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(When) Is Hiring Strategic? Human Capital Acquisition in

the Age of Algorithms
Daniel W. Elfenbein, Adina D. Sterling

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Strategy Science 3(4):668-682. https://doi.org/10.1287/stsc.2018.0072

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 STRATEGY SCIENCE
Vol. 3, No. 4, December 2018, pp. 668–682
http://pubsonline.informs.org/journal/stsc/ ISSN 2333-2050 (print), ISSN 2333-2077 (online)

(When) Is Hiring Strategic? Human Capital Acquisition in the

Age of Algorithms
Daniel W. Elfenbein,a Adina D. Sterlingb
a
Washington University in St. Louis, St. Louis, Missouri 63130; b Stanford University, Stanford, California 94305
Contact: elfenbein@wustl.edu, http://orcid.org/0000-0003-1612-7113 (DWE); adinad@stanford.edu,
http://orcid.org/0000-0002-5010-2211 (ADS)

Received: August 22, 2018
Revised: October 22, 2018
Accepted: November 1, 2018
Published Online: December 19, 2018
https://doi.org/10.1287/stsc.2018.0072
Copyright: © 2018 INFORMS
Abstract. This paper examines when and under what conditions whom to hire is a strategic
decision. We identify four mechanisms involved in hiring that add to the “strategicness” of
human capital decisions. We posit that, to the degree that human capital outcomes are
influenced by these mechanisms, hiring cannot be effectively delegated or treated inde-
pendently from a firm’s other strategic decisions, nor will a “best athlete” approach to hiring
lead to optimal results. We outline the shifts in scholarly attention required for scholars to
conceptualize hiring as a strategic process, and we argue that this conceptualization is critical
given the increasing use of data science tools by industry to support and automate hiring
decisions. By delving into the mechanisms and conditions that make hiring strategic, we
contribute to a broader understanding of how and why firms acquire human capital and
highlight gaps and opportunities for future research.

History: This paper has been accepted for the Strategy Science Special Issue on What Makes a Decision
Strategic.

Keywords: strategic human capital • labor markets • hiring • algorithms • networks

Researcher: “So where do you think a company’s busi-
ness strategy comes in versus its people strategy? Are
those two things intertwined?”
Talent Acquisition Executive: “Well, I think you’re asking
the right question, because of course, in the olden days,
first you had your business strategy, and then you’d
have your people strategy. But now they have to really
feed off of each other.” 1
Introduction
An often-repeated corporate aphorism holds that “our
[firm’s] people are our greatest asset.”2 Although there
is intense debate both within and outside the academic
community about whether this aphorism holds true
(and, more importantly perhaps, whether executives
behave as if it were true), it does not follow directly from
this claim that people and the processes through which
people are brought into the firm are necessarily strategic.
A process that acquires or manages an asset such as
human capital may be important without being strategic.
Following the prior literature, including several pieces
within this issue, we argue that this is a not a distinc-
tion without a difference. Although important processes
demand caution and careful attention, strategic processes
demand a different type of managerial attention: one
that recognizes interdependencies among choices and
overcomes the challenges associated with actors whose
knowledge sets are merely “local” or compartmen-
talized (Van den Steen 2017). Within organizations,
668
although simple delegation can, in principle, lead to
optimal decision making for important choices—for
example, the location of a new production facility, the
selection of an IT service vendor, or implementation of
a total quality management system—such delegation
may fail to achieve optimal results when processes are
strategic.
This has important implications for the literature on
strategic human capital that has built over the past de-
cades around the foundational work of Becker (1962).3
The main focus of this literature has been on identifying
the conditions under which firms can appropriate value
and/or obtain supernormal returns by hiring workers
who deliver value well in excess of the wages they
receive; this literature has identified a number of in-
dividual, firm, and competitive market characteristics
that impact firms’ ability to appropriate value from
human capital (e.g., Campbell et al. 2012a and Wright
et al. 2014). We expect, one day in the not-too-distant
future, artificial intelligence and machine learning will
be able to source and select candidates based on core
aspects and logic in the literature on strategic human
capital and strategic HR (Ployhart and Moliterno 2011,
Ployhart et al. 2014, Cowgill 2016) as well as organi-
zation theory and economic sociology (see discussion
in Galperin et al. 2018). Yet this leads to questions about
the “strategicness” of our current conceptualizations of
hiring in the literature.4 We argue that if/when we can
Elfenbein and Sterling: (When) Is Hiring Strategic?
Strategy Science, 2018, vol. 3, no. 4, pp. 668–682, © 2018 INFORMS
effectively delegate hiring decisions in organizations
to algorithms, then these decisions are not strategic in
a meaningful sense.5 By contrast, when effective hiring
requires an understanding of enterprise-wide comple-
mentarities between employee skills and ever-evolving
firm resources, path dependencies in productivity and
social networks linking past and future hires, compet-
itive interactions with rivals, and/or foresight regarding
required employee skills or knowledge, then algorithms
may provide essential decision support but will not be
sufficient on their own. When this is the case, we con-
tend that hiring and the processes that enable it to be
done effectively should be considered strategic.
Artificial intelligence, machine learning, and data
availability—together with the fact that 57% of costs for
U.S. businesses are salaries and benefits6—are leading
to an explosion in usage of predictive analytics to
advise on or even make hiring decisions.7 This tech-
nological shift is an opportune time for scholars to
question what, if anything, makes hiring strategic. We
argue that it is precisely this component of attention,
judgment, and decision making that is left over for
managers in the age of artificial intelligence—or what
will be left over for them in 5 or 10 years—that makes
hiring strategic in the first place. Furthermore, this
perspective suggests that we treat strategic hiring as at
least as much a process as a choice. Hiring goals and
processes interact with and inform product–market
(and other factor–market) decisions: business strategy
does not simply drive people strategy per se. Rather, as
the opening quotation suggests, a strategic perspective
recognizes how one reinforces the other. For this rea-
son, the strategic elements of the hiring process cannot
be fully automated by machines (now or in the near
future). Rather, we expect that managers will work in
complementary fashion with artificial intelligence to
make hiring decisions strategically in a similar fashion
to the way physicians may treat patients. Many experts
believe, for example, artificial intelligence will not re-
place human physicians because diagnosis requires
creativity and nonlinear thinking, but rather that the
productivity of these “human” processes can be en-
hanced by artificial intelligence.8 In a related capacity, a
perspective on how this mix of human and algorithmic
decision making might work requires us to have con-
ceptual clarity on factors that cause hiring to be ineffective
when simply delegated to AI.9
The literature points toward four mechanisms that
make a process more strategic versus routine and con-
sequently renders one-off decisions by unitary organi-
zational actors, executive recruiting firms, or one-size-
fits-all optimizing algorithms ineffective. We highlight
these here and then delve more deeply into each in the
following sections to advance our logic on hiring.
• Building on a game-theoretic tradition in eco-
nomics, Ghemawat (1991) argues that irreversibility is
669
a central feature of strategic decisions. Irreversibility
fosters commitment among stakeholders, irrevocably
changes the choices available to competitors, and in-
troduces path dependence by narrowing some set of
options while unlocking others.
• A second set of considerations that make decisions
strategic is the extent to which activities in an organi-
zation reflect interdependencies (Van den Steen 2017) and
generate payoffs that are contingent on fit, alignment, or
complementarities among one another and with the firm’s
organizational design choices (Levinthal and Warglien
1999, Rivkin and Siggelkow 2003). Interdependencies
generate severe challenges for organizations in search-
ing for and implementing design decisions and place
a premium on knowledge sharing and coordination
across and among decision makers.
• A third school of thought, not unrelated to the first,
focuses on how conflict and competition generate a need
for strategic thinking. If the value of different alternatives
depends on competitors’ responses, then organizational
decision makers must put themselves in the shoes of these
competitors, forecast how they will react to each alter-
native, and do so over many possible future iterations.
• A fourth perspective emphasizes organizational
learning under uncertainty. When the capacity of an
organization to evaluate and exploit new opportunities
resides in networks or routines, past experience (and
personnel) will impact the effectiveness of present-day
search, generating a learning-based path dependency
(Penrose 1959). Under these conditions, conscious de-
cisions by managers about the direction of search
(whether local or distant) and the structure of processes
designed to generate feedback and learning become
critical strategic levers for performance (e.g., Levinthal
and March 1981, Nelson and Winter 1982, Gavetti and
Levinthal 2000).
When present, these mechanisms individually and
collectively raise the complexity of hiring, elevating it to
a strategic process that may require higher-dimensional
thinking, coordination, and foresight and place a pre-
mium on developing and communicating a guiding
policy (Rumelt 2011). In our view, the relevant goal for
scholars is not simply to distinguish a strategic versus
a nonstrategic process, but rather to be able to isolate
conceptually the factors that generate strategicness,
whether individually or in combination with one an-
other. Thus, our approach to addressing these ques-
tions is to focus on whether the individual mechanisms
that generate strategicness are relevant for the study
of modern-day hiring practices.10 The issue of irrevers-
ibility, for example, pertains to questions about dif-
ficulty in terminating workers, whether employment
fosters mutual commitment, the conditions under which
it generates benefits for the firm that exceed what it could
obtain through obtaining labor in a spot market or
through repeated contracting, and the ability to pivot to

