HOW LEVERAGING HUMAN

RESOURCE CAPITAL WITH ITS

COMPETITIVE DISTINCTIVENESS
ENHANCES THE PERFORMANCE
OF COMMERCIAL AND PUBLIC
ORGANIZATIONS
ABRAHAM CARMELI AND JOHN SCHAUBROECK

Although scholars agree that complex relationships between organizations’

actual human resources (i.e., human capital stock) and means of leveraging
these resources may influence performance, little empirical work has
tested such propositions directly. We collected two primary data sets from
private- and public-sector organizations in Israel. The multiplicative
interaction be- tween perceived human resources capital and distinctive
value derived from that HR capital was significantly related to various
measures of perceived and objective organizational performance. Having
higher levels of human re- sources capital was strongly associated with
performance only when top managers perceived that these resources
provided distinctive value in terms of being highly valuable, inimitable,
rare, and nonsubstitutable. We discuss the implications of these findings

I
for research on strategic human resource management and the resource-
based view of competitive advantage, as well as for practical efforts to
develop firm-specific human resource capital that is inherently distinctive.
© 2005 Wiley Periodicals, Inc.
Introduction
to competitive advantage. Developing HR
capital that is in harmony with the organiza-
in the present era, capital is relatively tion’s design and strategy is becoming, by
ac- cessible and organizations are pressing many reasoned accounts, the cornerstone of
the limits of technological means to en- competitive advantage (Pfeffer, 1994, 1998).
hance productivity. Tangible resources that Human resource practices can be a source of
were once competitive advantages for their competitive advantage, but unique practices
possessors are now imperatives to remain themselves are not the main goal of strategic
in business. Intangible resources such as human resource management (SHRM).
HR capital appear to be the new keys Rather, the aim is to generate a comprehen-

Correspondence to: Abraham Carmeli, PhD, Graduate School of Business Administration & Department of Politi-
cal Science, Bar-Ilan University, Ramat Gan 52900, Israel, Tel: +972-3-5318917, carmelia@mail.biu.ac.il

