Firm-Specific, Industry-Specific, and Occupational
Human Capital and the Sourcing of Knowledge Work
by Mayer, K.J., Somaya, D., and Williamson, I.O. (2012) in
Organization Science.
Presented by Bradley Skousen
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About the Authors
• Kyle J. Mayer: PhD at Berkeley (1999) and chaired by
Oliver Williamson
• Deepak Somaya: PhD at Berkeley (2002) and chaired by
David Mowery
• Ian O. Williamson: PhD at UNC (2000) in Organization
Behavior.
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Purpose and Key Definitions
• Purpose: To explore the relationship between knowledge based
capabilities with prior make or buy decisions and buyer-supplier
differences in the management of skilled employees.
• Knowledge Work: Consists of activities, tasks, or projects that
require the application of knowledge to solve business problems.
• Firm-specific Human Capital (HC): Knowledge and skills that
are unique to a firm.
• Industry Specific HC: Knowledge about the industry setting or
domain in which a project is situated, and thus it is re-deployable
across the (limited) set of firms with projects in the same industry
domain.
• Occupational HC: Knowledge and skills required to perform work
within a professional or functional area.
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Data
• 1989 Survey of Fortune 500 Firms
– Sample includes all 129 Publicly listed Firms
– All firms are in technology-based industries
– 5 industries included:
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Chemicals (39 firms)
Computer Manufacturing (22 firms)
Electronics (40 firms)
Pharmaceuticals (12 firms)
Scientific and Photographic Equipment (16 firms)
– Patents from 1990-1995
– Sample size included 59,590 patents
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Model Specification
• Fixed Effects Logit Model for Outsourcing of Patent Legal Work
• DV: Probability of Outsourcing
IVs
PatentLevel
Controls
Industry
Level
Controls
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Hypothesis 1
• H1: Firms are less likely to outsource knowledge projects the greater
their relevant firm-specific human capital developed by performing
prior related projects.
• Theory: Governance Inseparabilites (Argyres and Liebeskind,1999);
Time Compression Diseconomies (Dierickx and Cool, 1989); among
others.
• Operationalization: Firm-specific HC was measured as the number
of backward citations to patents of the same company that were also
processed in-house during the previous five years.
• Findings: H1 Supported.
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Hypothesis 2
• H2: Firms are less likely to outsource knowledge projects the
greater the relevant industry-specific human capital developed by
previously internalizing knowledge projects in the same domain.
• Theory: Mixture of KBV and TCE logic (e.g., Argote & Ingram,
2000; Hatch & Dyer, 2004; Parmigiani & Mitchell, 2009).
• Operationalization: Industry-specific HC was measured as the
company’s previous in-house experience in the technical domain.
Specifically, it was the logged number of prior patents processed
internally by the firm in the same primary seven-digit International
Patent Classification.
• Findings: H2 Supported.
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Hypothesis 3
• H3: The marginal impact of higher firm-specific or industryspecific human capital on the tendency of firms to internalize
knowledge work is highest when the other type of human
capital (firm specific or industry specific is low ).
• Theory: KBV. Focus on advantages of coordinating
knowledge tasks (e.g., Kogut & Zander, 1992; Conner &
Prahalad, 1996; Nickerson & Zenger, 2004).
• Operationalization: Interaction Term
• Findings: H3 Supported.
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Hypothesis 4
• H4: Firms are more likely to outsource knowledge projects situated
in areas that are highly contested (and thus rely heavily on
occupational human capital).
• Theory: Focuses on TCE logic (e.g., Williamson’s 1985 concept of
selective intervention) to explain why firms develop in-house
occupational human capital but the authors main question is not on
why but when occupational human capital is outsourced.
• Operationalization: Dummy variable coded as 1 if the focal
patent cited a patent that was litigated in the past (referred to as a
high contested area).
• Findings: H4 Supported.
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Hypothesis 5
• H5: The larger the firm’s internal staff (in the focal occupational
area), the weaker the (positive) effect of a project being in a highly
contested area on the probability of outsourcing.
• Theory: KBV. The logic is that firms with more patent attorneys
may use knowledge hierarchies to leverage skills and learning
(e.g., Garicano, 2000).
• Operationalization: Interaction of highly contested area (see H4)
with internal staff size, which measures the number of patent
attorneys employed by the focal firm.
• Findings: H5 Supported.
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Discussion
• Theoretical Contribution?
- Provides strong links between KBV and TCE.
• Sample Issues?
- Limited to big Fortune 500 firms.
• Measurement Issues?
-Research design included interviews with managers to verify
important measurement issues. Measurements are consistent with
patent literature.
• Model Specification/Identification Issues?
- Model does not include variables on firm capabilities other than
patenting experience. Is the main-case causality that greater
outsourcing leads to lower firm capabilities, or that lower firm
capabilities lead to outsourcing?
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