strategic intellectual capital development

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Human Resource Development Review Vol. 7, No. 3 September 2008 270-291DOI: 10.1177/1534484308321360 2008 SAGE Publications

Foundations and Philosophy of HRD

Strategic IntellectualCapital Development:A Defining Paradigm for HRD?

ELWOOD F. HOLTON III

BOGDAN YAMKOVENKO

Louisiana State University

The performance paradigm of human resource development (HRD) prac-tice has served the field well, particularly in enhancing the relevance andimpact of HRD interventions. However, in this article, it is argued that the

time has come for a new defining paradigm to advance the field of HRD toa higher level of organizational impact. This article proposes that strate-

gic intellectual capital development (SICD) should be that new paradigm.The argument for SICD is built by merging two streams of research. First,the development of human capital theory is traced through to its expanded

conceptualization of intellectual capital theory. Second, the argument fora strategic approach is built off the strategic human resource management

literature. The SICD perspective is offered as a robust and broad concep-tualization that is essential for HRD to provide organizations the intellec-tual horsepower to achieve their strategic objectives.

Keywords: intellectual capital; human capital; strategic human capital; strategic

HRM; HRD

We begin by suggesting that the field of human resource development needs anew paradigmatic focus to continue its growth and evolution. The growth of

human resource development (HRD) in the 1990s can be attributed in part to

the emergence of the performance paradigm of HRD which replaced the older

education/training paradigm. The performance paradigm directly addressed a

crucial issue at the timethe issue of relevance. That is, the field needed to

demonstrate its relevance to organizational performance if it was to be any-

thing more than a staff specialty with limited impact. Fortunately, we think it

can be said that the field developed the theories, methods, and practices to

enable HRD professionals to directly impact performance. Whether thosepractices have been widely adopted is another question, but we argue that the

models and methods that emerged have been generally found to work.


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Holton, Yamkovenko / INTELLECTUAL CAPITAL DEVELOPMENT 271

Holton (2003) argued that much of recent HRD research would be classi-

fied as what Kuhn (1996) called normal science, characterized by incremental

gains in knowledge. Although valuable, such normal science is not engaged in

the search for new paradigms. Holton (2003) further argued that any new par-

adigm(s) for HRD can only come after very deliberate and systematic efforts

to break the chains of normal science. He challenged HRD scholars to

define the next paradigm instead of waiting for practitioners to define it.

Holton (2003) also posed three research questions that should drive a

search for a new paradigm:

1. What approaches to HRD practice will enable organizations to prosper in thedecades after 2010 and beyond?

2. What fundamental shifts will need to occur in order for HRD to be a strategicpartner in the most successful organizations in the highly competitive globaleconomy?

3. What paradigms enable HRD to drive good organizations to greatness?

The purpose of this article is to stretch beyond the limits of normal science

and propose a new paradigmatic focus for HRD that we believe answers these

three questions. We believe that the time is right for the field of HRD to con-

sider an even broader focus. On the one hand, we believe that organizations are

continuing to demand even more of HRD professionals as knowledge and

expertise continue to grow as the key source of competitive advantage. We also

believe that the performance paradigm as typically practicedis inadequate to

meet these needs. Although performance-based HRD theory suggests a broad

strategic role for HRD, in practice we fear that performance-based HRD is still

seen largely as a more micro-level staff support approach. We will argue that

a new paradigmatic focus, strategic intellectual capital development (SICD),

better defines the full capabilities of HRD to enhance organizational perfor-

mance and competitiveness.

To build this argument, we first examine the theoretical background of

human capital as a foundation for a new paradigm. Second, we will show how

the concept of intellectual capital provides a more robust platform for HRD

than human capital, especially when viewed in a strategic framework. Third,

we review the evolution of strategic human resource management and strate-

gic human capital development as the second key concept in our new para-

digm. We conclude by discussing how the field of HRD could benefit by using

strategic intellectual capital as an organizing paradigm.

The Foundation: Human Capital TheoryHuman capital theory suggests that investment in people results in eco-

nomic benefits for individuals and society as a whole (Sweetland, 1996). The

investment in an individual can be made in terms of health, nutrition, educa-

tion, and any other development that results in long-term benefits. It is impor-

tant to clarify that the investor in this particular case is the individual who


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272 Human Resource Development Review / September 2008

decides whether to invest his or her time, money, and other resources into

some activity that will benefit his or her human capital (health, education,

etc.). As we get to the discussion of a resource-based view of the firm and

strategic human capital, we see that two entities can actually invest in human

capitalthe individual who decides to whether to participate in some type of

training and informal education and the company who decides whether to

make similar types of investment.

Schultz (1961) defined human capital as the knowledge and skills people

acquire during education and training and this capital is a result of deliberate

investment that yields returns. Psacharopoulos and Woodhall (1985) state that

human capital means investing in both formal and informal education and train-

ing, which enhances individual productivity by providing knowledge, skills,

and attitudes necessary for economic and social development. Fitz-Enz (2000)

offers a more modern definition of human capital as traits one brings to the job:

intelligence, fulfilling work energy, positive attitude, reliability and commit-

ment, ability to learn, imagination, and creativity. This definition is more appro-

priate to modern businesses that strive to capitalize on human capital.

Interestingly, older definitions have a striking difference from that offered

by Fitz-Enz (2000). The earlier perspectives indicate a very dry view of invest-

ing in firm-specific skills and knowledge and getting a return on investment in

terms of increased productivity. The latter definition brings more factors into

equationcommitment, attitude, reliability, and imagination. These factors

are critical to success in todays environment. The definition of Fitz-Enz

departs from the machinist and strongly utilitarian view of human capital and

provides a fresh look at it as something that pertains to a holistic individual

development.

