"Team Players Until Pay Day? Human Capital Complementarities, Competitive Advantage, and Profit"

Abstract

We contribute to the strategic human capital literature by examining the link between value creation, competitive advantage, and profit for the case of team production with human capital. This is done by integrating the classic analysis of team production by Alchian and Demsetz into the resource-based theory of competitive advantage, and extending this analysis to the contexts that most interest strategy scholars, namely, team production with human capital that can be heterogeneous across firms and complex organizations with dispersed ownership. Specifically, we analyze to what extent one of the core propositions of the resource-based view, that superior resource complementarities are a source of (sustained) competitive advantage and economic profit, applies to the case of team production with human capital. We show that in this case superior complementarities are a necessary and sufficient condition for competitive advantage, but only a necessary (but not sufficient) condition for economic profit. These conclusions follow from a detailed analysis of the factors determining who appropriates the value created in team production. We show that the same factors that increase the likelihood of superior human capital complementarities, namely, human capital intensity and social complexity, also decrease the share of the value appropriated by shareholders.