The Fascinating Psychological Microfoundations of Strategy and Competitive Advantage

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and Competitive Advantage
Robert E. Ployhart and Donald Hale, Jr.
by 182.173.73.134 on 06/24/14. For personal use only.
Darla Moore School of Business, University of South Carolina, Columbia,

South Carolina 29208; email: ployhart@moore.sc.edu
Annu. Rev. Organ. Psychol. Organ. Behav. 2014. Keywords

1:145–72
strategy, competitive advantage, organizational performance,
First published online as a Review in Advance on
January 10, 2014 organizational psychology, organizational behavior
The Annual Review of Organizational Psychology Abstract

and Organizational Behavior is online at
orgpsych.annualreviews.org This article puts forth an agenda for the psychological study of strategy
This article’s doi: and competitive advantage. It centers this agenda within the microfoun-
10.1146/annurev-orgpsych-031413-091312 dations program, a program originating within strategy that seeks to
Copyright © 2014 by Annual Reviews. understand firm heterogeneity and competitive advantage by examin-
All rights reserved ing individuals and their interrelationships. The article first reviews
key theories and frameworks in strategy by taking a functionalist view,
that is, by starting with a focus on organizational criteria (operational
performance, organizational performance, competitive advantage). It
then discusses the importance of resources and how psychology may
contribute to an understanding of these resources. Organizational psy-
chology and organizational behavior research that links to higher-level
outcomes or resources is reviewed next. The article concludes with
questions that we believe will fascinate scholars of organizational psy-
chology and organizational behavior as well as with implications for
Watch a video lecture online practice. We hope this article helps stimulate a paradigmatic shift in or-
ganizational psychology and organizational behavior, as their theories
and findings are much more strategic than is currently appreciated.
145
INTRODUCTION
A significant revolution that seeks to understand how individuals and the relationships among
them contribute to firm heterogeneity, performance, and competitive advantage is under way
within the field of strategic management. This revolution has been called the microfoundations
program, and what makes it so fascinating is that those trained in economics and strategic
management are seeking to understand their key outcomes of interest—namely, firm heteroge-
neity and competitive advantage—by “turning inward” to the individuals that compose a firm
(Barney & Felin 2013, Felin et al. 2009). Yet, these scholars are also adamant that micro-
foundations are not simply psychological phenomena directly applied to the firm level. Rather, one
rallying cry energizing this movement states that we do not currently know what these micro-
foundations may be. The underlying argument is that the territory spanning micro (individuals)
and macro (firms) is amorphous, poorly understood, and vaguely defined. Thus, the mapping of
this uncharted territory currently preoccupies a growing number of researchers in the management
field (Hitt et al. 2007, Mathieu & Chen 2011).
The fields of organizational psychology and organizational behavior (OP/OB) have much
potential for contributing to this microfoundations program, and more broadly, the performance
and competitive advantage of firms. Despite the OP/OB terminology used in this article, our points
apply to nearly all research in industrial-organizational psychology, micro human resources (HR),
and organizational behavior. If one accepts the premises that no organization exists without
people and that OP/OB are inherently concerned with the study of people within organizational
settings, then OP/OB bear some responsibility for understanding how people contribute to or-
ganizational performance and competitive advantage. Yet, this is not the perspective that most
OP/OB research takes (Cascio & Aguinis 2008, Schneider et al. 2012). Rather, OP/OB research
tends to focus on individual or small-group outcomes with a heavy emphasis on individual job
performance. For far too long, OP/OB research has been content assuming that enhancing in-
dividual or even group performance contributes to organizational performance (Schneider et al.
2000). This way of thinking receives some support from empirical models that seek to estimate the
contributions of individual job performance to firm financial performance (e.g., utility analysis)
(Le et al. 2007). Individual job performance has been the privileged dependent variable within
applied psychology since it first became a focus of study, but it receives no special status within
organizations. Predicting individual job performance is a noble and important undertaking, but it
should be recognized that there are limits to what individual job performance can tell us about the
performance and competitive advantage of firms. The expectation that individual job performance
sums to produce aggregate organizational performance is too simplistic under most real-world
conditions. Practitioners are challenged with this undeniable reality and thus struggle to apply
psychological theories and methods in the service of the organization’s strategy. In practice,
psychology and strategy are often inseparable (Henson 2012).
OP/OB scholarship is starting to broaden to consider the strategic implications of its theories,
findings, and methods. But it can do much more, and there is a rare opportunity for OP/OB to unite
with strategy, economics, sociology, and related disciplines to understand the microfoundations
of firm-level heterogeneity and competitive advantage. As is argued here, the point of entry for
OP/OB into this conversation is through their ability to illuminate the understanding of collective
psychological resources, including, for example, human capital resources, climate, attitudes, and
culture. OP/OB may therefore serve as the foundation onto which an understanding of resource
microfoundations can be built. But this article also argues that existing approaches are not enough.
Letting the research trajectories emerge naturally is unlikely to lead to that uncharted middle
ground that connects individuals and organizations. Thus, this article proposes nothing less than
146 Ployhart Hale

a paradigmatic shift in the scope of phenomena that OP/OB scholars should study. This article
takes the strong position that OP/OB scholarship has great potential to contribute to an un-
derstanding of organizational strategy, heterogeneity, performance, and competitive advantage.
As such, this article reviews the limited, but growing, OP/OB research that is breaking from
tradition and choosing organizational unit-level outcomes as the criterion of interest. This article
gives primary emphasis to research published in the past 10 years and cites earlier work only when
it is particularly critical to current developments in the literature. This recency bias is appropriate
because dramatic shifts in strategy, human capital, and strategically oriented psychology have
occurred in the past 10 years.
We begin by adopting a functionalist view to summarize what is meant by organizational strategy,
performance, and competitive advantage. We then introduce the major theoretical perspectives and
provide a brief summary of the microfoundations program within strategic management. The focus is
then narrowed specifically to human capital resources and the vital role of emergence in connecting
individual characteristics to organizational outcomes. A review of OP/OB research that informs the
study of strategy and organizational outcomes follows. We conclude by considering the numerous
ways that OP/OB research may add new insights into strategy and competitive advantage. Included in
this discussion are considerations for practice. To organize this review, Figure 1 offers a heuristic
framework that draws heavily on the ideas in Jackson & Schuler (1995), Lepak et al. (2006),
Ployhart (2006), Ployhart & Moliterno (2011), and Schneider (1987).
A FUNCTIONALIST VIEW OF STRATEGY

Multidimensional Firm Performance
A useful starting point for understanding the psychological microfoundations of strategy and
competitive advantage is to consider the nature of firm-level outcomes that are of primary interest.
Such a functionalist view starts with the outcomes of interest and then works backward to identify
COMPETITIVE ENVIRONMENT
Firm strategy Firm organizational Firm organizational

Firm resources
(internal) (external)
and climate
performance performance
HR strategy
FIRM
HR practices COMPETITIVE
ADVANTAGE
Individual Individual job

characteristics performance and
(KSAOs, attitudes, etc.) related outcomes
Figure 1
Heuristic framework linking strategy, psychology, and three major types of firm-level performance outcomes: operational
performance, organizational performance, and competitive advantage. The weighting of the arrows from the competitive environment is
used to convey impact, such that thicker arrows imply greater impact. The large block arrow moving leftward from firm competitive
advantage indicates that the degree to which a firm generates a competitive advantage influences all subsequent parts of the framework
(including the competitive environment). Abbreviation: KSAOs, knowledge, skill, ability, and other characteristics.
www.annualreviews.org Psychology and Competitive Advantage 147

the key determinants of these outcomes. OP/OB researchers are very familiar with this approach,
as it has been recognized for decades that predictors are important only to the extent that they are
related to outcomes of organizational relevance (Wallace 1965). Important differences exist be-
tween different types of firm-level performance outcomes and, in particular, between performance
and competitive advantage.
Organizational performance is often the assumed target of OP/OB research, but a precise
definition of organizational performance is difficult because such performance is multidimen-
sional and different dimensions are relevant to different stakeholders (Crook et al. 2008, Richard
et al. 2009). In their review, Richard et al. (2009) operationalized organizational performance in
terms of three types: financial (e.g., profit), product market (e.g., market share), and shareholder
return (e.g., stock dividends). Another way to conceptualize organizational performance is to
distinguish between operational performance and global organizational performance (Crook et al.
2011). Operational performance is the more proximal indicator of a firm’s utilization of its
resources. Operational performance may be internal to a firm (e.g., collective performance of
employees) or external to it (e.g., customer satisfaction or market share).
Organizational performance is also distinct from competitive advantage (see Ployhart et al.
2013 for a review). Competitive advantage has been defined in numerous ways, but a simple
definition is that a competitive advantage exists when a firm has generated above-normal returns
(or economic value) relative to its competitors (Peteraf & Barney 2003). Competitive advantage is
inherently a comparative, between-firm metric based on standing relative to other firms. Not
simply profit, revenue, or growth, competitive advantage is about generating above-normal or
supranormal returns.
Thus, competitive advantage occurs between firms and emphasizes generating above-normal
returns via differentiation from competitors. Organizational performance may be within or be-
tween firms, and the underlying logic is one of “more is better.” No rules apply to riches for
competitive advantage, because any such rules would by definition negate a competitive ad-
vantage. However, there are rules to riches for operational performance, as is more consistent
with applied psychological approaches to the performance prediction problem.
Implications for Organizational Psychology and Organizational Behavior

