Russ, your pioneering work on strategic human capital – which you sometimes call management  of important human assets in firms – is anchored in the idea that much of what gives an organization its competitive edge is its people.   What is this thing you call “strategic human capital,” and why is it so important?

Russ started his career in M&A consulting, where he was given the task of assessing the human capital of acquisition targets.   This led him to understand that, while a lot of managers give lip service to the idea that people matter most, many don’t do a good job of taking care of their employees.    They think of investing in people as an expense that is to be managed downward.   This didn’t fit with our early conceptualizations in the field of strategy that it is human relationships that make firms competitive.

Is strategic human capital embedded in the individual or the team?  Can it be owned by the firm?

Russ described how the history of the term “human capital” in the field of economics reflects the idea that we invest in ourselves – i.e., in our skills and education.   He talked about how you create assets in yourself over which you have property rights.  And the idea that the firm would not have complete access to those property rights is at the core of the challenge of managing human capital.   He talked about how the production of value through employment goes well beyond the construction of financial outcomes in firms.  Why do firms invest in the general human capital of their employees despite the mobility that this investment creates for those who are trained?   First, because the labor market can’t observe those skills very easily, and particularly because the labor market cannot observe the general value of the skills.  Second, because people don’t want to move frequently.  And third, because people perceive that their company is investing in them and don’t really know how much the skills they’ve acquired would be valued outside the firm.

I was fascinated to read your characterization of some of the paradoxes around management of strategic human capital.  What do you see at the core of these paradoxes and how can great organizations overcome them?

Russ raised the issue of our organizational identities, and the lack of perfect alignment of our experiences of work with the ways in which we create value for employers.  But in the end, he left the question of the source of these paradoxes for further reflection.

You’ve been working recently with our friends Libby Weber and Bukky Akinsanmi Oyedeji on perceptions of human capital.  Why are perceptions of human capital so critical?

The perceptions question rests on the idea that we tend to assume greater rationality than individuals actually demonstrate in practice.   Russ does believe that there is such a thing as firm-specific human capital that generates quasi-rents (which led to a widgets example to illustrate the issues).   What would motivate someone to switch jobs despite the accumulation of this capital?   Russ’s former student, Joe Raffiee, sought to measure firm-specific human capital, and found that survey respondents described what value they generate in terms that are very different from what we theorize as true.   This gap between the theory and perceptions fascinates Russ and his co-authors.   Old-timers like Anita often think that they have many more general skills than we actually have.  Why is that?   Russ is now working on answers to questions like this.

Can you describe how specificity is changing with AI? Is the nature of expertise changing? 

Russ described AI as analogous to the Internet:  It’s likely to change a lot about how we live and work, but we don’t yet know exactly how.   Just as the Internet made obsolete the shopping mall, AI is likely to make some of what we do obsolete.  But is it likely to kill differences between firms entirely?  Probably not.   It’s hard for us to predict exactly what will unfold, but our human relationships are likely to retain their importance.