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How do Human Resource Development Strategies Influence Performance? A Contingency Perspective

So far, contingency studies in the Human Resource Management (HRM) literature have provided minimal information on whether firms should buy their human capital or grow it on their own, depending on their environmental conditions. Using key insights from the resource-based view (RBV), the paper tests empirically whether firms should buy human capital or develop it internally. The study uses multisource and lagged data from a survey on the Human Resource directors of 304 Italian firms. The paper shows that when firms combine the internal accumulation of human capital with its acquisition in the form of hiring experts from outside they enjoy greater returns on financial performance than when they pursue either the internal development or the external acquisition strategies. Furthermore, the higher the dynamism in the environment, the more autarchic approaches to human capital development are detrimental to firm performance and the higher are the returns of human resources strategies that include the acquisition of human capital from the external labour market. Coherently with RBV, buying human capital also produces greater returns in resource scarce environments. The paper provides an empirical contribution to strategic HRM literature by illustrating how the returns of internal accumulation and external acquisition of human capital depend on environmental contingencies. In this way, the study provides some practical implications to managers on the environmental contexts where poor ‘make or buy’ decisions in human capital development are more critical to firm performance.