Education investment can take place in many forms. One could be engaged

in primary, secondary, or higher education. Shultz (1961) also emphasizes the

value of informal education at home and at work. Vocational education, on-

the-job training, and apprenticeship (Mincer, 1974) present more opportunities

for investment in human capital. Becker (1993) suggested that benefits from

investment in human capital are enormous ranging from improved health and

nutrition to control of population growth and improvement of overall quality

of life. On a macro level, education results in a more enlightened society that

is able to participate in social and political processes of the state.

Early economic theorists like Adam Smith and John Stuart Mill considered

the importance of human capital in forming the wealth of a society. Adam

Smith viewed acquired and useful abilities of people as important labor inputs.

He also emphasized the value of skill, dexterity, and judgment with which

labor is applied. He continued to state that this ability and skills come primar-

ily from education and apprenticeship, which is an expense, a capital fixed

and realized (Smith, 1776, as cited in Sweetland, 1996). Stuart Mill (1926)

asserted that the virtues, genius, and accomplishment of the members of

society do not indicate wealth unless these are looked on as marketable arti-

cles, which attract wealth from other countries.


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The studies of human capital began largely due to the fact that researchers

who studied productivity in the United States discovered a proportion of intan-

gible assets that accounted for a large portion of the U.S. productivity over and

above tangible capital. Abramovitz (1956) revealed that national output

increased at a greater rate than traditional inputs could explain. This intangi-

ble capital later took on the name Human Capital.

Jacob Mincer, Gary Becker, and Theodore Shultz probably contributed

most to the development of the theory in its early stages. Mincer (1958) pro-

posed a regression model that is frequently used in empirical studies today.

This equation made it possible to examine the nature of causes of inequality in

personal incomes. He suggested that training and skills affected personal

income dispersions, although in the original equation (1958) he held the envi-

ronment constant and assumed that the ability and opportunity are equally dis-

tributed. Income differences are a possible result of differences in investment

people choose to make in human capital. That is, some choose to participate

in more training than others, some invest more time and resources into college

and other types of formal education; on the job some people decide to partic-

ipate in more and in longer training programs than others. The outcome of

these differences is a disparity in marketable skills, knowledge and ability,

which enable individuals to occupy higher paying positions.

One of Mincers (1958, 1974) findings suggests that years of work forgone

although one participates in education are later compensated for by such

higher paying jobs. Individuals who have more years of schooling and more

experience tend to have more income in the early years, and their income

decline in later years is not as significant as for those who have fewer years of

education. At the same time, Mincer acknowledged that perfect equality in

ability and education does not guarantee perfect equality in earnings. This

point has become a sort of an Achilles heel for the human capital theory and

brought on harsh critique of the validity of the theory.

Gary Becker (1960) did some of the most groundbreaking research on

human capital. He was able to mathematically derive a rate of return on invest-

ment in college education. In his Nobel Prize lecture, he suggested that human

capital analysis starts with the assumption that individuals decide on their edu-

cation, training, medical care, and other additions to knowledge and health by

weighing the benefits and costs. Previously, in the 1950s economists suggested

that labor power was fixed and not augmentable. Investments in education and

training and their analysis by Adam Smith were not linked to organizational

productivity. In fact, the term human capital had had its share of controversy

and hostility. The term was regarded as demeaning because it treated people as

machines. And the whole idea of viewing education as investment was

rejected. Education had to mean more than thatcultural experience, a path

for growth and development, and not something as narrow as investment.


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Becker (1960) and Mincer (1974) provided empirical support for the bene-

fits of investments in human capital. It became clear that human capital invest-

ments lead to economic development and growth. Becker theorized that many

capable students were not able to attend college because of personal financial

circumstances. The average return from college would actually increase if the

number of able individuals attending college increased. This assumption sug-

gests the possibility of underinvestment in college education. The underin-

vestment could be linked to personal circumstances or circumstances created

by educational policy and economic conditions within the state.

Theodore Shultz (1961) brought more clarity to the theory of human capi-

tal in terms of describing the investment in human capital as expenditures

exhibiting characteristics of both consumption and pure investment. Shultz

differentiated between the total return on the investment and the rate of return.

The underlying question here is which part of the cost of schooling is actually

being invested in producer capabilities? Shultz also categorized investments

which led to improvement of human capabilities. Health facilities, on-the-job

training, formal education, study programs for adults, and migration of indi-

viduals to adjust to changing job opportunities were all considered a form of

investment in human capital. It is obvious then that human capital takes on a

much broader meaning than just years of schooling.

Benchmark studies in human capital theory by Denison (1962) and Shultz

(1961) emphasize the importance of schooling. Denison (1962) made a con-

tribution to human capital theory by attempting to account specifically for the

part of growth in economics that was not explained by land, labor, and tangi-

ble capital inputs. He called it residual, which represented schooling and

knowledge of people. Shultz stated that schooling and advances in knowledge

are both major sources of economic growththey are not natural resources

but are man-made. He also claimed that investment in schooling is a major

source of human capital. Beckers (1993) finding goes a little further to say

that those who have more education generally tend to have more income in

developed and developing countries alike.

According to Barney (1991), the link between organizational human capital

and performance can be understood in the context of the resource-based view

of the firm, which associates superior performance with the possession of

resources that are valuable, rare, inimitable, and nonsubstitutable. Knowledge

is a resource that readily meets these conditions, is heterogeneously distributed

across firms, and is therefore critical and central to understanding differences

in performance (Spender, 1996). Not all knowledge, however, renders a firm

uniqueit is its tacit component, embedded in the firms social context that

makes the yielded advantage long lasting (Spender, 1996).

