In addition to value creation, much of the literature, for example, the RBV literature (Barney, 1991, Peteraf, 1993, Collis and Montgomery, 1995), focuses mostly on the concept of ‘value capture’ rather than ‘value creation’. The process of ‘value capture’ is described in relation to the economic value which firms capture by acquiring and maintaining their valuable resource portfolio. It is thus important for my study to understand the difference between these two processes in order to develop plausible arguments about how TM architectures may add value to organisations. It is important to recognise that the processes of value creation and value capture are two distinct albeit related activities.
In the strategic management literature, scholars have distinguished between these processes by recognising that in some cases, firms which create value may be unable to capture this value if they need to share it with others such as customers, employees or stakeholders (Makadok, 2001). This is referred to as ‘value slippage’ (Lepak et al., 2007). Various scholars have attempted to define value capture. For example, Bowman and Ambrosini (2000) describe value capture by distinguishing in particular between ‘use value’ and ‘exchange value’. They see value capture as the difference between the exchange value (i.e. the revenue) which the firm receives in exchange for its products and services and the use value (i.e. the costs) it pays to suppliers or employees for the resources or efforts they provide to produce a product or provide a service. From the RBV of the firm, the process of value capture is mostly described in relation to the economic value of a firm’s resources once these resources have been used to implement value-creating strategies – it is the value that the firm captures by virtue of acquiring value- creating resources that is important (Barney, 1986a).
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It is also argued that value capture (the realisation of the exchange value) is determined by the bargaining relationship between parties –it is “a function of a bargaining process” (Bowman and Swart, 2007, p. 492) between the creators of value (i.e. customers, suppliers or employees) and the capturers of the value (i.e. firms) where the economic basis of this bargaining relationship is a function of perceived dependence (Pfeffer, 1995, Coff, 1999, Bowman and Ambrosini, 2000). From this point of view, it is reasonable to say that the value created by a firm’s resources becomes critical only if the firm manages to capture that value.
With respect to human capital as a source of value creation, it is argued that the bargaining power of employees is very much dependant on how they perceive themselves. For example, if they perceive their livelihood to be dependent on their organisation, it is unlikely that they will exert strong bargaining power, but if they perceive that their role in the value-creation process is crucial, that the talent they possess is critical to their organisation and that they can take it elsewhere, then they will most likely exert strong bargaining power (Bowman and Swart, 2007).
Given that value capture is dependent on the relative bargaining power of the value creator and the value capturer, organisations need what Rumelt (1984) refers to as 'isolating mechanisms' to enable organisations to weaken the bargaining power of their value-creating resources (i.e. talent resources) in order to capture value once it is created. Isolating mechanisms are meant to obstruct the flow of knowledge about the firm’s value-creating resources, capabilities and strategies, thus making imitation more difficult and preventing competitors from accessing and utilising them (Lippman and Rumelt, 1982, Mahoney and Pandian, 1992). To protect a firm’s human capital (strategic assets), it is important first to note
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that they have advantageous attributes which distinguish them from other strategic assets owned by the organisation. These could be their in-depth knowledge, skills and experience, and how they utilise these advantageous attributes to create value. In the knowledge management literature, it is argued that the knowledge created in the organisation is a source of sustained competitive advantage and value creation, and that talent are the primary locus of knowledge, and so it is important for organisations to find ways to capture and protect the knowledge which is created by its talent resources (Nonaka 1991, Simon, 1991, Grant, 1993, Ambrosini and Bowman, 2001).
In relation to protecting value-creating human capital resources, Bowman and Swart (2007) introduce the concept of ‘embedded capital’. They suggest that “embedded capital exists where there is ambiguity surrounding the rent creating contributions of human capital due to synergistic interactions between separable and embodied capital that are difficult to disentangle. Thus, embedded capital co-produces both rents and causal ambiguity” (p.494). Put differently, the idea of embedded capital is to intertwine and interconnect the embodied capital owned by human capital resources (i.e. knowledge, expertise and skills) with other, separable forms of capital (resources, systems and complex social relationships), so that it becomes difficult to isolate its contribution to value creation. For example, in their research, Hitt et al. (2001) found that law firms were able to capture the value created by their highly intelligent human capital when they developed processes and systems which enabled them to extract the tacit knowledge and industry- and firm-specific knowledge from their human capital and pass it on in the form of learning to others in the organisation, thus retaining the knowledge within the firm.
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In today’s economy, knowledge has become an essential factor for the creation of value and the achievement of competitive advantage in organisations. As a consequence, the protection and management of the knowledge created within an organisation is now an integral part of the organisations’ competitive strategies (Hanel, 2006). Yet, it is important to realise that it is not knowledge per se which contributes to achieving competitive advantage, but rather the extent to which organisations are able to effectively manage knowledge stocks and flows among employees to create value (Lepak and Snell, 2008).
Many scholars argue that tacit knowledge is central to the development of sustained competitive advantage (Nonaka 1991, Grant, 1993, Spender, 1996), and it is thus considered to be one of the most critical resources of the firm in relation to value creation. In the literature, ‘tacit knowledge’ refers to individuals’ skills, know-how, and unarticulated, implicit knowledge (Nelson, 1982, Kogut and Zander, 1992, Spender, 1996); on the other hand, ‘objective knowledge’ is knowledge which can be communicated from the possessor to another person (Winter, 1987). However, the two types of knowledge are not separate (Polanyi, 1983). In their knowledge base work, Simon (1991) and Grant (1996a) argue that individuals are the primary locus of knowledge and thus should be the starting point for understanding value creation and organisational outcomes. Similarly, Ambrosini and Bowman (2001) argue that knowledge is dependent on the owner and is socially constructed; it is “constructed in and out of interaction between human beings and their world, and developed and transmitted within an essentially social context”(Crotty, 1998, p. 42). It is therefore important for organisations to find ways of effectively capturing the knowledge constructed by their human capital and transferring it across the organisation so that it can be applied more widely (Sparrow and Makram, 2015). Kang et al. (2007) suggest that success in creating value requires organisations to exploit
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employee knowledge, which requires the design of an HR architecture that captures the knowledge of different employee groups.
To think about how TM architectures may enable the capture of value, I, therefore, present the second proposition of this research and suggest that:
RP2: value is captured when a firm’s TM architecture enables it to weaken the bargaining powers of its talent resources and capture their knowledge and expertise and transfer them to where they can be widely applied in the organisation.
3.4.3 How May Talent Management Architectures Enable the Leverage of Value? The