Human Resource Management, Winter 2005, Vol. 44, No. 4, Pp. 391–412
© 2005 Wiley Periodicals, Inc. Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/hrm.20081
39 HUMAN RESOURCE MANAGEMENT, Winter 2005
sive, high-quality stock of HR capital and
leverage it in such a way that it enhances or-
ganizational processes and outcomes. As
summarized by Wright, Dunford, and Snell
(2001), the resource-based view (RBV) of
competitive strategy (Barney, 1991; Werner-
felt, 1984) “has become by far, the theory
most often used within SHRM, both in the
development of theory and the rationale for
empirical research” (p. 703). However, schol-
ars continue to raise serious questions regard-
ing its standing within strategic manage-
ment. A key issue has concerned the model’s
testability. Some even have argued
that the RBV is a tautology (Pow-
Organizations with ell, 2001; Priem & Butler, 2001).
Much of the criticism of the the-
superior resources ory stems from the indirect and
are expected to often superficial manner by
which it is tested. According to
build competitive Barney (2001), studies have used
the RBV to “establish the context
advantages that of some empirical research—for
example that the focus is on the
enable them to
performance implications of
outperform their some internal attribute of a firm
—and are not really direct tests of
rivals. the theory developed in the 1991
arti- cle” (p. 46).
Notwithstanding the theoret-
ical and empirical sophistication of any
given study, a common shortcoming among
studies of competitive advantage, even
those not testing the RBV, is that competi-
tive advantage is inferred from the presence
of substantial resources and/or high per-
formance rather than direct measurement.
This inference is problematic because the
RBV distinguishes competitive advantages
from these other concepts (see Peteraf &
Bar- ney, 2003). After reviewing the theory
be- hind the application of RBV to human re-
source management, Wright et al. (2001)
observed:
While this theoretical story is appeal-
ing, it is important to note that ulti-
mately, most of the empirical studies
assess only two variables, HR practices
and performance . . . a major step for-
ward for the SHRM literature will be to
move beyond simply the application of
RBV logic to HR issues toward research
that directly tests the RBV’s core con-
cepts. (pp. 708–709)
We present two studies that directly test
the RBV’s core concepts by distinguishing
HR capital, its perceived distinctive value,
and organizational performance.
Theoretical Background
Hypotheses
and
SHRM perspective (for reviews, see Ferris,
The RBV has had much influence on the
Hochwarter, Buckley, Harrell-Cook, & Frink,
1999; Wright & McMahan, 1992; Wright,
McMahan, & McWilliams, 1994; Wright et
al., 2001). The RBV’s concepts and principles
can be traced to early studies in the field of
strategic management (for a review, see
Hoskisson, Hitt, Wan, & Yiu 1999). Accord-
ing to the RBV, organizations possess differ-
The heterogeneity of their resources ac-
counts for variations in the competitive ad-
vantage of particular organizations and,
hence, their long-term performance. Organi-
zations with superior resources are expected
to build competitive advantages that enable
them to outperform their rivals (Peteraf,
1993). The RBV posits that highly valuable
competencies serve to complement other
important factors, and they have the poten-
tial to enhance productivity. Rare competen-
cies are possessed by few, if any, major rivals
and are not readily available in the market.
Value and rareness have the potential to pro-
duce competitive advantage. Competencies
are inimitable because they are costly for
competitors to copy (Barney, 1991). The
firm-specific nature of competencies,
embed- ded in the way they interact with
other core elements, makes their duplication
by com- petitors very costly and complex.
Nonsubsti- tutability refers to the inability of
other or- ganizations to readily substitute for
the competency by using other resources
with- out incurring high replacement costs
(Lado & Wilson, 1994, p. 705). Competencies
that are highly valuable, rare, inimitable,
and non-
 How Human Resource Capital Enhances the Performance of Organizations
substitutable are predicted by the RBV to re-
sult in a sustainable competitive advantage
(Barney, 1991).
An organization can potentially derive a
core competence from its stock of HR
capital. The stock of HR capital is the
domain of po- tential core competence that
is of interest to our research. Core
competencies refer to “the particular skills
and resources an organiza- tion possesses
and the superior way in which they are used”
(Reed & DeFillippi, 1990, p. 90). That is,
core competencies are areas of competitive
proficiency and excellence that are not
relinquished by emerging competi- tion and
that distinguish the organization
strategically from its competitors (Leonard-
Barton, 1992). Unlike other important orga-
nizational resources (e.g., information tech-
nology and human resource practices), HR capital
is a potential domain in which valu- able
idiosyncratic characteristics can be de- rived
(Barney, 1991; Winter, 1988). As noted by Lado
and Wilson (1994), firm-specific human capital
enhances the productive ca- pacity of human
resources; it is not widely
available in the external labor market; and a
viable substitute is not available without in-
curring high costs.
The potential inimitability and value of
HR capital stock may be understood by con-
sidering its relationship with organization
strategy and the broader organization de-
sign. Such synergetic relationships create a
complex system that is imperfectly imitable
(Rivkin, 2000; Siggelkow, 2002). A
particular stock of human capital is valuable
only if it is aligned with design and strategy,
meaning that the attributes of the workforce
mutually reinforce the organization’s
culture, struc- ture, and strategy (see Wright,
Smart, & McMahan, 1995). As stated by
Delery and Shaw (2001), “A high KSA
[knowledge, skills, and abilities] work force
might not necessar- ily be a high
productivity work force [i.e., a competitive
advantage], if that work force is not highly
motivated or is not given the nec- essary
freedom and resources to do their jobs” (p.
175). Thus, management practices can
leverage HR capital by developing it in ways
that are uniquely suited to the particu- lar
organization’s design and strategy.
39
No matter how impressive an organiza-
tion’s stock of human capital may appear to
external observers, judging its value and
inim- itability is possible only if one
understands the complex and often subtle
means by which these resources leverage
other elements of the design and strategic
direction of the organiza- tion. Thus, from an
external perspective, the relationship between
an organization’s work- force and its success
is more causally ambigu-
ous than it is to the internal architects of the
design and strategy. The competitive advan-
tage inherent in an organization’s HRM capi-
tal therefore may best be gauged
by soliciting the assessments of in-
dividuals who can most accurately Management
evaluate the extent to which that
resource effectively leverages the practices can
organization design and strategy.
For example, Lepak and Snell leverage HR capital
(2002) measured the distinctive-
by developing it in
ness of HR capital by querying
managers about the uniqueness ways that are
(rareness, inimitability, nonsubsti-
tutability) and value of individu- uniquely suited to
als’ skills in particular employ-
the particular
ment modes (e.g., temporary
work) within their organizations. organization’s
When describing superior HR cap-
ital, scholars refer mostly to the design and strategy.
levels and types of education,
knowledge, skills, ideas, and expe-
rience (e.g., Farjoun, 1994; Hitt, Bierman,
Shimizu, & Kochhar, 2001).
HR Capital, Distinctive Value,
Performance
and
Hereafter, in lieu of sustainable competitive
ad- vantage, we use the label distinctive
value to reference top managers’
perspectives on the rareness, uniqueness,
inimitability, and non- substitutability of HR
capital and other in- tangible resources in
their own organiza- tions. That is,
distinctive HR capital is defined as the
unique, costly-to-copy, and nonsubstitutable
set of HR skills, knowledge, experience, and
abilities that is specific to and controlled by a
particular organization. Whether such
characteristics ultimately pro- vide a
sustainable competitive advantage is a
39 HUMAN RESOURCE MANAGEMENT, Winter 2005
challenging empirical question that only can
be addressed in the longer term and with
substantial experimental control. An organi-
zation may have strong HR capital even
though it has not yet developed a distinctive RBV, and yet their empirical focus was on the
value for this capital because it has not effec- main effects of a resource variable, such as
tively leveraged its design with its human re-
sources. Likewise, a superior HR system de-
sign may not prove effective until the design
strengths succeed in acquiring a high-quality amined the moderating effects of type of
stock of human capital through recruitment,
selection, socialization, training and devel-
opment, and other HR levers.
Thus, we suggest that organi-
zations can expect to reap per-
formance benefits only when
A strong stock of strong HR capital is combined tween HR capital and organizational finan-
with a distinct value gained from cial performance. Because the different sub-
how this capital is utilized. As
human capital is suggested by Boxall and Steen-
eveld (1999), “Human resource
necessary for advantages should be greater . . .
to the extent firms exploit the po-
above-normal tential of outstanding human
capital through superior manage- that explicitly tested the interaction between
performance, but
ment processes which facilitate
it is not sufficient.
such valuable ‘routines’ as [exam-
ples of processes they observed in
a particular professional industry]” (p. 460).
In summary, a strong stock of human
capital is necessary for above-normal per-
formance, but it is not sufficient. Given a
strong HR capital stock, the organization
also must effectively leverage it against the
design and strategic orientation of the or-
ganization. We suggest the following hy-
pothesis concerning the interaction between
these variables in predicting performance:
Hypothesis 1. There will be a significant
interac- tion between HR capital and the
distinctive value of HR capital in
predicting organiza- tional performance;
the positive relationship between HR capital
and organizational per- formance will be
stronger when the distinc- tive value of
HR capital is high.
Generalizability of the Model
A review of the literature located 14 studies
focused explicitly on the RBV, HRM-related
independent variables, and organizational
performance. Many researchers have argued
that they were theoretically grounded in the
HR practices, on performance (see Wright et
al.’s [2001] review). Other studies have ex-
business strategy (Hitt et al., 2001; Khatri,
2000; Koch & McGrath, 1996) and degree of
employee involvement in decision making
(e.g., Wright, McCormick, Sherman, &
McMahon, 1999) on the relationships be-
sample effects can be logically attributed to
the theoretical processes, these studies have
causes
helpedof toperformance.
advance the notion that the
Our review of the literature identified
posited resource variable(s) are plausible
only one study, King and Zeithaml (2001),
resource competencies and distinctive value
as formulated within the RBV. In a very rich
study that involved in-depth interviews of
multiple informants from 17 organizations,
results largely supported their model. We
tested whether these constructs interact in
predicting a wide range of performance in-
dexes in the manner formulated by the RBV
among a larger number of business organiza-
tions. We then attempted to replicate the
findings, which were revealed in the study of
business organizations, using a sample from
the public sector.
Private-Sector Analysis (Study 1)
Method
Sample and Procedures
A stratified random sample of Israeli organi-
zations was drawn from Israeli commercial
companies listed in Dun’s Guide to Israel’s
Top 15,000 Businesses (1998 edition). The
sam- pling frame was stratified by industry
and company size. The sampling frame
included both publicly traded and private
companies. Although testing the RBV within
a single in-
 How Human Resource Capital Enhances the Performance of Organizations
dustry has several advantages (Dess, Ireland,
& Hitt, 1990, p. 13), we sought to increase
the potential generalizability of our findings
by targeting a diverse sample of firms. Only a
few empirical investigations (e.g., Robins &
Wiersema, 1995) have studied companies
from a variety of industries. A questionnaire
was mailed to the chief executive officer
(CEO) or the president of the organization
and returned to a university address using a
self-addressed reply envelope. In a cover let-
ter, we asked the CEOs/presidents to ask
their senior executives to complete the sur-
vey if they were unable to do so. One hun-
dred and sixty-six surveys were returned,
yielding a response rate of 20.7%. Nine ques-
tionnaires were excluded from the analysis
due to substantial missing data. The mean
age of the organizations was 23.79 years
(standard deviation = 16.71), and their mean
size, measured by number of employees, was
243.10 (standard deviation = 809.46).
Among the respondents, 5.9% were female,
81.1% were CEOs (others held the position
of vice-presidents), 91.5% held at least a
graduate degree, the mean age was 48.06
(standard deviation = 7.70), and the mean
organizational tenure was 5.98 years (stan-
dard deviation = 4.90).
Measures
Dependent Variables
Organizational performance. Organizational
performance was measured using the follow-
ing single item indexes: (1) overall financial
performance—a measure that represents the
overall financial soundness of the organiza-
tion relative to its competitors, (2) return on
equity (ROE)—the ratio of net profit to the
average of beginning and year-end equity;
(3) quality of the organization’s products/
services—a measure that represents the de-
gree of the quality of the organization’s
products and/or services relative to its com-
petitors, and (4) customer satisfaction—a
measure that reflects the degree to which the
organization fulfills the customer’s needs
compared with its competitors. Corporate
leaders were asked to use these criteria to
rate
395
their organizations’ performance relative to
the performance of all competitors during
the current and previous year. Each item was
assessed on a five-point scale (1 = much
worse than competitors, 2 = worse than
com- petitors, 3 = as good as competitors, 4
= bet- ter than competitors, and 5 = much
better than competitors).
Independent Variables
HR capital. This measure was indexed ac-
cording to perceived levels of education,
training, work experience, and
skills of the entire employee
membership of the organization.
The mean age of
The four items ( = .81) were: (1)
“Our employees have suitable ed- the organizations
ucation for accomplishing their
jobs successfully”; (2) “Our em- was
ployees are well trained to accom-
23.79 years, and
plish their jobs successfully”; (3)
“Our employees hold suitable their mean
work experience for accomplish-
ing their jobs successfully”; and size,
(4) “Our employees are well
skilled professionally to accom- measured by number
plish their jobs successfully.” of employees, was
243.10
Distinctive value of HR capital. This measure
was assessed by querying leaders about four
conditions that Barney (1991) asserts must
be met for a resource to generate sustained
competitive advantage. These conditions
occur when the HR competencies have
value, and are rare, inimitable, and nonsub-
stitutable. Lepak and Snell (2002) used a
sim- ilar index to measure “value” and
“unique- ness” of human capital.
Respondents were asked to assess the HR
capital according to these four criteria, using
a separate item for each of the four
dimensions ( = .81). These items were each
rated on a nine-point con- tinuum. The
structure and the content of these items are
provided in Appendix A.
Control variables. The analyses controlled
for technological environment and organiza-
tional size. In order to control for extraneous
variance introduced by combining industries
with differing technological environments,
39 HUMAN RESOURCE MANAGEMENT, Winter 2005