670
new talent pools or lack thereof based on the social
networks of employees. For hiring decisions, the issue
of interdependencies underscores the importance of
understanding the structure of work and how hetero-
geneous skills across individuals in an organization
substitute for or complement one another and raises
questions about the nature of firm-specific human cap-
ital. A focus on competition highlights the need to un-
derstand how timing decisions impact hiring outcomes
and how within-industry hiring affects both source and
destination firms. Examining hiring as a process of or-
ganizational learning under uncertainty demonstrates
the importance of viewing hiring as a dynamically
evolving capability in which an organization’s ability
to identify and assess talent is a function of its ex-
perience, and organizations may both “learn to hire”
and “hire to learn.” The upside to attention on stra-
tegicness, then, is that it can both elucidate organi-
zational, analytical, and behavioral remedies that can
guide policy and illuminate promising questions for
researchers even as technology shifts to relegate some
aspects of human capital acquisition to machines.
What Does It Actually Mean to Hire?
Researcher: “Do C-level executives pay attention to data
science approaches and analytical approaches to hiring,
or is it further down in the company?”
Chief Technology Officer, Talent Acquisition Software Company:
“It’s usually pretty high up, I think, especially because I
think the burden of figuring out what to do with this is
something that happens high up. . . You don’t have to get
all the way to the C-level, but definitely the VPs.”
To focus our discussion, we begin by identifying what
we mean by “hiring” and highlight some key features
of present-day approaches to it. The vernacular usage
of “hire” refers to a broad set of arrangements between
people and organizations, and they have different im-
plications for the question of strategicness. In principle,
an organization can receive services from a person as
a transaction, through a multiperiod contract, or via
employment. Conversely, many firms pay people for
services in ways that may technically meet the classi-
fication of employment but are not consistent with the
term “hiring” used here.
Hiring, as we define it for this discussion, occurs
when an individual is internalized by a firm at the
beginning of an employment relationship. By “rela-
tionship,” we refer to the fact that an employer has
the authority to dictate some behavior versus merely
contract for some output (Simon 1951) and also that
the employee has an expectation that, conditional on
acceptable performance, the employee will be able to
continue at the firm. Our focus, then, is distinct both from
spot-market labor transactions, in which an organization
would hire a worker for a short, prespecified period
of time, and from a simple contracting relationship, in
Elfenbein and Sterling: (When) Is Hiring Strategic?
Strategy Science, 2018, vol. 3, no. 4, pp. 668–682, © 2018 INFORMS
which an organization hires a worker to complete a
specific job. We recognize that multiple distinctions exist
in how firms access labor markets. Baker et al. (2002)
outline four modes: spot outsourcing, relational out-
sourcing, spot employment, and relational employment,
in which the distinction between outsourcing and em-
ployment depends on the ownership of the (nonhuman)
productive assets. Our main interest in this paper is
relational employment (see also Lepak and Snell 1999
and Bidwell et al. 2013).11
Our view of hiring as the initiation of a relationship
between an organization and an employee who has
some expectation of continuity is supported by legal
institutions as well. According to common legal doc-
trine, hiring involves “the duty of care” that is received
from employers by employees and vice versa (Cappelli
2018). That is, obligations exist between employers
and employees, and each is legally required to work in
the best interests of the other as well as avoid conflicts
of interest (Cappelli and Keller 2013). As we discuss
in the section on irreversibility, establishing such re-
lationships involves sunk costs in both hiring and
separation.
Predictive Analytics and Hiring
To get a better sense of present-day hiring practices and
how these are being influenced by growing capabilities
in data science and predictive analytics, we conducted
a series of qualitative interviews with hiring managers,
AI/machine learning experts, and personnel technol-
ogy startups.12 As suggested previously, these experts
largely agree that, at present, firms are making signif-
icant investments to develop data science–based ap-
proaches to optimize sourcing and selection decisions.
A majority of these experts noted that, although artificial
intelligence and machine learning were not necessarily
being implemented at scale except in some “narrow
use cases,” they expected these investments to yield
technologies that embody what we refer to as the best
athlete model—that is, sourcing and selecting the
most talented individual in a pool (see Table A.1 for
other use cases). Amazon.com, for example, touts as one
if its leadership principles that it will “hire and develop
the best.”13
The best athlete approach—that is, hiring the most
talented person available—may lead to optimal selection
under certain, limited local conditions. The information
needed to make a hiring decision under a best athlete
approach is related to the potential employee’s dem-
onstrated ability, skills, and historical track record of
performance, thereby ideally limiting the scope for a
hiring manager’s idiosyncratic preferences to come into
play. Yet there is little that is strategic about this deci-
sion in the sense that a manager (or an algorithm) with
only limited or—following Van den Steen (2017)—
local knowledge of the firm’s capabilities, policies, or
Elfenbein and Sterling: (When) Is Hiring Strategic?
Strategy Science, 2018, vol. 3, no. 4, pp. 668–682, © 2018 INFORMS
competitive context has sufficient information to select
the desired candidate under this approach. As we dis-
cuss, factors that make hiring more strategic create
challenges for the best athlete approach to hiring.
Hiring: More Process Than Choice
Manager, Hiring Software Company: “A lot of companies
are trying to stay competitive with others that are hiring
[people with the same sets of skills]. So what they end up
doing is building up these pipelines and nurturing those
relationships, so that way, when there is a need, they
have warmer leads to build from. . .
They’re building up these hiring communities where it’s
like, ’these are people that we’re not necessarily ready to
bring onboard right now because we don’t have an
immediate need for them, but we still wanna be able to
send them over relevant content’.”
For successful organizations, hiring, we contend, is
better characterized as a process of acquiring a set
of employees than a single choice about hiring for
an individual job. To hire effectively, then, one must
peer further into the future than when examining a
single one-selection decision. Unlike a one-shot choice
wherein a hiring manager might select the best can-
didate from a pool, hiring becomes strategic when it
takes this longer, more comprehensive view. Strategic
hiring requires a “global” outlook that accounts ex-
plicitly for the interdependencies of hiring with other
design choices, the way these interdependencies are
apt to unfold, and a willingness to reconfigure design
choices and strategy as needed. As a process, strategic
hiring also requires firms to interact over time with
external sources of talent (Ranson et al. 1980, Puranam
et al. 2012); that is, organizations engage in activities
and investments to “build up pipelines and nurture
relationships” (see the leading quote in this section).
There is a path dependence to this process, for instance,
because sourcing new talent often depends on the re-
lationships that employees have with prospective can-
didates (Franzen and Hangartner 2006, Rubineau and
Fernandez 2013, Sterling 2014).
Knowing how to develop these ongoing relation-
ships requires foresight into labor markets, similar to
the way foresight is needed in product markets in
competitive landscapes (see Gavetti and Menon’s (2016)
discussion of strategic foresight). When hiring is stra-
tegic, business strategy and people strategy are dynam-
ically reconfigured across product and labor markets
in tandem. Rather than treating strategic formulation
and execution as two distinct sequential steps, when
hiring is strategic it takes place over time and ne-
cessitates alignment and reconfiguration at multiple
points for firms to create and capture value (Ranson
et al. 1980, Lepak and Snell 1999, Puranam et al. 2012).
Hiring that neglects these critical features may be
misguided and lead to costly mistakes (Abowd and
671
Kramarz 2003). The value to a pharmaceutical firm, for
example, of hiring a biological scientist with strength
in basic research may depend highly upon whether that
firm has adopted an open science policy (Cockburn and
Henderson 1998) as well as the routines that exist for
the development of basic science with the firm (Feldman
and Pentland 2003). At the same time, the ability to hire
the aforementioned biological scientist requires a busi-
ness strategy—including a mission and a product
pipeline—that can draw the biological scientist into the
firm. Similarly, the value of hiring a marketing-oriented
CEO versus a finance-oriented CEO may depend on
the functional background of the prior CEO because
of the structural and design decisions the CEO has made
in the past (Yen 2014). Likewise, the ability to hire that
CEO may depend on how the background of the prior
CEO became interwoven into the overall culture of
the firm and how that CEO’s executive style fits within it
(Srivastava et al. 2017).
By investigating if and when hiring is a strategic
process and, when it is, what makes it so, we highlight
the potential for a scholarly reconceptualization of how
firms acquire human capital. We provide a list of some
of these shifts in Table 1. For instance, strategicness
moves us from emphasizing selection of best athletes to
selection of those who fit best with the existing people,
assets, and policies. It moves us from thinking about
hiring as a local optimization decision to an ongoing
process that extends across time and multiple segments
of the labor market. It prompts us to move from con-
sidering how a person’s skills align with a job to how a
person’s skills align with a job within the context of a
specific firm.
When Is Hiring Strategic?
Senior Business Development Manager, Artificial Intelli-
gence: “But it’s good to have people ready to go the mo-
ment that you need them. . . . That’s why I said it’s
strategic. Because there is a balancing act of when can
I bring this person in versus when can I start using them.
And you don’t wanna be in the position where you have
this critical role unfilled.”
Irreversibility and Path Dependence
As noted in the introduction, we consider four mech-
anisms that make processes strategic—irreversibility,14
interdependencies, competition, and organizational learn-
ing under uncertainty—and apply them to the process
of hiring. Of these four aspects that contribute to making
processes strategic, irreversibility has prominently been
noted as playing a central role (Ghemawat 1991; but also
see Van den Steen 2017). Definitions of irreversibility
emphasize the importance of some unrecoverable or
sunk cost in changing a given state of the world, and
this both creates and destroys real options (Trigeorgis
and Reuer 2017). In terms of employment, this condition

