If sustainable competitive advantage depends upon work force skills, American firms have a problem. Human-resource management is not traditionally seen as central to the competitive survival of the firm in the United States. Skill acquisition is considered an individual responsibility. Labor is simply another factor of production to be hired—rented at the lowest possible cost—much as one buys raw materials or equipment.
The lack of importance attached to human-resource management can be seen in the corporate hierarchy. In an American firm the chief financial officer (CFO) is almost always second in command. The post of head of human-resource management is usually a specialized job, off at the edge of the corporate hierarchy. The executive who holds it is never consulted on major strategic decisions and has no chance to move up to Chief Executive Officer (CEO). By way of contrast, in Japan the head of human-resource management is central—usually the second most important executive, after the CEO, in the firm’s hierarchy.
While American firms often talk about the vast amounts they spend in training their work forces, in fact, they invest less in the skills of their employees than do either Japanese or German firms. The money they do invest is also more highly concentrated on professional and managerial employees. And the limited investments that are made in training workers are also much more narrowly focused on the specific skills necessary for the next job rather than on the basic background skills that make it possible to absorb new technologies.
As a result, problems emerge when new breakthrough technologies arrive. If American workers, for example, take much longer to learn how to operate new flexible manufacturing stations than in Germany (as they do), the effective cost of those stations is lower in Germany than it is in the United States. More time is required before equipment is up and running at capacity, and the need for extensive retraining generates costs and creates bottlenecks that limit the speed with which new equipment can be employed. The result is a slower pace of technological change. And in the end the skills of the bottom half of the population affect the wages of the top half. If the bottom half can’t effectively start the processes that have to be operated, the management and professional jobs that go with these processes will disappear. In an American firm, the executive of human-resource management