we categorized companies into three

resolved through discussion. Size was meas-
indus- trial groups: high-tech, mid-tech,
ured as the number of employees in each or-
and low- tech. The high-tech group
ganization as reported in the Dun guidebook.
included biotech- nology and
pharmaceuticals, the mid-tech group
contained plastics and electronics Results
commerce, and the low-tech group
Based on factor analysis results, we averaged
included food and steel. The high-tech
the variables to form a composite index la-
subsample was composed of 51
beled Financial Performance; quality of the
organizations, and there were 33 and 74
or- ganization’s products/services and
organizations in the mid-tech and low-tech
customer satisfaction also were averaged to
groups, respectively. Technolog- ical
form a composite labeled Service
environment was represented in the
Performance.2
analyses using an interval variable coded
The HR capital and HR capital-DV vari-
with values of 0 (low-tech), 1 (mid-tech),
ables were mean-centered, as is suggested
and 2 (high-tech).1 Two researchers
for variables that are to be constituents of
familiar with the Israeli businesses
prod- uct terms (Aiken & West, 1991). To test
independently coded each company. They
Hy- pothesis 1, we first entered the control
agreed on 83% of the coding. The
vari-
remaining disagreements were

T A B L EI Principal Component Analysis with Varimax Rotation

Private-Sector Analysis (Study 1):

Item HR Capital HR Capital-DV

Educated employees 0.90 0.04

Experienced employees 0.84 –0.05
Trained employees 0.81 0.03
Skilled employees 0.60 0.03
HR value –0.03 0.85
HR rareness –0.02 0.84
HR inimitability 0.17 0.75
HR nonsubstitutability –0.05 0.75
Valid N = 157

Public-Sector Analysis (Study 2):

Educated employees 0.83 0.22

Experienced employees 0.90 0.14
Trained employees 0.87 0.19
Skilled employees 0.85 0.19
HR value 0.10 0.63
HR rareness 0.23 0.70
HR inimitability 0.03 0.73
HR nonsubstitutability 0.23 0.51
Valid N = 106
 How Human Resource Capital Enhances the Performance of Organizations 397

T A B L EI I Study 1 Means, Standard Deviations (SD), Alpha Reliabilities, and

Correlations
Variable Mean SD 1 2 3 4 5 6

1. Financial Performance 3.78 .61 (.70)

2. Service Performance 3.78 .56 .11 (.72)
3. HR Capital 3.78 .57 –.01 .33 (.81)
4. HR Capital-Distinctive Value 6.55 1.72 .01 –.13 .01 (.80)
5. Technological Environment 0.02 0.87 .14 –.14 .14 .13
6. Organizational Size 248.5 821.6 .17 .07 .12 .04 .03 —

N = 157.

