Richard P. Castanias (a)
Constance E. Helfat (b,*)
Managerial resources, defined as the skills and abilities of managers, are important contributors to the entire bundle of firm resources that enable some firms to generate rents. Here we build on our original analysis (Castanias & Helfat, 1991) and present an expanded classification of managerial resources, elaborate on how this classification relates to the fundamental resource-based characteristics of value, scarcity, inimitability, and difficulty of substitution, and highlight the issue of appropriability of rents from managerial resources. We then move well beyond the original analysis to examine a large number of empirical implications of our model, including many contingency factors, and discuss recent empirical research. Finally, we suggest extensions of the model to include managerial cognition and social capital, and draw implications for resource-based theory more generally. (c) 2001 Elsevier Science Inc. All rights reserved.
An important aspect of resource-based theory concerns the management of firms to generate rents from organizational resources and capabilities. Managerial resources, defined as the skills and abilities of managers, are key contributors to the entire bundle of firm resources that enable some firms to generate rents. In this article, we first briefly elaborate on and expand some of the key features of our original managerial rents model (Castanias & Helfat, 1991). Then we devote the remainder of the analysis to empirical implications of the model, which were not examined in detail in Castanias and Helfat (1991), and tie these implications to recent empirical research.
The managerial rents model rests on the basic proposition that managers differ in the type and quality of their skills. The original managerial rents model distinguished between three categories of managerial human capital--generic, industry-specific, and firm specific--and focused on chief executive officers of corporations. Here we use an expanded classification of managerial resources developed by Bailey and Helfat (2001), and explain how this expanded classification relates to other classifications of managerial abilities such as those dealing with leadership qualities or functional area experience. We also elaborate on the applicability of the managerial rents model to other members of the top management team, the board of directors, and managers lower down in the organization.
The type and quality of managerial resources have important empirical implications for firm performance, selection and training of CEOs and other managers, managerial compensation, and corporate governance. We explain some of these implications here, and discuss a sampling of empirical research on these topics since the publication of our original article. We suggest many new empirical applications of the managerial rents model as well.
In what follows, our aim is to add to the managerial rents model, rather than to repeat our original analysis. Toward this end, we begin with just a brief review of the main building block of the managerial rents model, namely, managerial human capital. We then explain our expanded classification of managerial resources, and elaborate on how this classification relates to the fundamental resource-based characteristics identified by Barney (1991) in his influential article. In our original analysis, we did not explicitly tie our model to Barney's (1991) criteria, in part because our article and Barney's were published simultaneously. Then, after linking our analysis to that of Barney (1991), we review theoretical implications of the managerial rents model for firm performance, for the appropriability of rents from managerial resources, and for incentives to generate rents. Our original article remains one of the few contributions to resource-based theory that directly analyzes the issue of who appropriates any rents from resources, which in turn affects incentives to generate rents in the first place. For this reason, we highlight this feature of our original model. Then we devote the remaining and largest portion of this article to empirical implications of the managerial rents model, supplemented by evidence from recent studies, and suggest promising approaches for future empirical research. Finally, we propose extensions of the model to include managerial cognition and social capital, and implications for resource-based theory more generally.
2. Managerial human capital
Managerial skills refer to innate and learned abilities, expertise, and knowledge. Here we use the terms "skills" and "human capital" interchangeably. Managers acquire and perfect their skills in part through prior work experience. Although books and other sources of information can impart knowledge relevant to managerial tasks, effective management also involves learning-by-doing and requires practice (Mintzberg, 1973). Hence, empirical research on managerial resources has used managerial work experience as an empirical indicator of managerial human capital (e.g., Harris & Helfat, 1997; Bailey & Helfat, 2001).
The original managerial rents model applied human capital theory (Becker, 1964) to chief executive officers. Expanding on Becker's distinction between general versus specific training for a job, Castanias and Helfat (1991) characterized CEOs as firm resources that possess varying qualities and quantities of generic (or general), industry-specific, and firm-specific skills. These skills nest in a hierarchy from most to least transferable between firms. In recent work, Bailey and Helfat (2001) have observed that managers also possess "related-industry" skills that can be transferred outside of an industry to other industries that make related products or that utilize related resources and production processes (see also Finkelstein & Hambrick, 1996, p. 184). The nested hierarchy of managerial human capital thus becomes one that includes generic, related-industry, industry-specific, and firm-specific skills. Obviously, in empirical research, this categorization can be made even more fine-grained, to include skill s in both narrowly and broadly defined industries, as well as skills in closely related and less closely related industries.
This classification of managerial resources incorporates skill differentials between managers "both in the types of skills that individuals possess, and the degree of skillfulness" (Castanias & Helfat, 1991, p. 160). That is, managers may differ not only according to which skills in the hierarchy they possess, but also with regard to their level of ability for each type of skill in the hierarchy. Moreover, managers may differ in the combination of skill types and levels of ability, or "skill sets," that they possess (Bailey & Helfat, 2001).
As Barney (1991) argued in his influential article on the resource-based view of the firm, heterogeneity and imperfect mobility of resources are prerequisites for rent generation from resources. In the managerial rents model, heterogeneity in managerial resources takes the form of skill differentials, both in the types of managerial skills and in the levels of ability within each type of skill. Our classification of managerial skills also directly incorporates varying degrees of resource mobility, since the nested hierarchy of skills reflects differences in skill transferability. Thus, when managers move between firms, their old firm-specific skills lose value, and when managers move between industries, the same holds for their old industry-specific skills (Harris & Helfat, 1997).
Barney (1991) further stated that to generate rents, resources must be: (1) valuable (enable the firm to meet opportunities and threats in the environment), (2) rare (or scarce), (3) imperfectly imitable, and (4) imperfectly substitutable. The original managerial rents model began with the assumption that managers and their skills are potentially valuable to firms, following a long stream of literature in business and economics. It what follows, we use the term "relevant" to denote managerial skills that have utility in a given environmental context. Our original analysis also provided a clear definition of scarcity of managerial resources. Specifically, each of the types of managerial human capital in the hierarchy of skills is scarce if a manager possesses higher quality skill relative to his or her competitors. …