Strategy, Human Capital Investments, Business-Domain Capabilities, and Performance: A Study in the Global Software Services Industry

Joydeep Chatterjee, University of Washington, Bothell

Strategic Management Journal, April 2016

Abstract: In knowledge-based industries, continuous human-capital investments are essential for firms to enhance capabilities and sustain competitive advantage. However, such investments present a dilemma for firms, because human resources are mobile. Using detailed project-level operational, financial, and human-capital data from a leading multinational firm in the global IT services industry, this study finds that deliberate investments in improving general human capital can help firms develop superior capabilities and maintain high profits. This paper identifies two types of capabilities essential for success in this industry—technological and business-domain capabilities—and provides empirical evidence justifying such investments. Theoretical and practical implications of capability-seeking general human-capital investments are discussed.

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