Critical value of r for all variables = .17 (p < .05; two-tailed test).
Alpha reliabilities are in parentheses.

ables of organizational size and technologi-

For both performance outcomes, the product
cal environment (see Table III). HR capital
term effect was significant and positive in
and HR capital-DV were entered at the sec-
sign. The product variable explained 3% of
ond step. HR Capital was significantly re-
the variance in both financial performance
lated to service performance (p < .001), but
and service performance. As shown in Fig-
it was not related to financial performance.
ures 1 and 2, among organizations that re-
HR capital-DV was not significantly related
ported low HR capital-DV, the perceived
to either performance index.
quality of the organization’s stock of HR
The HR capital X HR capital-DV product
Capital had virtually no relationship with
term variable was entered at the next step.
service performance and it had a negative re-

T A B L EI I I Study 1 Results of Hierarchical Regression Analysis: Effects of HR

Capital and HR Capital-DV
Financial Performance Service Performance
Variable Step 1 Step 2 Step 3 Step 1 Step 2 Step 3

Technological Environment .14* .15 .17* –.13 –.17* –.15*

Organization Size .16* .17* .15* .07 .04 –.02
HR Capital –.07 –.09 .35*** .33**
HR Capital – (DV) –.01 –.01 –.13 –.12
HR Capital  HR Capital – DV .16* .17*

R2 .05 .05 .08 .02 .16 .19

R2 .05 .00 .03 .14 .03
2
F for R 3.89* .43 4.23* 1.92 12.43* 5.71*
Degrees of freedom 2, 153 4, 151 5, 150 2, 155 4, 153 5, 152

DV = distinctive value.
* p < .05, ** p < .01, *** p < .001.
39 HUMAN RESOURCE MANAGEMENT, Winter 2005
FIGURE 1. Interaction Between HR Capital and Distinctiveness in HR Predicting Service Performance
(Private-Sector Analysis)
lationship with financial performance.
Among organizations that reported low HR
capital-DV, HR capital was positively associ-
ated with the performance measures. These
patterns indicate that Hypothesis 1 was sup-
ported for both outcomes.
Public-Sector Analysis (Study 2)
The second study was conducted slightly
more than one year after Study 1. In Study 2,
we sought to test the generalizability of the
hypothesized model to a distinct population
of organizations seldom addressed in studies
of competitive advantage. Specifically, the
study investigated whether HR capital and
distinctive value of HR capital are also of im-
portance to public-sector organizations, and
whether these variables interact as hypothe-
sized in the first study.
Although it is not widely portrayed in
the media, local-level governmental authori-
ties are in competition with one another.
Economic competition among local govern-
mental authorities (e.g., counties and munic-
ipalities in the United States, prefectures in
Japan), hereafter labeled “local authorities,”
is driven by the desire to increase revenues
and decrease costs in order to enable more
policy options. To generate additional rev-
enue, local authorities seek to attract busi-
nesses or development projects and
residents with high socioeconomic status.
Intergov- ernmental competition is reflected
by a
 How Human Resource Capital Enhances the Performance of Organizations 39

FIGURE 2. Interaction Between HR Capital and Distinctiveness in HR Financial Performance

(Private-Sector Analysis)

growing use of incentives, such as tax breaks described how public-sector managers in the
and public financing of private projects. United States face a similar dynamic of
Israel’s local authorities are not significantly change that demands more astute manage-
different in operation, strategy, or adminis- ment of human capital.
tration from their American counterparts
and those elsewhere in the world. The com-
petition among local governments pressures Method
their political leaders to deliver higher-value
services to the public (see Carmeli & Tishler, Sample and Procedures
2004b). Hecht (2002) provided evidence
The target population consisted of 263 local
about the increasing competition and other
authorities in Israel. The Israeli municipal
sources of environment uncertainty among
structure is organized into three legal sta-
Israel’s local authorities. He also described
tuses that define forms of local authorities:
how local authorities varied significantly in
municipality (city), local council, and re-
their quality of human capital, and he
gional council. Municipalities and local
showed that their leaders have accordingly
councils have similar traits and power. Both
initiated significant organizational changes
have responsibility for one smaller settle-
using the private sector as a model for
ment, but the local councils tend to have a
change in response to increasing uncer-
smaller jurisdiction than municipalities. Re-
tainty. Muldrow, Buckley, and Schay (2002)
gional councils have responsibility for more
40 HUMAN RESOURCE MANAGEMENT, Winter 2005
than one settlement. One hundred and
twelve local authorities participated, repre-
senting an overall response rate of 42.6%. Of
the target population, 24 (of 53 in the na-
tion—45.3%) were regional councils, 63 (of
148 in the nation—42.6%) were local coun-
cils, and 25 (of 62 in the nation—40.3%)
were municipalities. Six localities were ex-
cluded from the analyses due to missing data
on one or more of the analysis variables, and
thus the final sample included 106 organiza-
tions. The average size of the local authori-
ties was 20,735 residents.
Control variables were size
(number of residents), locality
statuses (municipality, local or
re-
We used several gional council), and financial per-
formance variables obtained from
measures to reports of the Israel Central Bu-
evaluate the reau of Statistics, using data of
the Social Science Data Archive
performance of the (SSDA) of the Hebrew University
of Jerusalem, and from an Israel
local government government report (Ministry of
the Interior, 2001). We collected
authorities.
original survey data for the re-
maining variables by mailing sur-
veys to the elected heads (may-
ors) of the local authorities. These surveys
were returned to a university address, using a
self-addressed reply envelope. These vari-
ables are HR capital, HR capital-DV, and or-
ganization performance in education, wel-
fare, and emergency services. Respondents
were assured their responses would remain
anonymous and confidential.
Measures
We used several measures to evaluate the
performance of the local government au-
thorities. These measures (financial
perform- ance, educational, welfare, and
emergency services) reflect key criteria upon
which local government authorities are
evaluated. Finan- cial performance was
measured using the fol- lowing variables
collected and reported by the Ministry of the
Interior (2001):
1. Self-income ratio: This is the ratio be-
tween all the income generated through
activities of the authority and the overall
income of the regular budget. Self-in-
come consists of all the income (taxes,
grants, and fees) that the local authority
directly collects from the residents, busi-
nesses, and other assets within its juris-
diction. Income of the regular budget
consists of property taxes, fees, sur-
charges, general grants, finances from
ministries, and single sources of income
(Carmeli, 2002; Hecht, 1997). Our sam-
ple mean self-income ratio of 44.6% ap-
proximated the entire population of
local authorities in Israel that year
(41.9%).
2. Collecting efficiency ratio: This is the ratio
between the total amount of funds col-
lected and the total amount of munici-
pal tax that could be collected. The
funds collected consist of property tax,
water, and drainage charges. The total
amount of funds remaining after collec-
tion consists of accumulated debt from
earlier years, and the current year debt
minus exemptions, discounts, and the
cancellation of self-incomes (Carmeli,
2002; Hecht, 1997). Our sample mean
collecting efficiency ratio was 59.2%,
which closely matches the entire popu-
lation’s mean of 58.0%. These latter two
indexes provide a strong representation
of the overall financial performance of
Israel’s local authorities (see Carmeli,
2002).
The education services measure included
eight items ( = .91) representing the quality
of the education within a local authority. A
sample item is “rate of students quitting be-
fore completing a twelve-year education.”
Welfare services was measured with four
items (a = .89) evaluating the municipal
welfare service system. A sample item is
“care for poor residents.” Emergency services
consisted of three items ( = .71) assessing
the service in cases of emergency.
Respondents rated items for each of the
latter three variables over the past and
current year, using a five- point scale: 1 =
much worse than competi- tors (other local
government authorities), 2 = worse than
competitors, 3 = as good as com-
 How Human Resource Capital Enhances the Performance of Organizations 401