Schultz (1993) listed several attributes of human capital that are critical to

our understanding of it. These include (a) human capital cannot be separated

from the person who has it, (b) human capital is to be had by investing in



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people, and (c) human capital is related to economic growth. These attributes

emphasize the importance of investing in people and increasing their knowl-

edge and education levels.

Human capital theory thus focuses on educational level of employees as a

source of labor productivity and economic growth (Becker, 1993; Shultz,

1961). However, in terms of benefits to an organization, general knowledge is

not the most important element. One of the most influential theoretical con-

cepts of human capital theory is the distinction between general and specific

training and knowledge (Becker, 1960). The amount of human capital in the

organization is linked to how well a certain task is performed; this proposition

changes at the firm level and in the context of firms with significant amounts

of human capital.

In assessing the contributions of the human capital to performance, it is use-

ful to distinguish between general and specific human capital with regard to

the domains of pre- and post-investment activities identified above. General

human capital refers to overall education and practical experience, whereas

specific human capital refers to education and experience, with a scope of

application limited to a particular activity or context (Becker, 1975; Gimeno,

Folta, Cooper, & Woo, 1997; Lazear, 1998). The firm-specific training guar-

antees the sustainability of human capital because employees with such

knowledge and skills may be more valuable to the particular company because

of their firm-specific knowledge. At the same time, these are the employees

that contribute to the core competence of the organization and provide com-

petitive advantage to the firm.

Human Capitals Contribution to HRD

Human capital theory has long been an important foundational theory for

HRD even if not acknowledged as such (Swanson & Holton, 2001). The fun-

damental premise of human capital theorythat investment in learning results

in gains for the individual, organization, and societyis also the fundamental

premise for everything done in HRD. If this premise were false, there would

be no point to HRD. Thus it is tempting to suggest that human capital theory

should be the organizing paradigm for HRD. However, as will be shown in the

next section, intellectual capital is a more robust concept that embraces human

capital but expands on it in important ways.

With respect to the theories of human capital, HRD has not been really

included in the discourse on this research. Zula and Chermack (2007), in their

review of human capital planning literature, suggest that HRD practitioners

must use a proper planning methodology and empirically researched instru-

ments for human capital planning. They propose a Human Capital Planning

model in which HRD is a catalyst in the planning process, integrating, and

coordinating organizational systems in a top-down approach. In addition, the



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authors state that HRD practitioners must develop methods to establish return

of investment for human capital through standardized measures of human cap-

ital planning. Beyond this conceptual piece, no one has directly connected

HRD to the development of human capital in organizations despite the fact that

human capital development is precisely what HRD professionals do.

One reason is a philosophical one. Some in the HRD field fundamentally

object to the characterization of people as capital on the grounds that it is

demeaning to the individual and devalues their intrinsic worth. Although we

are sensitive to the labeling issues, we also argue that if the fundamental

premise of human capital theory is not embraced at least as a foundation, then

the whole purpose for HRD within organizational boundaries is flawed. We

would be the first to argue that HRD outside organizational boundaries may

have other purposes, but within organizational boundaries HRD must embrace

the notion that the purpose is to help organizations achieve its goals. Indeed,

HRD becomes more powerful when it does.

Key Concept #1: Intellectual Capital

In the last decade, human capital and its implications for organizations have

been broadened to the concept of intellectual capital. The latter is a much

broader notion and encompasses various types of organizational tangible and

intangible resources. We suggest that intellectual capital is the more potent

conceptualization for HRD than simply human capital.

Intellectual capital was first defined by Thomas Stewart in 1991

(Johannessen, Olsen, & Olaisen, 2005) as the sum of everything people know,

which gives competitive advantage to the company. According to Edvinssen

and Malone (1997), intellectual capital has three components: human capital,

social capital, and structural capital. Human capital, as it was defined earlier,

is the skills and knowledge acquired by an individual. Coleman (1988) states

that human capital is created by changing individuals and this change is

defined by providing them with knowledge and skills necessary to act in new

ways. Such change is usually implemented by HRD because the purpose of

HRD is to develop and unleash human expertise through training and devel-

opment and organizational development to improve performance (Swanson &

Holton, 2001). Camuffo and Comacchio (2005) suggest that intellectual capi-

tal of the firm is dependent on individual and organizational learning and

knowledge. Training and development aims at increasing the knowledge of an

individual and organizational development aims at improving organizational

learning. Therefore, HRD has a specific and distinct task of increasing human

capital in organizations and a more general task of increasing the intellectual

capital of the firm.

In other instances HRD interventions may be aimed at improving commitment

and loyalty of the organizational members, specifying purpose and mission of



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an organization and instilling a sense of shared vision, improving climate, and

developing distinct organizational culture. Because human capital cannot be

owned by the firm (Edvinsonn & Malone, 1997) such interventions may

increase the retention of human capital because committed employees who

share organizational vision are more likely to stay in organizations longer than

those who do not have such attributes. Johannessen et al. (2005) argue that for

knowledge to be strategic, it must be translated into competence not easily imi-

tated by others. Creating this competence requires knowledge to be applied to

tasks by persons possessing certain skills, which means that competence is the

link between knowledge, tasks, and skills.

Social capital is defined in terms of nature of relations between organiza-

tional members. Such relations create complex systems, which are referred to

as social networks. The most influential research in social networks theory has

been done by Granovetter (1983) and Burt (1997). The implication of this

research for intellectual capital is that social networks provide a medium for

transfer and sharing of knowledge. Without these systems knowledge will not

reach necessary individuals. If knowledge is not shared, organizations cannot

fully capitalize on it and make it a strategic resource.

