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Building dynamic strategic capabilities: a human capital perspective
Christina Yu-Ping Wang a , Bih-Shiaw Jaw
b * and Chester Hsieh-Che Tsai
b
a Department of International Business, National Dong Hwa University, Shou-Feng, Hua-Lien,
Taiwan, Republic of China; b Institute of HRM, National Sun Yat-sen University, Kaohsiung, Taiwan,
Republic of China
BaseduponthedynamicperspectiveofRBV,weincorporatedSHRMandorganizational change literature to examine the processes of developing a firm’s dynamic strategic capabilities through strategic human capital leveraging coupled with human-capital- oriented restructuring to cope with rapidly changing environments. Findings from 154 firms show that a total mediation model identifies that strategic human capital leveraging not only catches the benefits of complementary human capital process (deployment and inimitability) fitted to a firm’s strategic need but also needs the co-specialized human- capital-oriented restructuring to facilitate a firm’s flexible capabilities. Maintaining dynamic strategic capabilities requires firms to leverage their human capital for not only achieving maximum productivity but also contributing to core competence so that they will become distinctive and constantly be reconfigured and adapted in the process of organizational restructuring in correspondence with the dynamic environment.
Keywords: dynamic strategic capabilities; human-capital-oriented restructuring; strategic human capital leveraging
Introduction
Business environments today, featured with knowledge-based competition and rapidly
changing markets, require firms’ capabilities to use internal processes to constantly
accumulate, integrate, and renew knowledge resources for continuous survival (Grant 1996;
Teece, Pisano and Shuen 1997; Eisenhardt and Martin 2000; Karim 2006; Lavie 2006;
Teece 2007).Thecapabilities,however,are difficulttoachieveastheyare largely embedded
in the knowledge resources residing in employees, groups, and the whole organization that
coexist to form a stock of intellectual capital for creating competitive advantages over time
(Grant 1996; Kaplan and Norton 2004; Subramaniam and Youndt 2005). Viewing from the
dynamic capabilities perspective, how firms can best utilize and leverage their knowledge
resources in a distinctive process becomes the critical determinant of advantage differences
across firms (Hitt, Bierman, Shimizu and Kochhar 2001; Wright, Dunford and Snell 2001).
Strategic human resource management (SHRM) literature has addressed how human
capital and the complementary HR systems and processes help firms to develop layers
of strategic capabilities for competitiveness in dynamic markets (Wright et al. 2001;
Lepak and Snell 2002; Becker and Huselid 2006; Bassi and McMurrer 2007; Kang, Morris
and Snel 2007). Derived from this current, strategic human capital leveraging is deemed as
the HRM practices focusing on developing both higher level and inimitable human capital
that is best aligned with firms’ strategic needs (Prahalad and Hamel 1990; Dess and
Pickens 1999; Carmeli and Schaubroeck 2005; Lengnick-Hall and Lengnick-Hall 2003).
Therefore, this research further attempted to explore how strategic human capital
ISSN 0958-5192 print/ISSN 1466-4399 online
q 2012 Taylor & Francis
http://dx.doi.org/10.1080/09585192.2011.561234
http://www.tandfonline.com
*Corresponding author. Email: [email protected]
The International Journal of Human Resource Management,
Vol. 23, No. 6, March 2012, 1129–1157
leveraging processes are related to the development of firms’ intellectual capital stock by
deploying and developing their valuable and unique human capital to achieve new forms
of organizational capabilities (Wright et al. 2001; Youndt, Subramaniam and Snell 2004;
Lopez-Cabrales, Valle and Herrero 2006).
In addition, the ability to adapt to environmental contingencies may to some extent
rely on effective restructuring processes to reorient a firm’s resources and capabilities
(Teece et al. 1997; Budros 1999; Wright et al. 2001; Christensen, Marx and Stevenson
2006). However, as most restructuring processes often lead to workforce reduction and
layoffs, it may cause negative effects on organizational capabilities by letting go valuable
knowledge, skills, and relationships of core employees (Cameron 1994; Freeman 1999;
Fisher and White 2000; Casico 2002). The organizational change literature has largely
mentioned the importance of incorporating HR practices into effective restructuring
conducts to reduce the negative effects (Cameron 1994; Freeman 1999; Cascio 2002;
Chadwick, Hunter and Walston 2004; Nixon, Hitt, Lee and Jeong 2004; Trevor and
Nyberg 2008). In this sense, this research extended the literature and argued that human-
capital-oriented restructuring, which highly values both human capital and restructuring
process efficiency, could improve organizational efficiencies, meanwhile acting to refocus
and reintegrate the intellectual capital stock, to endure firms’ superior performance in
dynamic environments (Teece et al. 1997; Freeman 1999; Cascio 2002; Christensen et al.
2006; Kaplan and Norton 2006).
Furthermore, many strategic management researches argued that capabilities can endure
superior performance over time when they are developed with complementary HR
architectures, systems, or processes (Lado and Wilson 1994; Lepak and Snell 1999; Wright
et al. 2001). In fact, situations of complementarities, where there are also co-specializations
between processes, and between system and process, are common. Therefore, the ability
of management to catch the benefits of complementary assets and co-specialization is
foundational to dynamic capabilities (Teece 2007). When firms simultaneously use the
process of strategic human capital leveraging and human-capital-oriented restructuring, they
may catch the benefits of complementarities and co-specialization to develop dynamic
strategic capabilities (Barney 1991; Grant 1996; Teece et al. 1997; Teece 2007). Our
research accordingly attempted to further address these SHRM issues for developing
dynamic strategic capabilities, because restructuring process depends more fundamentally
on aligning human capital management processes and systems with firms’ strategic renewal.
This research is aimed at answering the question: what are the processes that help to
develop a firm’s dynamic strategic capabilities by leverage, and renew the human capital
stock to cope with environmental dynamics. Based upon the dynamic capabilities’
perspective, we argue that strategic human capital leveraging ensures the most efficient
and sustaining use of human capital stock and at the same time facilitates the development
of an entire human capital stock. Besides, we extended organizational change theories and
argued that human-capital-oriented restructuring further enhance the adaptability of the
entire human capital stock. Finally, we explored the complementary and co-specialized
natures of strategic human capital leveraging and human-capital-oriented restructuring for
developing the dynamic strategic capabilities.
We firstly conducted field studies to verify the relationships of our proposed variables,
namely strategic human capital leveraging, human-capital-oriented restructuring, and
dynamic strategic capabilities. Secondly, we conducted survey studies and statistically
examined the hypothesized relationships by using Structural Equation Modeling (SEM)
technique with data collected from 154 firms in Taiwan. Our model test finally validated
a total mediation model addressing the effect of strategic human capital leveraging on
C.Y.-P. Wang et al.1130
the development of dynamic capabilities through the role of human-capital-oriented
restructuring, and thereby provided meaningful implications for theoretical developments
and business practices.
Literature review and theoretical building
Dynamic strategic capabilities
In a knowledge economy, a firm’s value creation depends on timely responsiveness and
flexible innovation through the processes to best utilize, leverage, and integrate its
knowledge resources, such as employee’s knowledge, customer relationships,
technologies, patents, organizational routines, and systems (Grant 1996; Priem and
Butler 2001; Karim 2006; Lavie 2006). In dynamic environments, the organizational
processes require the ability to constantly accumulate and reconfigure knowledge
resources to develop the right stock of intellectual capital for efficient and effective use to
create competitive advantages (Teece et al. 1997; Nahapiet and Ghoshal 1998; Kaplan and
Norton 2004; Youndt et al. 2004; Teece 2007). In addition, the intellectual capital stock
needs to be kept in constant renewal so that firms can exploit what have already been
developed, while concurrently exploring and learning new ways for value creation and
sustainable competitiveness (Levinthal and March 1993; O’Reilly and Tushman 2004).
Dynamic strategic capability represents the ability to prepare, extend, and renew the
entire intellectual capital stock within firms to quickly achieve evolving strategic goals for
short-term and long-term superior performance (Teece et al. 1997; Kaplan and Norton
2004; O’Reilly and Tushman 2004; Youndt et al. 2004). It consists of three dimensions
featured with strategic, dynamic, and learning orientations: the strategic orientation
represents the ability to accumulate intellectual capital stock for strategic readiness by
aligning knowledge resources or intangible assets with strategic processes toward the
same strategic goals (Wright et al. 2001; Kaplan and Norton 2004); the dynamic
orientation represents the ability to reconfigure intellectual capital stock by readjusting
and adapting a firm’s knowledge resources to changing strategic goals based upon
dynamic market and technological conditions (Teece et al. 1997); and the learning
orientation represents the ability to renew the entire intellectual capital stock through
learning processes to constantly integrate critical internal and external knowledge
resources (March 1991; Levinthal and March 1993; Gibson and Birkinshow 2004).
Intellectual capital readiness
Intellectual capital is commonly regarded as the co-existence and combination of a firm’s
human capital, social capital, and organization capital for creating competitive advantages
(Nahapiet and Ghoshal 1998; Kaplan and Norton 2004; Youndt et al. 2004). As capital
resources alone cannot create value, they must be integrated and aligned with the internal
processes for creating value for customers and shareholders (Kaplan and Norton 2004;
Youndt et al. 2004). Therefore, alignment of intellectual capital prepares a firm’s strategic
readiness that efficiently utilizes capital resources to enhance a firm’s strategic processes,
such as TQM manufacturing, customer services, or R&D, to exploit any possible market
opportunities (Lengnick-Hall and Lengnick-Hall 2003; Kaplan and Norton 2004).
Strategic reconfiguration
Successful organizations in a dynamic environment are efficient in their management
of today’s business demands, while also being adaptive enough to changes in the
The International Journal of Human Resource Management 1131
environment that will still be around them tomorrow (O’Reilly and Tushman 2004).