petitors, 4 = better than competitors, and 5 =
much better than competitors.
We used the same scales as those used in
the private-sector analysis (Study 1) to meas-
ure HR capital ( = .90) and distinctive
value of HR capital (HR Capital-DV; 
= .72). The HR capital-DV items used a five-
point (versus nine-point) interval scale for
this study, how- ever. The analyses controlled
for size (num- ber of permanent residents)
and the locality status (municipality, local
council, and re- gional council). The number
of residents better indexes the scale of
operations of a local authority than
employee membership size (Razin, 1999).
Locality type was indexed by an effect-coded
(Cohen & Cohen, 1983) variable. Local
councils were coded –1, and the
municipalities and regional councils were
coded as 0 and +1, respectively.
Results
Based on factor analysis results, 3 collecting
efficiency ratio and self-income ratio were
averaged to form a composite index labeled
Financial Performance. The number of perma-
nent residents (size of the community) cor-
related positively and significantly with fi-
nancial performance (p < .05), but not the
other performance indexes (see Table V).
This finding is consistent with results of pre-
vious studies showing that, compared to
smaller public authorities in Israel; larger
local authorities have better financial stand-
ing (e.g., Razin, 1999).
We first entered the control variables of
size and type of local authority (see Table V).
These control variables explained between
2% (welfare service performance) and 6% (fi-
nancial performance) of the variance in per-
formance outcomes. HR-capital and HR cap-
ital-DV were entered at the next step. HR-
capital was significantly related to all four
performance indexes (p < .01 to .001).
As in the private-sector analysis (Study
1), the HR capital and HR capital-DV vari-
ables were mean-centered. The HR capital X
HR capital-DV product term variable was
en- tered at the second step to test
Hypothesis 1. For three of the four
performance outcomes, the product term
effect was significant and positive in sign.
The significant product term effects ranged
in magnitude from explaining an additional
3% of the variance in financial performance
(p < .05) to an additional 8% of the variance
in emergency service perform- ance (p
< .001). Welfare service performance was the
only index for which the product term effect
was not statistically significant (p
< .17).
The cut values for the high and low states
on the moderator variable (HR capital-DV)

T A B L EI V Study 2 Means, Standard Deviations (SD), Alpha Reliabilities, and

Correlations
Variable Mean SD 1 2 3 4 5 6 7 8

1. Financial Performance 0.00 .89 (.76)

2. Education Service 3.54 .79 .57 (.91)
3. Welfare Service 3.48 .80 .40 .49 (.89)
4. Emergency Service 3.22 .81 .45 .56 .49 (.71)
5. HR Capital 3.46 .71 .23 .50 .27 .42 (.90)
6. HR Capital-DV 3.56 .64 .17 .27 .10 .25 .42 (.72)
7. Type of Local Authority –0.36 .81 .15 .16 .10 .06 .07 .15 —
8. Size (No. Residents) 20356 39634 .20 –.11 .08 .06 –.11 .03 .25 —

N = 106; DV = distinctive value.

Critical value of r = .20, (p < .05; two-tailed test).

 402
HUMAN RESOURCE MANAGEMENT, Winter 2005
T A B L EV Study 2 Results of Hierarchical Regression Analysis: Effects of HR Capital and HR Capital-DV #

Education Welfare Emergency

Financial Performance Service Performance Service Performance Service Performance

Variable Step 1 Step 2 Step 3 Step 1 Step 2 Step 3 Step 1 Step 2 Step 3 Step 1 Step 2 Step 3

Type of Local Authority .18 .20* .19* .18 .13 .13 .12 .11 .11 .06 .02 .20
Size (Residents) .11 .08 .08 .00 .00 .00 .00 .00 .00 .00 .00 00
HR Capital .22** .30** .52*** .63*** .33** .40** .46*** .61***
HR Capital-DV .06 .03 .06 .02 –.05 –.08 .09 .04
HR Capital  HR Capital-DV .19* .40** .26 .55***

R2 .06 .12 .15 .03 .27 .32 .02 .10 .11 .03 .23 .29
2
R .06 .06 .03 .03 .24 .05 .02 .08 .02 .03 .19 .08
F for R2 3.24* 3.88* 3.80* 1.68 16.66*** 6.58** 1.06 4.16* 1.98 1.55 12.34*** 11.42***
Degrees of freedom 2, 104 4, 102 5, 101 2, 102 2, 100 1, 99 2, 102 2, 100 1, 99 2, 102 2, 100 1, 99

DV = distinctive value.
# Coefficients are unstandardized.

* p < .05, ** p < .01, *** p < .001.

