Human Capital Production Function in Strategic Management

Abstract

Research-based view studies indicate that companies can distinguish themselves in competition through a profound understanding of their resources and through continuous improvement of their human competencies. It seems that human competencies form an intangible asset, which in turn forms sustainable, unique strengths that are key to firm-specific superior performance. Evidence-based human resource management argues that gaining competitive advantage through human capital development should be verified and estimated scientifically. This article presents the scientifically solid theory of Human Capital Production Function, which explains tangible and intangible human capital’s worth to business scorecards in terms of profit and loss account metrics. This article illustrates how Human Capital Production Function explains human resource management’s essential role in supporting strategic aims in either achieving cost advantage or differentiation advantage.