672
Table 1. Implications of Viewing Hiring as Strategic
. . .not strategic
Approach Best athlete
Selection Single decision
HR assessment Fit with organizational culture
Delegation Delegate hiring to HR/best judge of talent
Path dependence Search occurs without constraints
Value creation/willingness Depends on individual attributes and portfolio of skills
to pay
Market correctly assesses the value of individual’s skills
to firm (absent discrimination)
Hiring versus contracting Depends simply on risk-adjusted price
Dynamics Individual attributes sought and valued are stable over
time
Hiring for replacement
Algorithms Industry-wide data are useful in predicting candidate
productivity
Predictions improve rapidly with use of internal data
is met if hiring transforms the exchange relationship
between the individual and firm in some important way,
such that hiring is costly to reverse.
In this sense, the question is whether hiring changes
the commitment between firms and individuals in
ways that it does not when firms merely contract labor.
In considering whether irreversibility is a central fea-
ture in hiring, we draw upon literature in economics,
sociology, and organizational behavior that examines
potential changes in commitment between individuals
and firms that hiring produces. Economists have long
recognized that legal institutions and other consider-
ations make firing costly for firms (Hamermesh 1993,
Autor 2003, Di Tella and MacCulloch 2005). In the human
capital tradition, arguments that build on Becker (1962)
contend that, because firing is costly, employment
generates expectations in workers that their rela-
tionship with the firm will endure, prompting them to
invest in firm-specific skills despite the fact that it may
raise their dependence on that firm because those skills
are less valued elsewhere. Hiring, then, may gener-
ate a virtuous cycle of mutual dependence, in which
employees create more value than contractors or spot
laborers. In organizational sociology, hiring similarly
impacts the commitment of workers toward firms
and vice versa because employees and firms make
investments in the relationship. For employees, this
Elfenbein and Sterling: (When) Is Hiring Strategic?
Strategy Science, 2018, vol. 3, no. 4, pp. 668–682, © 2018 INFORMS
Hiring is...
. . .strategic
Best strategic fit for the firm
Ongoing process
Fit with team skills, organizational assets (e.g., current
employees), and policies
Top management oversees hiring to ensure alignment/
delegation with constraints
Search affected by existing employees’ networks and
firm hiring practices; new pools of talent are not a
given
People strategy and business strategy are mutually
reinforcing
Depends on attributes and portfolio of skills of other
workers
Market does not correctly assess the value of
individual’s skills to firm
Depends on the significance of internalization to
individual motivation, potential spillovers, and
access to employee’s network
Individual attributes sought and valued are likely to
shift over time
Hiring for growth
Industry-wide data may be misleading in predicting
candidate productivity
Predictions improve less rapidly with use of internal
data and must be used in conjunction with insights
on strategic direction
is not simply limited to investments in firm-specific
skills, but also involves adjusting their beliefs and
values in ways that align with the firm through so-
cialization (Etzoni 1961). In organizational behavior,
employment induces a psychological contract about
what is expected by individuals with respect to firm
behavior (Rousseau 2001) through a process of identi-
fication (Kelman 1958, O’Reilly and Chatman 1986)
that generates loyalty and attachment (Kanter 1972,
O’Reilly and Caldwell 1981). Because of these social
and social–psychological investments, the employment
relationship requires some cost to break it, and em-
ployees often do not even if they strongly disagree with
decisions made by executives and the direction of the
firm (Bolton et al. 2017).
Although the semi-irreversible nature of hiring, in
many cases, has the potential to expand the value-creation
potential of the firm–individual pair, it by no means is
guaranteed to do so. Firms’ commitments to employees
may be unsustainable in challenging competitive envi-
ronments or in times of economic contraction. Tourna-
ments and up-or-out policies create strong incentives for
employee effort but, for many workers, limit expec-
tations of relationship continuity. Bennett and Levinthal
(2017) develop a model that demonstrates that mutual
commitment—the firm’s ability to credibly promise
promotions and the worker’s willingness to go above
Elfenbein and Sterling: (When) Is Hiring Strategic?
Strategy Science, 2018, vol. 3, no. 4, pp. 668–682, © 2018 INFORMS
and beyond the call of duty to improve the firm’s
processes—depend on the firm’s growth rate (see also
Phillips 2001). A related perspective argues that re-
lational contracts are challenging to build, are history
dependent, and may be affected by individual man-
agers with heterogeneous capabilities (Gibbons and
Henderson 2012). Wang et al. (2009) find evidence sug-
gesting that the degree to which employees invest in
firm-specific knowledge is connected to perceptions of
firms’ commitment to them, which, in turn, is shaped
by incentives (namely, employee stock ownership) and
policies relating to health and safety, retirement ben-
efits, and layoffs/workforce reductions. Elfenbein and
Zenger (2014, 2017) show that repeated exchange among
organizations yields valuable relational capital when
social interactions among employees are low cost, but
that tensions about the appropriation of this value limit
its development. The impact, then, of hiring on perceived
mutual commitment between the employee and firm
is, we believe, both an empirical matter and an object
of managerial discretion. Firms that seek to limit their
commitments to their workforce may naturally find
hiring less strategic and vice versa.
Beyond commitment, a second key mechanism oper-
ates through irreversibility to generate path dependence
in hiring decisions. Specifically, previously hired in-
dividuals currently working for the organization serve
as important mediators who provide information to
their acquaintances and friends looking for jobs about
what it is like working for the employer while also pro-
viding information to the employer about a candidate’s
skills and work ethic (Granovetter 1985, Fernandez and
Weinberg 1997). Path dependence is generated through
search: individuals with social relationships to employees
in the organization are likely to be alerted about jobs
and to locate positions at the firm even when they are
not actively searching (Small 2009), especially when
they live geographically proximate to incumbent em-
ployees (Bayer et al. 2008, Sorenson and Dahl 2016).
This path dependence has implications if a firm is
hiring for growth rather than replacement or vice versa.
In the United States, approximately three quarters of
all hiring is done to replace workers who have left
the firm, be it voluntarily or involuntarily, and the
remaining one quarter is for the purpose of increasing
human capital for growth (Lazear and McCue 2018).
Hiring for growth versus replacement may influence
the desire of the manager to reach into new labor pools,
especially if hiring is to learn (Song et al. 2003). How-
ever, the ability of the manager to do so in a timely way
is constrained by who has been hired in the past. Net-
work hiring reproduces the same type of human capital
within the firm because “employees typically refer
candidates from a small homogenous portion of the
available labor pool, as initial job-holders are replaced by
others with increasingly similar attributes” (Rider 2012,
673
p. 455; see also Fernandez et al. 2000). To the degree
that managers decide to try to hire to learn through the
acquisition of new knowledge (Almeida and Kogut 1999),
their ability to do so through hiring is affected by the
networks from which they have hired in the past.
Third, firms are affected because prior decisions
about who to hire and how those individuals are
paid influences the degree to which new hires can
be selected, contingent on social comparison costs
(Nickerson and Zenger 2008, Kacperczyk et al. 2015).
Social comparison costs arise because employees re-
spond to allocative outcomes and the degree to which
such outcomes are perceived as fair. Organizational
decision makers attend to social comparisons because
sabotage and lower morale can occur as a result
(Nickerson and Zenger 2008, Bartling and Von Siemens
2010). When social comparison costs are high, firms
attempt to keep wages secret (Larkin et al. 2012), and
they are more likely to provide equal pay for workers
that might learn of one another’s pay (Gartenberg and
Wulf 2017). As a result, historical decisions about pay
and the perceptions of the existing workforce about
the fairness of this pay generate constraints about the
wages that can be offered to a prospective recruit, thus
narrowing the set of candidates from which the firm
can hire.
Fourth, hiring has elements of irreversibility because
it can prompt new strategic directions for the firm. If
employees join a firm and find its mission and strategy
undesirable, of course one option is to depart. To that
end, Lazear and McCue (2018) document extensive and
persistent heterogeneity in rates of employment churn,
that is, job separation and hiring replacements, across
the population of U.S. firms. Although some of this
interfirm heterogeneity in employment churn can be
explained by industry effects, a significant proportion
of within-industry heterogeneity exists. But not all
employees may quit the firm, and those who stay can
have a substantive impact on shaping the strategy. In
this way, the irreversibility component of hiring not
only exists in terms of the acquisition of human capital,
but in the interrelatedness of who is hired, their skill
sets, and the overall direction of the firm.
To summarize, the theoretical attention paid to the
employment relationship points toward “true hiring”
frequently being synonymous with a definition of ir-
reversibility, which is a key pillar of what makes a process
strategic. Irreversibility creates commitment among
stakeholders, changes the choices available to com-
petitors, and introduces path dependence because there
is a narrowing of the options available for firms and
individuals, including with respect to setting strategy.
In the case of hiring, a relationship between a firm and
an employee changes in ways that would not be possible
if the firm merely contracted labor. Firms and their
managers may seek to promote commitment using a

