Creating value and the quest to achieve sustained competitive advantage are two critical concerns of researchers in strategic management and organisation studies (Collis and Montgomery, 1995, Teece, 2007). Value is created when organisations exploit their internal resources and capabilities to implement strategies which enable them to respond to market opportunities (Penrose, 1959, Andrews, 1971). On the other hand, the literature on dynamic capabilities (Teece, 1982, Wernerfelt, 1984) suggests that value creation resides in the organisation’s ability to “integrate, build and reconfigure internal and external compiesetences” (Teece et al., 1997, p. 516) and in its capacity to “purposefully create, extend and modify its resource base”(Helfat, 2007, p. 4). Moreover, Sirmon et al. (2007) suggest that a firm’s resource portfolio establishes an upper limit to the creation of value. Organisations should, therefore, structure theirresource portfolio by acquiring a repertoire of resources (i.e. unique and valuable resources), accumulating resources (i.e. internally develop resources) and finally divesting resources (i.e. actively evaluate and divest less valuable resources) to be able to create value.
To conceptualise the process of value creation, one needs to define the sources of value creation (i.e. who creates value). Lepak et al. (2007) suggest three sources of value creation: the individual (by developing unique tasks or services which are perceived to be valuable by target users), the organisation (by inventing new ways of doing things to benefit target users) and society (by developing new programmes and incentives intended to benefit its members). Relating this to TM, two sources of value creation can be identified:
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appropriate outcomes which appeal in the eyes of their employer (Lepak et al., 2007), and
▪ the organisation, which creates value by inventing and devising the appropriate TM architecture (i.e. practices, systems and processes) which enable it to exploit the potential of their talent resource to work towards value creation (Wright and McMahan, 1992).
However, there seems to be a general disagreement in the strategic management literature about what value creation is, the processes by which value is created and the mechanisms which allow the creators of value to capture and enjoy a return on the value they create (Lepak et al., 2007). As mentioned earlier, this lack of consensuses is multidimensional in nature (March, 1958, Porter, 1985, Post et al., 2004, Sirmon et al., 2007, Seung-Hyun et al., 2007, Kang et al., 2007). This is due to different views about the following:
▪ the targets (i.e. customers, stakeholders, individual employees, business owners, society),
▪ the sources of value,
▪ the ability to differentiate between the process and content of value creation, and
▪ confusion about the difference between value creation and value capture.
Accordingly, in order to understand what value creation is, we must first explore briefly how the term has been debated in the literature. Building on Bowman and Ambrosini's (2000) definitions of ‘use value’ and ‘exchange value’, other scholars have suggested that value creation is dependent on the value which is perceived by target users and their willingness to
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pay in exchange for a service or product minus the opportunity costs of producing that product or delivering that service (Peteraf and Barney, 2003, Lepak et al., 2007, Helfat, 2007). Although these debates focus on the economic relationship between consumers and suppliers, they have been criticised for failing to identify the real determinants of value creation. One of the earliest discussions of the determinants of value creation was Amit and Zott (2001). They identified innovation, technology, strategic networks, value chains and intra-firm resources as key determinants of value creation. Lepak et al. (2007) similarly emphasised innovation as a determinant of value creation, but also included other determinants such as the creation of knowledge, entrepreneurship, learning, social networks and strategic human resources.
When we turn to the HRM literature, many scholars argue that employees are an important determinant of value creation due to their uniqueness, their ability to increase productivity by learning, the way they work together to help create the distinctive personality of the organisation and their ability to execute and deliver on organisation strategies, as well as the HR systems and architectures implemented to link human resources with value creation in the organisation (Pfeffer, 1994, Lepak and Snell, 2002, Peteraf, 2006, Pitelis, 2007, Garavan et al., 2012). To understand how TM architectures may enable the creation of value, it is therefore important to think about the sources of value creation in TM (who creates value) and the process of value creation (the mechanisms within a TM architecture which enable the creation of value).
There are many arguments in the literature which suggest that individuals, i.e. valuable talent, are the primary source of value creation and high returns, and not purchasable or physical resources (Barney, 1986b, Barney, 1991, Peteraf, 1993, Pitelis, 2009, Lepak et al., 2007, Felin
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and Hesterly, 2007). Valuable talent are those who “possess appropriable value creating advantages, capabilities and action potential [and] can motivate the emergence of organizations and their strategies and actions intended to capture socially co-created value” (Pitelis, 2009, p. 1115).
