,

2000; Hatch & Dyer, 2004; Parmigiani & Mitchell, 2009).

• Operationalization: Industry-specific HC was measured as the company’s previous in-house experience in the technical domain. Specifically, it was the logged number of prior patents processed internally by the firm in the same primary seven-digit International Patent Classification.

• Findings: H2 Supported.

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Hypothesis 3

• H3: The marginal impact of higher firm-specific or industry-specific human capital on the tendency of firms to internalize knowledge work is highest when the other type of human capital (firm specific or industry specific is low ).

• Theory: KBV. Focus on advantages of coordinating knowledge tasks (e.g., Kogut & Zander, 1992; Conner & Prahalad, 1996; Nickerson & Zenger, 2004).

• Operationalization: Interaction Term

• Findings: H3 Supported.

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Hypothesis 4

• H4: Firms are more likely to outsource knowledge projects situated in areas that are highly contested (and thus rely heavily on occupational human capital).

• Theory: Focuses on TCE logic (e.g., Williamson’s 1985 concept of selective intervention) to explain why firms develop in-house occupational human capital but the authors main question is not on why but when occupational human capital is outsourced.

• Operationalization: Dummy variable coded as 1 if the

focal patent cited a patent that was litigated in the past (referred to as a high contested area).

• Findings: H4 Supported.

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Hypothesis 5

• H5: The larger the firm’s internal staff (in the focal occupational area), the weaker the (positive) effect of a project being in a highly contested area on the probability of outsourcing.

• Theory: KBV. The logic is that firms with more patent attorneys may use knowledge hierarchies to leverage skills and learning (e.g., Garicano, 2000).

• Operationalization: Interaction of highly contested area (see H4) with internal staff size, which measures the number of patent attorneys employed by the focal firm.

• Findings: H5 Supported.

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Discussion• Theoretical Contribution?

- Provides strong links between KBV and TCE.

• Sample Issues?- Limited to big Fortune 500 firms.

• Measurement Issues?

-Research design included interviews with managers to verify important measurement issues. Measurements are consistent with patent literature.

• Model Specification/Identification Issues?- Model does not include variables on firm capabilities

other than patenting experience. Is the main-case causality that greater outsourcing leads to lower firm capabilities, or that lower firm capabilities lead to outsourcing?