HR Options : Enhancing Human Resources Flexibility with Real Options Approach

To achieve superior performance in the current dynamic environment, it is not enough for an organization to possess valuable resources; it must also be capable of continuously renewing, reconfiguring, and redeploying such resources with changes in environmental needs. In such a scenario, resource investments by organizations and unfolding strategic options created by such investment are two related elements in a single chain of events. The real options approach provides an understanding of the economic logic of sequential resource investment choices that organizations make in managing their human resource (HR) flexibly. Based on this logic, certain HR practices manage risk and generate opportunities for the organizations by creating 'options' for its human capital. These HR options help ensure the stability of returns from human capital and thus sustain competitive advantage. The deployment of HR options and their usefulness will depend upon the extent of risks associated with the human resource of the organization. Organizations facing elevated risks may use a large number of HR options. Various types of HR options are deployed in diverse industries according to the types of risk present. Different types of HR options and the role of certain HR practices in the creation of these HR options are discussed in this research