Options‐based HRM, intellectual capital, and exploratory and exploitative learning in law firms' practice groups

• DOI: http://doi.org/10.1002/hrm.21484
• Author: Scott A. Snell,Juani Swart,Sung‐Choon Kang
• Published date: 01 July 2012
• Date: 01 July 2012

OPTIONS-BASED HRM,

INTELLECTUAL CAPITAL,

AND EXPLORATORY AND

EXPLOITATIVE LEARNING IN

LAW FIRMS’ PRACTICE GROUPS

SUNG-CHOON KANG, SCOTT A. SNELL,

AND JUANI SWART

The current study intends to uncover the strategic contribution of human

resource management by introducing a unique construct of options-based

(vis-à-vis project-based) HRM and examining its links to intellectual capital

and exploratory and exploitative learning in the context of law fi rms’ practice

groups. Empirical results show that options-based HRM is positively related to

the practice group’s explorative and exploitative learning. The intellectual capi-

tal mediates the relationships between options-based HRM and the practice

group’s learning for exploration and exploitation. This study makes a valuable

contribution to the HRM literature by establishing the mechanisms by which

HRM enables organizational learning and extending the scope of HRM research

to professional service fi rms. Our fi ndings also provide valuable implications

for the literature of organizational learning. © 2012 Wiley Periodicals, Inc.

Keywords: options-based HRM, intellectual capital, exploration, exploitation

Introduction

As theories of strategic management

have turned inward to resources

and capabilities, people have been

considered the most important and

adaptive resources available to

firms. In knowledge-intensive industries, and

particularly in fast- changing environments,

HR-related issues would be central to any

discussion about a firm’s ability to learn,

innovate, and change (Wright, Dunford, &

Snell, 2001). But, there is limited research on

the link between human resource manage-

ment and organizational learning, while there

is strong evidence to support the contribution

of HRM to productivity and firm financial

performance (e.g., Huselid, 1995). Existing

research is also focused on individual HR

practices and often overlooks the synergistic

effects of the interplay between various HR

Correspondence to: Sung-Choon Kang, College of Business Administration, Seoul National University, Seoul,

151-742, Korea, Phone: 82-2-880-2597, Fax: 82-2-878-3154, E-mail: sk229@snu.ac.kr

Human Resource Management,

Human Resource Management, July–August 2012, Vol. 51, No. 4. Pp. 461–486

© 2012 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI:10.1002/hrm.21484

462 HUMAN RESOURCE MANAGEMENT, JULY–AUGUST 2012

Human Resource Management DOI:10.1002/hrm

This study tries

to identify the

effects of HRM

on exploratory

and exploitative

learning by treating

intellectual capital

as the underpinning

resources between

the relationships.

practices that may enable organizational

learning (Arthur & Aiman-Smith, 2001;

Beugelsdijk, 2008). The purpose of this article

is to fill this gap in the existing literature by

asking a main research question: how would

an HRM system enable organizational

learning?

In addressing the potential contribution

of HRM to organizational learning, we base

our study on the following three premises.

First, we pay attention to the apparent dif-

ference between exploitation for refining or

deepening existing knowledge and explo-

ration for creating new knowledge (March,

1991). While there are a variety

of perspectives on the relation-

ship between exploration and

exploitation (conflict, compat-

ible, and interdependent) in the

organizational learning literature,

all of them assume that there are

differing pathways to explora-

tion and exploitation (Farjoun,

2010, Gupta, Smith, & Shalley,

2006; Raisch, Birkinshaw, Probst,

& Tushman, 2009). Based on

this assumption, we will investi-

gate how an HRM system facili-

tates exploratory and exploitative

learning. We also recognize that

organizational learning is reli-

ant upon its existing knowledge

stocks or intellectual capital

(Cohen & Levinthal, 1990). In other words,

the intellectual capital—which includes

the knowledge of individuals (human capi-

tal), knowledge available from social rela-

tionships (social capital), and knowledge

captured in an organization’s routines, pro-

cesses, and systems (organizational capital)—

provides the “inputs” into organizational

learning for exploration and exploitation

(Subramaniam & Youndt, 2005).

Finally, HR researchers have tradition-

ally focused on the micro level of manag-

ing human capital and often overlook the

interplay between individual knowledge

assets and collective knowledge assets, such

as social and organizational capital. But the

knowledge-based view suggests that peo-

ple are not independent from but rather

embedded in organizational systems and pro-

cesses (Bowman & Swart, 2007; Minbaeva,

Foss, & Snell, 2009; Wright et al., 2001). Put

differently, individuals not only utilize their

own knowledge and skills but also utilize the

knowledge, relationships, and systems they

collectively possess. Thus, the effects of HRM

should encompass social relationships and

organizational processes and systems that

exist within the organization beyond the

issue of people. In this line, this study tries

to identify the effects of HRM on exploratory

and exploitative learning by treating intel-

lectual capital as the underpinning resources

between the relationships.

The current study will examine the link-

ages of HRM to intellectual capital and

exploratory and exploitative learning in

the context of law firms’ practice groups.

Law firms have been traditionally consid-

ered knowledge-based organizations and

extremely dependent on their ability to

attract, mobilize, develop, and transform

human resources to create value for their cli-

ents (Lowendahl, Revang, & Fosstenlokken,

2001). While law firms in the United States

historically relied on institutionalized cli-

ent relationships, intensive competition

has pushed them to continuously develop

new transactions and clients (Sherer & Lee,

2002). Out of the unique institutional con-

text of US law firms emerged two alterna-

tive HR systems: options- and project-based

HRM models, which represent systems of

internally consistent practices of promoting,

developing, and bonding as well as hiring

lawyers and are closely related to “make-or-

buy” decisions on human resources (Malos &

Campion, 2000). Thus, the US law firms pro-

vide appropriate sites to examine the contri-

butions of HRM to intellectual capital and

organizational learning.

With respect to the level of analysis in

this study, we focus on practice groups within

law firms that represent unique law areas

(e.g., corporate, labor and employment, liti-

gation). Large law firms typically have mul-

tiple offices of varying sizes and in different

geographic regions that are usually loosely

connected to respond to their regional

needs. Under the partnership structures that