Foundations and Philosophy of HRD

Strategic Intellectual Capital Development: A Defining Paradigm for HRD?
The performance paradigm of human resource development (HRD) practice 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 strategic 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 conceptualization that is essential for HRD to provide organizations the intellectual 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 anything 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 (2003) argued that much of recent HRD research would be classified 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 paradigm(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 consider 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 performance 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 strategic human capital development as the second key concept in our new paradigm. 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 economic benefits for individuals and society as a whole (Sweetland, 1996). The investment in an individual can be made in terms of health, nutrition, education, and any other development that results in long-term benefits. It is important to clarify that the investor in this particular case is the individual who


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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 training, 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 commitment, ability to learn, imagination, and creativity. This definition is more appropriate 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 investing 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, onthe-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 primarily 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 articles, which attract wealth from other countries.



The studies of human capital began largely due to the fact that researchers who studied productivity in the United States discovered a proportion of intangible 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 intangible 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) proposed 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 environment constant and assumed that the ability and opportunity are equally distributed. 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 participate 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 investment in college education. In his Nobel Prize lecture, he suggested that human capital analysis starts with the assumption that individuals decide on their education, 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.


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Becker (1960) and Mincer (1974) provided empirical support for the benefits of investments in human capital. It became clear that human capital investments 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 suggests the possibility of underinvestment in college education. The underinvestment 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 capital 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 individuals 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 contribution to human capital theory by attempting to account specifically for the part of growth in economics that was not explained by land, labor, and tangible 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



people, and (c) human capital is related to economic growth. These attributes emphasize the importance of investing in people and increasing their knowledge 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 concepts 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 useful 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 guarantees 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 competitive 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 fundamental 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 instruments 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 capital 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 development and organizational development to improve performance (Swanson & Holton, 2001). Camuffo and Comacchio (2005) suggest that intellectual capital 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



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 imitated 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 organizational 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 advantage 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 capital of the firm and are comprised under the term structural capital. Clearly organizational learning is, to an extent, influenced and created by HRD interventions. 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


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change critical processes, resulting from changes in the environment, in addition to creating its own internal and external information and communication systems, for the purpose of reaching established targets. Structural or organizational 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 competitive 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 development. To maximize the potential of an organization’s intellectual capital requires not only development of human capital but also creating the organizational environment within which that human capital will flourish. Third, we suggest that intellectual capital is a more philosophically appropriate 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 capabilities and expertise are. We believe that this is a more theoretically appropriate 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 development.” 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 effectiveness and competitiveness, the responsibility for intellectual capital is often dispersed within organizations. We suggest that organizations would benefit



from having a profession and staff who have the capability to effectively champion, oversee, and lead what is now one of most organizations’ most critical assets. A likely objection to our argument is that HRD is not exclusively responsible 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 capital (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 argument of “what we control” has led many practitioners to stay mired in a training 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 interrelated. 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 organizational 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 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 organizations 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 successful organizations will manage their intellectual capital strategically, but only whether HRD will seize the opportunity to lead or let others in the organization 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 capital 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 supports our arguments. Strategic Human Resource Management Research The strategic approach to human capital/resource management has dominated 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 fundamental assertions. First, skills, behaviors, and interactions of employees create a potential foundation for strategy formulation and means for its implementation. 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;



Wright & Snell, 1991). What was at first a practice-based perspective became firmly entrenched in the academic literature. A complete review of the literature is beyond the scope of this article, but several important themes emerged. One challenge, of course, was simply to define what was meant by strategic human resource management. A commonly used definition emerged in Wright and McMahan (1992) which stated, “Strategic human resource management 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 management process of the organization. • It is the coordination of HR practices into a pattern of actions that will best support 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 creation 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 business 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.


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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 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 development 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 performance (see e.g., Becker & Huselid, 1998; Huselid, 1995; Huselid, Jackson, & Schuler, 1997; Youndt & Snell, 2004). Although all this research was conducted in the private sector—due to the readily available organizational performance 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 practices 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 operationalizing 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.



Several issues emerge from SHRM research, however, that parallel our discussion throughout this article. SHRM practices are not by themselves inimitable. 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. Crossfunctional 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 complex 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, contracting, and alliance. The choice of these modes depends on strategic considerations 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 behavior 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.


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An important part of this linkage is an integration of organizational development (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 literature on strategic human capital development, but alas that is not possible. The literature on strategic human capital development is simply not as well organized or as well focused as the strategic human resource management literature. 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 abilities, 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 productive 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 success. 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 shaping strategy. To be of strategic value, they argued that HRD must first be performance 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 employees 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



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 increasingly linked not to its fixed assets how much knowledge, innovation, and creativity 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 organization, organization-specific human capital is increased. Clearly, as such capital 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, organizationspecific human capital is increased, this should lead to an increase in the competitive 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 competitive 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 accomplished 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 project 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 selection of better candidates (Hayton, 2003). The use of lagging versus leading


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indicators of success and importance of HR interventions may prevent management 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. Underinvestment in people leads to poorer performance and affects organizations and society as a whole. Hitt, Hoskisson, Harrison, and Summers (1994) suggest 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 understanding, perhaps cultural history, or perhaps just fear of a new way of practice. 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 achievement 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 organizations will be successful over the long term, and the most successful organizations 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” organizing paradigm of SICD. SICD seems to offer the most robust conceptualization to link HRD to organizational effectiveness. The concept of human capital is



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 leveraging the human capital. Imagine the impact if HRD could effectively and consistently 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 interventions 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 management 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 contribute 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


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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 performance? 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 knowledge 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 interventions in their influence on job performance and training performance? 4. What types of social networks are most effective in determining which individuals will benefit most from a particular training program? 5. If central nodes and redundant ties in the networks can be identified and information 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 communication 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 outcomes 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 differences and training transfer.

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