674
variety of mechanisms that may impact selection, an
idea that deserves further scholarly attention (Galperin
et al. 2018).
Interdependencies and Complementarity
The literature on strategy has long emphasized the
importance of understanding the complementarities
among activities and assets (Milgrom and Roberts 1990,
1995), recognizing that fit is a central concern. In some
cases, new hires’ contribution to an organization may
simply be additive. In these cases, the value-creation
potential of a new hire can be largely assessed in iso-
lation from prior hires—examples may include real
estate agents, auditors, delivery personnel, cashiers,
or IT help desk specialists—rendering the optimal de-
cisions of who to hire and what wage to offer inde-
pendent from prior hires (which determined the existing
pool of employees) and future hires. Although simple
additivity of employee contributions does not make these
hiring processes unimportant, it does make them signif-
icantly less demanding in terms of managerial attention
and the space of alternatives that need to be considered.
In other cases, however, a new hire’s expected
contribution is a function of the skills of existing em-
ployees, firm assets, routines, and/or firm policies.
Neglecting the interdependencies between the partic-
ular profile of skills brought by a potential employee
and these existing features of the firm can come at great
cost. Where these interdependencies are important, re-
lying on analytics driven by common or cross-industry
data or on the input of functional experts, is likely to
lead to erroneous decisions.
Consider, for example, a shortstop on a major league
baseball team. Increasingly, major league baseball or-
ganizations have been using analytics to measure the
value of a player’s contributions: for nonpitchers, a
player’s contribution can be decomposed into offensive
wins above replacement—a measure of the player’s con-
tribution in hitting relative to an “average” available
substitute player—and defensive wins above replacement—
a measure of the player’s contribution in fielding relative
to an average available substitute. These measures
can be combined into a single wins above replacement
(WAR) measure, and significant data analysis goes into
projecting the shortstop’s future WAR value. Both
historical measures and future measures allow for a
ranking of each player’s value. Yet it is clear that the value
of a particular player to a particular team cannot be
accurately summarized by these WAR measures. First
and foremost, the value of a free agent shortstop has less
value to a team that already has a healthy, productive
player at the position, one who is signed to a long-term
contract. Second, and more interestingly perhaps, is the
fact that a strong fielding shortstop will be more valuable
to a team whose pitching staff induces more ground
Elfenbein and Sterling: (When) Is Hiring Strategic?
Strategy Science, 2018, vol. 3, no. 4, pp. 668–682, © 2018 INFORMS
balls as opposed to fly balls or strikeouts. By contrast,
a team whose pitchers generate a high rate of strikeouts
will find the fielding skills of the shortstop less im-
portant. Thus, the potential defensive contribution of
the free agent shortstop to the team depends on its
existing stock of pitchers. Moreover, strikeout rates
depend on the team’s home location (a fixed asset) (Kent
and Sheridan 2011), in turn predicting the importance
of the shortstop’s defensive ability. Additionally, the
fielding contribution depends on the team’s policy
as well: certain pitching coaches emphasize the skills
required to successfully “pitch to contact”—typically
throwing sinking pitches low in the strike zone—whereas
others emphasize strikeouts, which require pitchers
to develop and refine an entirely different repertoire
(Brackin 2012). Finally, the talent that is on the team may
lead to a readjustment of the team’s strategy altogether
as it might be more feasible to win under a new game
plan. Figure 1 offers an illustration of these main sources
of interdependency.
Recognizing these interdependencies is critical to ac-
curately evaluating a prospective employee’s contri-
bution to the organization and making the correct hire.
Accounting for these interdependencies, however, is
not simple. It is well known from studies of systems
in theoretical biology (e.g., Kauffman 1993) and com-
plementary work in strategic management (e.g., Rivkin
2000 and Ghemawat and Levinthal 2008) that, as more
interdependencies among choices are introduced,
complexity rises, and the effectiveness of feedback and
learning from local search—for example, measuring the
performance impact of a particular decision—is under-
mined. As far back as Barnard (1938), scholars have
recognized the resulting importance of top executives
Figure 1. (Color online) Interdependencies Between
Employee Skills, Firm Assets, Policies, and Strategy
Elfenbein and Sterling: (When) Is Hiring Strategic?
Strategy Science, 2018, vol. 3, no. 4, pp. 668–682, © 2018 INFORMS
in setting guiding policies (Rumelt 2011) that improve
the chances that an organization will effectively manage
the interdependencies between worker skills, organiza-
tional assets, and firm policies. Although Van den Steen’s
(2017) formal model does not directly address worker
skills, it highlights the importance of coordinated choice
and could naturally be extended to incorporate choices
about hiring in a market with heterogeneous worker
skills. Unsurprisingly, the need for alignment between
strategy and organization has been a staple of man-
agement textbooks (e.g., Saloner et al. 2001).
Interdependencies between employee’s skills and the
collective profile of individual skills and firms’ assets
and policies also create challenges for scholars who
might seek to map the relationship between individual
attributes and organizational performance, assess the
impact of training programs on productivity, or assess
the impact of quits on productivity or profitability.
A relatively small empirical literature explicitly ad-
dresses these interdependencies. In studies of biolog-
ical science, examinations of collaboration networks
have enabled scholars to uncover the impact of su-
perstar researchers on collaborators within and across
organizations (Azoulay et al. 2010, Oettl 2012). Em-
pirical study of such interaction effects is challenging;
in both papers cited, the unexpected death of the focal
actor presents the exogenous variation required to
identify the value created by the scientist through in-
teractions with others. Chen and Garg (2018) use the
unexpected injury to superstar basketball players to
examine their contributions and, interestingly, how
organizational routines adapt in their absence and
following their return.15 Other studies in the securities
industry (Groysberg et al. 2008, Groysberg and Lee
2009) and medical services (Huckman and Pisano 2006)
are highly suggestive of strong interdependencies be-
tween individuals and organizations but rely on move-
ment among organizations—rarely a truly exogenous
process—for identification. Bresnahan et al. (2002)
examine complementarities between corporate IT in-
vestment, workforce attributes, and organizational de-
sign choices in cross-sectional data. Analysis of three-way
interactions such as these are challenging to interpret.16
An alternative approach to understanding the im-
portance of complementarities among individual (and
organizational) attributes utilizes matching models.
Garicano and Hubbard (2005) show that skill com-
plementarity between partners and associates leads to
positive assortative matching in the legal industry. In
follow-on work, Garicano and Hubbard (2007) develop
a model of interactions between organizational form
and the depth of an individual’s knowledge in the
legal industry and find support for their proposi-
tions. Mindruta (2013) and Mindruta et al. (2016) examine
the impact of individual scientists on the formation of
interorganizational research and development alliances
675
and articulate the patterns of complementarity between
multiple dimensions of researcher ability and organi-
zational knowledge and assets. In doing so, they utilize
the maximum score identification approach pioneered
by Jeremy Fox and colleagues (Fox 2010, Fox and Bajari
2013, Fox and Santiago 2014). These methods hold great
promise for future scholarly investigations into the
nature and consequences of complementarities among
individuals and between individuals and organizations
as they relate to hiring.
Finally, we contend that a focus on interdepen-
dencies and their sources holds promise for drawing
important distinctions between complementarities
and firm-specific human capital, both of which are
factors that contribute to firms’ ability to appropriate
rents from employees. Clearly, not all complementar-
ities among employees constitute firm-specific human
capital. Drawing on the earlier example, the perfor-
mance impact of a pitcher’s ability to generate ground
balls depends on a shortstop’s fielding skill. These
skills are complementary but cannot be viewed as firm-
specific. By contrast, a shortstop learning the hand
signals that the manager uses to position him during
the game or a pitcher developing a sinker-ball pitch to
generate more ground balls would clearly represent
firm-specific knowledge and skills, respectively.
Overall, interdependencies among workers and be-
tween workers and firms’ assets undermine the effec-
tiveness of the best athlete model and place a premium
on mapping the system of interdependencies, actively
managing them, and incorporating them explicitly into
hiring decisions. Algorithm-based hiring decisions that
neglect these interdependencies will underperform as
will organization design decisions that don’t effectively
aggregate interdependencies within or across functions
and teams.
Competition, Bargaining, and Rent Appropriation
Issues of competition impact hiring in several ways.
A long-standing theoretical perspective, dating back at
least to Becker (1962), suggests that, in a competitive
labor market, workers wages will be bid up to their
“marginal productivity” or, at least, to the non–firm
specific component of it. This, in turn, impacts the in-
centives for both workers and firms to invest in general
and firm-specific skill as discussed. Dynamic models,
such as Jovanovic (1979), examine the role of competi-
tion in matching employees with firms with which their
skills enable them to create the most value; however,
because the value of the individual–firm match is ex
ante uncertain, worker mobility results. A more nuanced
perspective (Campbell et al. 2012a) recognizes that labor
markets differ in their competitiveness with supply
frequently exceeding demand. Indeed, the downward
trend of labor’s share of GDP17 and the stagnation of
median wages in the United States despite increases

