Developing and Deploying Organizational Capital in Services vs. Manufacturing

Organizational capital is one of the three primary subcomponents of an organization's intellectual capital, which most scholars define as the sum of all knowledge and knowing capabilities firms can utilize (e.g., Nahapiet and Ghoshal, 1998; Stewart, 1997). While the other two forms of intellectual capital, human and social capital, are dependent on the firm's employees, organizational capital is the knowledge a firm has captured or appropriated to the organizational level. It consists of both explicit and implicit knowledge such as policies and procedures, patents, databases, routines, processes, work systems, and ways of doing business (Ray et al., 2012; Youndt et al., 2004), and has been shown to contribute significantly to various organizational performance and success measures. For example, organizational capital has been found to increase productivity (Black and Lynch, 2005), facilitate process replication and growth (Levinthal and Wu, 2010), improve the performance of new ventures (Bercovitz and Mitchell, 2007), aid in the development of service innovations (Froehle et al., 2000), and speed up the transfer of knowledge (Zander and Kogut, 1995). However, firms differ in their ability to create and/or capture this critical resource (e.g., Benezech et al., 2001). A principal basis for this difference is the nature of the work the firm performs. Specifically, as the levels of process variance increase, it becomes more and more difficult to capture knowledge in organizational systems and procedures because the construction of consistent routines becomes increasingly difficult (e.g., Benezech et al., 2001; Nelson and Winter, 1982). A primary driver of process variance in organizational activities is human action, as employees possess a series of individualized attributes, attitudes, and quirks that have idiosyncratic effects on work processes (Mills, 1986; Skaggs and Snow, 2004; Tansik, 1990). Human action tends to differ in two fundamental ways between service and manufacturing firms. First, most service firms sell a very human-centered labor process as opposed to a product (Batt, 2002; Skaggs and Youndt, 2004); as a result, employee-induced variance tends to be greater in service firms. And while all firms may seek to minimize the impact of this employee-induced variance via training and other HRM systems, service firms simply have more human variance to attempt to address. Plus, a well-trained human is never as invariant as a machine. Second, in addition to employee-induced process variance, customers tend to increase the level of work process variability through their direct involvement in many service production and delivery processes (Jones, 1987; Skaggs and Huffman, 2003). Again, this is in sharp contrast to manufacturing firms, where the separation of production and consumption typically allows firms the opportunity to buffer the production process from customer disturbances (e.g., Mills, 1986; Tansik, 1990; Thompson, 1967). Thus, based on both high levels of employee and customer involvement, service firms generally possess higher levels of variance in the nature of the work being performed (McLaughlin, 1996), which may impact their ability to develop and leverage organizational capital. That being said, the authors are unaware of any studies that have specifically investigated these relationships. Thus, the primary goal of this study is to better understand how the development and use of organizational capital is influenced by the differences in centrality of human action in work processes in service and manufacturing firms. The argument as presented begins with the assertion that in manufacturing, where lower levels of human action lead to decreased variance in workflow processes, firms are able to develop greater levels of organizational capital. Then, based on core tenets of the resource-based view (value, scarcity/rareness, imperfect substitutability), it is suggested that the relative difficulty in developing organizational capital in service firms may enable it to play a greater role in building competitive advantage in these firms. …