In addition to the alignment of intellectual capital for strategic readiness, a firm needs to
reconfigure the intellectual capital to achieve congruence with changing business
environments for leveraging its capital resources (Teece et al. 1997; Gibson and
Birkinshow 2004; O’Reilly and Tushman 2004). The reconfiguration of strategic capital is
regarded as the strategic adaptability to identify new opportunities from changing business
environments (Teece et al. 1997; Eisenhardt and Martin 2000; Teece 2007), meanwhile
readjusting capital resources and strategic goals to meet changing demands in the present
and future environments (O’Reilly and Tushman 2004). All the resources are adapted to
and reconfigured for developing new products or building new business models which
were needed for the changing markets.
Knowledge resources integration
In order to cope with dynamic environmental changes and tense competition, firms need to
effectively integrate internal and external resources, which are critical in implementing
the internal strategic processes (Teece et al. 1997). Firm’s human, social, and organization
capital not only co-exist to form intellectual capital, but they also are collectively
transformed to create competitive advantages over time (Nahapiet and Ghoshal 1998;
Kaplan and Norton 2004; Youndt et al. 2004). In this sense, dynamic strategic capabilities
include a firm’s ability to constantly mesh together internal and external knowledge
resources in its exploitation and exploration processes (March 1991; Wright et al. 2001;
Ulrich and Smallwood 2004). These processes involve both the act of refining and
deepening a firm’s existing intellectual capital stock and the pursuit of learning from outside
a firm’s current knowledge domains (March 1991). These processes further integrate the
capital resources and collectively renew a firm’s intellectual capital stock to cultivate
existing market opportunities or to search new market opportunities (Levinthal and March
1993; Teece et al. 1997; Gibson and Birkinshow 2004; O’Reilly and Tushman 2004).
A firm’s dynamic strategic capabilities are regarded as the readiness of intellectual
capital aligned to be adapted, reconfigured, and recombined for short-term and long-term
superior performance (Teece et al. 1997; Lengnick-Hall and Lengnick-Hall 2003;
Kaplan and Norton 2004; Gibson and Birkinshow 2004; O’Reilly and Tushman 2004).
In the following sections, we explore how the managerial and organizational processes in
relation to human resources and organizational change are associated with the dynamic
strategic capabilities.
Strategic human capital leveraging for developing dynamic capabilities
Following RBV stream, SHRM literature explains that strategic human capital management
(SHCM) practices are those that are focused on the assessment of effectiveness of existing
HRM practices with a view to enhancing fit with strategic goals (Lado and Wilson 1994;
Lepak and Snell 1999; Wright et al. 2001; Hayton 2003; Becker and Huselid 2006;
Kang et al. 2007). Based upon the SHCM framework, human capital leveraging represents
the practices to use and manage a firm’s human capital for maximizing its productivity and
value-creating potential in dynamic markets (Prahalad and Hamel 1990; Lengnick-Hall
and Lengnick-Hall 2003; Carmeli and Schaubroeck 2005). Strategic human capital
leveraging involves how to adequately deploy employees to best apply their knowledge,
skills, and abilities to tasks and processes and how to develop highly skilled employees that
match with a firm’s strategic needs to cope with changing environmental contingencies
C.Y.-P. Wang et al.1132
(Wright et al. 2001; Lengnick-Hall and Lengnick-Hall 2003; Kor and Leblebici 2005). As
such, it consists of two complementary human capital management processes, including
human capital deployment and human capital inimitability. Human capital deployment
stresses on allocating human capital associated with organizational efficiency (Lopez-
Cabrales et al. 2006), while human capital inimitability emphasizes to develop human
capital in a distinctive way for contributing to core competence (Carmali and Schaubroeck
2005).
Human capital deployment
Firms do not own human capital that resides in individual employees, unless organizations
retain and enable employees to best engage and apply their human capital into jobs
individually and collectively (Wright et al. 2001; Lengnick-Hall and Lengnick-Hall 2003;
Kaplan and Norton 2004; Kor and Leblebici 2005). Adequate human capital deployment
accumulates individual human capital into an entire human capital stock by a good fit
between human capital and tasks, jobs, or operating processes (Lengnick-Hall and
Lengnick-Hall 2003; Kaplan and Norton 2004). One effective and efficient way to ensure
the fit is through specialization of labor that helps to deploy individual human capital at
different levels to the most productive tasks or jobs (Dess and Pickens 1999; Lepak and
Snell 1999; Coff, Coff and Eastvold 2006; Lengnick-Hall and Lengnick-Hall 2003;
Kor and Leblebici 2005; Kang and Snell 2009). In addition, practices such as operating
processes analysis, job design, delegation, and enrichment help firms to arrive at the fit
between tasks, processes, and talents to achieve strategic impacts (Wright et al. 2001;
Kaplan and Norton 2004; Ulrich and Smallwood 2004; Youndt et al. 2004).
Human capital inimitability
Firms can leverage human capital resources by developing it in ways that are uniquely
suited to the particular organization’s design and strategy (Carmeli and Schaubroeck
2005). Human capital becomes firm-specific and inimitable as rivals will not be able to put
the human capital to the same firm-specific use (Mahoney and Pandian 1992). Based upon
Hamel and Prahalad’s (1993) work, strategic human capital can be effectively developed
for stretch when focusing on the development of individual human capital (knowledge,
skills, and abilities) on firms’ key strategic goals (Kaplan and Norton 2004). To develop
the human capital with strategic importance, firms facilitate individual learning by doing
and provide training, education, or skill development activities to encourage the sharing of
knowledge, experience, and know-how among employees and between employees and
customers (Kaplan and Norton 2004; Ulrich and Smallwood 2004; Youndt et al. 2004).
By doing these, the valuable and unique human capital stock associated with different
organizational capabilities is synthesized and enhanced to contribute to a firm’s core
competencies (Wright et al. 2001; Lopez-Cabreles, Valle and Herrero 2006). As such,
firms can constantly maintain a good fit between the firm-specific human capital and their
strategic needs which cannot be imitated immediately by rivals (Hamel and Prahalad
1993; Wright et al. 2001; Lengnick-Hall and Lengnick-Hall 2003; Carmeli and
Schaubroeck 2005).
Systems, processes, and practices for organizing, allocating, and developing human
resources directly influence the processes in which a firm’s competencies or capabilities
are developed for achieving competitive advantages (Lado and Wilson 1994; Ulrich and
Smallwood 2004; Kang et al. 2007). As effective human capital deployment continues,
The International Journal of Human Resource Management 1133
a firm’s human capital can be accumulated to match the environmental needs (Mahoney
and Pandian 1992; Mahoney 1995; Teece et al. 1997). Alternatively, human capital
inimitability is useful to transfer and retain a firm’s human capital and improves
organizational learning for knowledge sharing (Wright et al. 2001). Consequently,
strategic human capital leveraging not only represents the processes to constantly
accumulate and leverage a stock of human capital for generating long-term superior firm
performance (Prahalad and Hamel 1990; Lengnick-Hall and Lengnick-Hall 2003;
Carmeli and Schaubroeck 2005), but also fosters social climates, such as trust,
cooperation, learning and sharing, that enhance employee behaviors to combine and
exchange information for creating new knowledge in the changing environment
(Lepak and Snell 2002; Becker and Huselid 2006). Hence, human capital leveraging
accumulates and extends firm’s valuable and unique human capital stock, coupled with
the firm-specific, complex, social relationships, to generate distinctive organizational
capabilities, such as cost reduction, quality products and services, timelessness delivery,
creativity, and innovation in the dynamic environment (Barney 1991; Lado and Wilson
1994; Lepak and Snell 2002). Hence, we hypothesize that
Hypothesis 1: Strategic human capital leveraging (human capital deployment and
human capital inimitability) will have positive association with dynamic
strategic capabilities.
Human-capital-oriented restructuring and dynamic strategic capability
Organizational restructuring is one of the most widely used strategies to facilitate the
needed changes of resources and capabilities to adapt to dynamic environmental conditions
(Teece et al. 1997; Budros 1999). As restructuring inevitably involves layoffs and new
hires, strategically orchestrating human resources practices into restructuring processes can
have great influence on a firm’s ability to cope with rapidly changing environments
(Cameron 1994; Cascio 2002; Cascio and Wynn 2004; Chadwick et al. 2004; Kaplan and
Norton 2006). Hence, we proposed human-capital-oriented restructuring processes that
largely treat human resources as critical assets to be retained and cultivated for firm’s
long-term, sustained development (Cameron 1994; Freeman 1999; Cascio 2002; Cascio and
Wynn 2004; Chadwick et al. 2004; Christensen et al. 2006). Human-capital-oriented
restructuring consists of four dimensions, including comprehensive strategies for
organizational change, long-term mindset, employee participation and process justice,
and employee caring (Cameron 1994; Cascio and Wynn 2004).
Comprehensive restructuring strategies
Restructuring for organizational change, especially in difficult economic times, is
frequently directed by downsizing actions and layoffs for costs reduction (Cameron 1994;
Freeman 1999). However, such cost/workforce reduction may heavily damage
organizational capabilities (Fisher and White 2000; Casico 2002). Successful change
arrives when workforce reduction is based on alternative, comprehensive restructuring
strategies formulated according to systematic analysis of business environments and the
resources and capabilities a firm owns (Cameron 1994; Freeman 1999; Cascio and Wynn
2004; Kaplan and Norton 2006). Prior to restructuring for organizational change, a firm’s
assets including internal culture, structures, business processes, and employees’ core
competence all need to be carefully evaluated to formulate adequate change strategies
(Cameron 1994; Teece et al. 1997; Cascio 2002; Christensen et al. 2006). Strategies
C.Y.-P. Wang et al.1134
focusing on reconfiguration of human resources and organizational structures, though
accompanying downsizing, can help firms to achieve successful changes and renewal
(Cameron 1994; Chadwick et al. 2004; Nixon et al. 2004; Trevor and Nyberg 2008).
Long-term mindset
Given the strategic importance of firms’ internal resources and capabilities (Barney 1991),
firms are suggested to hold the long-term mindset to carefully manage and cultivate their
valuable resources, such as human capital, even at times of organizational restructuring
(Cascio 2002; Nixon et al. 2004). With long-term mindset, firms use direct layoffs as the
last resort but hold on to innovative business that requires cultivation of needed human
capital from their existing employees or new hires when conducting restructuring
(Cameron 1994; Cascio 2002). Putting long-term payoff into consideration, firms can
constantly make investments in their valuable firm-specific human capital central to the
core business for organizational renewal and maintaining competitive advantages
(Cascio 2002; Cascio and Wynn 2004).