 How Human Resource Capital Enhances the Performance of Organizations
were again plus and minus one standard de-
viation from the mean. Figure 3 shows the
interaction patterns predicting financial per-
formance. HR capital had little relationship
with financial performance when HR capital-
DV was low, whereas there was a positive
trend when HR capital-DV was high. Similar
patterns were observed for education and
emergency services performance (see
Figures 4 and 5). Thus, Hypothesis 1 was
supported for three of the four performance
measures.
Discussion
Theoretical Interpretations
Much previous research has argued that
there are ideal kinds of human resource
prac- tices (e.g., training, performance
appraisal) that are universally advantageous
to organi-
FIGURE 3. Interaction Between HR Capital and Distinctiveness in HR Capital Predicting Financial
Performance (Public-Sector Analysis)
40
zations (e.g., Huselid, 1995). Others have
drawn from a contingency perspective (e.g.,
Wright & Snell, 1998), as we do in this arti-
cle, in suggesting that effective SHRM in-
volves choosing the right HR practices for
the organization’s particular design and
strategy (see Delery & Doty, 1996). The prob-
lem, as noted by Wright et al. (2001), is that
“no attempt has yet been made to empiri-
cally assess the validity of the proposition
that HR practices . . . are path dependent or
causally ambiguous, nor whether they are ac-
tually difficult to imitate” (p. 708). The same
can be said of the organization’s stock of
human resource capital, which has become
the focal resource in SHRM research (versus
HR policies and practices) only in the more
recent studies. Recently, researchers have
also pointed out the challenge of using
quantitative methods in testing the core
40 HUMAN RESOURCE MANAGEMENT, Winter 2005
FIGURE 4. Interaction Between HR Capital and Distinctiveness in HR Capital Predicting Education Services
Performance (Public-Sector Analysis)
concepts of the RBV (see Hoskisson et al.,
1999). One of the major difficulties has been
to measure the concepts in a way that en-
ables a full test of the model, rather than in-
ferring distinctive value or competitive ad-
vantage from the presence of substantial
resources or sustained high performance.
Similar to Carmeli and Tishler’s (2004a,
2004b) attempt to overcome this difficulty,
we followed Robins and Wiersema’s (1995)
suggestion to operationalize the theory by
adopting approaches rooted in the behav-
ioral sciences. Our results show that a re-
source domain (HR capital) and distinctive
value that can be derived from this resource
(i.e., HR capital-DV) are distinct constructs
when assessed by the opinions of top deci-
sion makers.
Questions concerning the respective
roles of HR policies and practices and of HR
capital have motivated much recent SHRM
research. However, HR capital has become
increasingly central to research in this litera-
ture. This increased interest may derive
partly from the debate over the potential of
HR policies to be a source of value creation.
Compared to HR policies and practices, a
competitive advantage in HR capital is more
difficult for competitors to imitate. Our find-
ings suggest that high-quality HR capital
may not be a sufficient condition to advance
the performance of an organization. If our
findings represent the actual underlying
rela- tionships, it is the quality of HR capital
com- bined with the strategic use of that
resource that influences organizational
outcomes such as service performance
(customer satis- faction, quality of products)
and financial performance in commercial
organizations and financial performance and
services effec- tiveness in public-sector
organizations.
Among the commercial organizations,
we observed that financial and service per-
formance criteria were substantially higher
 How Human Resource Capital Enhances the Performance of Organizations
FIGURE 5. Interaction Between HR Capital and Distinctiveness in HR Capital Predicting Emergency
Services Performance (Public-Sector Analysis)
in magnitude when leaders perceived that
the organization not only possessed strong
HR capital, but that it also leveraged this re-
source in a highly effective manner such that
it was rare, valuable, difficult to imitate, and
difficult to substitute. Public-sector
organiza- tions (local authorities in Israel)
demon- strated essentially the same trends
as the commercial organizations. With the
excep- tion of the two financial performance
in- dices in the private-sector analysis,
organiza- tions in both studies tended to
exhibit the lowest performance relative to
other organi- zations when their leaders
perceived a dis- tinctive value derived from
their HR capital and at the same time
perceived that their HR capital stock was
low.
Causal ambiguity is inherent within the
definition of distinctive value, so it is con-
ceivable that leaders might themselves mis-
interpret cause and effect in their assess-
40
ments. We addressed the causal ambiguity
issue by conducting analyses that posited HR
capital-DV as the dependent variable and the
performance indexes within the product
term in its place (e.g., financial performance
X HR capital). None of the HR capital X per-
formance blocks was significant in predict-
ing HR capital-DV. Nevertheless, one seeking
to test more conclusively the construct va-
lidity of such leader assessments of distinc-
tive value might conduct a longitudinal
study. This study could obtain leader assess-
ments and tracks changes over time, seeking
to identify sustained linkages between evalu-
ations of distinctive value and organizational
performance criteria. Long-term prospective
studies could address important issues, such
as the role of time in the development of dis-
tinctive value. Ideally, such studies would
use multiple high-level respondents from
each organization. When multiple respon-
40 HUMAN RESOURCE MANAGEMENT, Winter 2005
dents have been used in past studies (e.g.,
King & Zeithaml, 2001), sample size has
been too low to be confident about general-
izing to a population of organizations.
Although we focused on the stock of
human capital rather than on particular HR
function practices, we diverged from the uni-
versalistic HR practices view only in our em-
phasis. HR practices certainly serve a critical
role in ensuring effective utilization of
human resources. Effective HR practices are
also needed to generate quality HR capital,
but this does not in itself assure that this re-
source will be applied produc-
tively in supporting or develop-
A key managerial ing other core competencies (see
Delery & Shaw, 2001). By distin-
challenge is how
guishing empirically between HR
to design a capital and its distinctive value
and finding that these two factors
human resource interact in predicting perform-
ance, the present study is consis-
system that tent with a contingency perspec-
creates a tive that argues having high-
quality human capital alone is not
distinctive value sufficient to generate dis- tinctive
value from these re- sources. In
for the the following section,
organization.
we discuss the role of HR practices and other
elements of HR design in developing distinc-
tive value from HR capital.
Managerial Implications
A high level of HR capital is likely to
advance organizational perform- ance when
special competencies exist for un-
derstanding the opportunities and con-
straints of utilizing this capital, along with
the initiative to put this knowledge into ac-
tion. HR capital that is scarce, inimitable,
and nonsubstitutable (i.e., distinctive) con-
tributes to the overall performance of busi-
ness firms and public-sector organizations.
Below, we discuss how the findings have
practical implications for staffing processes,
the development of high-involvement work
processes, and senior managers’ assessments
of the fit between HR capital and HR pro-
grams, processes, and practices.
In an attempt to develop strong HR capi-
tal, HR managers usually focus their recruit-
ment and selection activities on hiring new
people with strong knowledge, skills, and
abilities. Strong socialization practices that
emphasize the norms and values that under-
lie organization culture should also figure
prominently in plans to develop the firm’s
HR capital. Therefore, selection criteria must
also include the willingness of newcomers to
embrace the firm’s values, norms, and con-
duct (i.e., culture) to enable channeling their
KSAs in the most appropriate direction. An
internal labor market (ILM) may also prove
vital for many larger organizations. Explicit
career path, employee development, and
succession planning activities not only facil-
itate building on existing talent strengths,
but they are also key to retaining talent and
motivating more able employees to seek
both general and firm-specific development
goals. A well-managed selection process
makes advancement opportunities and the
developmental paths to them very clear to
employees. This selective advancement
process can enhance the organization’s abil-
ity to retain and more fully utilize those em-
ployees who demonstrate a higher level of fit
in the organizational system. The perform-
ance management system, in turn, plays an
important role in identifying knowledge and
performance deficiencies that require tar-