676
in labor productivity18 together suggest that, at an
economy-wide level, firms have been quite effective at
leveraging bargaining power stemming from opportu-
nities to replace labor with capital or globalize. By con-
trast, in markets in which talent is presumably both scarce
and not easy to replace, such as the market for CEOs,
professional soccer players, or cardiothoracic surgeons,
individual earnings have increased dramatically. Indeed,
evidence suggests that organizations frequently overpay
for top talent (Groysberg et al. 2010).
These value-appropriation considerations, which
result from interfirm competition,19 have been well
studied and have yielded a focus on firm-specific human
capital and alignment between organizational values
and workers (presumably heterogeneous) nonpecuniary
motivations. At the same time, other competitive issues
have received considerably less attention. For example,
in labor markets in which talent is both relatively scarce
and heterogeneous, the timing at which an employer
hires becomes critical. Timing affects the likelihood of
filling the position (all the good candidates may be
matched if a firm waits until all offers are on the table),
the level of uncertainty around a candidate’s ability
and its value (rival offers reveal information about the
candidate, and the candidate’s performance record re-
duces uncertainty about the candidate’s ability over
time), and the pay the candidate is likely to receive (as
the number of rival offers is likely to drive the pay that
the worker can demand). Roth and Xing (1994) examine
markets in the United Kingdom, Japan, and the United
States for medical, managerial, and legal talent and find
that, as a whole, hiring firms have incentives to “jump
the gun,” which, in aggregate, pushes hiring forward in
time. As Sterling (2014) points out, these timing issues
lead some firms to limit their attention to candidates
who they deem likely to accept their offers. Beyond this,
however, little scholarly attention has been devoted to
heterogeneity in approaches to timing labor markets
and their consequences. Given the obvious trade-offs
associated with different timing strategies and their
interdependencies with firm assets and policies (in-
centives, promotion policies, separation, training),
this is likely to be a promising area of future inquiry.
A second and perhaps even more critical competi-
tive aspect of hiring that lies outside of the tradi-
tional competitive labor market perspective relates to
knowledge and capability acquisition by the hiring firm
and the resulting impact on the capabilities and per-
formance of the source firm. Hiring a critical employee
away from a rival may not only improve the capabilities
of the destination firm; it may, at the same time, degrade
the capabilities of the source firm. When these are head-
to-head competitors, the net impact on performance—
essentially the value created hiring the critical employee—
results from the net improvement in the destination
firm’s capabilities. A growing empirical literature
Elfenbein and Sterling: (When) Is Hiring Strategic?
Strategy Science, 2018, vol. 3, no. 4, pp. 668–682, © 2018 INFORMS
addresses these considerations explicitly.20 Several of
these studies build on employer–employee matched
data sets in the legal industry. Campbell et al. (2012b)
examine the performance impact of employee mobility
to existing rival law firms and to start-ups. Exits to
start-ups have larger negative performance impact on
source firms; some of this impact is likely to stem from
selection, that is, elite talent are more likely to become
founders. Carnahan and Somaya (2013) study the talent
war for patent attorneys and find both positive and
negative effects for source firms whose attorneys, re-
spectively, leave to become inside counsel for their cli-
ents or for their clients’ rivals. Tan and Rider (2017)
examine the moves among law firms of different status
and find that middle-status firms gain status when
losing employees to high-status firms. A parallel lit-
erature examines the impact of noncompete agree-
ments on employee mobility, pay, and innovation.
Marx et al. (2009) use a change in Michigan state law
to show that noncompete agreements are effective in
limiting employee mobility. Marx (2011) reports that
more than half of all U.S. technical workers sign non-
compete agreements, documents firms’ motivations in
requesting that workers sign these agreements, and ex-
plores how firms make strategic choices to improve and
exploit their bargaining power in ensuring that workers
sign them (see also Starr et al. 2017). Collectively, this work
suggests that hiring from competitors is both empirically
important in many settings and generates both direct and
indirect effects on performance.
Yet another stream of research combines issues of
competition and complementarity highlighting that
firm status is a complementary asset that can impact
both value creation and value appropriation. Bidwell
et al. (2015) find that high-status firms were able to
attract strong talent and pay them average market wages
early in the careers of employees because working at a
high-status firm was a strong signal that individuals were
sought out for the purposes of future employability.
Sterling et al. (2018) argue that high-status firms may
have greater flexibility and freedom in how they arrange
workers within organizations compared with lower
status ones because status is a nonpecuniary benefit.
In essence, heterogeneity in firms and firm assets (e.g.,
such as status, which posits a unique structural position
for firms) allows firms to attract talent in ways so that
rent can be appropriated.
Whether the competitive issues highlighted impact
talent assessment and hiring decisions depends, of
course, on context. In principal, firms can hire from one
of five different pools: (P1) individuals employed by
competitors, (P2) individuals employed by noncom-
petitors, (P3) unemployed individuals involuntarily
separated from a prior job, (P4) unemployed individuals
entering the workforce for the first time, and (P5) un-