Employee participation and process justice
Investigating into the restructuring strategy of auto industry, Cameron (1994) argued that a
successful restructuring should broadly take into account the employees’ participations
and process justice during the restructuring. More specifically, firms need to facilitate
employees’ participation and involvement with sufficient communication to ensure
employees perceiving the justice in selecting layoff employees (Freeman 1999;
Cascio 2002). By doing so, employees’ commitment and willingness to implement
organizational restructuring are created during and after restructuring for successful
organizational renewal (Cascio 2002; Chadwick et al. 2004).
Caring for employee
Many argued that firms need to take good care of employees during restructuring for
effective renewal (Cameron 1994; Cascio 2002; Cascio and Wynn 2004). Empirical work
by Chadwick et al. (2004) demonstrated that advance notice of layoffs and employees’
morale and welfare are positively related to firm’s success following layoffs. In this sense,
prior to layoffs, when employees are provided with outplacement assistance, such as
training, consultancy, and job-seeking assistance, they can perceive organizational support
(Cameron 1994). Thereafter, discretionary efforts of employees, especially for the
remaining employees, can be promoted during restructuring (Cascio 2002; Cascio and
Wynn 2004; Chadwick et al. 2004). Firms that treat employees on a caring basis improve
commitment and social ties attributed to trust and friendship among employees and
between employees and the firm (Cascio 2002; Cascio and Wynn 2004).
A firm’s sustained superior performance largely depends on the ability to reconfigure
assets and organizational structure, as economic conditions, markets, and technologies
change (Teece et al. 1997; Wright et al. 2001; Teece 2007). Human-capital-oriented
restructuring assumes that human capital are long-term assets and that restructuring
processes should emphasize on fairness and justice so as to retain employees’ firm-specific
knowledge, experiences, and skills as well as their commitment to and trust in firms
(Cascio 2002; Cascio and Wynn 2004; Chadwick et al. 2004; Nixon et al. 2004; Trevor and
Nyberg 2008). Besides, stressing on employee participation and caring for employees
during restructuring creates a common purpose, commitment, and identity with mutual
The International Journal of Human Resource Management 1135
trust and fluid collective action among employees (Barney 1991; Lado and Wilson 1994;
Lüscher and Lewis 2008). As such, human-capital-oriented restructuring helps to
strengthen a firm’s adaptability to dynamic business environments and at the same time
to further align, integrate, and renew all the capital resources for a firm’s continuous
competitiveness (Dess and Shaw 2001; Carmeli and Schaubroeck 2005; Lopez-Cabrales
et al. 2006). Hence, we hypothesize that
Hypothesis 2: Human-capital-oriented restructuring (comprehensive restructuring
strategies, long-term mindset, employees’ participation and process
justice, and caring for employees) will have positive association with
dynamic strategic capabilities.
The mediating effect of human-capital-oriented restructuring
Successful organizational restructuring needs to achieve strategic readjustment on the
basis of the long-term development of a firm’s human capital, allowing firms to correspond
with environmental changes while developing dynamic strategic capabilities (Reed and
DeFlippi 1990; Grant 1991; Schulze 1994; Teece et al. 1997; Cascio and Wynn 2004).
Strategic human capital leveraging describes the willingness of a firm to value and invest
its talents (Dess and Pickens 1999; Lengnick-Hall and Lengnick-Hall 2003). Effective
human capital deployment, with a view to maximum productivity, ensures the flexible use
of human assets to match changeable organizational structure in accordance with dynamic
markets and technologies (Teece et al. 1997; Wright et al. 2001), while human capital
inimitability, on account of developing valuable firm-specific human capital, preserves the
long-term mindset, commitment, and trust among employees and within firms (Hitt et al.
2001; Hatch and Dyer 2004; Carmeli and Schaubroeck 2005; Lopez-Cabrales et al. 2006).
Therefore, strategic human capital leveraging will lead firms to resolve the tension of
organizational readjustment and human capital retention and thereby leads to effective
restructuring and organizational renewal. Therefore, we hypothesize that
Hypothesis 3: Strategic human capital leveraging will have positive association with
human-capital-oriented restructuring.
In dynamic markets, sustaining competitive advantage is assumed to accrue to firm-
specific capabilities to constantly readjust their internal sets of capital resources to match
external environmental change (Reed and DeFlippi 1990; Grant 1991; Schulze 1994;
Teece et al. 1997). Strategic human capital leveraging speeds up the utilization of a firm’s
human capital as well as the transformation from hiring to full productivity and from
training to application (Dess and Pickens 1999; Lengnick-Hall and Lengnick-Hall 2003;
Carmeli and Schaubroeck 2005; Kang and Snell 2009). Human-capital-oriented
restructuring further facilitates the realignment and reconfiguration of firm-specific
human capital associated with organizational core competencies or capabilities to meet the
dynamic strategic needs (Hayton 2003; Hatch and Dyer 2004; Lopez-Cabrales et al. 2006).
Hence, strategic human capital leveraging, by means of human-capital-oriented
restructuring, facilitates the processes that firms must undergo to develop dynamic strategic
capabilities to sustain competitiveness in rapidly changing environments (Teece et al. 1997;
Wright et al. 2001; Lopez-Cabrales et al. 2006). Consequently, we hypothesize as follows:
Hypothesis 4: Strategic human capital leveraging through the mediation of the
human-capital-oriented restructuring will have positive association with
dynamic strategic capabilities.
C.Y.-P. Wang et al.1136
Methodology
Our research studies were conducted in two stages. We first conducted field studies by
reviewing the restructuring processes and practices of 18 case companies to verify our
proposed variables: human capital leveraging, human-capital-oriented restructuring, and
dynamic strategic capabilities, and their inter-relationships within an integrative
framework. Subsequently, we empirically tested the integrated framework by conducting
a large-scale survey to testify a total mediation model, which identifies the mediating role
of human-capital-oriented restructuring played in the relationship between strategic
human capital leveraging and dynamic strategic capabilities.
Field studies
In our field studies, we interviewed executives (CEOs, VPs, or COOs) or HR managers in
firms who have undergone organizational downsizing or restructuring. A total of 18 firms,
mainly from manufacturing industries (e.g. Acer, Yulon Motor, Ford Lio-Ho Motor,
Formosa Plastics, Chinese-American Petrochemical, Tong-Lung Metal, and Sampo),
accepted our interviews and shared their experiences concerning organizational change
practices. Based upon Cameron (1994) and Freeman’s (1999) four downsizing dimensions
during restructuring (downsizing strategy, process restructuring, HR-related restructuring,
and HR development), combined with background information (downsizing/restructuring
year, period, and employee change percentage), the interview results of the 18 case
companies are shown in Table 1 for further case analyses.
Based upon RBV (Barney 1991) and dynamic capabilities (Teece et al. 1997), the
results of 18 companies shown in Table 1 were assigned to four categories of
downsizing/restructuring classified by the two dimensions: process orientation (including
process restructuring and HR-related restructuring) versus human capital concern
(including downsizing strategy and HR development), as shown in Table 2. Process
orientation referred to as whether processes and practices are viewed as isolated versus
complementary during restructuring, depending on the extent to which comprehensive
change strategies (practices) and the related process adjustment were implemented. Human
capital concern referred to whether human resources are viewed as costs versus assets
during restructuring, depending on the extent to which alternative strategies and HRM
changes were implemented. Accordingly, we posited five restructuring modes by
juxtaposing the two dimensions, with a low and high on processes orientation on the
vertical axis, and a low and high on human capital concern on the horizontal axis. We
allocated 18 case companies to their respective modes where they were best suited, when
mapping with the post-restructuring performance and capabilities of the 18 case
companies, and five restructuring modes were identified as follows.
Mode 1 (capabilities renewal) included cases K, L, M, O, P, Q, and R that highly
valued employees’ human capital and implemented comprehensive change strategies
(practices) coupled with complementary HR practices to facilitate the restructuring
processes, thereby developing or renewing firm’s capabilities. Mode II (efficiency pursuit)
included case B that exemplified the traditional use of downsizing or restructuring, just for
pursuing the goal of doing more with less. Mode III (cost reduction) included cases A, C,
and D that largely treated employees as costs to be reduced by adopting direct layoffs with
none or few change processes and practices. Mode IV (attrition restructuring) included
cases G and F, which, similar to Model III, involved only workforce reduction but in a
more humane and less severe way. Mode V (effective restructuring) included cases E, H, I,
J, and N that highly valued human capital of current strategic importance while using
The International Journal of Human Resource Management 1137
T a b le
1 .
C a se s su m m a ry .
B a c k g ro u n d in fo rm
a ti o n
D o w n si zi n g d im e n si o n s d u ri n g re st ru c tu ri n g (C a m e ro n 1 9 9 4 ; F re e m a n 1 9 9 9 )
In d u st ry
e st a b li sh e d
y e a r (d o w n si zi n g y e a r)
E m p lo y e e c h a n g e (%
) I. D o w n si zi n g st ra te g ie s
II . P ro c e ss
re st ru c tu ri n g
II I. H R -r e la te d
re st ru c tu ri n g
IV . H R d e v e lo p m e n t
A P e tr o c h e m ic a l
1 9 7 6 (1 9 8 6 – 1 9 8 7 )
3 2 0 !
2 0 0
(3 0 % )
W o rk fo rc e re d u c ti o n
– D ir e c t la y o ff s
N .A .
N .A .
N .A .
B P e tr o c h e m ic a l
1 9 7 5 (1 9 9 8 )
8 0 !
1 (9 8 % )
W o rk fo rc e re d u c ti o n
– D ir e c t la y o ff s
– D iv e st th e p la n t
N .A .
N .A .
C R e ta il 1 9 9 1
(1 9 9 9 – 2 0 0 2 )
2 0 0 !