Thus human capital alone does not provide the sufficient competitive advan-

tage to the firm. Human capital as knowledge and skills of individuals is isolated

and confined to one individual who owns it. Therefore, this knowledge cannot

be fully used in the company unless it is shared with others. Reed, Lubatkin, and

Srinivasan (2006) state that social capital provides benefits to organizations

because who you know affects what you know. Rich internal and external ties

mean that organizations and their employees will be able to accomplish more.

Social capital facilitates interunit exchange and innovation, interfirm learning,

and cross-functional team effectiveness (Reed et al., 2006). Social capital needs

to be developed in any organization to ensure that knowledge is shared. HRD is

critical as a facilitator of interpersonal relations among organizational members.

Group dynamics and team development are some of the prerogatives of effective

HRD. Therefore, it is largely responsible not only for generation of knowledge

and unleashing human expertise, but also for enabling the sharing and exchange

of knowledge among individuals in the system.

Organizational learning and innovation are also part of the intellectual cap-

ital of the firm and are comprised under the term structural capital. Clearly

organizational learning is, to an extent, influenced and created by HRD inter-

ventions. Shared visions, mental models, team learning, systems thinking, and

personal mastery as described by Peter Senge (1991) can be linked to HRD.

Watkins (as cited in Swanson & Holton, 2001) says that HRD strives to

enhance individuals capacity to learn, helps groups overcome barriers to

learning, and strives to create organizational culture that fosters learning. HRD

is a change manager and organizational learning is defined by Johannessen

et al. (2005) as the ability of organizations to continuously improve and/or



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change critical processes, resulting from changes in the environment, in addi-

tion to creating its own internal and external information and communication

systems, for the purpose of reaching established targets. Structural or organi-

zational capital is referred to as a repository of knowledge that is accessible

through various sources, which allows for knowledge sharing and knowledge

creation among organizational members (Reed et al., 2006). At the same time,

structural capital is also comprised of culture and informal routines. Reed

et al. (2006) suggest that structural capital and human capital are interconnected

because structural capital provides individuals with complex and supportive

infrastructure to store and assimilate the chosen knowledge. These two aspects

of intellectual capital are therefore viewed as complementary resources of

strategic importance.

We suggest that the intellectual capital concept offers the more potent and

correct view of HRDs role in organizations. First, it clearly positions HRD as

the leader of acquiring, developing, and maintaining the intellectual resources

of the organization. Because intellectual capital is one key to achieving com-

petitive advantage and organizational effectiveness, HRD is thus by definition

essential to achieving the organizations strategic goals.

Second, we suggest that intellectual capital integrates both of the historical

roots of HRDtraining and developmentalong with organizational devel-

opment. To maximize the potential of an organizations intellectual capital

requires not only development of human capital but also creating the organi-

zational environment within which that human capital will flourish.

Third, we suggest that intellectual capital is a more philosophically appro-

priate conceptualization then human capital. It is not the human that is the

capital to the firman objectionable notionbut rather their expertise and

intellectual resources. Humans are not boughtby organizations, but their capa-

bilities and expertise are. We believe that this is a more theoretically appropri-

ate and philosophically acceptable view.

Fourth, the intellectual capital concept clearly recognizes the organizational

milieu within which learning, expertise, and performance occur. HRD has

struggled as a profession to shake its traditional roots of training and devel-

opment. In practice, many organizations still see HRD as just another name

for the training department. Although the field should never forget its roots,

what organizations need most now are professionals who understand how to

fully develop and capitalize on the intellectual capital of the organization.

Fifth, we believe that the tripartite definition of intellectual capital as

human, social, and structural capital is robust enough to embrace any type of

HRD intervention. Furthermore, by broadening the umbrella of HRD goals the

field becomes more strategically important.

Sixth, despite the importance of intellectual capital to organizational effec-

tiveness and competitiveness, the responsibility for intellectual capital is often

dispersed within organizations. We suggest that organizations would benefit



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from having a profession and staff who have the capability to effectively

champion, oversee, and lead what is now one of most organizations most crit-

ical assets.

A likely objection to our argument is that HRD is not exclusively responsi-

ble for intellectual capital. For instance, innovation may be purchased and

therefore structural capital will be increased without direct HRD input.

Relations with customers may not be fully dependent on HRD interventions.

Even though customer service training provides necessary skills to employees,

it does not ensure the growth of customer base and customer satisfaction. Such

customer relations are considered an inherent part of the social capital

(Edvinsson & Malone, 1997) and are sometimes attributed to structural capi-

tal (Reed et al., 2006).

It seems senseless to engage in an academic turf battle over whether HRD

should organize around a concept that it does not totally control. This argu-

ment of what we control has led many practitioners to stay mired in a train-

ing model of HRD. There are really very few organizational disciplines that

can claim a clean boundary between what they do and what others do in the

organization. By definition, components of an organizational system are inter-

related. It does seem that intellectual capital is robust enough to embrace all of

what HRD does, even if it is not the exclusive domain of HRD.

Furthermore, it seems to us that the fact that other strategic decisions made

by the organization affect intellectual capital is a clear cry for HRD to be a

strategic partner, not to shy away from it. This notion will be discussed more

in the next section, but in brief our argument is that HRD should be part of any

strategic decision that impacts on or is driven by intellectual capital to help the

organization make the right decision.