geted training and development programs
and the individuals most suitable for partic-
ular career paths.
A key managerial challenge is how to de-
sign a human resource system that creates a
distinctive value for the organization. Evi-
dence suggests that implementing high-in-
volvement HR systems (often called high-
performance systems) is a major step toward
utilizing the organization’s human capital in
a manner that leverages other aspects of the
organization’s design. A set of consistent and
complementary HR strategies is formulated
 How Human Resource Capital Enhances the Performance of Organizations
in high-involvement HR systems. For exam-
ple, the reward system must be focused on
reinforcing behavior that is both consistent
with the organizational culture and pro-
motes organizational goals. Depending on
the rest of the organization’s design and con-
text (e.g., environment, strategy, technol-
ogy), this may involve implementing skill-
based pay programs and seniority systems,
reconsidering the mix between fixed and
variable pay, and deciding whether to reward
skill acquisition and credentials more or less
than performance. Such high-involvement
HR systems enable the human capital pool
to be utilized in a more value-producing
man-
ner and provide for greater fit between oper-
ations and the broader organizational envi-
ronment (Delery & Shaw, 2001).
Human resource levers (e.g., reward sys-
tems, recruitment practices) that are inter-
nally consistent and aligned with the organi-
zation’s technology, culture, and strategy (see
Delery, 1998; Rivkin, 2000; Siggelkow, 2002)
contribute to overall organizational perform-
ance. Members of high-involvement systems
tend to be highly skilled, knowledgeable, in-
volved, committed, less likely to quit, and
motivated to exert their best (see
Appelbaum, Bailey, Berg, & Kalleberg, 2000;
Batt, 2002; Delery, 1998), but depending on
the organi- zational context, a high-
involvement work system may sometimes be
less suitable than other internally consistent
HR systems.
HR professionals play a key role in work-
ing with line managers to identify strategies
for developing human capital in a manner
that is very relevant to the business activities
of their units. Importantly, our study results
indicate that this effect of leveraging HR
cap- ital is not limited to commercial
organiza- tions; rather, it extends even to
nonprofit governmental authorities. As we
explained earlier, organizations such as local
govern- mental authorities are also
concerned about developing and
maintaining competitive ad- vantage, as they
compete with one another for business
investment and private residents. It is
possible, then, that the RBV formulation
may be less relevant to organizations such as
federal authorities that maintain a monopoly
position in their areas of service.
40
One way to address this managerial chal-
lenge of creating distinctive value is to care-
fully examine the extent to which human re-
source policies and practices are consistent
with one another. HR policies also must be
aligned with the strategy, culture, and tech-
nology of the organization as well as with
the broader environmental characteristics
such as demands for innovation or customer
responsiveness. Thus, an assessment of the
distinctive value of HR requires a thorough
analysis of these context factors to determine
the organization’s critical HR success factors
(Baron & Kreps, 1999).
Critical HR success factors are
the translations of strategic and Our study results
situational demands into specific
indicate that this
HR imperatives (e.g., cooperative
behavior within and between effect of leveraging
teams). Complementarities of HR
elements are better ensured when HR capital is not
HR system changes are made
with the same critical HR success limited to
fac- tors in mind. For example, if commercial
an organization identifies
conscien- tiousness about safety organizations;
to be a crit- ical HR success
factor, then the practices rather, it extends
associated with recruit- ment and
even to nonprofit
selection, training and
development, job design, incen- governmental
tives, and performance manage-
ment can be mutually redesigned authorities.
in a manner that reinforces safety
consciousness.
HR practices often conflict
with one another, such as when incentives
are inconsistent with appraisal criteria and
training. Eliminating conflicts alone is not
likely to create distinctive value. As noted by
Dreher and Dougherty (2001), subtle
changes in one or two aspects of the em-
ployee’s environment tend to change behav-
ior very little. Meaningful behavioral change
that produces distinctive value is more likely
to occur when all elements of the HR system
support one another in encouraging desired
behaviors. This synergy is the cornerstone of
creating a sustainable competitive advantage
from HR.
Senior managers are able and motivated
to be informed about how different HR
40 HUMAN RESOURCE MANAGEMENT, Winter 2005
levers may or may not leverage one another
and other organizational resources and capa-
bilities toward achieving desired outcomes.
As stated by Barney (1991), “managers are
important in this [the RBV] model, for it is
managers that are able to understand and
de- scribe the economic performance
potential of a firm’s endowments” (p. 117).
Evaluating
the value and inimitability of an
…the major SHRM organization’s stock of human
capital is possible only if one un-
task of top derstands the complex and often
subtle means by which these as-
managers is to
sets leverage other elements of
align various the design and strategic direction
of the organization. A top man-
interests and ager’s assessment of his or her or-
ganization’s distinctive value in
resources within
HR capital may be expected to
their organizations take account of current HR prac-
tices as well as alternative prac-
and to develop a tices that could lead to better uti-
lization of the HR capital. This
talented and assessment is often a great chal-
committed lenge, however, because changes
in competitive and technological
workforce.
environments limit one’s ability
to make causal connections be-
tween changes and operational outcomes.
As suggested by Boxall (1996), the major
SHRM task of top managers is to align vari-
ous interests and resources within their or-
ganizations and to develop a talented and
committed workforce. Much has been writ-
ten about the potential for HR professionals
to contribute to developing and implement-
ing business and corporate strategies (see
Brockbank, 1999). HRM generalists can con-
tribute more value to their organizations by
working with senior managers to gauge their
assessments of the broader context and to
elaborate and structure these assessments
using the generalists’ broad technical knowl-
edge of the organizational architecture. Gen-
eralists also help to determine the implica-
tions of these assessments for critical HR
success factors. They must gain senior man-
agement support to implement what may
amount to significant changes in the HR sys-
tem, especially if the firm needs extensive
work to establish internal consistency and fit
among HR design elements and critical HR
success factors. Lower-level managers must
also be involved in the planning of HR re-
design so they can more fully appreciate
HR’s contributions to their operations.
Another conceptual task for senior man-
agers is to determine whether the HR system
design, per se, should be the focus of change,
or rather that the emphasis should be on ac-
quiring higher-quality HR capital. Twenty-
one percent of organizations in the commer-
cial sample and 16% of organizations in the
public-sector sample scored both above the
median on distinctive value from HR capital
and below the median on HR capital. It is
possible that in these organizations, leaders
were more concerned about how the human
capital was being used than they were about
the stock of qualities of skills and abilities
currently available.
This type of situation may be most
amenable to the contributions of a highly
skilled and well-resourced HR function that
can attract, select, and develop a workforce
with desirable knowledge, skills, and abilities.
The success of such efforts is better assured
when top management has a clear vision
about how to match new and existing work-
ers with other resources. Future research that
takes a finer-grained approach to understand-
ing organizations’ competitive positions in
terms of HR capital might reveal, for example,
that organizations in this position are in a
growth mode and expect greater returns from
their distinct competencies in the future.
Conclusions
Our findings support the RBV as it applies to
HR capital. More specifically, these findings
suggest that organizations seeking to im-
prove performance through increased HR
capital are more likely to succeed when they
ensure that newly acquired or developed HR
capital fully utilizes the existing organiza-
tional design in a manner that cannot be
readily substituted by alternative resources,
is very unique, and cannot easily be applied
to a different organizational design with the
same level of effectiveness. This contingency
relationship may extend beyond the com-
 How Human Resource Capital Enhances the Performance of Organizations 40