employed individuals returning to the workforce. The
Elfenbein and Sterling: (When) Is Hiring Strategic?
Strategy Science, 2018, vol. 3, no. 4, pp. 668–682, © 2018 INFORMS
competitive impact of timing, raised previously, is most
important in relationship to P4. The impact of hiring on
rivals applies only to P1. Thus, hiring from P2, P3, and P5 is
likely to be less strategic than hiring from pools P1 and P4.
Finally, we note that “acqui-hiring,” in which a large or-
ganization acquires a start-up and redeploys its talent
almost immediately to its existing projects, has become
increasingly common in software and service industries
(Coyle and Polsky 2013). The value appropriated by the
acquiring firm, we suspect, depends in no small part on
whether these start-ups are current or potential competi-
tors or simply complementors. Empirical studies of talent-
oriented acquisitions are needed to better understand this
phenomenon and why it emerges instead of simply
hiring away the start-up’s employees or forging an
alliance with the start-up companies themselves.
Uncertainty (Learning and Adaptation)
Finally, hiring should be viewed as more process than
choice because learning occurs when firms hire (Huber
1991, Erev and Roth 2014). Learning occurs in at least
three different ways. First, hiring facilitates knowledge
about a certain category of candidate that is used to
inform future hiring decisions. In a useful recent ex-
ample, Leung (2017) suggests that organizations learn
to hire based on prior experience and update routines
accordingly. Pivoting off literature about the effects of
social categories, such as nationality, gender, or race, on
employer hiring decisions (Arrow 1973, Pager and
Karafin 2009), Leung (2017) finds that employers
learn based on prior experiences with employees of
varying national backgrounds, and this influences fu-
ture selection: a positive/negative hiring experience
with someone from a country increases/decreases the
odds of hiring someone of the same nationality in the
future. This is consistent with a real options approach to
hiring (Lazear 1998). Although the aforementioned ex-
ample is in the context of online labor, this has implica-
tions in other contexts, including how labor is sourced as
a firm moves into new geographic regions (Hernandez
2014, Hernandez and Kulchina 2016).
Second, firms may learn because they change the em-
ployment relationship in some fundamental way to con-
tend with uncertainty. During the hiring process, firms
gather information about the traits of candidates—that
is, their knowledge, skills, assets, and other character-
istics (Ployhart et al. 2014). Data science and predictive
analytics aid in evaluating these traits, and as already
discussed, artificial intelligence may be (one day) ca-
pable of assessing candidates to optimize selection
on observable traits.21 But note that, even in the face of
such optimization, what remains unclear is the way
individuals are going to interact with the firms’ other
assets or what we refer to as “interactive uncertainty.”
This uncertainty may be hard to reduce with screening
methods, but a mode of employment exists to deal
677
explicitly with it: trial employment. A trial or tryout
occurs when individuals work for a firm on a temporary
basis prior to an employment relationship commencing
(Kuhnen and Oyer 2016, Sterling and Fernandez 2018).
Internships, temp-to-perm jobs, and other forms of
tryouts provide managers the chance to observe em-
ployees in the firm prior to their making hiring deci-
sions and differ from at-will employment, whereby
employment has commenced and is harder to reverse
even if only for the psychological reasons we discussed
previously. During this observation period, managers
have a chance to learn about as well as experiment with
the complementarities of the new prospective recruit
and the other assets of the firm. Although we view this
method of uncertainty reduction as promising, we note
that Leiblein et al. (2017) point out that an organiza-
tion’s learning, in such a context, is hindered by multiple
forms of uncertainty: both risk that the employee’s
ability can create value in an ever-evolving marketplace
and noise in measuring the employee’s contribution.
Future research may address how organizational design
decisions manage these risks.
Finally, hiring consists of learning because firms hire to
learn (Huber 1991, Song et al. 2003). Once firms acquire
new talent, they may learn from these employees in ways
that shift the strategy. In this way, we come full circle
back to the notion that business and people strategy are
mutually reinforcing. After new knowledge or insights
are discovered via talent acquisition, managers may
adapt to this new knowledge and adjust their strategy.
Overall, examining hiring as a process of learning
under uncertainty is fundamentally strategic, and we
believe it opens up promising avenues for future re-
search. One such area of inquiry should be residual
uncertainty, which refers to what cannot be known even
when all present information is revealed (Van den Steen
2017). In hiring, it can operate at the level of acquir-
ing a single recruit. The fact that the job seekers have
a chance to accept, reject, or negotiate new terms of
an offer based perhaps on outside options that cannot
be known by the firm may be thought of as a type of
residual uncertainty. To manage this, firms may attempt
to “craft the future” and lower residual uncertainty
through timed offers (Niederle and Roth 2009) or pro-
viding offers to those candidates with close personal
relationships with employees so that they act in good
faith toward the firm (Sterling 2014). Although this
example is about residual uncertainty in acquiring any
one prospective recruit, it likely comes into play when
acquiring multiple employees over time. These issues
deserve further attention.
Conclusion
AI executive: “There’s plenty of waste in all of the value
chains that we have today. We all know that there are
inefficient mechanisms that we’re constantly optimizing