In summary, fostering the development of human capital is a good purpose

but it is not enough. If HRD is only limited to learning and development of an

individual, it will not achieve its full potential. Storberg-Walker (2005) states

that HRD changes the capacity of and the relationship between various types

of value creation drivers (social, structural, and human capital) that are critical

to organizational success. HRD is about how people work together in organi-

zational contexts, co-creating the processes, practices, norms, standards, and

environment of the organization. The three components of intellectual capital

are embedded within these processes (Storberg-Walker, 2005).

Key Concept #2: Strategic Focus of HRD

One of the key criticisms of all human resource practices is that they have

been decidedly not strategic. It has been difficult for HR professionals to

change their self-image of being a support function and equally difficult to get

management to change their view of human resources. But, times have

changed and now intellectual capital is on par with financial and other forms

of capital in importance to achieving organizational strategic goals.


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We make two fundamental arguments here. First, organizations musthave

HRD as a strategic partner in todays world. We do not believe this is optional.

Whether in the private, public, or nonprofit sector, the reality for most organi-

zations is that they are more heavily dependent on intellectual capital than they

have ever been to achieve their strategic goals. And, all indications are that this

trend will not change anytime soon. The question really is not whether suc-

cessful organizations will manage their intellectual capital strategically, but

only whether HRD will seize the opportunity to lead or let others in the orga-

nization do it. Successful organizational leaders get this concept very

clearlyso the opportunity is there for HRD.

Second, HRD (as well as HR) has not yet developed as a profession to be

the strategic partner it needs to be in organizations. As will be seen, being a

strategic partner is far more than facilitating the strategic planning process. It

is really about developing the intellectual capital of the organization to enable

the organization to achieve its strategic goals. In the private sector this is

referred to as being a business partner. It demands that HRD professionals

understand the organizations goals and strategically align the intellectual cap-

ital of the organization to achieve those goals.

We are not the first to make this argument. In this section we provide an

overview of the strategic human resource management movement which sup-

ports our arguments.

Strategic Human Resource Management Research

The strategic approach to human capital/resource management has domi-

nated the research agenda in human resource management since the early

1980s. The origin of the strategic approach is often traced to an article by

Devanna, Fombrun, and Tichy (1981) in which they talked about human

resources operating at three levels: strategic, managerial, and operational.

They noted at the time that, Only a handful of U.S. organizations approach

human resources management in any systematic way at the strategic level

(p. 54). They went on to call for a closer integration of human resources with

business strategic planning and the integration of human resource functions to

have greater impact on organizational outcomes. Colbert (2004) states that

strategic human resource management (SHRM) is predicated on two funda-

mental assertions. First, skills, behaviors, and interactions of employees create

a potential foundation for strategy formulation and means for its implementa-

tion. Second, HRM practices are critical for the development of the strategic

capability of the human resource pool.

Throughout the 1980s and into the early 1990s, academicians continued to

define and develop the theoretical perspectives for strategic human resource

management (Baird & Meshoulam, 1988; Donk & Esser, 1992; Lengnick-Hall

& Legnick-Hall, 1988; Miles & Snow, 1984; Schuler, 1990, 1992; Schuler &

Jackson, 1987; Schuler & MacMillan, 1984; Wright & McMahan, 1992;


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Wright & Snell, 1991). What was at first a practice-based perspective became

firmly entrenched in the academic literature. A complete review of the litera-

ture is beyond the scope of this article, but several important themes emerged.

One challenge, of course, was simply to define what was meant by strate-

gic human resource management. A commonly used definition emerged in

Wright and McMahan (1992) which stated, Strategic human resource man-

agement is the pattern of planned human resource deployments and activities

intended to enable an organization to achieve its goals (p. 298).Despite its

seeming simplicity, this definition had several important implications for the

field in that it clearly specifies the following:

There must be a vertical linkage between HR practices and the strategic man-

agement process of the organization. It is the coordination of HR practices into a pattern of actions that will best sup-

port organizational goals.

These two themes have dominated the literature on strategic human

resource management and continue to do so to this day.

Academicians ground strategic human resource management in what is

called the resource-based view of the organization (Colbert, 2004; Lado &

Wilson, 1994; Prahalad & Hamel, 1990; Wernerfelt, 1995; Wright & McMahan,

1992). In the resource-based view, organizations can gain effectiveness andcompetitive advantage by capitalizing on the strengths and capabilities of its

internal resources, including human resource competencies. The value cre-

ation process of HRM at any given organization is usually causally ambiguous

and path dependent and, therefore, is not imitable by competitors (Ferris,

Hochwarter, Buckley, Harrell-Cook, & Frink, 1999). In the private sector, the

push is to create internal capabilities that are unique and not easily copied by

other companies. Fundamental to strategic human resource management is the

resource-based premise that in any organization human resources can add

value to the organizations strategy rather than simply being a cost of doingbusiness. Thus the competency and capability of an organizations people can

be a strategic advantage.

In Delerys (1998) discussion of SHRM, he maintains that HRM practices

may give a company a competitive edge by developing a unique and valuable

human capital pool and by providing firms with increased fit and flexibility.

He also stipulates that a firm does not gain competitive advantage from HRM

practices but from the actual human resources it attracts and retains. HRM

practices, however, can add rare and exceptional value to the human

resources of the firm (Barney, 1991, p. 268). Specifically, SHRM is built onthe idea that human resource management practices must be aligned with busi-

ness objectives. Boxall and Purcell (2000) argue that the most influential

best-fit model is the one where external fit is defined by a firms strategy. In

such case, HR practices reinforce the choice of one of the generic strategies.