The distinction between competitive advantage and organizational performance is vital for un-
derstanding, and then reconciling, the differences between strategy (macro) and OP/OB (micro)
(Ployhart 2012a, Ployhart et al. 2013). A few observations are important to recognize. First, most
strategy researchers emphasize competitive advantage over organizational performance, whereas
most OP/OB/HR researchers emphasize within-firm organizational performance. Second, or-
ganizational performance is a necessary, but not sufficient, condition for creating competitive
advantage (Barney & Wright 1998). In strategy, organizational performance is often referred to as
competitive parity. Competitive parity means that a firm is competitive with others and may be
profitable and generate a nice return, but it is not generating above-normal returns and, hence,
does not have a competitive advantage. When OP/OB researchers examine firm performance, they
are focusing on competitive parity instead of competitive advantage (Ployhart 2012b). Finally,
strategy researchers pay little attention to collective employee performance, which has an im-
portant role in OP/OB/HR frameworks (Jackson & Schuler 1995, Lepak et al. 2006). Collective
employee performance is the aggregate of individual job performance and is the pathway through
which OP/OB usually assume that individual differences contribute to organizational differences,
as operationalized by utility analysis (Schneider et al. 2000). Collective employee performance
may also be important for competitive parity, but not necessarily for competitive advantage.
148 Ployhart Hale

Based on existing research, the framework presented in Figure 1 draws a distinction between
three major types of firm-level performance outcomes. Operational performance is internal to
a firm and is based on such outcomes as collective employee job performance, productivity, safety,
and related metrics. Note that these metrics are often of primary interest to HR stakeholders.
Organizational performance is external to a firm and is based on accounting, financial, and pro-
duct market (e.g., customer satisfaction) outcomes. Competitive advantage is external to a firm and
is based on generating above-normal returns (Peteraf & Barney 2003). Operational performance,
organizational performance, and competitive advantage are related to each other, but they are not
necessarily highly related. For example, enhancing operational performance or even organiza-
tional performance may not contribute to competitive advantage, even though they are critical for
competitive parity. Furthermore, broader competitive and economic contexts have the potential to
moderate relationships with these firm-level outcomes (Helfat & Peteraf 2003). Compared with
internal (operational) performance, performance outcomes external to a firm (organizational
performance and competitive advantage) will be more affected by broader economic conditions
and a firm’s competitive context.
Determinants of Firm Performance Types: A Resource-Based Approach

The causes of firm heterogeneity can come from sources external and internal to a firm. In contrast
to externally focused approaches, the vast majority of research conducted in the past two decades
has emphasized the study of a firm’s internal resource endowments as the cause of heterogeneity in
performance outcomes (Armstrong & Shimizu 2007, Crook et al. 2008, Newbert 2007). In
particular, resource-based theory (RBT) has been used to explain how a firm’s internal resources
contribute to competitive advantage (Barney 1991, Wernerfelt 1984).
In an early and highly influential writing on RBT, Barney (1991) argued that firm resources
enable the design or implementation of strategy. Resources may be tangible (e.g., financial capital,
land) or intangible (e.g., human capital, organizational reputation). Barney (1991) argued that
firm resources may contribute to competitive advantage when they are rare and valuable. If
resources are further inimitable and nonsubstitutable, then the competitive advantage may be
sustainable. Factors that give rise to inimitability include social complexity (e.g., resources based
on aggregations and interactions among employees), causal ambiguity (e.g., uncertainty as to how
resources are created), and path dependency (e.g., historical factors that shape an organization’s
current context and resource endowment) (Barney 1991, Dierickx & Cool 1989).
The emphasis on firm specificity (or inimitability) as a vital source for sustained competitive
advantage is based on a logic of strategic factor markets (Barney 1986b). If resources are acquired
from strategic factor markets and these markets are reasonably efficient and well-defined, then
the value that is obtained by a resource will be offset by its acquisition costs. However, bundling
resources obtained from factor markets with a firm’s existing resources necessarily renders them
more firm specific and, hence, more inimitable. Accordingly, resource-performance outcomes are
moderated and affected by environment, and firms must be able to manage their resource port-
folios. Indeed, research on dynamic capabilities has suggested that a firm has capabilities for
bundling and leveraging resources (Teece et al. 2007). For example, managerial capabilities may
reference the knowledge managers have about how their firm’s resources can be combined or
leveraged (e.g., Hitt et al. 2001). In effect, dynamic capabilities focus on utilizing resources in
dynamic and uncertain environments. Other research has focused directly on managing resource
portfolios. Sirmon et al. (2007) offer a framework in which they emphasize the structuring,
bundling, and leveraging of resources in response to environmental uncertainty. Of particular
importance for OP/OB is the structuring of resources, which consists of three related processes:

acquisition, accumulation, and divestment of resources. Acquiring resources involves obtaining
resources from factor markets external to a firm. Accumulating resources involves developing
resources internally within a firm. Divesting resources involves removing or eliminating resources
that are not central to a firm. These three processes are used below as an organizing framework to
direct the agenda of future OP/OB research.
Human Capital Resources

Of the many ways OP/OB may connect to strategy and competitive advantage, the most accessible
point of entry is connecting OP/OB scholarship to the literature on human capital resources
(Ployhart 2012c). In contrast to the individual-focused economic tradition of human capital the-
ory (Becker 1964), research in the past 20 years has emphasized human capital as a strategically
valuable firm-level resource (Wright et al. 1994, 2001). Human capital resources have been
recognized as an intangible resource, meaning (among other things) that a firm cannot own
intangible resources as it would tangible resources such as land. This fact attracted the attention of
strategy scholars because, even though human capital resources may be important for a firm, the
management of such resources raises a number of complex issues, such as value capture and
appropriation (Coff 1997, 1999).
Yet, some early work on human capital theory has found its way into RBT. In particular,
strategy research has borrowed the concepts of generic and specific human capital and applied
them to the firm level (e.g., Hatch & Dyer 2004, Hitt et al. 2001). Generic human capital is
applicable to different organizations and contexts (e.g., cognitive ability, personality), whereas
specific human capital is applicable only to a given firm (e.g., specific knowledge of a company’s
people or customers). Given the logic of strategic factor markets (Barney 1986b), only specific
human capital was expected to contribute to sustained competitive advantage because it was the
only type that met the “inimitability” criterion.
Human capital resources have been studied primarily within strategic management and nearly
always at the firm level (e.g., Nyberg et al. 2014). Yet, it is usually assumed that human capital
resources originated from the characteristics of individuals. Ployhart & Moliterno (2011) de-
veloped a multilevel model of human capital resource emergence that made this connection
explicit. Their model explains how individual knowledge, skill, ability, and other characteristics
(KSAOs) contribute to the formation of distinct, unit-level human capital resources. KSAOs do not
lead directly to human capital resources. Rather, they are only partially isomorphic owing to an
emergence-enabling process that comprises two parts. First, the complexity of the task envi-
ronment determines the extent to which individuals need to interact, coordinate, and synchronize
their behavior. Task complexity ranges from including relatively isolated and independent
individuals (i.e., a pooled task structure) to being completely interdependent (i.e., an intensive task
structure). All else being equal, the greater the coordination demands, the greater the likelihood
that human capital resources will emerge from KSAOs. Second, emergence-enabling states are
social contextual factors that facilitate or inhibit member interactions. These states are behavioral
(e.g., coordination patterns, backing-up behaviors), cognitive (e.g., transactive memory), and
affective (e.g., trust, cohesion). Even if a task environment demands interaction, a lack of sup-
portive emergence-enabling states will prevent human capital from emerging to unit levels.
Empirically, a sizeable amount of research suggests that human capital resources contribute to
unit-level performance outcomes. A recent meta-analysis (Crook et al. 2011) constructed a model
relating human capital (a composite of generic and specific) to firm performance. A direct effect
between human capital and firm performance was partially mediated by an indirect effect through
operational performance. The effect size of human capital to operational performance was three
150 Ployhart Hale

