Human Resource Management


This lesson will give a brief history of human capital, characteristics of human capital, how to measure human capital, and provide a relevant example of human capital theory.

1. Agency Theory:Relationships of Principals

  • Agency relationships exist between principals and agents. Principals are people in positions of authority in a business, whereas agents are people who handle business for others. For example, in the earlier example, Jim is the principal and he hires the advisor as his agent.

  • n this case Jim is higher in authority because he is employing the financial advisor to take care of his finances for him.

  • Agency theory is the explanation of the dynamics that occur in these relationships, and especially offers an explanation for what happens when there is a problem or conflict in goals that arises between the principal and the agent

  • The difference in opinion when it comes to risk between Jim and his financial advisor can cause conflict just like that explained by agency theory.

2.AMO Theory:Ability

  • You are an organizational leader in a Dutch general hospital, and you are conducting a study to find examples of high performance work practices that your organization is currently using. After conducting the study, you found out that employees in your building perform well.

  • Using the AMO theory, you decide to investigate what causes high performance at your company.

  • The AMO theory suggests that there are three independent work system components that shape employee characteristics and contribute to the success of the organization.

  • What you found aligns well with the AMO theory in that your company: Increases the ability of the employee Motivates employees Provides opportunities to contribute to the company

3.Institution Theory: Environment

  • The theory has been broadened in the decades since its introduction, and we will review some of the key concepts in this lesson.

  • o, what is institutional theory and how does it differ from organizational theories and other ways of understanding how environments work? To answer this question, it makes sense to start by asking another question: 'What is an institution?'

  • Though some folks still disagree about the exact definition of 'institution' when it comes to talking about institutional theory, for the purpose of this lesson, 'institutions' refer to the rules and norms of specific systems in our society, nation, world, etc.

4.Leader-Member Exchange Theory and Organizational Behavior

  • Many of us are lucky enough to have a person we work with that we trust a great deal. That person that does the work and gets the results we want. Many managers have that person on their team, and they look to that person for help in getting all the work done.

  • Many managers do not have to manage that particular person too closely; they have developed a bond or a trust with that person.

  • Now, there are also people that we do not trust as much or have as good of a relationship with.

  • Those individuals are people that work for a manager but with whom the manager does not feel a connection with or have a sense of confidence in that they will get the work done the right way.

5.Resource-Based Theory: Path to Competitive Advantage

  • Resource-based theory states that the possession of resources is valuable, difficult to imitate, rare, and cannot be substituted.

  • The resource-based theory suggests that organizations should look inside the company to find the sources of competitive advantage through the use of their resources.

  • Competitive advantage is an advantage that a firm has over its competitors that allows it to generate sales or margins and/or retain more customers than the competition.

  • A firm's competitive advantages evolve from the resources that the organization has.

6.Resource Dependency Theory: How External Resources Affect Organizational Behavior

  • Resource dependency theory, or RDT, examines the relationship between organizations and the resources they need to operate. Resources can take many shapes or forms.

  • This includes raw materials, workers, and even funding. If one side maintains the majority of a resource, then another company will become dependent on them in order to operate.

  • Too much dependency creates uncertainty, which leaves organizations subject to risk of external control.

  • External control may be imposed by government or other organizations, and can have a significant effect on operations, such as funding or personnel policies. Managers strategize alternative business plans in order to lower this risk.