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This approach to SHRM is frequently referred to as a contingency model

and is contrasted to the universalistic model. The latter model argues that all

firms will benefit from adopting a best practice in the way they manage

people (Becker & Huselid, 2006; Boxall & Purcell, 2000; Colbert, 2004;

Delery, 1998; Delery & Doty, 1996). The configurational perspective, a third

perspective on SHRM, focuses on patterns of HR practices that together form

a consistent whole and correlate with organizational performance (Boxall &

Purcell, 2000; Colbert, 2004). Such approach asserts that there are ideal types

of HRM systems that provide both horizontal and vertical fit (Ferris et al.,

1999).

As the 1990s unfolded, researchers began to undertake the challenge of

empirically testing whether human resource systems do, in fact, influence

organizational performancea quest which continues in the literature today.

Although individual HR practices had long been researched, what was unique

about this line of research was the fact that it (a) examined HR practices jointly

as a system and (b) used organizational level performance as outcomes.

Much of the seminal work in this area focused on a constellation of what

are called high-performance work systems or HPWS. Such systems are

generally thought to include rigorous recruitment and selection procedures,

performance-contingent incentive compensation, and management develop-

ment and training activities linked to the needs of the business (Becker,

Huselid, Pickus, & Spratt, 1997). This approach was often referred to as the

universalistic view of human resources (Delrey & Doty, 1996) in that it posited

a set of best practices that should be employed by all HR organizations.

An impressive body of research emerged that showed that human resource

practices collectively do contribute significantly to organizational perfor-

mance (see e.g., Becker & Huselid, 1998; Huselid, 1995; Huselid, Jackson, &

Schuler, 1997; Youndt & Snell, 2004). Although all this research was con-

ducted in the private sectordue to the readily available organizational per-

formance measuresit nonetheless is important to the public sector as well

because it demonstrated the link between HR practices and strategic outcomes

of the organization. In addition, it reinforced the theoretical view that HR prac-

tices operate best when they are aligned as a system. Becker and Huselids

(1998) work showed three stages of HR sophistication: (a) initially developing

an HR architecture, (b) developing operational effectiveness, and (c) aligning

the HR system with the firms strategic goals. Moving from stage b to stage c

resulted in a significant increase in the market value of the firm.

More recently thought leaders in SHRM have turned their attention to oper-

ationalizing SHRM in a way that organizations can measure strategic results

of HR. Becker, Huselid, and Ulrich (2001) created an HR scorecard to help

organizations link HR practices to organizational strategic performance.

Similarly, Huselid, Becker, and Beatty (2005) created a workforce scorecard

to link critical workforce measures to organizational strategy.



14/22


Several issues emerge from SHRM research, however, that parallel our dis-

cussion throughout this article. SHRM practices are not by themselves inim-

itable. However, these practices can stimulate human behaviors and build

human capital that will constitute competitive advantage (Boxall & Purcell,

2000). According to Boxall (1998) firms can achieve human capital advantage

and organizational process advantage. Obviously, human capital advantage

comes from people with valuable and rare skills, whereas organizational

process advantage is a function of processes that are hard to imitate. Cross-

functional learning and labor-management cooperation are good examples of

such processes (Boxall & Purcell, 2000). Interestingly, these examples are also

indicative of human capital and social capital issues in an organization. In

other words, ways in which management interacts with labor and employees

interact within teams and among units or departments comprise socially com-

plex networks that are hard if not impossible to imitate.

In agreement with our discussion, the emerging views in SHRM suggest

that all employees across the company cannot be managed similarly simply because

not all employees are strategically important (Barney, 1991; Lepak & Snell,

1999; Ulrich & Lake, 1990; Wright & McMahan, 1992). In our overview of

human capital theory, we mentioned that not all human capital is strategic

human capital and the development of human capital will be most beneficial

if this capital creates competitive advantage for a company.

Lepak and Snell (1999) state that the most appropriate mode of investment

in human capital will vary contingent on the type of human capital. The

authors argue that different employment modes should exist for different types

of human capital. They discuss internal development, acquisitions, contract-

ing, and alliance. The choice of these modes depends on strategic considera-

tions and, more specifically, on value-creating potential and uniqueness of the

skills. These employment modes ultimately dictate how each employee affects

organizational outcomes and what practices a company may employ to add

value to its peoples skills and knowledge. Ultimately, it is the human behav-

ior in an organization that plays a pivotal role in company performance.

Schuler et al. (1991) proposed that employee behavior is a mediator between

organizational strategy and firm performance. SHRM practices as well as

HRD interventions must be designed specifically to stimulate behaviors that

are strategically critical for organizational performance.

It should be obvious that the SHRM literature goes hand in hand with our

propositions for HRD influences on intellectual capital. Indeed, most of the

SHRM literature includes training and some organizational development type

interventions under the HRM umbrella. Given the convincing theoretical and

empirical research on SHRM, one has to wonder why HRD has not been as

quick to embrace a strategic approach. We suggest that this work provides a

compelling rationale for more emphasis on a strategic approach in HRD.

Zula and Chermack (2007) opine that it is critically important for the HRD

practitioner to link human capital and knowledge capital to company strategy.


15/22


An important part of this linkage is an integration of organizational develop-

ment (OD) and HR practices (Zula & Chermack, 2007). HRD practices must

also be designed to bring out the strategic in the pool of human capital. In

the next section we will discuss strategic human capital specifically and its

place in the concept of intellectual capital of the firm.

Strategic Human Capital Development

We would like to be able to now turn to a review of well organized litera-

ture on strategic human capital development, but alas that is not possible. The

literature on strategic human capital development is simply not as well orga-

nized or as well focused as the strategic human resource management litera-

ture. What we do find are perspectives that suggest or infer a more strategic

approach to human capital development.