times larger than the effect size of human capital to firm performance. Hence, one of the ways in
which human capital influences firm performance is through its effects on operational performance.
However, very recent research is increasingly arguing against the longstanding hypothesized
benefits of specific human capital over generic human capital. Campbell et al. (2012) argued that,
when considering likely side effects of supply and demand, generic human capital may actually
underlie competitive advantage. They further noted that bundling generic human capital with
other firm resources, in the form of resource complementarities, renders the generic construct more
firm specific. Ployhart & Moliterno (2011) argued that the emergence-enabling process is nec-
essarily firm specific; hence, even generic human capital resources are tied directly to a firm. Felin
et al. (2009) and Felin & Hesterly (2007) suggested that knowledge resources are firm specific
because they are tied to specific people and processes within a firm. Ployhart et al. (2013) noted that
it is the combinations of human capital resources, rather than the resources themselves, that are the
locus of human capital resource–based competitive advantage. These trends are important because
they more closely align strategy’s treatment of generic resources with OP/OB’s treatment of generic
KSAOs (e.g., cognitive ability, personality).
Finally, Nyberg & Ployhart (2013) considered the nature of human capital accumulation and
depletion within the context of collective turnover (see also Hausknecht & Trevor 2011). In their
theoretical framework, turnover’s impact is to change the quantity and quality of human capital
available to a unit. In turn, the relationship between turnover and unit-level human capital is moderated
by climate and environmental complexity. In a similar vein, Hausknecht & Holwerda (2013) proposed
a theoretical model in which the proficiencies (human capital) of leavers and stayers, as well as the time
dispersion of leavers, moderate the impact of unit-level turnover on firm performance. Recently, three
meta-analyses have appeared examining the effects of collective turnover (Hancock et al. 2013, Heavey
et al. 2013, Park & Shaw 2013). This research links OP/OB to a strategically important organization-
level outcome. In this capacity, OP/OB constructs play an important theoretical and empirical role in
mediating the relationship between unit-level turnover and unit-level performance.
Other Resources
Although most strategy scholars focus on human capital resources, this is largely a by-product of
history and the preexistence of human capital theory (Ployhart et al. 2013). In turn, most strategy
human capital research previously focused on some form of KSAOs, particularly on knowledge
(Nyberg et al. 2014). However, nothing within RBT suggests other psychological resources cannot
emerge from individual characteristics other than KSAOs (Wright & McMahan 2011). In fact,
Becker (2011) suggests employee health and well-being should be considered forms of human
capital. In this manner, much of the prior “linkage” research conducted in OP/OB fits nicely
(although perhaps not neatly) into RBT. Research reviewed below, such as that on aggregate
employee attitudes and firm performance (e.g., Harter et al. 2010), highlights the presence of other
key resources that are not based on KSAOs but nevertheless emerge from individuals. These other
resources have been missing in most of the strategic RBT research that involves people, and
incorporating it could do much to bring OP/OB into strategic focus (Wright & McMahan 2011).
Microfoundations and Resource Emergence

OP/OB have tackled multilevel issues for decades and have developed several methodological
approaches and meta-theoretical frameworks to address them (e.g., Chan 1998, Kozlowski &
Klein 2000). The primary focus has been on understanding how lower-level and higher-level
phenomena are interrelated. From the view of psychology, the emphasis is on aggregation, and the

theoretical processes that explain aggregation are known as emergence. The dominant definition
of emergence in psychology is provided by Kozlowski & Klein (2000, p. 55): A “phenomenon is
emergent when it originates in the cognition, affect, behaviors, or other characteristics of indi-
viduals, is amplified by their interactions, and manifests as a higher-level, collective phenomenon.”
OP/OB are not the only disciplines that have dealt with aggregation and emergence, however, as
they represent a classic tension in the social sciences (Barney & Felin 2013, Felin & Hesterly 2007;
see Felin 2012b). In strategic management, the emphasis was usually not on levels lower than the
firm level, with the special exception of CEOs and top management teams (TMTs) (Wright &
Boswell 2002). However, in roughly the past six years, there has been a movement to “look inward
and downward” to consider the foundational role of individuals in shaping and creating strategy,
hence the term microfoundations. Although the microfoundations program within strategy is not
identical to the concept of emergence as usually conceptualized by applied psychologists, these

approaches share a common desire to understand aggregation, as “aggregation is the sine qua non
of microfoundations” (Barney & Felin 2013, p. 145).
Importantly then, strategic microfoundations and psychological multilevel principles are different
ways of viewing the uncharted territory between individuals and firms. They both seek to understand
the relationships and interactions that transform “individual” to “collective.” Both emphasize ag-
gregation and emergence, but they see it from different points of view. Strategic microfoundations take
the perspective of a firm embedded within a broader economic environment. This macroperspective
places the individual within this broader economic context, recognizing the role of markets and how
such markets may influence collective processes (Barney & Felin 2013). Psychological multilevel
principles start with the individual and all the corresponding psychological factors that surround
a person. Although the psychological perspective is also interested in interactions and contexts, it has
historically given much less emphasis to these as the primary drivers of behavior, instead favoring
intra- and interpersonal psychological factors (Schneider et al. 2012). However, we reiterate that
strategic microfoundations and psychological multilevel principles are complementary, and we
suspect integrating them more formally will lead to many important insights for both literatures.
Implications for Organization Psychology and Organizational Behavior

Recognizing that psychologically based resources (e.g., human capital, collective attitudes) emerge
from KSAOs leads to four important realizations. First, connecting psychology to RBT is sensible
because both generally assume that heterogeneity in resources [whether psychological (ability) or
firm level (human capital resources)] influences performance outcomes (although RBT gives greater
consideration to contextual moderators than does applied psychology). Second, emergence is the
linchpin that unites individual difference KSAOs and strategic resources (Barney & Felin 2013,
Ployhart 2012c). Third, emergence and aggregation are central issues in the microfoundations
program in strategic management (Barney & Felin 2013) and psychological multilevel theory
(Kozlowski & Chao 2012), but they are not the same. Fourth, questions of how emergence occurs
and what it is unite multiple disciplines, including OP/OB (Felin 2012a). Finally, OP/OB own the
territory through which emergence travels, so the study of macro (strategy), micro (individual
differences), and meso (emergence and aggregation) are in fact united within a single theme.
STRATEGIC ORGANIZATIONAL PSYCHOLOGY AND ORGANIZATIONAL

BEHAVIOR?
Having considered strategy and the paths through which OP/OB may relate to strategy, we now
review the existing empirical research that has examined traditional OP/OB topics within a broader
152 Ployhart Hale

strategic orientation. By strategic orientation, we mean research that seeks to understand the op-
erational or organizational performance of strategic business units, including departments, stores,
branches, or firms. We recognize that simply studying an outcome at a higher level does not mean the
research is strategic in nature, particularly if the intent was not to offer strategic insights. However,
we must adopt this rough approximation because little psychological research is framed in terms of
strategic goals. Our intention is not to be exhaustive, but rather to illustrate the approaches that have
been considered.
Job Design and Job Analysis

Research on job analysis and work design has largely ignored the broader organizational and
occupational context (Humphrey et al. 2007, Morgeson et al. 2010b). More recently, research on
job design and job analysis has begun to incorporate intrafirm (e.g., organizational climate) and
interfirm forces (e.g., occupational context) (Dierdorff & Morgeson 2007, 2013; Dierdorff et al.
2009) into the theory of job design and job analysis. From an OP/OB perspective, these recent
developments are important on the basis of two perspectives.
First, incorporating occupational forces into job design and job analysis theory recognizes the
role that extrafirm context plays in within-firm job design and analysis. An occupation is a “group
of work roles spanning multiple organizations that share a similar set of work requirements (e.g.
tasks and responsibilities), methodologies, objectives, or worker requirements (e.g. knowledge,
skills, abilities)” (Morgeson et al. 2010b, p. 352). Occupations, therefore, reach into the organization
and directly influence within-firm work designs (Dierdorff & Morgeson 2007, 2013). In addition,
occupations can have their own culture that influences what is acceptable or expected within
a particular work role (Fine 1996, Trice 1993). The occupational culture can be a strong influ-
ence that constrains the effectiveness of within-firm job design (Dierdorff & Morgeson 2013,
Morgeson et al. 2010b).
Second, incorporating intrafirm characteristics such as organizational climate recognizes the
role that between-firm heterogeneity plays in the emergence and overall effectiveness of job design
(we discuss climate in more detail below). An organization’s climate may cause certain work
design features to be more salient and, therefore, may influence specific dimensions of job design
that emerge within an organization (Morgeson et al. 2010b). At the same time, an organization’s
climate can moderate the effectiveness of a particular job design. For example, in an organization
with a weak customer service climate, job designs that require direct interaction with individuals
outside of the organization may not be effective.
The recent focus on context within the literature on job analysis and job design is promising
for strategic OP/OB. Extrafirm contextual influences such as occupation are consistent with
older notions in the strategic literature that suggest that forces outside a firm shape firm char-
acteristics and firm outcomes. Intrafirm contextual influences such as climate are consistent with
notions prevalent in RBT that suggest that firms possess heterogeneous resources that drive
competitive advantage (Barney 1991). However, theory regarding the role of context on job
design is still in its beginning stages, and empirical work on the subject is lacking. Morgeson et al.
(2010b, p. 357) have lamented that, “So little research has been conducted up to this point that
almost any research that systematically explores context and work design is likely to represent
a contribution to the literature.” So, although recent developments in job analysis and job design
open promising areas to link OP/OB to the strategic literature, there is much room for future
research (as discussed below). For example, research should seek to connect classic research on job
design with the notion of “strategic jobs” and the strategic impact of employees or positions more
generally (Lepak & Snell 1999).

