RECONSIDERING THE BALANCE: SOCIAL AND HUMAN CAPITAL IN FIRM STRATEGIC RENEWAL

Abstract

This paper delves into the intricate dynamics of social and human capital as integral intangible assets in organizational strategy and competitive advantage. Traditionally, these capitals have been viewed as complementary, synergistic elements within firms' capabilities. However, when faced with strategic vulnerability, some firms may shift their perspective, treating social and human capital as potential substitutes rather than complementary assets. Additionally, a concept of equifinality exists, suggesting that different firms may anticipate diverse outcomes regarding the impact of these capitals on strategic renewal. The paper's core objective is to develop a comprehensive theory that explains the conditions under which firms may adopt a "substitution strategy." This strategy involves a significant reliance on social capital to develop and renew capabilities, potentially at the expense of human capital development. The framework presented in this theory encompasses various factors that drive the adoption of the substitution strategy at both inter-firm and firm levels. It also establishes a critical link between this strategic choice and long-term firm competitiveness and performance. Notably, the paper argues that adopting the substitution strategy, while initially appearing benign, can hinder a firm's ability to create and capture value from externally-sourced capabilities in the long run.