mercial organizations typically studied in
RBV research to public-sector organizations.
It appears that the RBV can be tested explic-
itly (i.e., explicit measurement of the core
constructs and explicit model specification)
in a relatively large and heterogeneous sam-
ple of organizations, provided that top lead-
ers assess parsimonious indexes of the con-
structs. HR professionals should work with
senior managers to structure and elaborate
their assessments of the organizational
archi- tecture and the organizational context
to-
ward developing HR designs that will build
distinctive value.
Acknowledgment
The authors equally contributed to this article.
We wish to thank Frank Linnehan, Jason
Shaw, the associate editor, and three
anonymous re- viewers for their helpful
comments and sugges- tions. We also
benefited from comments of the seminar
participants at the Graduate School of
Business Administration at Bar-Ilan University.

ABRAHAM CARMELI is a faculty member in the Graduate School of Business Adminis-

tration and the Department of Political Science (joint appointment) at Bar-Ilan
University. He received his PhD from the University of Haifa. His current research
interests include complementarities of intangible resources, top management teams,
organizational pres- tige and image, and individual behaviors at work.

JOHN SCHAUBROECK is a professor in the Department of Management of the LeBow

College of Business at Drexel University. He received his PhD from Purdue University.
His research interests are related primarily to cross-cultural and psychological issues
as- sociated with leadership and strategic human resource management and work-
related stress and employee health. He serves as an associate editor of Organizational
Behavior and Human Decision Processes.

NOTES
1. When only two dummy variables were formed
(high-tech and mid-tech [1] compared to low-
tech [0]), there was no change in the results.
3. The HR capital and the perceived distinctive value
2. The HR capital and the perceived distinctive value
of HR capital (HR capital-DV) items were
subjected to a principal components factor
analysis with Vari- max rotation. This analysis
produced two factors that together explained
64.2% of the overall item variance. The first
factor, comprised of the HR capi- tal items
(eigenvalue = 2.65), had factor loadings ranging
from .60 to .90. HR Capital-DV items com- prised
the second factor (eigenvalue = 2.49), with item
loadings ranging from .75 to .85 (see Table I).
There was no correlation between the two com-
posite scales (r = .03, see Table II). A separate
factor analysis of the four performance indexes
produced a two-factor solution that together
explained 78.21% of the overall item variance. The
results of this factor analysis indicated that return
on equity and overall financial performance
loaded on the same factor (eigenvalue = 1.73).
Quality of the or-
ganization’s products/services and customer satis-
faction loaded on a separate factor (eigenvalue =
1.39), with item loadings ranging from .86 to .90.
of HR capital (HR capital-DV) items were subjected
to a principal components factor analysis with
Varimax rotation. This analysis produced two factors
that to- gether explained 61.35% of the overall item
vari- ance. The first factor, comprised of the HR
capital items (eigenvalue = 3.64), had factor
loadings rang- ing from .83 to .90. HR Capital-DV
items comprised the second factor (eigenvalue =
1.27), with item loadings ranging from .51 to .73
(see Table I). Unlike Study 1, there was a significant
correlation between the two composite scales (r =
.42, see Table IV). A separate factor analysis of the
performance vari- ables explained 80.7% of the
overall item variance. Collecting efficiency ratio and
self-income ratio loaded on the same factor
(eigenvalue = 1.61). These two ratios were therefore
averaged to form a com- posite index we labeled
“Financial Performance.” The number of residents
(size) correlated positively and significantly with
financial performance (p <
410 HUMAN RESOURCE MANAGEMENT, Winter 2005
.05), but not the other performance indexes (see
Table V). This is consistent with results of previous
studies showing that, compared to smaller public
authorities in Israel; larger local authorities had bet-
ter financial standing (e.g., Razin, 1999). A separate
principal components factor analysis was run to con-
duct Harman’s one-factor test (Podsakoff et al.,
2003). This analysis included all variables except
local authority size and type. Six factors had eigen-
values greater than 1.0, and based on the loading
matrix, all the variables corresponded to the com-
posite factors that were used in the analysis (i.e.,
HR capital, HR capital-DV, financial performance,
educa- tion services performance, welfare services
perform- ance, and emergency service
performance).
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412 HUMAN RESOURCE MANAGEMENT, Winter 2005

A P P E N D I XA Survey Items Measuring the Distinctive Value of HR Capital

Respondents were asked as follows:

Please consider the resources and capabilities your firm owns and/or possesses (e.g., culture, con-
trol, labor relations, managerial competencies, relations with public stakeholders, strategic planning
capability, human resource capital) and rate the resources according to their value, rarity, inimitabil-
ity, and nonsubstitutability. Please assess:
1. The value of HR capital (i.e., how much it contributes to the organizational success) from 1 =
most valuable to 9 = least valuable resource.
2. The rarity of HR capital (i.e., how rare and unique is the firm’s HR capital) from 1 = very scarce
to 9 = not scarce at all.
3. The degree to which the HR capital is inimitable (i.e., the extent to which the firm’s HR capital
is costly-to-copy by the competitors) from 1 = highly inimitable to 9 = highly imitable.
4. The degree to which the HR capital is nonsubstitutable (i.e., how many competing firms already
have strategic equivalent HR capital to the one owned/possessed by your firm) from 1 = substi-
tutable to 9 = nonsubstitutable.