Adapting human and social capital to impact performance: Some empirical findings from the U.S. Personal banking sector

The basic assertions of the resource-based view (RBV) are widely understood and accepted. Even most undergraduate business students will assert that firms have a competitive advantage when they control resources that are unique, inimitable, non-substitutable and value-creating. Despite the widespread acceptance of RBV, it has its critics. For instance, little attention has been focused on the process of aligning firm resources with environmental demands (Sirmon et al., 2007; Tegarden et al., 2003). Nelson and Winter (1982) understood the importance of this alignment when they declared that any good theory of the firm should shed light on how firms respond to changes in market conditions. Helfat and Peteraf (2003) suggest the resource-based view can take into account both temporal issues and environmental change if we use it to delve deeper into our assessment of the temporal nature of the resources. To address this concern we adopt the dynamic view of RBV (Helfat and Peteraf, 2003; Sirmon et al., 2007) and investigate the importance of re source changes in response to environmental dynamism. This dynamic perspective proposes that firms can respond to environmental change by managing the resources and capabilities they possess. Thus, effective firms in dynamic environments will actively alter their profile of resources and capabilities in response to environmental dynamism. We select the banking industry as the dynamic context for the current study because this industry has undergone significant change as a result of deregulation, rapidly changing technology, major industry consolidation, and important macro-economic changes (Greenspan, 2007). As a consequence of this environmental dynamism we expect to observe relationships between changes in a bank's resources and bank performance. Another concern of RBV critics is the nature of resources relevant for RBV (Priem and Butler, 2001). Miller and Shamsie (1996) argue that researchers should add precision to the theory by specifying the different types of advantages associated with different types of resources. Additionally, RBV treats knowledge as being equal in importance to other resources (e.g., physical and financial), thereby allowing for equifinality among numerous resource configurations (Foss and Knudsen, 2003; Priem and Butler, 2001). We focus on two critical resources in organizations: human capital and social capital. We conceptualize human capital as a function of individuals' organizationally-specific knowledge stocks about how the bank generates value. We interpret social capital as a function of the value of an individual's business relationships with other individuals. Thus, we view a firm's human capital as a result of individualistic processes, and a firm's social capital as a function of didactic processes. Both human and social capital have been explicitly identified as resources that can be directly linked to firm performance (Collins and Clark, 2003; Edvinsson and Malone, 1997; Hitt et al., 2001; Pennings et al., 1998; Subramaniam and Youndt, 2005; Youndt et al., 2004). As resources, human and social capital are consistent with efforts in RBV research to identify human and relational core competencies (Herremans and Isaac, 2004), and particularly well suited for the dynamic perspective because these resources can be adapted much more quickly than hard organizational assets such as plant and equipment (Dyer and Singh, 1998). These resources are also interdependent as strong social capital cannot exist without strong human capital. The intended contributions of this study are twofold. First, we will interpret RBV in a dynamic rather than a static sense. We will accomplish this by linking changes in resources with changes in performance. Second, we define human capital, internal social capital, and external social capital, and investigate the relationship these variables have with performance in the context of the personal banking sector of the financial services industry. …