Development of a conceptual framework on real options theory for strategic human resource management

Abstract

PurposeThe purpose of this paper is to propose a conceptual real options theory framework for the firms to use options to mitigate both investment risks and retention of the trained human resources.Design/methodology/approachThis conceptual paper is built with logical argumentation.FindingsThe growth of IT firms has created a demand for quality IT industry employees in substantive quantity in India. IT firms provide training and development (T&D) inputs for developing better skills of employees for better employee and superior firm performance. T&D input requires firm investment. It also creates enhanced market demand for the trained employee. High growth area like IT firms not only competes for market but also for employees. A trained employee might leave the firm that provided the training to join a rival firm which offers relatively better salary, a catch -22 situation. This paper develops a real options-based framework for strategic human resource management (HRM).Research limitations/implicationsThis work integrates the theory of real options and strategic HRM.Originality/valueThis conceptual work is one of the first attempts to use real options theory on strategic HRM.