Recruiting
In the framework of acquiring, accumulating, and divesting human capital resources, recruiting is
the first step in the process (Ployhart & Kim 2013). Recruiting is how an organization sources,
attracts, and maintains potential employees. The pool of potential employees limits the quantity
and quality of those who become employees of an organization (i.e., who become the basis of the
unit-level human capital resources) (Schneider 1987).
Recently, there have been calls to broaden the scope of firm-level recruiting research (e.g.,
Orlitzky 2007, Taylor & Collins 2000), and the number of firm-level recruiting studies has in-
creased over recent years. Recruiting research at the firm level has primarily focused on unit-level
human capital or internal performance as the dependent variable. For example, Han & Han
(2009) examined the relationship between network-based recruiting practices and the quality of
job applicants (human capital) in 168 Chinese firms, and Martins & Lima (2006) examined the
relationship between the share of external recruitments for top management positions and firm
productivity (internal performance) in 850 Portuguese firms. Recruiting literature has also ex-
amined interactions among firm-level recruiting strategy and firm-level brand strategy, advertis-
ing, and reputation (Collins 2007, Collins & Han 2004). These studies highlight the influence of
context on recruiting strategy by showing that the most effective recruiting strategy is contingent
on other firm-level strategies. Nevertheless, a recent review of the recruiting literature found only
12 articles that examined recruiting at the unit or firm level (Ployhart & Kim 2013) and no articles
that examined recruiting as a source of competitive advantage. So, despite positive developments
for strategic OP/OB in the recruiting literature, there is still massive opportunity to explore fully
the link between recruiting and the strategic position of an organization.
Selection
Recruiting defines the potential pool of individual-level human capital that may be acquired by an
organization, but selection defines the pool of individual-level human capital that is actually ac-
quired by an organization. Some selection research has begun to link unit-level selection practices to
unit-level performance. For example, Van Iddekinge et al. (2009) examined the relationship between
selection (the percentage of employees meeting a threshold on a selection test) and organizational
performance (customer outcomes and financial metrics) over time. Ployhart et al. (2009) linked
changes in employee selection (change in unit-average selection scores) to changes in unit-level
internal (productivity) and external (profit and sales growth) performance over time. Ployhart et al.
(2011) linked unit-level selection (percent of employees scoring in the top third on a selection test) to
unit-level development (percent of employees completing specific training) and operational (em-
ployee productivity) and organizational (sales) measures of unit performance. Kim & Ployhart (2014)
found that firms that use more selective staffing show greater productivity and, hence, greater
financial growth before, during, and after the Great Recession. They further argued that staffing
generates higher-quality generic human capital resources that enhance firm-level adaptation to
environmental changes; hence, staffing is particularly important when the economy changes dra-
matically. This research is cast in the framework of RBT, although it does not test competitive
advantage. Several theoretical and practical discussions of selection for performance and competitive
advantage have also been written (Ployhart 2006; 2012a,b,c; Schneider et al. 2000).
Training and Development

Training is a systematic effort to impart learning and development to improve performance at the
individual, team, or organizational level. Development is specific to an individual’s activities that
154 Ployhart Hale

aid in personal growth (Aguinis & Kraiger 2009). In terms of human capital, training and de-
velopment are ways that firms accumulate firm-specific human capital resources (Hatch & Dyer
2004). An abundance of theory and research focuses on training and development at the individual
level (see Aguinis & Kraiger 2009, Arthur et al. 2003); however, as with many of the OP/OB
constructs, there is much less research at the unit or firm level. In a meta-analysis by Arthur et al.
(2003), only 26 of 1,748 studies looked at the benefits of training at the firm level.
Since that meta-analysis was conducted, several additional studies have examined the link be-
tween training and organizational performance, and a more recent review uncovered 67 studies that
examine the link between training and organization performance (Tharenou et al. 2007). For ex-
ample, Garcia (2005) examined the link between training policies and internal (productivity) and
external (customer satisfaction) measures of firm performance in 78 Spanish firms, and Mabey &
Ramirez (2005) examined the relationship between training practices and internal (employees as
a percentage of operating profits) and external (revenue per employee) firm performance in 179 firms
in the United Kingdom, Denmark, France, Germany, Norway, and Spain. Kim & Ployhart (2014)
showed that greater internal training contributes to firm-level productivity and then profit growth
over time, but more strongly during a pre-(rather than post-) recession period. These studies highlight
the strategic value of training by linking training to operational (productivity) and organizational
performance (e.g., sales and customer satisfaction); however, as with many of the other OP/OB
constructs, very little research or theory explores the link between training and competitive advantage.
Performance and Performance Management

At the unit and firm levels, specific performance measurement and performance management
practices are often included in definitions of HR systems (e.g., high-performance work systems)
(Huselid 1995). As an independent set of practices, performance management and performance
measurement have not received nearly as much attention at the unit level. Some have theorized
about the need for fit between organizational strategy and performance management (Aguinis
2009), but there is little empirical research. In relation to human capital, the ability to develop
human capital is contingent on the ability to accurately measure, value, and manage current
human capital performance. Consequently, it is odd that more research has not examined the
performance management process as a source of firm-level heterogeneity and a potential source of
competitive advantage.
In addition to the performance management process, actual employee performance is another
area in which OP/OB have made some recent inroads into organizational strategy. Some recent
research on individual-level performance has challenged the long-held belief that individual per-
formance is normally distributed (O’Boyle & Aguinis 2012). If true, then individuals with specific
talents are rare, quite valuable, and a potential source of competitive advantage for organizations.
Therefore, the ability to identify, develop, and maintain high performers may play a significant role
in the strategy and competitive advantage of organizations.
Teams and Groups

The literature on groups and teams has developed robust frameworks that capture emergent
processes and states that enhance group and team performance (Bell et al. 2012, Kozlowski &
Ilgen 2006, Marks et al. 2001, Mathieu et al. 2008). However, as discussed above, the majority of
this literature examines team-level outcomes but stops short of examining unit-level or firm-level
outcomes (Kozlowski & Chao 2012); this research also tends to ignore the role of markets. One
notable exception to this trend is the TMT literature.

TMTs are composed of the CEO and other executives who are responsible for strategic decision
making within an organization. According to upper-echelon theory, the values and cognition of
the TMT are considered critical for the success and performance of an organization (Hambrick &
Mason 1984). As a result, researchers have begun linking the quality of TMT interactions and firm
performance. For example, a recent meta-analysis (de Wit et al. 2012) included the role of task
conflict. They found that task conflict was more positively related to firm performance in TMTs (as
compared with other groups). Hutzschenreuter & Horstkotte (2013) examined demographic fault
lines within 61 TMTs of German firms. They found that demographic fault lines were negatively
related to product diversification. Though the vast majority of the groups and teams literature does
not address the link between group and team dynamics and unit or firm performance, the TMT
literature is one area in which OP/OB constructs have been linked to organization performance
and the strategic success of an organization.
Leadership
A number of studies have linked leadership style to the quality of leader, member relationships,
and group and team performance (for reviews, see Avolio et al. 2009, Bono & Judge 2003,
Dumdum et al. 2002, Judge et al. 2002, Morgeson et al. 2010a). Leadership is also an area in which
leadership characteristics have been linked to firm-level and unit-level performance. The majority
of the literature linking leadership to firm performance focuses on the leadership characteristics of
the CEO, TMT, or founder of the organization and links them to operational or organizational
performance. For example, Hmieleski et al. (2012) examined the shared authentic leadership of
TMTs in a random sample of new ventures in the United States and found that TMTs that shared
authentic relationships indirectly affected firm performance via the positive affective tone of the
TMT. Peterson et al. (2009) found that the transformational leadership of high-technology CEOs
was related to firm performance in start-up and established firms. De Luque et al. (2008) found
that visionary leadership was related to firm performance in a sample of firms from 17 different
countries.
The leadership literature has linked manager leadership style to unit-level internal and external
measures of performance. For example, Crossley et al. (2013) linked manager proactivity in setting
goals to external unit performance (sales performance) in 50 business units of a large US retailer.
Fry et al. (2011) linked spiritual leadership to unit-level internal and external performance
outcomes in a sample of emerging military leaders. In a similar context, Bass et al. (2003) linked
platoon leaders’ transactional and transformational leadership to unit performance in periods of
high stress.
The literature linking leadership style to unit and firm performance shows the importance of
senior management and management leadership styles to firm and unit performance. In fact,
a recent review of 10 leadership-oriented meta-analyses including 1,124 samples concluded that
strong evidence links leadership to operational and organizational performance at the unit and
firm levels (Kaiser et al. 2008). However, little research directly links leadership to the competitive
position of an organization.
Climate and Culture