The focal point of the strategic argument is that the expertise of people in

an organization is an organizational asset. Viewing people as a cost center is a

fallacy that does not lead to positive organizational results. When a firm

invests in human capital there are essentially three outcomes that occur. At the

individual level the investment results in increased knowledge, skills, and abil-

ities, which leads to individual development and growth. At the organizational

level the investment results in better performance and productivity. Finally, at

the societal level better educated and developed individuals and highly pro-

ductive organizations result in cultural and economic growth and prosperous

communities. Clearly, such investments are justified at every level and in the

aggregate yield results well beyond simple return of investment.

Torraco and Swanson (1995) were among the first in the HRD literature to

urge the field to adopt a more strategic role. Central to their argument was the

trend toward employee expertise being a determinant of organizational suc-

cess. As they point out, HRD has long operated in support of organizational

strategy, but their contention was that it should also play a pivotal role in shap-

ing strategy. To be of strategic value, they argued that HRD must first be per-

formance based. We argue that HRD has spent most of the last 15 years

working on being performance based. Second, they argued that HRD must

demonstrate its strategic capability by playing an active role in determining

how the organizations human resources can be developed and deployed for

competitive advantage. It is this second part that we argue is still yet to be fully

developed within HRD and is a necessary paradigm shift (Torraco & Swanson,

1997) More recently, others have also argued strongly for a more strategic

focus in HRD (Holton & Swanson, 2001; Yorks, 2005)

Edvinsson and Malone (1997) suggest that human capital is combined

knowledge, innovation, skills, and ability of the companys individual employ-

ees to meet the task at hand. It also includes the companys values, culture, and

philosophy. Human capital cannot be owned by the company. Inability to own

human capital makes it distinct from any other capital firms own. Despite the


16/22


firms inability to own human capital, it is imperative that it capitalize on it. In

other words, human capital provides that sought for competitive advantage to

the company. What differentiates one organization from another is increas-

ingly linked not to its fixed assets how much knowledge, innovation, and cre-

ativity it can obtain from its people (Burud & Tumolo, 2004).

As was discussed earlier, Becker (1993) suggested that human capital in an

organization can be viewed as general and organization-specific. As organizations

invest in training for their employees, and if this training is related to specific

skills that benefit and directly relate to the strategic core competence of the orga-

nization, organization-specific human capital is increased. Clearly, as such capi-

tal increases and the firm becomes stronger in its core competence, it strengthens

its competitive position in the market. Therefore, organization-specific human

capital is of strategic importance to the firm. Carmeli (2004) suggests that the

core competence of a company is the best way to win in a competitive world. In

addition, a resource-based view of the firm suggests that internal resources of the

company have more influence on its growth. Therefore, more attention should be

paid to invisible assets like knowledge, skills and experience, and human

resources.

The resources of an organization are strategic if they are valuable, rare,

inimitable, nonsubstitutable, and nontransferable (Carmeli, 2004). Such resources

provide sustainable competitive advantage and must therefore be nurtured and

enhanced. Consequently, if the proportion of the strategic, organization-

specific human capital is increased, this should lead to an increase in the com-

petitive advantage for an organization. Lepak and Snell (2002) assert that not

all employees or employee skills are strategic and employees with different

roles in value creation have to be managed differently. Managing intellectual

or human capital is therefore a complex process and employee roles must be

clearly analyzed to determine which are strategic and which contribute to com-

petitive advantage. Becker and Huselid (2006) state that human capital is only

strategically important if it directly implements the firms strategy. Some

strategic processes may not be dependent on human capital, but in the U.S.

economy, achievement of strategic goals in an organization is rarely accom-

plished without depending in part on human and intellectual capital.

According to Hall (1993) employee know-how is one of the most important

determinants of firm success. Studies by Farjoun (1994), Collis and Montgomery

(1998), and OReilly and Pfeffer (2000) have demonstrated the strategic

importance of human capital. Hayton (2003) and Carmeli (2004) provided

some empirical support for benefits of strategic human capital management in

organizations. Hayton (2003) suggests that most organizations base their

human resource management practices on evaluating costs of a particular pro-

ject or intervention. Therefore, outcomes of such interventions remain

unknown. Usually, executives are interested in expenditures on selection and

training but ignore the increase in productivity as a result of training or selec-

tion of better candidates (Hayton, 2003). The use of lagging versus leading


17/22


indicators of success and importance of HR interventions may prevent man-

agement from seeing what really matters. Because few calculate the change in

productivity after training what is considered is the amount spent for training.

This expenditure becomes much less meaningful when it is compared with

financial outcomes of completing a project sooner, making fewer errors, and

causing fewer accidents as a result of training.

When organizations view training and other organizational development

endeavors as an expense, they underinvest in learning of individuals. Under-

investment in people leads to poorer performance and affects organizations

and society as a whole. Hitt, Hoskisson, Harrison, and Summers (1994) sug-

gest that the decline in global competitiveness of U.S. companies in the 1990s

was largely attributable to a lack of investment and concern for human capital.

Downsizing, acquisitions, and other similar trends have diverted attention

from training and development. Often lost in strategic discussions is the fact

that intellectual capital is a key driver of future success.

Summary

The lack of a well-formed literature presenting systematic approaches to

strategically integrating HRD in organizations is an alarming fact that should

be a clarion call for new research directions. It is a bit of a mystery why HRD

and HR professionals have not been quick to embrace the strategic approach

to practice. Perhaps it is for lack of knowledge, perhaps for lack of under-

standing, perhaps cultural history, or perhaps just fear of a new way of prac-

tice. Regardless of the reason, we suggest it is time to change.

