The Hiring Dilemma for High-tech Firms: 'Make vs. Buy'

Is a company better off developing and training specialized workers in-house or hiring skilled workers from outside the company?

By No Analyst or Consultant

October 25, 2005 — CSO —

One particular hiring conundrum is hardly a new one for those in human resource management: Is a company better off developing and training specialized workers in-house or hiring skilled workers from outside the company? The question is especially important in fast-paced, technology-based industries where investment in human capital is critical.

"If firms need to augment the skill of their workforce to complement an investment in technology, they face a traditional 'make vs. buy' problem," write Wharton management professor Benjamin Campbell and four co-authors—Clair Brown and Yooki Park from the University of California at Berkeley, and Fredrik Andersson and Hyowook Chiang from the U.S. Census Bureau—in a recent paper titled, "The Effect of HRM Practices and R&D Investment on Worker Productivity." Firms can "structure their HRM (human resource management) system to develop the necessary skills in-house or they can structure their HRM to attract workers with the necessary skills on the external market," he notes.

In response to this make vs. buy dilemma, Campbell and his co-authors think they have found the answer for industries that compete in cutting-edge technology. Using U.S. Census Bureau data recently made available to external researchers, Campbell says his team has statistically demonstrated when companies should hire from outside and when they should develop from within.

For Campbell, the paper's findings are particularly important on two fronts. First, his conclusions can "lay the foundation for how to think about technology and HR at the same time. HR strategy complements technology strategy, yet often people developing these strategies don't work together....  I think this is especially true in younger firms. But if you want to be in a fast-paced industry, you need to invest in an HR system that gives you the skills you need. And it has to start at the CEO level. It has to come from the top down."

Second, Campbell believes that these issues will be increasingly relevant. "More and more firms will be evolving to the spot market [external labor market] model," he says. "Most industries tend to operate in a faster-paced environment [than before]. Product life cycles across all manufacturing industries as a whole are growing shorter. Firms are facing more opportunities for change and more adjustments to the workforce." When skills need to be adjusted, "it pays to buy the skills instead of developing them. And as all industries evolve, I predict we will be seeing more and more firms adopting the buy strategy."

The Hewlett Packard Case

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