Culture is a deep-rooted set of shared values and beliefs that are communicated visibly by the
myths, stories, and policies of an organization (Schein 2010, Schneider et al. 2013). Although
culture may develop via the interaction of individual employees (Schneider 1987), culture is an
aggregate-level construct. Therefore, a majority of the research on organizational culture includes
156 Ployhart Hale

unit- or firm-level culture. A recent meta-analysis on 94 independent samples of the relationship
between culture and organizational effectiveness did not fully support a competing values
framework, but it did demonstrate that organizational culture is related to operational and or-
ganizational performance (Hartnell et al. 2011). Because a firm’s culture is complex, causally
ambiguous, and endures over time, it lends itself directly to the study of firm heterogeneity and
competitive advantage. In fact, Barney (1986a) specifically theorized that a firm’s culture can be
a source of sustained competitive advantage, but this is not usually how culture is considered
within OP/OB research.
Climate is created by the shared perceptions of employees regarding formal and informal
policies, practices, and procedures in an organization (Schneider et al. 2013). Recent research
considers “climate for something” (Schulte et al. 2009). For example, Salanova et al. (2005)
examined climate for service and unit-level customer loyalty. Climate has been examined as
a mediator of the relationship between HR policies and firm performance (e.g., Bowen & Ostroff
2004). Even though the HR policy literature examines the mediating role of organizational cli-
mate, the complexity, causal ambiguity, and path-dependent nature of organizational climate have
not been fully explored. We return shortly to a more focused consideration of climate within
service organizations.
Employee Attitudes and Motivation

The link between job attitudes, specifically, job satisfaction, and job performance has been called
the Holy Grail of applied psychology (Landy 1989). For example, positive job attitudes have been
linked to service performance behaviors and a willingness to work with other employees to achieve
customer outcomes (Schneider et al. 2005). Therefore, at the unit or firm level, employee satis-
faction and attitudes have been positively linked to improved operational (productivity, employee
retention) and organizational (customer satisfaction, loyalty, profits) performance (Harter et al.
2002, 2010), although the causal direction is sometimes ambiguous (Ryan et al. 1996, Schneider
et al. 2003).
Not surprisingly, most motivation research still focuses on the individual level and considers
individual-level outcomes (Latham & Pinder 2005). However, more recent research is expanding
into team-based environments. For example, individual- and unit-level motivation are similar
processes functioning at different levels, but they are not isomorphic, so generalizations from
individual to unit levels are not warranted (Chen & Kanfer 2006, Chen et al. 2009).
Employee attitudes and motivation represent areas in which OP/OB are starting to influence
strategy research. As part of the research on the black box between HR policies and firm per-
formance, both motivation and employee attitudes have been proposed as mediators of the re-
lationship between HR policies and unit performance (e.g., Lepak et al. 2006, Jiang et al. 2012). In
that sense, both constructs are part of the conversation that links the development of human-
related resources to firm performance and competitive advantage. However, the strategic value of
employee attitudes and employee motivation as independent constructs has not been thoroughly
examined.
Safety and Health

Workplace safety research has developed a model that includes person- and firm-level antecedents
to safety outcomes (Christian et al. 2009). At the firm level, group safety climate is negatively related
to the number of accidents and injuries (Burke et al. 2008, Mearns et al. 2003) within an orga-
nization. The extent to which HR practices reward a focus on safety is an important component of

the safety climate (Christian et al. 2009, Zacharatos et al. 2005). However, despite its obvious
importance to the operational and organizational performance of firms (Wright & McMahan 2011),
no scholarly attention has been devoted to understanding the strategic implications of safety
and health.
Turnover and Withdrawal

The relationship between turnover and unit- or firm-level performance has received considerable
attention over the past five years, as the collective turnover literature has blossomed (Hausknecht
& Trevor 2011). Turnover is an example of OP/OB research influencing the direction of theo-
retical and empirical work in the strategic management literature. From a theoretical perspective,
turnover can be either voluntary or involuntary (Park & Shaw 2013). Voluntary turnover is a form
of withdrawal in which the employee leaves the focal organization. Involuntary turnover can be
the result of workforce reduction or poor individual performance. From an organizational
perspective, in the absence of different individual, dyadic, or group dynamics, the impact of
turnover should be the same regardless of the turnover type. However, there are differences at the
individual, dyadic, group, and unit levels, depending on the type of turnover and the circumstances
in which it occurs. For example, Trevor & Nyberg (2008) examined the relationship between
involuntary turnover due to downsizing and voluntary turnover rates. In their study, involuntary
turnover rates caused unit-level voluntary turnover, and the relationship was mediated by or-
ganizational commitment. In addition, HR practices moderated the relationship between in-
voluntary and voluntary turnover by focusing increasing embeddedness or perceptions of
procedural justice. In this way, unit-level voluntary and involuntary turnover have different
psychological antecedents and consequences (Park & Shaw 2013; Shaw et al. 2005a,b, 2013).
In addition to explicating the strategic differences between voluntary and involuntary turnover,
OP/OB have also helped shape theories concerning how individual turnover events ultimately drive
the performance of a unit or organization. Nyberg & Ployhart (2013) drew upon emergent models of
turnover and multilevel theory to explain how context influences unit-level turnover (Park & Shaw
2013). From an empirical perspective, OP/OB constructs have been identified as antecedents and
consequences of unit-level turnover (Hancock et al. 2013, Heavey et al. 2013, Park & Shaw 2013).
This research links OP/OB to a strategically important unit-level outcome. In this capacity, OP/OB
constructs are mediating the relationship between unit-level turnover and performance.
Customer Service
Within the customer service literature, three customer perceptions are of primary interest: service
quality, satisfaction, and loyalty. Customer service is unique in requiring interaction between
employees and customers, and as a result, it is a coproduction process between an employee and
a customer. This relational context forges a link between employee characteristics and the psy-
chological perceptions of customers. However, given that many service encounters are with
personnel that are more or less interchangeable (e.g., “big-box” retail settings), customers tend to
conceptualize service as a unit-level phenomenon (Liao & Chuang 2004).
Linkage research examines the relationship between employee characteristics and customer
psychological outcomes (e.g., Harter et al. 2010, Liao & Chuang 2004, Ployhart et al. 2011,
Schneider et al. 2005). For example, linkage research has examined unit-level customer outcomes
and their relationship with leadership (Liao & Chuang 2007), climate (Chuang & Liao 2010),
and selection processes (Ployhart et al. 2009) within a unit. Grizzle et al. (2009) also examined
the moderating role of unit-level customer orientation climate on the relationship between
158 Ployhart Hale

individual-level customer orientation and customer-oriented behaviors in full-service restaurants.
They found that unit-level customer orientation climate moderated the relationship such that
customer-oriented employees exhibited more customer-oriented behaviors when the unit-level
customer orientation climate was high; in turn, unit-level customer orientation behaviors were
positively related to unit-level performance. A recent meta-analysis of 58 samples found that
service climate was related to operational and organizational performance (Hong et al. 2013). This
research shows the multilevel (employee and unit level) linkages between service orientation,
performance, and outcomes. Customer outcomes are another area in which OP/OB research has
made significant advances at the unit level, but also in which OP/OB scholars have yet to vet fully
the relationship between these complex interactions and the competitive advantage of firms.
Human Resources Practices