There are other scholars who believe that value creation is a prediction of the characteristics, knowledge, mental agility, flexibility, motivations and ability of valuable talent to interact with others and with their environments (Locke and Fitzpatrick, 1995, Amabile, 1996, Felin and Hesterly, 2007). Thus, value creation is a result of the potential, knowledge, expertise and capabilities which valuable talent possess and utilise to perform and execute tasks/strategies which contribute to value creation.
Lepak et al. (2007) suggest that valuable talent create value “by acting creatively to make their job/service more novel and appropriate in the eyes of their employer or some other end user in a particular context” (p.194). Their argument is based on the assumption that value is created as an outcome of performing novel tasks or services and producing products that are perceived to be valuable by the target users (i.e. employers, customers, shareholders). It is, however, important to note that acquiring value-creating resources such as valuable talent is not in itself enough (Barney and Arikan, 2001, Skilton, 2014). Instead, organisations need to intervene and engage in activities which enable the active development and management of their valuable resources such as talent so that they are continuously engaged in the process of value creation (Lado and Wilson, 1994, Wright et al., 1994, Pfeffer, 1995, Bowman and Ambrosini, 2000).
So how is value created (i.e. what is the process of value creation)? Porter (1985) suggests that value is usually created when organisations develop or invent new ways of doing things.
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Similarly, Priem (2007) argues that value is created when organisations innovate and differentiate their product or service offerings in ways that are valued by customers. Lepak (2007) also suggests that “the value creation process includes any activity that provides a greater level of novel and appropriate benefits than target users or customers currently possess, and that they are willing to pay for” (p.184).
On the other hand, in the dynamic capabilities literature, value creation is seen in relation to the organisation’s capacity to renew competencies, create advantages and create, extend and modify its resource base to achieve congruence with the changing environments it operates in (Teece et al., 1997, Helfat, 2007, Ambrosini et al., 2009). For example, Teece, Pisano and Shuen (1997) suggest that organisations create value when they invest in developing distinctive managerial processes (i.e. efficiently and effectively integrate patterns of current practices and learning), when they effectively position and assemble their strategic assets (i.e. endowments of technology, intellectual property and their customer base) and when they create evolutionary paths which allow them to “integrate, build, and reconfigure internal and external competencies to address rapidly changing environments” (p. 516). Similarly, Pisano (1994), Grant (1996a), Eisenhardt (2000) and Martin et al. (2011) argue that value is created when organisations alter their resource base, or acquire, integrate, recombine and reconfigure resources to generate new value-creating strategies. Likewise, Penrose (1959), Andrews (1971) and Sirmon and Hitt (2003) suggest that value is created when organisations carefully and deliberately exploit the capabilities of their internal resources to implement strategies which enable them to respond to market opportunities. Central to dynamic capabilities is the management of a firm’s resources, which is the comprehensive process through which a firm engages in activities that enable it to structure its resource portfolio (i.e. acquiring,
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accumulating and divesting resources), bundling these resources to build internal capabilities (i.e., stabilising, enriching and pioneering) and leveraging those capabilities with the purpose of creating and maintaining value (i.e., mobilising, coordinating and deploying) (Sirmon et al., 2007).
How does the SHRM literature address these questions? The process of value creation is described in relation to how the HR systems (sets of processes, practices and policies) implemented by the organisation build employees' skills and motivates them to work towards achieving organisational goals and contribute to value creation (Wright and McMahan, 1992). It is argued that HR systems contribute to value creation when they elicit the desired behaviours which are critical to executing the strategies of value creation, and when they impact the skills and knowledge of valuable talent and their willingness to expend effort and express their talent in the workplace (Schuler and Jackson, 1987, Huselid, 1995, Macduffie, 1995, Boxall, 2012). Value creation is also described in terms of how HR systems foster and facilitate the generation, accumulation and internalisation of knowledge and spark the involvement and commitment of valuable talent (Lado and Wilson, 1994). The fundamental focus of these various explanations of value creation, both in the general management literature and the HRM literature, is the organisation's ‘valuable talent’ and their contribution to value creation. To explore how TM architectures may create value, I, therefore, present the first proposition of this research and suggest that:
RP1: value is created when a firm’s TM architecture enables it to attract, acquire, and accumulate valuable and unique talent resources.
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3.4.2 How May Talent Management Architectures Enable the Capture of Value? The