1 1 0
(4 5 % )
W o rk fo rc e re d u c ti o n d ri v in g
p ro c e ss
e ffi c ie n c y
– E -p ro c e ss
re e n g in e e ri n g
N .A .
– M o re p la n n in g o n tr a in in g
– In tr o d u c e p e rf o rm
a n c e -
b a se d m e ri t
– D ir e c t la y o ff s
D E le c tr o n ic s
1 9 6 7 (1 9 9 8 – 2 0 0 0 )
8 0 !
3 0
(7 0 % )
W o rk fo rc e re d u c ti o n d ri v in g
p ro c e ss
e ffi c ie n c y
– P ro c e ss
re e n g in e e ri n g
– T ra in in g n e w
sk il ls fo r
su rv iv o rs
N .A .
– L a y o ff s w it h se v e ra n c e
p a y
– S e v e ra n c e p a y to
th o se
la id
o ff
E A u to m o b il e sa le s
1 9 4 8 (2 0 0 2 )
9 8 9 !
5 1 9
(4 7 .5 2 % )
W o rk fo rc e re d u c ti o n d ri v in g
p ro c e ss
e ffi c ie n c y
– E li m in a te
la y e rs
o f
re p o rt in g sy st e m
– E a rl y re ti re m e n t
in c e n ti v e
– S e t u p re c ru it in g &
a p p ra is a l c ri te ri a
– L a y o ff s w it h se v e ra n c e
p a y
– A ll u n it s re d u c e
e m p lo y e e s b y a n e q u a l
p e rc e n ta g e
– S e v e ra n c e p a y to
th o se
la id
o ff
F P e tr o c h e m ic a l
1 9 9 0 (2 0 0 0 )
2 8 0 !
2 3 0
(1 7 .9 % )
N a tu ra l a tt ri ti o n
N .A .
N .A .
– S e t u p re c ru it in g c ri te ri a
– S e le c ti v e h ir in g fr e e z in g
G E le c tr o n ic s
1 9 9 9 (2 0 0 2 )
1 8 0 0 !
1 5 0 0
(1 6 .6 % )
In c re m e n ta l c h a n g e
– E li m in a te
la y e rs
o f
re p o rt in g sy st e m
– Jo b se a rc h c o u n se ll in g
– S e v e ra n c e p a y
– In tr o d u c e p e rf o rm
a n c e -
b a se d m e ri t
– L a y o ff s w it h o u tp la c e -
m e n t a ss is ta n c e
– E li m in a te
m id d le
m a n a g e rs
– C a re e r p a th
p la n n in g to
so m e e x te n t
– W o rk
sh a ri n g
H P e tr o c h e m ic a l
1 9 7 8 (2 0 0 0 – 2 0 0 1 )
1 1 0 !
7 5
(3 1 .8 % )
P ro c e ss
re d e si g n d ri v in g
w o rk fo rc e re d u c ti o n
– D ir e c t la y o ff s
– P ro c e ss
re e n g in e e ri n g
– A ll u n it s re d u c e
e m p lo y e e s b y a n e q u a l
p e rc e n ta g e
– T ra in in g fo r th e
su rv iv o rs
– In tr o d u c e p e rf o rm
a n c e -
b a se d m e ri t
– W e ll -p la n n e d c a re e r p a th
fo r e m p lo y e e s
C.Y.-P. Wang et al.1138
I IT 1 9 6 7 (2 0 0 0 – 2 0 0 2 )
2 8 0 0 !
2 0 0 2
(1 3 % )
P ro c e ss
re d e si g n d ri v in g
w o rk fo rc e re d u c ti o n
– D ir e c t la y o ff s
– E li m in a te
la y e rs
o f
re p o rt in g sy st e m
– S tr e a m li n e o p e ra ti o n
p ro c e ss e s
– E m p o w e r e m p lo y e e s
in c o n ti n u o u s p ro -
c e ss e s im
p ro v e m e n t
– M o re
fo c u s o n tr a in in g &
d e v e lo p m e n t
– E n fo rc e p e rf o rm
a n c e
a p p ra is a l
– O p ti o n a l p a rt -t im
e sc h e d u le s
J P e tr o c h e m ic a l
1 9 7 4 (1 9 9 9 – 2 0 0 2 )
3 2 8 !
2 2 0
(3 2 .9 % )
S tr u c tu re
re d e si g n d ri v in g
w o rk fo rc e re d u c ti o n
– M e rg e u n it s
– R e w a rd s to
e a rl y
re ti re m e n t
– M o re
o n H R p la n n in g
– E a rl y re ti re m e n t in c e n ti v e
– A d v a n c e n o ti c e fo r la y o ff
– T ra n sf e r- o u t in c e n ti v e
– E li m in a te
fu n c ti o n s &
la y e rs
o f re p o rt in g
sy st e m
– Jo b se a rc h c o u n se ll in g
– C a re e r d e v e lo p m e n t to
so m e e x te n t
– S tr e a m li n e o p e ra ti o n
p ro c e ss e s
K A u to m o b il e
1 9 8 4 (1 9 9 8 – 1 9 9 9 )
2 4 6 2 !
2 3 6 0
(4 .1 5 % )
In c re m e n ta l c h a n g e &
N a tu ra l a tt ri ti o n
– T o ta l h ir in g fr e e z e
– E li m in a te
la y e rs
o f
re p o rt in g sy st e m
– S tr e a m li n e o p e ra ti o n
p ro c e ss
– L in e m a n a g e rs
tr a n sf e r
to st a ff fu n c ti o n s
– D e p a rt m e n t h e a d
re sp o n si b le
to c o m m u -
n ic a te
– U se
c o n tr a c t w o rk e rs
– E m p o w e r e m p lo y e e s
in p ro c e ss
im p ro v e -
m e n t
– T ra in in g n e w
sk il ls
– F o c u s o n p e rf o rm
a n c e -
b a se d sy st e m
– W e ll p la n n e d c a re e r p a th
L P e tr o c h e m ic a l
1 9 7 6 (1 9 9 7 – 2 0 0 0 )
7 1 7 !
5 8 5
(1 8 .4 % )
P ro c e ss e s re d e si g n d ri v in g
w o rk fo rc e re d u c ti o n
– P ro c e ss
re e n g in e e ri n g
– Jo b se a rc h c o u n se ll in g
– F o c u s o n c e rt ifi c a ti o n
tr a in in g
– T o ta l h ir in g fr e e z in g
– C o m p e n sa ti o n re d u c ti o n
– R e d u c e c o n tr a c t w o rk e rs
– E a rl y re ti re m e n t
in c e n ti v e s
– E li m in a te
la y e rs
o f
re p o rt in g sy st e m
– E x te n d e d b e n e fi ts fo r
th o se
la id
o ff
– M o re
c a re e r p a th
p la n n in g
– A ll u n it s re d u c e
e m p lo y e e s b y a n e q u a l
p e rc e n ta g e
– M o re
re w a rd s to
su r-
v iv o rs
– M o re
jo b ro ta ti o n s
– B u il d ta sk /w o rk
te a m s
The International Journal of Human Resource Management 1139
T a b le
1 – c o n ti n u e d
B a c k g ro u n d in fo rm
a ti o n
D o w n si zi n g d im e n si o n s d u ri n g re st ru c tu ri n g (C a m e ro n 1 9 9 4 ; F re e m a n 1 9 9 9 )
In d u st ry
e st a b li sh e d
y e a r (d o w n si zi n g y e a r)
E m p lo y e e c h a n g e (%
) I. D o w n si zi n g st ra te g ie s
II . P ro c e ss
re st ru c tu ri n g
II I. H R -r e la te d
re st ru c tu ri n g
IV . H R d e v e lo p m e n t
M A u to m o b il e
1 9 5 3 (1 9 9 5 – 2 0 0 2 )
3 0 0 3 !
2 1 9 0
(2 7 .0 7 % )
C u lt u re
c h a n g e d ri v in g
w o rk fo rc e re d u c ti o n
– A d v a n c e sy st e m a ti c
a n a ly si s
– P ro v id e o u tp la c e m e n t
a ss is ta n c e
– F o c u s o n tr a in in g fo r R D
& m a rk e ti n g a b il it ie s
– T ra n sf e r- o u t in c e n ti v e s
– E a rl y re ti re m e n t
– M e rg e fu n c ti o n a l
p la n ts
– R e w a rd
c e re m o n ie s to
th o se
la id
o ff
– P ro v id e e x te n d e d b e n -
e fi ts to
la id -o ff
e m p lo y e e s
– E n fo rc e p e rf o rm
a n c e
a p p ra is a l li n k in g w it h
c o m p e n sa ti o n
– P ro c e ss e s
re e n g in e e ri n g
– R e st ru c tu ri n g c o m m it -
te e b y
d e p a rt m e n t re p re se n ta -
ti v e s
– C E O
In sp ir a ti o n a l
sp e e c h
N P e tr o c h e m ic a l
1 9 7 6 (1 9 9 9 – 2 0 0 2 )
3 2 0 !
2 9 0
(9 .3 7 % )
P ro a c ti v e p ro c e ss e s re d e si g n
d ri v in g
w o rk fo rc e re d u c ti o n
– E a rl y re ti re m e n t in c e n ti v e
– W o rk
sh a ri n g
– S tr e a m li n e o p e ra ti o n
p ro c e ss
– E li m in a te
la y e rs
o f
re p o rt in g sy st e m
– P ro v id e e x te n d e d
b e n e fi ts to
la id -o ff
e m p lo y e e s
– U se
c o n tr a c t/ p a rt -t im
e w o rk e rs
– E m p o w e r e m p lo y e e s
in c o n ti n u o u s
im p ro v e m e n t
– T ra n sf e r- o u t e m p lo y -
e e s to
su p p li e rs
o r
d is tr ib u to rs
– E m p o w e r e m p lo y e e s
in p ro c e ss
re e n g in e e r-
in g
– R e d u c e c o n tr a c t
w o rk e rs
– S e v e ra n c e p a y
– H R d e p a rt m e n t re sp o n -
si b le
fo r
st ra te g ic
c h a n g e p la n n in g
C.Y.-P. Wang et al.1140
O A u to m o b il e
1 9 7 2 (1 9 9 9 )
2 5 5 0 !