HR policies are a unit’s stated or official intentions with regard to HR programs, processes, and
techniques, whereas HR practices are the actual programs, processes, and techniques that get
implemented within a business unit (Wright & Boswell 2002). HR systems are bundles of HR
practices and policies (Becker & Gerhart 1996). Strategic human resources management (SHRM)
is an area of research focused on the strategic impact of HR-related decisions. From a human
capital resources perspective, SHRM is the set of choices an organization makes regarding how it
acquires, accumulates, and divests human capital resources.
Beginning with Huselid’s (1995) study of high-performance work systems, much of the SHRM
literature has focused on HR systems and their relationship to firm-level performance. Since then,
researchers have examined various systems of HR policies and practices and how they affect firm-
level outcomes (Combs et al. 2006). Wright et al. (2005) examined the causal order of the re-
lationship between HR policies and firm performance. They found that HR practices had little
impact on future performance once prior performance was controlled for, thus implying that firm
performance causes HR practices more than HR practices cause firm performance. However, Birdi
et al. (2008) examined psychology-based HR practices (empowerment, training, and team-based
work) and their relationship to firm-level outcomes in 308 firms over 22 years. They found that the
implementation of psychology-based HR practices was related to future firm performance. The
longitudinal effects of HR practices were contingent on the type of HR practice. For example,
empowerment influenced firm performance most strongly in the first seven years after imple-
mentation, whereas teamwork had a delayed effect and impacted firm performance most in years
6–10 after implementation. The results also showed significant between-firm variation in the
impact of the HR practices. These results indicate clear differences in the mechanisms that mediate
the impact of different HR practices over time, and they also show that firm-level differences may
moderate the impact of HR practice implementation.
A recent strand of this literature has tried to determine the constructs that mediate the re-
lationship between HR policies and practices and firm performance. Many of the constructs ex-
amined in the literature are familiar to OP/OB scholars. For example Messersmith et al. (2011)
examined the relationship between high-performance work systems and department performance.
They found that department-level job satisfaction, organizational commitment, and psychological
empowerment mediated the relationship between high-performance work systems and depart-
ment performance. A recent meta-analysis (Jiang et al. 2012) utilized 116 articles to examine the
mediating mechanisms between HR systems and firm performance. They found that human
capital and motivation mediated the relationship between HR systems and firm performance, but
that the particular mediating mechanism depended on the type of HR system being examined. In
addition, Nishii et al. (2008) found that employee attributions as to the “why” of HR practices

moderated the relationship between HR practices and unit-level customer satisfaction, whereas
Takeuchi et al. (2007) found that human capital and social exchange mediated the relationship
between high-performance work systems and firm performance in a sample of Japanese firms.
A substantial portion of the SHRM literature is cast in the framework of RBT and the ability to
enhance the human-related resources of an organization through management choice and deci-
sions (Nyberg et al. 2014). In these areas, OP/OB-related constructs have played a prominent role
in explaining the dynamics that link HR policies to unit- and firm-level outcomes. Indeed, through
strategic HR, psychology has been introduced to strategy. However, many strategic OP/OB
concepts and constructs that are relevant remain unexplored in this area.
Diversity
Diversity has been linked to organizational performance with mixed results (Avery et al. 2012).
Jackson et al. (2003) reviewed 62 studies of diversity, 8 of which were related to firm diversity that
predicted firm outcomes. These authors found little consistency in the value of diversity to firm
performance. In addition, they examined 18 articles related to diversity within TMTs and again
found little consistent evidence of the relationship between diversity and firm performance. The
inconsistent findings have led researchers to consider moderating variables in the relationship
between diversity and firm performance.

Some research has examined the moderating role of climate and culture on the relationship
between diversity and firm performance (Cox & Tung 1997, Ely & Thomas 2001, McKay et al.
2009). Much research on climate and culture has supported the notion that these constructs
moderate the relationship between diversity and firm performance (Chatman et al. 1998, Dass &
Parker 1999). However, some research has not supported the moderating role of culture on the
relationship between diversity and firm performance (Jehn & Berzrukova 2004). This discrepancy
may be due to differences in perceptions between managers and subordinates about the culture
and diversity climate within an organization (McKay et al. 2009).
Other research has begun to focus on the match between employee diversity and the diversity of
the customer base. Sacco & Schmitt (2005) examined the moderating effect of demographic
matching (unit-level versus community-level racial diversity) on the relationship between overall
racial diversity and organizational performance (controllable profits). They did not find a mod-
erating effect. However, Avery et al. (2012) examined the racioethnic match between employees
and customers in 739 stores of a US retailer. They found that the racioethnic match between
employees and the customer base had a direct effect on customer satisfaction and an indirect effect
on employee productivity.
This research is promising for OP/OB because it links diversity to unit and firm performance
with both operational and organizational measures of performance. It is also promising because
the mixed results and numerous moderators highlight the complexity and difficulty of demon-
strating value from a diverse set of workers. The complexity of diversity management increases the
likelihood that firms will be heterogeneous in their diversity management capabilities and places
such diversity squarely in the realm of potential competitive advantage.
Cross-Cultural Issues
Firms and their employees are nested in a national or regional culture, so it is important for
strategic OP/OB to understand the role that national culture plays in the strategic value of psy-
chology within and between firms. Researchers have begun to look at firm- or unit-level outcomes
in other cultures. For example, Takeuchi et al. (2009) looked at the cross-level (individual and
160 Ployhart Hale

establishment) effects of high-performance work systems on employee attitudes in 76 Japanese
establishments (nested within 56 firms). Similarly, Peretz & Fried (2012) examined the effects of
cultural differences across 21 countries on performance appraisal practices. Such research uses
firms within or across different countries and is helpful in establishing the generalizability of the
strategic value of OP/OB. Examples of cross-cultural research in recruitment (Han & Han 2009,
Martins & Lima 2006), leadership (de Luque et al. 2008), training (Garcia 2005), and TMTs
(Hutzschenreuter & Horstkotte 2013) are discussed above. However, this research does not fully
integrate cross-cultural dynamics into the study of OP/OB as a source of international competitive
advantage.
ON BECOMING FASCINATED WITH THE PSYCHOLOGICAL

MICROFOUNDATIONS OF STRATEGY AND COMPETITIVE ADVANTAGE
Researchers study what fascinates them. As a community of researchers, OP/OB scholars have
been fascinated with individual job performance (and to a lesser extent, team performance). The
problem is that this fascination is not often shared in business, practitioner, or even strategy
communities. We propose a paradigmatic shift for OP/OB, not to abandon the study of individual
job or team performance, but to give equal prominence to firm or strategic business unit-level
operational performance, organizational performance, and competitive advantage. We want to

see OP/OB research move from being only a “more is better” framework to also being a “dif-
ferentiation” framework. These are the kinds of issues and questions that preoccupy the minds of
organizational leaders and practitioners. Such a shift would not result in a soulless search for
organizational profit at the expense or exploitation of employees. Rather, it fits within the vision
and mission of OP/OB (Ployhart 2012c). Enhancing organizational profitability does to employees
what a tide does to ships—it raises them.
In this final section, we pose a set of topics that we hope OP/OB researchers will find fasci-
nating. They are the “big questions” that must be addressed to establish a program of psycho-
logical microfoundations of strategy and competitive advantage. Figure 2 offers a framework that
organizes OP/OB disciplinary functions into the elements of resource management: acquisition,
RESOURCE MAINTENANCE AND MANAGEMENT

Groups and teams Customer service Climate/culture
Motivation Performance Safety and health
Aggregate attitudes management
ACQUIRING ACCUMULATING DIVESTING Operational

performance
Recruiting Job design Turnover
Selection Training and
Organizational
development performance
Competitive
advantage
Figure 2
Heuristic framework organizing the disciplinary functions of organizational psychology and organizational behavior into the
elements of resource management: acquisition, accumulation, and divestment.

accumulation, and divestment (Sirmon et al. 2007). However, it also recognizes the importance of
maintaining and managing these resources, which, in essence, is the glue that holds the framework
together and ensures high levels of motivation and engagement.
Become Fascinated with Organizations

An obvious question from someone in any area of OP/OB is, How does X (choose your construct,
practice, process, or phenomena) relate to firm-level operational performance, organizational
performance, or competitive advantage? We continue to find this question fascinating because
despite 100 years of rigorous research, we do not yet know the answer! Some areas of OP/OB,
such as aggregate employee attitudes, multilevel selection, climate and culture, and customer service,
are finding linkages between historically individual-level phenomena and unit-level performance
outcomes (primarily operational, but sometimes market, financial, or accounting as well). But in
most areas, there are only possibilities, assumptions, and hopes for how a given phenomenon
influences organizational-level outcomes. So as a starting point, it would be useful for scholars to
adopt the organization as the dependent variable. It would also be really interesting for that de-
pendent variable to be competitive advantage. Consider how different these questions become when
you replace “performance” with “differentiation/competitive advantage”:
1. Do firms that hire more cognitively able employees perform better than those who do
not? Or do such firms differentiate themselves in a way that generates above-normal
returns?
2. Do firms that foster more favorable employee attitudes perform better than those
who do not? Or do such firms differentiate themselves in a way that generates above-
normal returns?
3. Do more transformational leaders influence firms to perform better than those who are
not? Or do such leaders differentiate their firms in a way that generates above-normal
returns?
The answers to these questions require not only psychological theory but also an understanding
of competitive advantage and the factors that enable it (e.g., value, rarity, inimitability, non-
substitutability, markets). Therefore, future research in the linkage tradition may adopt insights
from RBT to provide a richer description of collective resources and their potential for competitive
advantage and differentiation.
What also makes this topic so fascinating is that the theories, findings, and best practices
discovered at the individual level (e.g. Schmidt & Hunter 1998) may not generalize to the firm
level. This issue has been discussed many times (e.g., Kozlowski & Klein 2000; Ployhart 2012b,c),
but a few points are worth reinforcing. First, individual KSAOs and unit-level resources are
unlikely to be isomorphic. Second, relationships that are generalizable at the individual level are
likely to be highly contextualized at the unit level. Third, the determinants of performance differ
across levels, and the predictors of individual job performance may be quite different than those
found at the unit level.
Become Fascinated with Resources

