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Foundations and Philosophy of HRD

Strategic Intellectual
Capital 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 and
impact 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 to
a 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 for
a 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 a


new 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 time—the 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 those
practices have been widely adopted is another question, but we argue that the
models and methods that emerged have been generally found to work.
Human Resource Development Review Vol. 7, No. 3 September 2008 270-291
DOI: 10.1177/1534484308321360
© 2008 SAGE Publications
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 the


decades after 2010 and beyond?
2. What fundamental shifts will need to occur in order for HRD to be a strategic
partner in the most successful organizations in the highly competitive global
economy?
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 practiced is 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 Theory


Human 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
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
capital—the 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
equation—commitment, attitude, reliability, and imagination. These factors
are critical to success in today’s 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.
Holton, Yamkovenko / INTELLECTUAL CAPITAL DEVELOPMENT 273

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 Mincer’s (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 that—cultural experience, a path
for growth and development, and not something as narrow as investment.
274 Human Resource Development Review / September 2008

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 growth—they are not natural resources
but are man-made. He also claimed that investment in schooling is a major
source of human capital. Becker’s (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
unique—it is its tacit component, embedded in the firm’s 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
Holton, Yamkovenko / INTELLECTUAL CAPITAL DEVELOPMENT 275

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 Capital’s 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 theory—that investment in learning results
in gains for the individual, organization, and society—is 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
276 Human Resource Development Review / September 2008

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
Holton, Yamkovenko / INTELLECTUAL CAPITAL DEVELOPMENT 277

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 individual’s 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
278 Human Resource Development Review / September 2008

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 HRD’s 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 organization’s strategic goals.
Second, we suggest that intellectual capital integrates both of the historical
roots of HRD—training and development—along with organizational devel-
opment. To maximize the potential of an organization’s 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 firm—an objectionable notion—but rather their expertise and
intellectual resources. Humans are not bought by 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
Holton, Yamkovenko / INTELLECTUAL CAPITAL DEVELOPMENT 279

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.
280 Human Resource Development Review / September 2008

We make two fundamental arguments here. First, organizations must have


HRD as a strategic partner in today’s 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
clearly—so 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 organization’s 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;
Holton, Yamkovenko / INTELLECTUAL CAPITAL DEVELOPMENT 281

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 and
competitive 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 organization’s strategy rather than simply being a cost of doing
business. Thus the competency and capability of an organization’s people can
be a strategic advantage.
In Delery’s (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 on
the 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 firm’s strategy. In
such case, HR practices reinforce the choice of one of the generic strategies.
282 Human Resource Development Review / September 2008

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 performance—a 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 sector—due to the readily available organizational per-
formance measures—it 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 Huselid’s
(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 firm’s 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.
Holton, Yamkovenko / INTELLECTUAL CAPITAL DEVELOPMENT 283

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 people’s 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.
284 Human Resource Development Review / September 2008

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 organization’s 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 company’s individual employ-
ees to meet the task at hand. It also includes the company’s 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
Holton, Yamkovenko / INTELLECTUAL CAPITAL DEVELOPMENT 285

firm’s 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 firm’s 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 O’Reilly 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
286 Human Resource Development Review / September 2008

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 organization—they 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 not take 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.

Conclusion—Strategic Intellectual
Capital Development
In 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
Holton, Yamkovenko / INTELLECTUAL CAPITAL DEVELOPMENT 287

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
organization’s 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 perspective
offers 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 today’s 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 strategic
intellectual 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
288 Human Resource Development Review / September 2008

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 more
effective in their outcomes? What methods are best to link HRD interventions to
strategy?
3. Do training and development interventions yield better results in terms of knowl-
edge transfer and retention if they are paired with social capital interventions
like 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 to
train fewer individuals because the knowledge will get disseminated to the
remaining nodes in the network?
6. Do effective structural capital interventions (talent and knowledge management
systems 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 the
change 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 of
organizational 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.