2 2 0 0
(1 3 .7 % )
P a ra d ig m
sh if t to w a rd
c u st o m e r- o ri e n te d d ri v in g
w o rk fo rc e re d u c ti o n
– W o rk
sh a ri n g
– E li m in a te
la y e rs
o f
re p o rt in g sy st e m
– E li m in a te
m id d le
m a n -
a g e r p o si ti o n s
– E a rl y re ti re m e n t in c e n -
ti v e
– L a y o ff s w it h se v e ra n c e
p a y
– F o c u s o n p e rf o rm
a n c e -
b a se d sy st e m
– H R d e p a rt m e n t re sp o n -
si b le
fo r re st ru c tu ri n g
p la n n in g &
im p le m e n -
ta ti o n p ro c e ss
– C o m m u n ic a te
w it h
U n io n
P IT 1 9 7 6 (2 0 0 0 – 2 0 0 2 )
6 2 7 6 !
5 7 0 0 (9 .2 % )
P a ra d ig m
sh if t to w a rd
se rv ic e -o ri e n te d d ri v in g
w o rk fo rc e re d u c ti o n
– R e d e fi n e o rg a n iz -
a ti o n a l m is si o n
– E n fo rc e p e rf o rm
a n c e -
b a se d H R M
– In te rn a l p la c e m e n t w it h in
c o n g lo m e ra te
– D iv e st re d u n d a n t su b -
u n it s a n d n o n -c o re
b u si n e ss
– R e c ru it in g IT
se rv ic e &
fi n a n c e ta le n t
– Jo b se a rc h w it h in
c o n -
g lo m e ra te
c o u n se ll in g
– R e w a rd s li n k e d to
p e r-
fo rm
a n c e a p p ra is a l
– A d v a n c e n o ti c e o f la y o ff -
L a y o ff s w it h se v e ra n c e
p a y
– E li m in a te
& m e rg e
S B U s
– S tr e a m li n e o p e ra ti o n
p ro c e ss e s
– S e v e ra n c e p a y
– T M T tu rn o v e r
– R e c ru it T M T m e m b e rs
w it h m a n a g e m e n t a n d
fi n a n c e p ro fe ss io n
– F o c u s o n m a n a g e m e n t
tr a in in g &
d e v e lo p m e n t
Q M e ta l (l o c k s)
1 9 5 4 (2 0 0 0 – 2 0 0 3 )
9 1 6 !
8 2 3
(1 0 .2 % )
C a p it a l st ru c tu re
c h a n g e
d ri v in g w o rk fo rc e re d u c ti o n
– E a rl y re ti re m e n t in c e n -
ti v e s
– T ra n sf e r- o u t w it h in
fi rm
– R e fo c u si n g o n c o re
b u si n e ss
– M e rg e fu n c ti o n s &
p ro d u c ti o n u n it s
– P ro c e ss
re e n g i-
n e e ri n g
– C E O
le a d a u d it
c o m m it te e fo r
re st ru c tu ri n g p ro -
c e ss
– S e t u p re c ru it m e n t c ri te ri a
– F o c u s o n m a n a g e m e n t
tr a in in g &
d e v e lo p m e n t
– P e rf o rm
a n c e -b a se d
m a n a g e m e n t
The International Journal of Human Resource Management 1141
T a b le
1 – c o n ti n u e d
B a c k g ro u n d in fo rm
a ti o n
D o w n si zi n g d im e n si o n s d u ri n g re st ru c tu ri n g (C a m e ro n 1 9 9 4 ; F re e m a n 1 9 9 9 )
In d u st ry
e st a b li sh e d
y e a r (d o w n si zi n g y e a r)
E m p lo y e e c h a n g e (%
) I. D o w n si zi n g st ra te g ie s
II . P ro c e ss
re st ru c tu ri n g
II I. H R -r e la te d
re st ru c tu ri n g
IV . H R d e v e lo p m e n t
R A p p li a n c e s
1 9 3 6 (1 9 9 8 – 2 0 0 1 )
3 3 0 0 !
1 8 0 0
(4 5 .5 % )
S y st e m ic
c h a n g e d ri v in g
w o rk fo rc e re d u c ti o n
– L a y o ff s w it h o u tp la c e -
m e n t
– E a rl y re ti re m e n t in c e n ti v e
– M e rg e fu n c ti o n a l
p la n ts
– R e e n g in e e r o p e ra ti o n
p ro c e ss
w it h E -/ IT
sy st e m
– D e p a rt m e n t h e a d
re sp o n si b le
to c o m -
m u n ic a te
w it h
e m p lo y e e s
– R e tr a in in g fo r th o se
to b e la id
o ff
– T ra in in g sk il ls &
d e v e lo p in g ta le n t fo r
in te rn a ti o n a li z a ti o n
– S e t u p re c ru it m e n t c ri te ri a
a t m a n a g e m e n t le v e l
b a se d o n IT
b a c k g ro u n d
– P e rf o rm
a n c e -b a se d m e ri t
– C o m p e ti ti v e
c o m p e n sa ti o n
– W e ll p la n n e d c a re e r p a th
C.Y.-P. Wang et al.1142
T a b le
2 .
R e st ru c tu ri n g m o d e a n a ly si s.
D ow
n si
zi n
g d
im en
si on
s d
u ri
n g
re st
ru ct
u ri
n g
P ro
ce ss
o ri
en ta
ti o
n H
u m
a n
c a
p it
a l
co n
ce rn
II .
II I.
I. IV
P os
t re
st ru
ct u
ri n
g P
er fo
rm an
ce /C
ap ab
il it
ie s
R es
tr u
ct u
ri n
g m
od e
P M
os t
M os
t
M os
t
M os
t
M or
e G
lo ba
l m
ar ke
ts ;
M ar
ke t
sh ar
e; B
ra nd
v al
ue
R M
or e
In te
rn at
io na
l m
ar ke
t; B
ra nd
va lu
e; T
ec hn
ol og
ie s
Q M
or e
O ve
rs ea
s m
ar ke
t; T
ec hn
ol og
ie s;
P at
en ts
M M
os t
B ra
nd va
lu e;
C us
to m
er s
at is
fa ct
io n;
N ew
m ar
ke ts
K M
or e
M os
t H
um an
r es
ou rc
es F
le xi
bi li
ty
L M
ed iu
m M
or e
H um
an r
es ou
rc es
F le
xi bi
li ty
O M
ed iu
m M
or e
C us
to m
er s
er vi
ce s
N M
ed iu
m M
or e
F le
xi bi
li ty
t o
en vi
ro nm
en t
ch an
ge s
J M
or e
L es
s A
li gn
m en
t of
h um
an r
es ou
rc es
& s
tr at
eg ic
g oa
ls
E L
es s
M or
e P
ro fi
ta bi
li ty
I L
es s
M or
e H
um an
r es
ou rc
e qu
al it
y
H L
es s
M or
e P
ro du
ct iv
it y
G L
es s
L es
s P
ro du
ct iv
it y
F N
on e
N on
e C
os ts
R ed
uc ti
on
B L
es s
M or
e P
ro du
ct iv
it y
D L
es s
L es
s E
m pl
oy ee
a bi
li ti
es
C L
es s
E m
pl oy
ee a
bi li
ti es
A N
on e
N on
e
N on
e
M or
e
M or
e
M oe
M or
e
M or
e
M or
e
M or
e
M or
e
M or
e
M or
e
N on
e
N on
e
L es
s
N on
e
N on
e
L es
s
N on
e
N on
e
M os
t
M os
t
M os
t
M or
e
M or
e
M or
e
M or
e
M ed
iu m
M ed
iu m
L es
s
M or
e
M or
e
M ed
iu m
L es
s
N on
e
N on
e
N on
e
L es
s
LowValuable & Firm-specific CapabilitiesHigh
C os
ts r
ed uc
ti on
LowProcess OrientedHigh
L ow
H u
m an
c ap
it al
C on
ce rn
H ig
h
M od
el I
C ap
ab il
it ie
s re
n ew
al
C as
e:
O , L
, K , M
, Q , R
, P
M od
el I
I
E ff
ic ie
n cy
P u
rs u
it
C as
e: B
M od
e V
E ff
ec ti
ve
R es
tr u
ct u
ri n
g
C as
e:
H , I
, E , J
, N
M od
el I
V
A tt
ri ti
on
C as
e: G
,F
M od
el I
II
C os
t- R
ed u
ct io
n
C as
e: A
,C ,D
The International Journal of Human Resource Management 1143
severe layoffs to others and implemented many practices to manage change resistance for
effective change.
From the above case analyses, we found that Mode I (capabilities renewal restructuring)
and Mode V (effective restructuring) are in accordance with our research propositions that
firms emphasize strategic human capital leveraging by means of organizational change
strategies with human capital concern to develop their capabilities for continuous survival,
especially during unexpected economic difficulties when radical changes are required.
In contrast, other Modes of restructuring resulted in less valuable and firm-specific
capabilities for lacking in simultaneous emphasis on both maximum productivity and
firm-specific human capital development during organizational restructuring.
Sampling
We adopted random sampling from 690 firms that have reported restructuring practices in
the ‘2003 Corporate Downsizing Survey in Taiwan’ conducted by Council of Labor
Affairs, the Labor Department of Taiwan. For reducing the common rater effects, each
survey questionnaire is filled out by two respondents, including the executive and HR head
of each firm (Podsakoff and Organ 1986; Podsakoff, MacKenzie, Lee and Podsakoff
2003). Separate survey questionnaires were mailed to both the executive and HR head of
our sample firms. The executives answer items concerning dynamic strategic capabilities,
while the HR heads answer items concerning human capital leveraging and
human-capital-oriented restructuring. With the response rate of 23.2%, 160 firms returned
the survey, and a total of 154 firms across a wide range of industries (52.7%
manufacturing, 21.8% high-tech, 23.6% service and 1.8% others) remained for data
analyses after excluding invalid questionnaires.