Resources are capacities for action (Kraaijenbrink et al. 2010). Thus, it is fascinating to observe
that resources exist at the individual (e.g., cognitive ability), group/team (composition), and
organizational (human capital) levels. We have argued that resources are the linchpins connecting
162 Ployhart Hale

psychology to strategy, but the question naturally turns to “how” and “what”: How do resources
at one level contribute to the formation of resources at other levels? What are the emergence
processes that occur? What are the factors that influence these emergence processes? What are the
structures and functions of resources at different levels (Morgeson & Hofmann 1999)? How do
different types of resources, such as human capital resources and aggregate attitudes, combine to
influence firm-level performance outcomes?
OP/OB researchers have embraced multilevel theory as their conceptual and methodological
framework, but it must be recognized that this is not the only framework (Felin 2012a). By
contrast, the microfoundations program asks questions that lie at the nexus of individuals and
organizations, and the focus is on relationships and interactions. Microfoundations and multilevel
theory are complementary, and both are necessary to understand how resources at one level
become resources at other levels. Both are needed to move the field past a view of behavior equal to
f (person, situation) to a view that behavior is equal to f (person, situation, social interactions). To
understand how resources may emerge across levels, it may be fruitful to start by conducting
studies that compare and contrast the characteristics of resources across levels. For example,
consider that individual resources are necessarily limited to the life of the individual who holds
them, whereas collective resources can, in theory, live indefinitely (Helfat & Peteraf 2003).
Collective resources may fluctuate over time, even when the constituent elements (e.g., cognitive
ability) are largely stable. Emergence and aggregation of individual resources may also produce
collective resources that are very different in their nature, sometimes in ways that are not intended
or appreciated (Barney & Felin 2013, Kozlowski & Chao 2012). Posing and answering these
questions thus require a much broader way of thinking about emergence processes, but they also
raise possibilities that are fascinating in their potential.
Become Fascinated with Strategic Organizational Psychology and Organizational

Behavior
It is fascinating to note that, although the term organizational is found in both OP and OB, neither
tends to give much serious consideration to organizations, organizational performance, or com-
petitive advantage. There are a few exceptions, such as the study of TMTs, but, despite the no-
menclature, “organization” is largely absent from OP/OB. Yet, both clearly cover much of the
territory linking organizations to individuals.
We propose that as subfields that emphasize the multilevel study of individuals and micro-
collectives such as small groups and teams, OP/OB need to take a more active role in contributing
to psychological microfoundations. The team or group cannot remain the highest level of interest
(Felin et al. 2009, Kozlowski & Chao 2012). For example, research needs to understand more
specifically how teams may be used to generate organizational knowledge. Barney (1986a) noted
that organizational culture may be strategically valuable because it is related to performance, is
firm specific, and is not tradable in factor markets. Research should move beyond trying to connect
culture (and climate) to performance; it also needs to incorporate competitive advantage. Indeed,
of all the phenomena in applied psychology, those studied in OP/OB may most underlie com-
petitive advantage because they are inherently firm specific—culture, climate, motivation, atti-
tudes, and engagement are all built, not bought.
Become Fascinated with Context

We hope OP/OB’s movement into questions of strategic importance will help these fields become
fascinated with context, instead of treating context with something between indifference and

contempt. Other than groups and teams researchers, who at least recognize the importance of
a group’s task context, most OP/OB scholars have generally ignored the broader organizational
context within which people live and work (Ployhart & Schneider 2012, Schneider et al. 2012). But
context shapes the nature of the elements, processes, and systems that reside within it. As a result,
moving to the organizational level leads to a confrontation with the undeniable reality that or-
ganizational elements, structures, and processes are contextually situated and specific. We believe
there is little hope that psychology will advance a program of strategic importance if it does not
consider the role of context in its theory and methods.
However, achieving this noble goal requires theory and research in OP/OB to do more than just
connect to the broader organizational context and competitive environment. For example, it will
not be enough to view an organization simply from the perspective of individuals (for a critique of
this approach, see Johns 2006). Rather, context will have to be integrated meaningfully into theory
and research (Ployhart & Schneider 2012). One exemplary approach was offered over 20 years
ago by Cappelli & Sherer (1991), who argued that markets (context) extend down into organi-
zations to influence organizational behavior. Therefore, another way to advance psychological
microfoundations of strategy is to leverage these macroliteratures and integrate their implications
and findings to lower levels. For example, how do markets shape employee mobility, and how does
employee mobility shape resources and markets (e.g., Felin et al. 2009)? Advancing a psycho-
logical microfoundations of strategy program is not a matter of applying psychology to strategy; it

is a program of integrating psychology with strategy.
Become Fascinated with Practice

In reality, practitioners and managers live out the expectations of psychological microfoun-
dations. Practitioners are challenged with demonstrating the value of science, methods, and
practices to organizational leaders who may have little appreciation for psychology, organiza-
tional behavior, or even HR. These challenges stem far beyond concerns about utility or return on
investment (which tend to be of interest mainly to HR managers); they relate to the employment of
metrics that inform organizational decision making more broadly by connecting to those trained
in accounting and finance (e.g., CFOs) (Boudreau 2010). Henson (2012) made the fascinating
observation that, in practice, psychology is strategic. We tend to agree, because practices or
interventions that cannot be shown to implement or reinforce an organization’s strategy tend not
to get adopted. The problem is that no commonly accepted way currently exists to show the
financial value of human capital resources (Fulmer & Ployhart 2014).
We suggest that practitioners take a leadership role in setting the agenda for scholarly research
in the psychological microfoundations of strategy. Such an agenda could take many forms. For
example, practitioners and academics could form small, problem-focused consortia focused on
a particular strategic issue and be funded by organizational members of the consortia who would
benefit most from a solution. Practitioners should take a more active role in determining the topics
for funding agencies, as is common in some institutions (e.g., Society for Human Resource
Management), but not others (e.g., National Science Foundation). A practice-based agenda could
help doctoral students choose research topics of greater practical importance (e.g., psychology
applied to the strategic management of health care), perhaps even with practitioners funding these
projects. We emphasize funding because, in our experience, funding is the best way to ensure
commitment and action.
More broadly, focusing on the psychological microfoundations of strategy and competitive
advantage has immediate and actionable implications for individuals and organizations. Re-
gardless of their role or level of responsibility within an organization, practitioners will find they
164 Ployhart Hale

get more respect and influence when they (a) speak and understand the language of business, which
is accounting and finance; (b) can connect psychologically based interventions to accounting and
financial metrics; (c) can explain how their interventions and practices implement and reinforce the
organization’s strategy; and (d) demonstrate how their interventions and practices show effects at
the business unit level (not the individual level).
Organizations will likewise benefit from an understanding of the psychological microfoun-
dations of strategy and competitive advantage. Such firms will (a) better understand how to ac-
quire, accumulate, and divest talent in a way that differentiates it so it can generate above-normal
returns; (b) make human capital investments and decisions with strategic impact, rather than
tactical impact on individual employees; (c) enhance profitability by identifying which inter-
ventions are critical and which are important but not critical (Boudreau 2010); and (d) build
a high-performance culture that attracts, entices, and retains top talent.
CONCLUSION
A firm is in the business of acquiring, accumulating, and divesting resources to bundle them in
a way that implements strategies that (a) are valuable, (b) are hard to copy, and (c) lead to
competitive advantage. Managers face strategic choices about acquiring, accumulating, and
divesting human-related resources and KSAOs. The elements and dynamics that govern the
psychological microfoundations of strategy and competitive advantage are different indi-
viduals interacting within dyads, groups, teams, and their contextual environments. Those
elements and dynamics are called organizational psychology and organizational behavior.
Therefore, are not OP/OB the microfoundations of a strategic universe? What a fascinating
question.
SUMMARY POINTS
1. A functional view of strategy focuses on three classes of organizational outcomes
(internal operational performance, organizational performance, and competitive ad-
vantage) and then seeks to identify the determinants of these outcomes.
2. Traditionally focused on the determinants of firm heterogeneity and competitive
advantage, strategy research has begun to focus on the microfoundations of firm
heterogeneity.
3. The microfoundations of strategy and competitive advantage fall into the domains
of OP/OB. Most theory and research in OP/OB could be leveraged to inform these
microfoundations, but for this to occur, a paradigmatic shift in both fields is
necessary.
4. The linchpin among strategy, microfoundations, and OP/OB is psychologically based
resources, because such resources are already studied across multiple levels (but by
different names and terms).
5. Using theories of resource emergence to connect OP/OB to strategy and competitive
advantage is the most direct way to align micro- and macrodisciplines and to contribute
to an understanding of the psychological microfoundations of strategy and competitive
advantage.

