Dynamic Resource Capabilities: Managing Workforce Knowledge with a Technology Upgrade

Abstract

Although managers invest in new technology to improve performance, often the benefits sought are elusive while the costs incurred far exceed expectations. The literature offers insights to help explain this phenomenon. Evidence suggests that, while carefully considering the purchase cost, managers often underestimate the costs and planning necessary for proper implementation. Consequently, short-term problems arise and long-term benefits are not realized. A model is introduced that integrates workforce knowledge management with the technology upgrade decision. The manager upgrades technology or pursues general training of the workforce in response to depreciation in the ability of each resource to drive net income over time. Depreciation occurs because of changes in consumer preferences and competition. Although adding to technology capability, an upgrade makes a portion of workforce knowledge obsolete. The manager invests in preparatory training prior to the upgrade to reduce obsolescence. Whereas general training is pursued to respond to depreciation by enhancing the ability of the workforce to improve existing products or create new products, preparatory training is technology-specific and focused on preparing for a technology upgrade. We find that the rates of preparatory and general training follow entirely different paths over time. Conditions are given where a manager uses one training strategy as a substitute for or complement to the other. We show that training strategies are not only impacted by learning phenomena such as the rate of forgetting, but also by the rates of technology depreciation and advancement. We show how workforce learning phenomena impact the technology upgrade decision.