How does HRM enhance strategic capabilities? Evidence from the Korean management consulting industry

Abstract

This study develops an HRM-capability-performance model. Applying this model to the management consulting context, legitimizing capability and senior management consultants (SMCs) are theoretically derived as a strategic capability and a strategic job that an HR system focuses on for organizational effectiveness. Regression analyses of a sample of 46 management consulting firms in South Korea find that legitimizing capability improves firm performance. Both legitimizing capability and firm performance are also found to be increased by (1) a sub-set of HR practices for SMCs' human capital and (2) a system of HR practices for their human capital and social capital.

Keywords:

• external fit
• intellectual capital
• management consulting firms
• strategic capabilities
• strategic human resource management
• strategic jobs

Acknowledgements

As this paper originates from the Master's thesis of the first author, we appreciate the advice of Mark A. Huselid (chair), Douglas L. Kruse, and Hui Liao in the first author's thesis committee. We thank Riki Takeuchi, Roderick D. Iverson, and Cherrie J. Zhu for their encouraging comments on the earlier versions of the manuscript that were presented at 2009 and 2010 Academy of Management annual meetings. We thank Kyongji Han and Saba Colakoglu for their helpful comments. Finally, we appreciate the anonymous reviewer of the journal.

Notes

1. The authors originally suggested 21 factors including values, attitudes, and activities. This study focuses only on activities under the assumption that a strategic capability is consisted of strategic activities.

2. Some researchers mentioned organizational or structural capital (Youndt et al. 2004; Subramaniam and Youndt 2005). Youndt and colleagues (2004, p. 338) defined organizational capital as ‘institutionalized knowledge and codified experience stored in databases, routines, patents, manuals, structures, and the like,’ which an organization actually owns. Since this study aims to identify the effects of HRM on intellectual capital of strategic job holders, it proceeds exclusively with human capital and social capital which are employee-based.

3. The homepage of KCA is www.ekca.org, and the homepage of KCCI is www.korcham.net.

4. This low response rate may result in non-response bias. Unfortunately, any open complete dataset were not available to quantitatively test non-response bias of this study. As the MC literature noted, financial performance and firm size, which are typically analyzed to check non-response bias, are the information that the MC firms are most reluctant to open. The former and current SMCs interviewed confirmed the same was true of the Korean MC industry. Moreover, it may be possible that the number of the MC firms, which implement systematic and formal HR practices studied in the current research, per se is very small in the Korean market. According to a report written by McKinsey's Seoul office in 2005 for KCA, 84% of the all types of consulting firms in Korea had less than ten full-time consultants. While being on the phone to encourage survey participation in the second phase of data collection, a considerable number of the non-participant firms informed that they were literally ‘one-man’ or very petty firms (i.e. a few partners). These results of qualitative investigation may show that the number of pertinent firms was not enough in the sampling frame, representing that this study may be the case that non-response does not necessarily bring out a substantial bias in the findings (Schalm and Kelloway 2001; Zacharatos et al. 2005).

5. The desired power of 0.80 means that there is an 80% probability to detect an effect that a study finds in a population and a 20% probability to engage in a Type II error.

6. On average, the sample firms had 40.44 full-time management consultants in the past 3 years. The 3-year average firm size ranged from 4 to 743.33. Only two firms in the sample have more than 100 management consultants (204.33 and 743.33). Excluding the two largest firms, the 3-year average size of the sample firms turned out to be 18.78.