When to “Make” and When to “Buy”: A Contingency Theory of Making Versus Buying Managerial Human Capital

When should firms build talent, and when should they buy? There is theoretical consensus that internal hires would exceed externals in performance because of their firm-specific human capital. However, by integrating the creativity and innovation literature, I present a non-traditional theoretical view which argues that in creative environments with a time-lag on related expectations and outputs, externally hired managers would exceed internally promoted managers in several different performance- related outcomes. I also explore the social influence associated with the hiring origin of middle managers by integrating psychology and economic rationale to study the impact of managerial hiring origin decisions on subordinates. These questions are addressed using three years of survey data from a publicly-traded company with employees spanning various locations, job levels, departments, and functions