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Firm-Specific, Industry-Specific, and Occupational Human Capital and the Sourcing of Knowledge Work by Mayer, K.J., Somaya, D., and Williamson, I.O. (2012) in Organization Science. Presented by Bradley Skousen. About the Authors. - PowerPoint PPT Presentation

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Firm-Specic, Industry-Specic, 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 Skousen1About the AuthorsKyle 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. 2

Purpose and Key DefinitionsPurpose: 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.

3Data 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

4Model SpecificationFixed Effects Logit Model for Outsourcing of Patent Legal WorkDV: Probability of Outsourcing5

IVsIndustry Level ControlsPatent-Level Controls

Hypothesis 1H1: 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. 6Hypothesis 2H2: 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 companys 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. 7Hypothesis 3H3: 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. 8Hypothesis 4H4: 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., Williamsons 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. 9Hypothesis 5H5: The larger the firms 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.10DiscussionTheoretical 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?11

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