Measurement
The survey questionnaire for empirical model tests was developed from literature on
organizational change, SHRM, and dynamic capabilities. The questionnaire contained 14
items for human-capital-oriented restructuring, 8 for human capital leveraging and 10 for
dynamic strategic capabilities on a seven-point Likert scale. To improve content validity
of the measurement, each construct and the items contained were sent for review by 24
experienced experts (including 8 executives, 6 HRM practitioners, and 10 academics),
most of which were involved in our case studies. A pilot test was implemented to 44
respondents, including executives and HRM department heads from various industries
before administrating large-scale questionnaire survey.
Strategic human capital leveraging
Strategic human capital leveraging is defined as using particular HRM practices to deploy
and develop firm-specific human capital for maximizing its productivity and stretching its
value-creating potential (Dess and Pickens 1999; Lengnick-Hall and Lengnick-Hall 2003).
It consists of two dimensions: human capital deployment and human capital inimitability.
Human capital deployment is measured with a four-item scale assessing the people
management practices, such as HR planning, performance-based system, and job design
that examined the degree of good fit between people and tasks for maximizing the output
with fewer employees (Kaplan and Norton 2004; Ulrich and Smallwood 2004; Youndt
et al. 2004). Human capital inimitability is measured with a six-item scale assessing the
practices such as strategic HR planning, training, and development and career path
planning for developing human capital align to firms’ core competencies and maximizing
C.Y.-P. Wang et al.1144
employees’ value-creating potential (Kaplan and Norton 2004; Ulrich and Smallwood
2004; Youndt et al. 2004).
Human-capital-oriented restructuring
Human-capital-oriented restructuring is defined as a firm’s strategic, systemic restructuring
processes based upon the mindset that employees are long-term assets to be developed and
carefully managed for organizational renewal and sustainability (Cameron 1994; Freeman
1999; Cascio 2002). It consists of four dimensions, including long-term mindset,
comprehensive strategies for organizational change, employee participation and justice,
and caring for employees. Long-term mindset is measured with a three-item scale assessing
firms’ restructuring practices that consider firms’ long-term payoff and invest in employees
as long-term assets. Comprehensive strategy for organizational change is measured with a
four-item scale assessing whether firms conduct advance systematic analysis concerning
organizational capabilities, including internal structures, business processes, and
employees’ core competence to formulate comprehensive, appropriate strategies during
the span of change to be taken organization-wide. Employee participation and process
justice is measured with a four-item scale assessing whether there has been fair play in
downsizing and the extent to which employees have been involved in the change processes.
Caring for employees is measured with a three-item scale assessing whether firms have
treated their employees in a caring and supportive manner, by motivating surviving
employees well, while providing assistance to the layoffs.
Dynamic strategic capabilities
Dynamic strategic capabilities are defined as a set of well-prepared valuable and firm-
specific resources and capabilities for adapting to dynamic changes in business
environment (Teece et al. 1997; Wright et al. 2001; Kaplan and Norton 2004). Items of
measurement are largely referred to Teece et al.’s (1997) dynamic capabilities, and Kaplan
and Norton’s (2004) strategic readiness literature. Such capabilities consist of three
dimensions: intellectual capital readiness, strategic reconfiguration, and knowledge
resources integration. Intellectual capital readiness is measured with a three-item scale
assessing the extent to which firms possess adequate human capital, information capital,
and organizational capital for fulfilling strategic goals. Strategic reconfiguration is
measured with a five-item scale assessing the extent to which firms’ capital resources, such
as human capital and social capital, are readjusted to changing strategic needs. Knowledge
resources integration is measured with a two-item scale assessing the extent to which
employees and firms are involved in internal and external knowledge sharing and learning.
Structural equation modeling
To test the hypotheses developed earlier, we specified a structural equation model using
AMOS 5.0.1. As SEM is capable of simultaneously estimating multiple equations while
avoiding problems of overestimation and underestimation of mediation effects (Hoyle and
Smith 1994), we employed SEM to estimate our hypothesized mediation effect and to
validate the causal relations between our sets of constructs.
A set of criteria for assessing the model fit includes the x-square index (x 2 ), degree of
freedom (d.f.), the ration of x 2 /d.f. (Normed x
2 ), comparative fit index (CFI), goodness-
of-fit (GFI), normal-goodness-of-fit index (NFI), and root mean square error of
approximation (RMSEA). For the x 2 /d.f. ratio (Normed x
2 ), a value of approximately
2.00 or less indicates acceptable fit (Marsh and Hocevar 1985). The value of GFI, NFI, and
The International Journal of Human Resource Management 1145
CFI should be greater than 0.9 to achieve an overall model fit in the model building
(Bollen 1989); RMSEA less than 0.05 is considered a close fit; 0.05–0.08 is considered a
fairly good fit; and 0.08–0.1 is considered an average fit (Browne and Cudeck 1993).
Analyses and results
Preliminary analyses
Construct validity
Prior to SEM model tests, we conducted confirmatory factor analysis (CFA) to examine
the construct validity of our measurement by assessing the convergence within and
divergence between the instruments. As shown in Table 3, CFA analysis demonstrated
that all the factor loadings on each construct were large and statistically significant
(factor loading . 0.30; p , 0.01) (Hair, Anderson, Tatham and Black 1995). CFA results
suggested that each item is strongly related to its underlying construct and is evidently
supporting the convergent and divergent validity of the measures (Anderson and Gerbing
1988).
Accessing common method variance
To avoid the possibility of common rater effects, we first divided our measurement into
two separate sets to be rated, respectively, by the executive and HR head of each firm
surveyed (Podsakoff and Organ 1986; Podsakoff et al. 2003). Statistically, we further
tested for the possibility of common method variance through the CFA procedures by
comparing model loading of all observed variables onto one single latent variable with a
measurement model that loaded observed variables onto theoretically assigned latent
variables. The x 2 value for the measurement model was significantly lower than the x
2
value for the single factor model (difference in x 2 ¼ 937.324, 21d.f., p , 0.01),
indicating a superior fit to the data and hence suggesting that common method variance
may not have a substantial effect on the results of the data analysis.
SEM tests
Table 4 reports the means, standard deviations, and correlations among all variables in the
study. All SEM test results, including the fit indexes and the standardized parameter
estimates for the three models tested, as well as the change in x-square for model
comparisons to test the mediation effects are summarized in Table 5.
Prior to building our integrative model to test the mediating effects, we firstly checked
for the direct relationships between all three variables in our framework. According to the
correlation analysis (as shown in Table 4), all correlations between the dimensions of
human capital leveraging and human-capital-oriented restructuring are significant
( p , 0.001), and the dimensions of human capital leveraging and human-capital-oriented
restructuring are also significantly correlated with dynamic strategic capabilities
( p , 0.001). We also performed SEM model tests for the direct effects of human capital
leveraging and human-capital-oriented restructuring on dynamic strategic capabilities
(Model 1). An examination of the standardized parameter estimates in Model 1 (as shown
in Table 5) indicated the positive relationships between human capital leveraging and
dynamic strategic capabilities (path coefficient ¼ 0.21; p , 0.05), and between human-
capital-oriented restructuring and dynamic strategic capabilities (path coefficient ¼ 0.49;
p , 0.01). Such results thus supported hypothesis 1 and hypothesis 2.
However, when we examined the model fit of the direct effect model (Model 1)
(x 2 ¼ 134.429; d.f. ¼ 25; p , 0.001; X
2 /d.f. ¼ 5.377; CFI ¼ 0. 853; GFI ¼ 0. 868;
C.Y.-P. Wang et al.1146
Table 3. Confirmatory factor analysis.
Strategic human capital leveraging
Dimensions & items Std. loading
Unstd. loading t* value
Human capital deployment (a ¼ 0.842) We encourage employees to constitute solid and standardized operating processes
0.77 1.000 –
We encourage employees to modify the strategic operating processes 0.84 1.201 10.69*** We improve the top management’s sensibility to dynamic business environments
0.69 0.860 8.60***
We have much more precise job design to reinforce the fit between people and tasks
0.73 0.873 9.21***
Human capital inimitability (a ¼ 0.922) We build the environment that facilitates employees’ cooperative team work and knowledge sharing
0.80 1.000 –
We enhance employees’ recognition of firm’s core value and strategies
0.83 1.003 12.24***
We reinforce the assessment of employees’ contribution to the firm’s intellectual capital
0.81 1.060 11.65***
We ask employees at all levels to link their job goals with the strategies that improve firm’s competitive advantage
0.81 0.989 11.58***
We encourage employees to strengthen on knowledge creation and management mechanisms
0.84 1.055 12.18***
We reinforce the training for employees’ innovation on sharing and protection of knowledge assets
0.82 1.030 11.40***
Goodness of fit: x 2 ¼ 101.674 (d.f. ¼ 34, p , .01), CFI ¼ 0.94, NFI ¼ 0.91, AGFI ¼ 0.83
Human capital-oriented restructuring Comprehensive strategy (a ¼ 0.816) Before restructuring, we carefully evaluated employees’ compe- tencies and organizational development.
0.68 1.000 –
Our restructuring was accompanied with organizational structural change.
0.87 1.232 9.18***
Our restructuring was accompanied with business process reengineering.
0.82 1.430 8.88***
Prior to restructuring, the capabilities for better satisfying customers were carefully evaluated
0.56 0.892 6.34***
Long-term mindset (a ¼ 0.772) Our restructuring strategy is defined as a long-term goal rather than a short-term strategy.
0.70 1.000 –
We treat employees as valuable assets worthy of continuous investment.
0.61 0.831 6.62***
Our restructuring was part of the whole system change (includes: culture, core value).
0.86 1.452 7.78***
Employee participation and justice (a ¼ 0.766) We informed those laid-off employees in advance. 0.74 1.000 Our restructuring process was implemented in a justifiable manner. 0.72 0.756 7.57*** We discussed restructuring with our employees and invited their participation
0.72 0.869 7.56***
Employee caring (a ¼ 0.729) We provided outplacement services such as training, consultation, job-seeking service, etc.
0.79 1.000 –
The severance package we offered to laid-off employees exceeded legal requirements.
