and capacity. While the terms may diVer, a common theme is thatWrms may
heavily invest in a core group of employees while also maintaining a peripheral
group of employees from whom they prefer to remain relatively detached. Going
beyond internal subsystems, many organizations have increased their use of exter-
nalized employment arrangements as well. Long-term partnerships, consultancy
arrangements, and contract work represent employment subsystems that exist on
the periphery of, or completely external to, an organization’s workforce.
From a strategic HRM perspective, a key point for understanding employment
subsystems is that these work arrangements have direct implications for how
companies structure their HR systems to manage them. For example, Rousseau
( 1995 ) as well as Tsui et al. ( 1995 ) argued not only that employment subsystems
diVer, but also that the employment relationships or psychological contracts may
diVer as well. In general,Wrms might emphasize either a long-term, relational
approach or a short-term, transactional approach for internal and external work-
ers. These choices directly impact how employees are managed.
Lepak and Snell ( 1999 ) suggested that by juxtaposing two dimensions—strategic
value and uniqueness—it is possible to derive a matrix of four groups of human
capital (and associated types of knowledge) that diVer in terms of employment
subsystems, employment relationships, and the HR systems used to manage
employee groups.Strategic valueis determined by the skill sets of employees that
enable aWrm to enact strategies that improve eYciency and eVectiveness, exploit
market opportunities, and/or neutralize potential threats (Barney 1991 ; Wright and
McMahan 1992 ). Accordingly, value is derived from the ability of these skills to
increase the ratio of beneWts to customers relative to their associated costs (i.e.
value¼beneWts/costs).Uniquenessrefers to the extent to which knowledge and
skills are specialized orWrm speciWc (e.g. Williamson 1975 ). Unique human capital
may consist of tacit knowledge or deep experience that cannot be found in an open
labor market, thereby reducing the extent to which it may be transferred to other
Wrms. Figure 11. 1 summarizes the HR architecture.
- 1 Core Knowledge (Knowledge-Based Employment)
Given their high strategic value and uniqueness, core knowledge workers are most
likely to contribute directly to aWrm’s core competencies on the basis of what they
know and how they use their knowledge (Snell et al. 1999 ; Purcell 1999 ). As a result,
Wrms haveWnancial and strategic incentives to internally develop and invest in
these employees. To do so, companies tend to implement a commitment-based HR
system (e.g. Lepak and Snell 2002 ) that invests in the development of employee
competencies, empowers employees, and encourages participation in decision-
making and discretion on the job. Likewise, long-term incentives (e.g. stock
ownership, extensive beneWts, or knowledge-based pay systems) may be oVered
to ensure that core employees receive continued and useful feedback and adopt
employment subsystems and hr architecture 213