Employment Portfolio

To make decisions where and how to invest in employees, Lepak and Snell (1999) proposed a portfolio approach – the so-called employment portfolio. This model takes into account the strategic value and uniqueness of groups of employees.

The strategic value is the extent to which the contributions of employees help their organization to achieve a competitive advantage. The higher the strategic value, the more important these employees are for the company. Companies usually want to internally employ internally these employees. Employees that are of less strategic value can be outsourced to other companies, which is an example of external employment.

The uniqueness refers to the extent to which the contributions that the employees make are specialized or unique to a company and are not readily available in the labour market. For example, these employees possess specific skills or knowledge about a certain software system. When employees score high on uniqueness, companies may want to develop a relational relationship – which involves increasing commitment from both sides. The opposite type of relationships, transactional relationships, are more suitable for employees low on uniqueness.

The employment portfolio combines the strategic value and uniqueness to map the contributions employees make to the company, resulting in four different types of employment groups (Figure 1). Subsequently, firms can use different employment modes to allocate work to different groups of employees, making use of specific HRM configurations for these four employment modes.

For example, many companies offer training programs for their employees to increase added value. However, you may have to consider where these investments will have the strongest effect, which employment groups will benefit the most from these investments?