678
and trying to improve. . . [But] it frankly takes a pretty
sophisticated understanding of many different parts of
the machine learning ecosystem to do a lot of the more
complex use cases, like say identify exactly the right
talent.”
We have argued that the question, “When is hiring
strategic?” raises critical issues for scholars and man-
agers alike. Taking the view that hiring is the com-
mencement of relational employment (Lepak and Snell
1999, Baker et al. 2002), we have proposed that the
aspects of hiring that cannot be effectively embedded in
artificial intelligence are those that highlight and distill
the critical factors that make hiring strategic. Moreover,
because hiring is at least as much process as choice,
business and people strategy are integrally connected,
requiring sophisticated managerial attention to design
and manage these connections.
We began by noting that, in practice, initiating and
terminating employment relationships are costly. These
sunk costs are a form of irreversibility, which, along with
other factors, generates commitment between employer
and employee supporting cooperation, specific invest-
ment, and otherwise difficult-to-contract exchanges. The
degree to which this commitment is fostered can, itself,
be thought of as a strategic choice of the firm although
the degree to which a prospective employee has the
propensity to change behavior as a result of the com-
mitment may be difficult to discern or predict. We fur-
ther examine how interdependencies among employees
and between employees and firm assets and policies
generate complementarities that should be actively
managed. Insights from Van den Steen (2017), Rumelt
(2011), and others, we argue, must be brought to the
forefront in specifying more clearly how these comple-
mentarities, as opposed to simple notions of firm-specific
human capital, should be managed within organizations.
Similarly, they need to be explicitly addressed in em-
pirical studies of strategic human capital. We further
demonstrate that interfirm competition does not simply
affect wage levels, but also impacts the timing and
poaching from rival firms in certain subsets of the labor
market. Finally, we examine hiring as a process of
learning under uncertainty and argue that a firm’s
hiring capability evolves dynamically as the result of
prior decisions. We argue that the literature needs more
empirical and theoretical studies of hiring through this
lens. The work of Leung (2017) and El-Zayaty et al. (2018)
represent important steps in this direction.
Although we have focused our effort explicitly
around hiring, we expect that performing the thought
experiment, “can this aspect of hiring be embedded
in an algorithm?” can be usefully extended to other
aspects of human capital management, such as com-
pensation, training, job design, or promotion. This may
help distill what makes these management practices
Elfenbein and Sterling: (When) Is Hiring Strategic?
Strategy Science, 2018, vol. 3, no. 4, pp. 668–682, © 2018 INFORMS
more or less strategic and why. Key questions include
the following: Are there human capital management
practices that are more or less sticky or irreversible? Are
there instances in which HR practices are more or less
interdependent with one another and with existing
characteristics of the workforce? How should such
practices change dynamically over time as a firm’s
stock of employee relationships, networks, and knowl-
edge evolve? These are questions that cannot (at least
today or in the near future) be relegated to algorithms,
and thus, we believe they get at the heart of the strategic
aspects of human capital management research.
In the discussion, we have highlighted a number of
directions for future work. We conclude by noting one
final area that both draws upon the question, “Is hiring
strategic?” and deserves further scholarly attention: the
rise of technology-enabled freelance work. Sometimes
referred to as the “gig economy,” this new way of or-
ganizing work promises to redefine certain segments of
the labor market. As the nature of work has changed,
so has the nature of the need to organize that labor
within the organization (Kalleberg 2009, Bidwell et al.
2013). From 2005 to 2015, independent contractors in
the U.S. labor force increased their representation by
50% (Katz and Krueger 2016). Oyer (2016) documents
an even greater increase among so-called “independent
workers” who comprise those engaged in freelancing on
IT-enabled platforms, such as UpWork, Uber, or Post-
mates. Although precise estimates are hard to come by,
studies suggest that about one third of U.S. workers are
employed as independent contractors, including those
who work multiple jobs (Oyer 2016). In 2017, more than
three million jobs were filled through Upwork alone, and a
similar number were filled through its competitor Fiverr.
The implication is that firms may choose between
hiring employees or sourcing work via these spot labor
markets in ways that would have been unthinkable a
decade ago. This includes both high-skill workers, such
as software engineers, designers, and consultants as
well as medium- to low-skill workers, such as drivers,
construction workers, carpenters, plumbers, and home
healthcare workers. At the executive level, start-ups
have been willing to hire “fractional” CMO, CFOs, or
even CEOs. Although this flexibility is attractive in many
situations and for many firms, it is only by understanding
deeply the question of what makes hiring strategic that
we can accurately assess the value of commitment,
complementarity, and learning forgone via this approach.
Acknowledgments
This paper has benefitted from helpful conversations with
Seth Carnahan, David Kryscynski, John de Figueiredo,
Michael Leiblein, and Todd Zenger as well as the Stanford
Macro OB Group. The authors also thank the experts who shared
their insights on hiring. All errors remain the authors’ own.
Equal co-authors are listed in alphabetical order.
Elfenbein and Sterling: (When) Is Hiring Strategic?
Strategy Science, 2018, vol. 3, no. 4, pp. 668–682, © 2018 INFORMS 679