The argument for a strategic approach is simple. Organizations exist to

accomplish goals. It does not matter whether the organization is a business, a

governmental entity, a nonprofit, or even a religious organizationthey all

have strategic goals. It seems crystal clear that the most successful entities

within those organizations will be those that can most directly affect achieve-

ment of those goals. And, all activity within the organization should be

directed at achieving those goals. Finally, in most organizations intellectual

capital will be critical to achieving the goals. Given these realities, how could

HRD nottake a strategic approach? Only strategic partners within organiza-

tions will be successful over the long term, and the most successful organiza-

tions will be those with strong strategic HRD partners.

ConclusionStrategic Intellectual

Capital DevelopmentIn this article, we have attempted to link HRD to two key concepts

intellectual capital and the strategic approach. The result is a new organiz-

ing paradigm of SICD. SICD seems to offer the most robust conceptualization

to link HRD to organizational effectiveness. The concept of human capital is


18/22


fairly old and is now regaining popularity because knowledge is considered to

be one of the most critical assets in an organization. However, knowledge that

exists in the company does not necessarily translate into outcomes unless it is

leveraged properly. The SICD perspective offers a systematic way of leverag-

ing the human capital. Imagine the impact if HRD could effectively and con-

sistently build the human, social, and structural capital to accomplish an

organizations strategic goals.

Returning to our original three research questions, we argue that SICD is

the most robust paradigm for HRD that will enable the following:

Organizations to prosper in the decades after 2010 and beyond. HRD to be a strategic partner in the most successful organizations in the highly

competitive global economy. HRD to drive good organizations to greatness.

We also argue that this paradigm is not based on pie-in-the-sky thinking, but

rather on a strong research base that provides clear and compelling evidence of

its efficacy. The only question is whether HRD will enthusiastically embrace

the expanded role SICD offers and be the strategic partner organizations need.

Much of HRD theory and practice is about the development of an individual

knowledge, skills, and abilities. Essentially, HRD generates knowledge that is

strategically critical for the firm. The newer horizons for HRD lie in interven-tions to develop social and structural capital. For example, HRD can implement

interventions that facilitate exchange of knowledge in terms of creating fluid

social structures, effective team work, customer service, and interorganizational

communication. In terms of structural capital, HRD can implement talent man-

agement systems, succession planning, cultural interventions, and initiate the

creation of learning organization to retain the knowledge.

What emerges is an apparent multifaceted role of HRD theory and practice

in organizations. We suggest that HRD as it exists right now can easily become

just another HR support function, if it has not already. The SICD perspectiveoffers an ability to show that HRD is so much more, that it can directly con-

tribute to financial outcomes and competitive advantage or organizational

effectiveness. In todays knowledge, economy leveraging organizational

knowledge is absolutely critical to the survival of an organization. HRD can

and should be a critical proactive agent in this process.

Unfortunately, SICD has been underrepresented in the HRD literature. In

this article we have argued for a move to fill this gap pushing HRD to capitalize

on the concept of SICD. It is our hope that the researchers and practitioners in

the field will use this article as a foundation for the future of HRD in strategicintellectual capital development.

Research in HRD should focus more on the broad view of the organization

and concern itself with the development of intellectual capital, not just one

component of it. Human capital growth must be considered in connection with

social processes and the knowledge should be only considered valuable if it is


19/22


successfully retained in the structural capital of the firm. The research agenda

generated by the SICD approach would be quite rich and is too voluminous to

be listed completely here. However, here are some example research questions

to illustrate the robustness of the research agenda for the field.

1. What is the relationship between intellectual capital and organizational perfor-mance? How can it be measured?

2. Are strategically linked intellectual capital development interventions moreeffective in their outcomes? What methods are best to link HRD interventions tostrategy?

3. Do training and development interventions yield better results in terms of knowl-edge transfer and retention if they are paired with social capital interventionslike those aimed at improving interpersonal communication or team building? Is

there an interaction between training interventions and social processes inter-ventions in their influence on job performance and training performance?

4. What types of social networks are most effective in determining which individ-uals will benefit most from a particular training program?

5. If central nodes and redundant ties in the networks can be identified and infor-mation exchange and flow within that network is uninhibited, is it possible totrain fewer individuals because the knowledge will get disseminated to theremaining nodes in the network?

6. Do effective structural capital interventions (talent and knowledge managementsystems implementation, culture changes, technostructural interventions)replace human capital interventions? Can these forms of capital be replaced by

each other?7. Is there interaction between structural capital interventions and social capital

interventions? Does conducting both simultaneously lead to better outcomes?For instance, if the culture change is attempted in an organization, can thechange be implemented faster if social networks are examined and communica-tion and interpersonal relationships within the company are improved first?

And the list could go on and on. Each of these questions can be tested

empirically in an organizational setting. The results can be used to strengthen

the HRD position in organizations and increase the likelihood of positive out-

comes of SICD. In the end, research can demonstrate that HRD is a driver oforganizational results through SICD.

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Elwood F. Holton III is Jones Davis Distinguished Professor of Human Resource,

Leadership and Organizational Development at the School of Human Resource

Education, Louisiana State University. He is member of International Adult and

Continuing Education Hall of Fame, Founding Editor of Human Resource

Development Review, and past president, of the Academy of Human Resource

Development.

Bogdan Yamkovenko is a doctoral candidate at Louisiana State University School

of Human Resource Education and Workforce Development. He has published

articles in HRDQ and Journal of European Industrial Training. He is currently

completing a dissertation research on relationship between dispositional differ-

ences and training transfer.

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