FUTURE ISSUES
1. How do individual differences and psychological processes contribute to organizational
differences, performance, and competitive advantage?
2. In what ways do theoretical predictions and empirical findings in OP/OB change when
trying to predict competitive advantage?
3. Are findings that are consistently observed at individual or group levels also observed as
strongly or consistently at organizational levels?
4. Is it possible to integrate theory and empirical findings in OP/OB with strategic
microfoundations?
5. How do the scholarly silos in OP/OB (e.g., selection, groups and teams, attitudes)
integrate with the management of human capital resources (i.e., their acquisition,
accumulation, divestiture)?
6. What are the temporal and multilevel diseconomies that exist as one moves from lower to
higher levels; how do these diseconomies affect the emergence and consequences of
collective psychological resources?
7. How can human capital resource emergence be managed or influenced?
8. Can a focus on organizational outcomes and competitive advantage contribute to

narrowing the research-practice gap?
DISCLOSURE STATEMENT
The authors are not aware of any affiliations, memberships, funding, or financial holdings that
might be perceived as affecting the objectivity of this review.
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Annual Review of
Organizational
Psychology and
Organizational Behavior
Volume 1, 2014 Contents

What Was, What Is, and What May Be in OP/OB

Lyman W. Porter and Benjamin Schneider . . . . . . . . . . . . . . . . . . . . . . . . . 1
Psychological Safety: The History, Renaissance, and Future of an
Interpersonal Construct
Amy C. Edmondson and Zhike Lei . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Personality and Cognitive Ability as Predictors of Effective
Performance at Work
Neal Schmitt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Perspectives on Power in Organizations
Cameron Anderson and Sebastien Brion . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Work–Family Boundary Dynamics
Tammy D. Allen, Eunae Cho, and Laurenz L. Meier . . . . . . . . . . . . . . . . . 99
Coworkers Behaving Badly: The Impact of Coworker Deviant
Behavior upon Individual Employees
Sandra L. Robinson, Wei Wang, and Christian Kiewitz . . . . . . . . . . . . . . 123
The Fascinating Psychological Microfoundations of Strategy and
Competitive Advantage
Robert E. Ployhart and Donald Hale, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . 145
Employee Voice and Silence
Elizabeth W. Morrison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
The Story of Why We Stay: A Review of Job Embeddedness
Thomas William Lee, Tyler C. Burch, and Terence R. Mitchell . . . . . . . . 199
Where Global and Virtual Meet: The Value of Examining the
Intersection of These Elements in Twenty-First-Century Teams
Cristina B. Gibson, Laura Huang, Bradley L. Kirkman,
and Debra L. Shapiro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
viii
Learning in the Twenty-First-Century Workplace
Raymond A. Noe, Alena D.M. Clarke, and Howard J. Klein . . . . . . . . . . 245
Compassion at Work
Jane E. Dutton, Kristina M. Workman, and Ashley E. Hardin . . . . . . . . . 277
Talent Management: Conceptual Approaches and Practical Challenges
Peter Cappelli and JR Keller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305
Research on Workplace Creativity: A Review and Redirection
Jing Zhou and Inga J. Hoever . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333
The Contemporary Career: A Work–Home Perspective

Jeffrey H. Greenhaus and Ellen Ernst Kossek . . . . . . . . . . . . . . . . . . . . . 361
Burnout and Work Engagement: The JD–R Approach
Arnold B. Bakker, Evangelia Demerouti, and Ana Isabel Sanz-Vergel . . . 389
The Psychology of Entrepreneurship
Michael Frese and Michael M. Gielnik . . . . . . . . . . . . . . . . . . . . . . . . . . 413

Delineating and Reviewing the Role of Newcomer Capital in
Organizational Socialization
Talya N. Bauer and Berrin Erdogan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 439
Emotional Intelligence in Organizations
Stéphane Côté . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459
Intercultural Competence
Kwok Leung, Soon Ang, and Mei Ling Tan . . . . . . . . . . . . . . . . . . . . . . . 489
Pay Dispersion
Jason D. Shaw . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 521
Constructively Managing Conflicts in Organizations
Dean Tjosvold, Alfred S.H. Wong, and Nancy Yi Feng Chen . . . . . . . . . . 545
An Ounce of Prevention Is Worth a Pound of Cure: Improving
Research Quality Before Data Collection
Herman Aguinis and Robert J. Vandenberg . . . . . . . . . . . . . . . . . . . . . . . 569
Errata
An online log of corrections to Annual Review of Organizational Psychology and

Organizational Behavior articles may be found at http://www.annualreviews.org/
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Contents ix
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ANNUAL

REVIEWS Further The Fascinating

• Other articles in this volume

Darla Moore School of Business, University of South Carolina, Columbia,

Annu. Rev. Organ. Psychol. Organ. Behav. 2014. Keywords

The Annual Review of Organizational Psychology Abstract

146 Ployhart  Hale

Ployhart (2006), Ployhart & Moliterno (2011), and Schneider (1987).

A FUNCTIONALIST VIEW OF STRATEGY

Firm strategy Firm organizational Firm organizational

Individual Individual job

www.annualreviews.org  Psychology and Competitive Advantage 147

Implications for Organizational Psychology and Organizational Behavior

148 Ployhart  Hale

Determinants of Firm Performance Types: A Resource-Based Approach

www.annualreviews.org  Psychology and Competitive Advantage 149

Human Capital Resources

150 Ployhart  Hale

Microfoundations and Resource Emergence

www.annualreviews.org  Psychology and Competitive Advantage 151

identical to the concept of emergence as usually conceptualized by applied psychologists, these

Implications for Organization Psychology and Organizational Behavior

STRATEGIC ORGANIZATIONAL PSYCHOLOGY AND ORGANIZATIONAL

152 Ployhart  Hale

Job Design and Job Analysis

www.annualreviews.org  Psychology and Competitive Advantage 153

Training and Development

154 Ployhart  Hale

Performance and Performance Management

Teams and Groups

www.annualreviews.org  Psychology and Competitive Advantage 155

and the strategic success of an organization.

Climate and Culture

156 Ployhart  Hale

Employee Attitudes and Motivation

Safety and Health

www.annualreviews.org  Psychology and Competitive Advantage 157

Turnover and Withdrawal

158 Ployhart  Hale

Human Resources Practices

www.annualreviews.org  Psychology and Competitive Advantage 159

between diversity and firm performance.

160 Ployhart  Hale

ON BECOMING FASCINATED WITH THE PSYCHOLOGICAL

operational performance, organizational performance, and competitive advantage. We want to

RESOURCE MAINTENANCE AND MANAGEMENT

ACQUIRING ACCUMULATING DIVESTING Operational

www.annualreviews.org  Psychology and Competitive Advantage 161

Become Fascinated with Organizations

Become Fascinated with Resources

162 Ployhart  Hale

Become Fascinated with Strategic Organizational Psychology and Organizational

Become Fascinated with Context

www.annualreviews.org  Psychology and Competitive Advantage 163

logical microfoundations of strategy program is not a matter of applying psychology to strategy; it

Become Fascinated with Practice

164 Ployhart  Hale

a high-performance culture that attracts, entices, and retains top talent.

www.annualreviews.org  Psychology and Competitive Advantage 165

8. Can a focus on organizational outcomes and competitive advantage contribute to

166 Ployhart  Hale

Hum. Resour. 10:30–40

www.annualreviews.org  Psychology and Competitive Advantage 167

146 Ployhart Hale

www.annualreviews.org Psychology and Competitive Advantage 147

148 Ployhart Hale

www.annualreviews.org Psychology and Competitive Advantage 149

150 Ployhart Hale

www.annualreviews.org Psychology and Competitive Advantage 151

152 Ployhart Hale

www.annualreviews.org Psychology and Competitive Advantage 153

154 Ployhart Hale

www.annualreviews.org Psychology and Competitive Advantage 155

156 Ployhart Hale

www.annualreviews.org Psychology and Competitive Advantage 157

158 Ployhart Hale

www.annualreviews.org Psychology and Competitive Advantage 159

160 Ployhart Hale

www.annualreviews.org Psychology and Competitive Advantage 161

162 Ployhart Hale

www.annualreviews.org Psychology and Competitive Advantage 163

164 Ployhart Hale

www.annualreviews.org Psychology and Competitive Advantage 165

166 Ployhart Hale

www.annualreviews.org Psychology and Competitive Advantage 167

168 Ployhart Hale

www.annualreviews.org Psychology and Competitive Advantage 169

170 Ployhart Hale

www.annualreviews.org Psychology and Competitive Advantage 171

172 Ployhart Hale

Editor: Stephen E. Fienberg, Carnegie Mellon University