0.63 0.838 7.01***
The International Journal of Human Resource Management 1147
NFI ¼ 0. 827; RMSEA ¼ 0.196), all the fit indexes reported a poor fit. Hence, we
performed another SEM model tests partial mediation effects model (Model 2) assessing
both the direct and the indirect effects between our sets of constructs. The fit indexes for
this partial mediation effect model (Model 2) reached a much more acceptable level of GFI
(x 2 ¼ 40.438; d.f. ¼ 24; p , 0.05; x
2 /d.f. ¼ 1.685; CFI ¼ 0.978; GFI ¼ 0.941;
NFI ¼ 0.948; RMSEA ¼ 0.067) than did the direct effect model (Model 1), and therefore
provided preliminary evidence for mediating effects (Hypotheses 3 and 4). To further test
the mediating effects, we used competing model analysis (Bollen 1989) by utilizing the
change in x-square test (Dx 2 ) (Bentler and Bonett 1980; Tippins and Sohi 2003). The Dx
2
comparison between Models 1 and 2 indicated that the partial mediating effect model
(Model 2) provided a significantly lower x-square (x 2 ) (Dx
2 ¼ 93.991, Dd.f. ¼ 1,
p , 0.01) (as shown in Table 5) and further implied that this model (Model 2) better
explained our data than did the direct effect model (Model 1). All the results thus explicitly
supported our two hypotheses (Hypotheses 3 and 4) that address human-capital-oriented
restructuring mediates the relationship between human capital leveraging and dynamic
strategic capabilities.
Table 3 – continued
Strategic human capital leveraging
Dimensions & items Std. loading
Unstd. loading t* value
We treat those employees well who we intent to keep. 0.66 0.617 7.35***
Goodness of fit: x 2 ¼ 145.61 (d.f. ¼ 59, p> , .01), CFI ¼ 0.89, NFI ¼ 0.84, AGFI ¼ 0.80
Dynamic strategic capabilities Intellectual capital alignment (a ¼ 0.883) To what extent does your company have sufficient specific strategic processes to create competitive advantage?
0.86 1.000 –
To what extent does your company have sufficient human capital to create and implement new strategic processes?
0.81 0.945 12.21***
To what extent does your company have sufficient information systems to support emerging strategic processes?
0.86 1.070 13.41***
Strategic reconfiguration (a ¼ 0.897) To what extent do your employees constantly commit to company’s core value?
0.73 1.000 –
To what extent do all of your managers accomplish company’s new strategies and business objectives?
0.79 1.196 9.65***
To what extent do your employees’ behaviours change as strategies require?
0.85 1.442 10.42***
To what extent can your company adapt itself to enhance customers’ loyalty in a highly dynamic market?
0.80 1.206 9.78***
To what extent do your employees adjust and commit themselves to company’s new strategic need?
0.83 1.192 10.16***
Knowledge resources integration (a ¼ 0.791) To what extent do your employees mutually share internal and external knowledge for changing market or new technology?
0.86 1.000
To what extent does your company use networks to connect new external resource (includes strategy alliance)?
0.76 0.812 10.18***
Goodness of fit: x 2 ¼ 145.61 (d.f. ¼ 59, p , .01), CFI ¼ 0.89,
NFI ¼ 0.84, AGFI ¼ 0.80
C.Y.-P. Wang et al.1148
T a b le
4 .
M e a n , st a n d a rd
d e v ia ti o n , a n d c o rr e la ti o n s.
V a ri a b le
M e a n s
s. d .
C ro n b a c h ’s
a 1
2 3
4 5
6 7
8
1 . H u m a n c a p it a l d e p lo y m e n t
5 .3 6
0 .9 5
0 .8 4 2
2 . H u m a n c a p it a l in im
it a b il it y
5 .2 2
1 .0 6
0 .9 2 2
.8 1 * *
3 . C o m p re h e n si v e st ra te g y
5 .0 4
0 .9 6
0 .8 1 6
.5 6 * *
.5 8 * *
4 . L o n g -t e rm
m in d se t
5 .7 6
0 .9 7
0 .7 7 2
.3 2 * *
.3 6 * *
.4 8 * *
5 . E m p lo y e e p a rt ic ip a ti o n a n d p ro c e ss
ju st ic e
4 .5 6
1 .1 7
0 .7 6 6
.4 9 * *
.5 1 * *
.4 7 * *
.1 9 *
6 . E m p lo y e e c a ri n g
5 .1 0
1 .1 9
0 .7 2 9
.5 2 * *
.5 7 * *
.5 7 * *
.4 0 * *
.5 1 * *
7 . In te ll e c tu a l c a p it a l re a d in e ss
4 .8 0
1 .1 9
0 .8 8 3
.3 1 * *
.3 9 * *
.4 9 * *
.4 0 * *
.2 0 *
.4 1 * *
8 . S tr a te g ic
re c o n fi g u ra ti o n
5 .0 2
0 .9 7
0 .8 9 7
.3 8 * *
.4 9 * *
.4 6 * *
.4 1 * *
.2 7 * *
.3 9 * *
.7 6 * *
9 . K n o w le d g e re so u rc e s in te g ra ti o n
5 .0 3
0 .9 7
0 .7 9 1
.4 1 * *
.5 1 * *
.4 5 * *
.3 3 * *
.2 7 * *
.3 8 * *
.6 7 * *
.7 5 * *
N o te : † p ,
.1 0 ; * p ,
.0 5 ; * * p ,
.0 1 ; * * * p ,
.0 0 1 .
The International Journal of Human Resource Management 1149
When we examined the standardized parameter estimates in Model 2, the relationship
between human capital leveraging and dynamic strategic capabilities was diluted by the
mediating role of human-capital-oriented restructuring. The results hence met a criterion
for the total mediation effect of human-capital-oriented restructuring on the relationship
between human capital leveraging and dynamic strategic capabilities to hold. According to
the parsimonious rule, we conducted another model comparison between the partial
mediation effect model (Model 2) and the total mediation model (Model 3). In the total
mediation model, we constrained to zero the non-significant direct path from human
capital leveraging to dynamic strategic capabilities. As shown in Table 5, the overall fit
indexes (especially, the x 2 /d.f. ration and RMSEA index) for Model 3 reached a fairly
better fit (x 2 ¼ 40.774; d.f. ¼ 25; p , 0.05; x
2 /d.f. ¼ 1.631; CFI ¼ 0.979; GFI ¼ 0.941;
NFI ¼ 0.948; RMSEA ¼ 0.064) than in Model 2. The comparison of x-square difference
between the two models revealed that Model 3 explained the data as much as the
hypothesized model (Model 2) (Dx 2 ¼ 0.336, Dd.f. ¼ 1, non-significant). We thus
concluded that this total mediation model (Model 3) was simple enough to fit our empirical
data and therefore accepted this total mediation model (Model 3) as the best fitting model.
The most parsimonious model is shown in Figure 1.
Discussion and implication
The results from our research provided a good understanding of how firms develop new
forms of capabilities in dynamic environments by means of both strategic human capital
leveraging and change processes at the organizational level. Many researches have
focused their attention on unlocking the processes of renewing a firm’s resources and
capabilities to match external changes, especially when markets rapidly emerge, crash,
split, or disappear (Teece et al. 1997; Eisenhardt and Martin 2000). Such processes or
capabilities are difficult to build, given their characteristics being intangible, knowledge
based, path dependent, and causal ambiguous (Grant 1996; Wright et al. 2001; Teece
2007). However, our research findings explicitly suggested for such underlying processes
to include strategic human capital leveraging, coupled with human-capital-oriented
restructuring aiming to develop dynamic strategic capabilities in correspondence with
dynamic market changes.
First of all, our results support Hypothesis 1 that HRM systems which focus on
effectively and efficiently leveraging a firm’s human capital in the distinctive way suited to
the organization’s strategic need can facilitate the development of a firm’s dynamic
strategic capabilities. Our research extended a stable view of SHRM literature to further
incorporate a dynamic perspective (Lepak and Snell 1999; Wright et al. 2001) by
emphasizing the importance of strategic human capital leveraging that focuses on
efficiently deploying a firm’s appropriate human capital pool tightly fitting core
competence to achieve a firm’s dynamic strategic goals. Our results suggest that firms,
according to our case studies, can adopt HR practices such as empowering employees in
process improvement, performance-based system, career path planning, work/job redesign,
and HR development to maximize employees’ productivity and value-creating potential for
a firm’s strategic uses, especially during times of radical organizational changes. Our case
K serves as an example of largely utilizing human capital to cope with industry changes.
. . . our company’s culture has long been affected by the Japanese “life-time employment” style. We do not lay off employees, so we conducted bottom-up [incremental] change by using hiring freeze organization-wide, and put more efforts on training and educating our existing employees and transferred employees [especially middle managers] within our company. We used job
C.Y.-P. Wang et al.1150
T a b le
5 .
S E M
te st s re su lt s.
P a ra m e te r
M o d e l 1 a
M o d e l 2 b
M o d e l 3 c
H y p o th e si ze d p a th s
S tr a te g ic
h u m a n c a p it a l le v e ra g in g
! D y n a m ic
st ra te g ic
c a p a b il it ie s
0 .2 4 9 *
0 .0 9 9 ( p ¼
0 .5 4 5 )
– S tr a te g ic
h u m a n c a p it a l le v e ra g in g
! H u m a n c a p it a l- o ri e n te d re st ru c tu ri n g
– 0 .8 0 5 * * *
0 .8 1 4 * * *
H u m a n c a p it a l- o ri e n te d re st ru c tu ri n g
! D y n a m ic
st ra te g ic
c a p a b il it ie s
0 .5 0 2 * * *
0 .5 6 3 * *
0 .6 5 5 * * *
G o o d n e ss -o f- fi t st a ti st ic s
x 2
¼ 1 3 4 .4 2 9 * * *
¼ 4 0 .4 3 8 *
¼ 4 0 .7 7 4 *
d .f .
¼ 2 5
¼ 2 4
¼ 2 5
x 2 /d .f .