Appendix

Table A.1. Selected Quotations from Interviews About How AI/Machine Learning Impacts Hiring

Response Issue

“One [area in which AI approaches will be valuable] is around just simply job recommendations for candidates. So Candidate sourcing
when you think about things like Indeed.com or any of those aggregator sites where jobs are being posted, jobs are
being highlighted, ranked, etc.”
“Writing job descriptions. . .using machine learning to help identify when language written in a job description would Candidate sourcing
potentially dissuade certain applicants.”
“We measure the success of that placement by time and role, and we measure the success of our algorithm by how long Selection/sourcing
between opening a role and filling the role does it take.”
“In one case that comes up a lot, are things like screening. Basically, scoring applicants as they come through in the Selection
system, so that recruiters are more efficient. . .more sophisticated systems take into account what people have been
hired into positions in the past.”
“Basically, getting people to apply. . .that’s where most of the big players in the world, in the HR space, are focused Candidate sourcing
on. . .making it easy for people to search for things, basically express their interest, and then apply. . .because if you
think about it, we have what, six, seven million active job seekers and a similar number of job openings right now,
and we have to help people. I think this is the main thrust of AI/machine learning.”
“Some people are starting to use AI and robots to do first round interviews. There’s things you can do like that. The Selection
problem is, how much is that gonna take away from the touch, and is it good or bad?”
“I think we have a chance with AI to start improving the candidate experience. . .and I think that could be really good. . . Sourcing/screening
right now we’re at the point where nobody has enough people on their recruiting teams, so it’s hard for us to get back
to the candidate, it’s hard for us to have the time to assess the candidates.”
“My observations with AI and how it relates to recruitment tech, I feel like it’s definitely a stronger point during the Candidate sourcing
whole sourcing process in surfacing those candidates. . .I feel like with a lot of the AI and machine learning products
that are out there, they are more helpful with the whole sourcing part, and maybe even there is a dotted line
connection to that whole culture fit part.”

Notes. Responses came from qualitative interviews with six experts on hiring and/or AI/machine learning in the hiring context. No proprietary
information about a company’s AI/machine learning is included in these quotes.

Endnotes between important strategic and important nonstrategic would likely

1
Transcript of interview between author and talent acquisition ex-
ecutive, recorded on October 11, 2018. Authors’ emphasis is in italic.
2 as well. Lepak and Snell (1999) also provide four modes of employment:
http://www.goldmansachs.com/who-we-are/people-and-culture/,
https://www.oracle.com/assets/ibm-oracle-chro-294764.pdf,
https://www.mckinsey.com/featured-insights/leadership/using
-talent-management-to-create-value, https://www.inc.com/james
-kerr/your-people-are-your-most-important-asset.html.
3
We also recognize the impact of Barney’s (1986, 1991) work.
4 reason (e.g., Amazon’s AI recruiting tool was shut down after em-
Although we are perhaps in the nascent stages of this technology,
experts suggest one day artificial intelligence that optimizes candidate
sourcing and selection will be utilized at scale. We expect, therefore,
that our theories and logic, to the degree that have made their way to
industry practitioners, will be automated through machines.
5 decision interacts more strategic.” As our main concern is with the
See Chalfin et al. (2016) and Kuncel et al. (2013).
6
https://www.bls.gov/lpc/ (accessed August 7, 2018). We thank
Seth Carnahan for providing this information.
7
https://www.cmswire.com/digital-workplace/7-ways-artificial
-intelligence-is-reinventing-human-resources/ (accessed August 16, 2018).
8
https://www.statnews.com/2018/04/19/artificial-intelligence
-physicians-knowledge-judgment/ (accessed October 19, 2018).
9
There are other reasons we might expect humans to be involved
with hiring decisions. For example, Jago (2018) points out that
candidates desire the hiring process to be authentic, which may be
affected by full delegation to AI.
10
We recognize that each of the factors that generate strategicness
may also be relevant for other critical human resources activities, such
as compensation, training, job design, or promotion. A full treatment
of the entire HR function and the implications of our distinction
be valuable but is beyond the scope of this paper.
11
We acknowledge that some of our arguments can apply to other modes
internal development, acquisitions, contracting, and alliances.
12
Interview transcripts are available upon request for the five out of
six experts we interviewed that agreed to be recorded. Some portions
of the transcripts are redacted for confidentiality reasons.
13
Of course, sometimes these technologies are abandoned for sound
ployees discovered it led to bias against women applicants).
14
Van den Steen (2017, p. 2617) states that “[i]rreversibility. . .does not
necessarily make a decision more strategic, but it always increases the
value of strategy and makes decisions with which the irreversible
conditions under which there is a strategic (i.e., holistic) approach to
decision making about hiring, we implicitly argue for a somewhat
broader definition of strategicness than Van den Steen (2017).
15
Ethiraj and Garg (2012) also examine complementaries among
players in the NBA, highlighting the difference between team- and
individual-oriented ability.
16
Related literature examines the complementarities between HR
practices in single organizations (e.g., Ichniowski et al. 1997) as well
as the interaction between HR practices, such as compensation, on
attraction and retention of employees (e.g., Zenger 1992, Lazear 2000)
17
See https://fred.stlouisfed.org/series/LABSHPUSA156NRUG
(accessed August 7, 2018).
18
See data from the Bureau of Labor Statistics data set on labor
costs and productivity: https://www.bls.gov/lpc/data.htm (accessed
August 7, 2018).

680
19
Substitution between local labor, nonlocal labor, and capital shape
this competition.
20
A longer-standing literature recognizes that employee mobility is a
source of knowledge spillovers and absorptive capacity.
21
https://www.businessnewsdaily.com/6975-future-of-recruiting.html.
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Daniel W. Elfenbein is an associate professor of organi-
zation and strategy at Washington University in St. Louis. He
received his PhD in business economics from Harvard Uni-
versity. His research focuses on how firms and employees
create and capture value through reputations and relation-
ships, on entrepreneurship, and on corporate social respon-
sibility. Before academia, he worked as a strategy consultant
at Monitor Company and as an economist in the President’s
Council of Economic Advisers.
Adina D. Sterling is an assistant professor of organiza-
tional behavior at Stanford’s Graduate School of Business.
She received her PhD in organization and management from
Emory University. She actively studies the influence of social
networks on how organizations acquire and retain high-value
human capital, the influence of hiring practices on the short-
and long-term consequences of individual and firm perfor-
mance, and the effect of such practices on various demo-
graphic groups and society.