¼ 5 .3 7 7
¼ 1 .6 8 5
¼ 1 .6 3 1
C F I
¼ 0 .8 5 3
¼ 0 .9 7 8
¼ 0 .9 7 9
G F I
¼ 0 .8 6 8
¼ 0 .9 4 1
¼ 0 .9 4 1
N F I
¼ 0 .8 2 7
¼ 0 .9 4 8
¼ 0 .9 4 8
R M S E A
¼ 0 .1 6 9
¼ 0 .0 6 7
¼ 0 .0 6 4
D x
2 ¼
9 3 .9 9 1
¼ 0 .3 3 6
(D d .f . ¼
1 ) * * *
(D d .f . ¼
1 ) (n .s .)
N o te : † p ,
.1 0 ; * p ,
.0 5 ; * * p ,
.0 1 ; * * * p ,
.0 0 1 .
a M o d e l 1 re p re se n ts th e d ir e c t e ff e c t m o d e l.
b M o d e l 2 re p re se n ts th e h y p o th e si z e d m o d e l.
c M o d e l 3 re p re se n ts th e to ta l m e d ia ti o n m o d e l.
The International Journal of Human Resource Management 1151
redesign to gradually change our production processes and empowered employees in the
process of improvements. . . . There were some radical structures/processes changes, but we still
were able to develop more flexible human resources with continuous processes improvements to
compete with other firms in our industry . . .
In addition, supported hypothesis 2 validates that human-capital-oriented restructuring
also has positive association with dynamic strategic capabilities. As indicated by Hayton
(2003), for those firms facing dynamic and hostile environment, flexibility is an important
characteristic for HRM system. Much of recent works on organizational change have
focused on a firm’s ability to conduct effective downsizing or restructuring by adopting
flexible HR practices to reduce negative effects of workforce reduction or layoffs
(Chadwick et al. 2004; Nixon et al. 2004; Lüscher and Lewis 2008; Trevor and Nyberg
2008). Incorporating the dynamic capabilities perspective, the results of our research
further suggest that human-capital-oriented restructuring, characterized with both high
human capital concern and complementary processes, represents not merely an effective
restructuring (as an end) to organizational change but also the process through which firms
develop new strategic capabilities to cope with dynamic goals (Teece et al. 1997; Freeman
1999; Cascio 2002; Christensen et al. 2006; Kaplan and Norton 2006). For example, the
case companies (cases E, H, I, J, and N) in Model II adopted effective restructuring that
sometimes led to severe direct layoffs, while to a great extent using HR practices or
HRM systems to manage change resistance and retain employees to be critical and
valuable human capital. Such restructuring processes are effective to organizational
change, but still need further to develop or renew a firm’s capabilities for dynamic need as
Mode I did.
Human capital- oriented
restructuring
Long-term mindset
0.79
Comprehensive strategy
0.53
Employee participation
& justice
0.60
Employee caring
Strategic human capital leveraging
Human capital inimitability
0.940.86
0.81***
resrstre
0.74
0.65***
Human capital deployment
lmesoce epje ecehcdvpehcdple
Dynamic strategic
capabilities
dsce
0.91 0.83
ICRe SRCe
Intellectual capital readiness
Strategic reconfiguration
0.82
KIe
Knowledge integration
Figure 1. Total mediation model.
C.Y.-P. Wang et al.1152
Both our case examples in Mode I and empirical results provide meaningful
implications, which suggest that restructuring could be more strategic and humane as
human-capital-oriented. When an organization’s strategies and structures call for change,
long-term mindset, process justice, and caring for employees’ all need to be involved in
the change processes. Such restructuring not only enables firms to conduct effective
change, but also permits firms to develop new forms of capabilities for adapting to today’s
dynamic environments as well. Case M illustrates the human-capital-oriented
restructuring and explains how its comprehensive restructuring strategies, processes,
and practices (as illustrated in Table 2) helped to shift its culture from being bureaucratic
to being more innovative and to transform itself to an R&D and market-oriented culture
Today we are the biggest automaker by market value in Taiwan . . . we have survived from 3 straight years’ revenue losses since 1991 to NTD1.5 billion earnings in 1996 after conducting organizational restructuring. During the restructuring, our TMT put most of their efforts on communicating with employees and making sure either those terminated or survived were all carefully managed. We organized a committee with members from each department to ensure restructuring was well conducted. . . . Our CEO treasured all the employees very much. We held reward ceremonies to the laid-off employees in each plant. I still remember that when 300 employees were laid off, our CEO said his farewells with tears and handshakes to each of them. . . .
Most importantly, our results further pointed that the effect of strategic human capital
leveraging on dynamic strategic capabilities needs to be complemented and co-specialized
with human-capital-oriented restructuring. Dynamic capabilities perspective of RBV
states that firms need the capabilities to achieve new forms of advantages contingent upon
changing environment, while their development involves particular arrangements of
resources, coupled with complementary administrative (HR) systems (Teece et al. 1997;
Eisenhardt and Martin 2000; Wright et al. 2001). Our total mediation model not only
testified to the complementarities between strategic human capital leverage and the
restructuring process (hypothesis 3), but also evidenced the co-specialization between
them. Indeed, the more the two processes are used collectively and inter-dependently,
the more path dependent and causal ambiguous the capabilities can be developed for
sustainable competitive advantages. Dynamic capabilities are related to management’s
ability to catch the benefits of complementary investment (e.g. human capital processes)
and the co-specialization of organizational processes to meet the changing customer
needs. Case P can best illustrate such inter-dependent processes to develop both flexible
and fitting human capital resources by means of simultaneous uses of human capital
leveraging and constant structure changes to transform its abilities to create the second
largest market share worldwide.
. . . in the past we’ve made too many redundant investments in our sub-business units and caused inefficient use of all the resources. We began to redefine our organizational missions, eliminate/merge SBUs. . . . When the restructuring required different technologies, skills, and talents, what we did, on the one hand is to do our best to retain those employees with core competencies within our conglomerate, while on the other hand to reinforce our performance appraisal system and linked it to employees’ rewards. We’ve also done substantial work on management training and development. . . .
In comparison with merely improving employees’ willingness to change, having
effective human capital management, accompanied with the restructuring, is much more
successful in the development of capabilities to achieve new forms of advantages,
especially when radical, large-scale organizational changes are required. Based upon
SHRM, managing human capital resources as well as the processes with a view to both
flexibility and fit with organizational goals are critical to a firm’s capabilities to sustain
The International Journal of Human Resource Management 1153
competitive advantages over time (Lado and Wilson 1994; Lepak and Snell 1999; Wright
et al. 2001; Hayton 2003; Becker and Huselid 2006). As dynamic capabilities entail
capabilities renewal, our research incorporated SHRM and organizational change
literature and demonstrated that effective renewal depends on both strategically leveraging
human capital fitted to a firm’s core competence and constantly reconfiguring and
readjusting these valuable assets flexible for dynamic strategic needs.
Conclusion and limitation
This study makes several contributions to the theories of SHRM, RBV, and organizational
change as well as HRM practices. For extending the developments of SHRM and RBV, the
primary contribution of our study is in clearly articulating that strategic human capital
leveraging is fundamental to cope with environmental dynamics, yet it still requires a series
of change processes to facilitate strategic readjustment of human capital for sustaining
competitiveness over time. This study also extends the organizational change literature
to ensure that a firm’s ability to conduct effective change is no more regarded as an end to
improve today’s financial performance but rather as the processes to develop new capabilities
in terms of human capital so that tomorrow’s competitive advantages can be realized.
In addition, SHRM literature emphasizes that managing firm’s human resources to ‘fit’
a firm’s strategic intent, while maintaining ‘flexibility’ allows a firm to reconfigure its
human resources. It seems that maintaining dualities of both ‘fit and flexibility’ at the same
time is contradicting to have both concurrently in the firm. With our empirical findings,
we make contributions to SHRM literature by unlocking the link of dynamic strategic
capabilities to effective human capital management. Strategic human capital leveraging
allows a firm to maintain the ‘fit’, that is, ‘leveraging’ to fit firm’s strategic needs, while
human-capital-oriented restructuring allows the firm to renew its organizational capability
to have ‘flexibility’, that is, ‘flex’ to meet firm’s strategic needs. The total mediating effect
validates our argument that firm’s ‘flex’ in renewing its organizational capability requires
the antecedent of ‘fit’ that came from levering a firm’s HC fitting strategic needs in the first
place. Leveraging serves as the antecedent for restructuring to build dynamic strategic
capabilities. Only when a firm ‘co-specializes’ both fit (leveraging) and flexibility
(restructuring), dynamic strategic capabilities can be developed. In addition, the mediating
effect indicates the ‘complementarity’ effect on the creation of dynamic strategic
capabilities – that such leveraging will strengthen the effect of restructuring (leveraging
serves as the antecedent for restructuring), and having both levering and restructuring can
lead to firm’s development of dynamic strategic capabilities.
Although our findings provide strong empirical support for our research framework, we
must also acknowledge certain limitations in this research study. This study focusing on
Taiwanese firms in new industrialized economies may limit the generalizability of our
findings to firms in developed economies and indicate the need for further research.
The majority ofour samples also comefromthe manufacturingsectorinTaiwan that typically
shared the experiences totransformtheir businessfromthe traditional low-ended tothe higher
value-added activities through changes in strategies. Hence, our research results on the one
hand contribute meaningful implications to firms operating in manufacturing industries,
while on the other hand, may limit its generalizablility to firms in serving industries.
Moreover, the response rate of our survey turned out to be somewhat low, but is
considered satisfactory, given that the conducts concerning downsizing and layoffs are
generally viewed by most companies in Taiwan (or in Chinese culture) as an extremely
sensitive subject (as were also pointed out by Datta (1991) and Guthrie (2001)). However,
C.Y.-P. Wang et al.1154
we acknowledged the possibility of non-response bias that may also limit the generalization
of our findings in this study. Lastly, for future studies, as organizational capabilities need to
be accumulated layer by layer over time to correspond with the dynamic environment, our
cross-sectional study design to a certain extent limited its ability to articulate the causal
relationship between internal processes and capabilities developments. Thus, a longitudinal
research design is suggested to best observe the effects of internal processes on capabilities
development for future studies.
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