This paper proposes that when firms compete in a context where valuable core human capital (HC) is highly context-specific, they might gain more value by reallocating non-core HC. We suggest that when a firm reallocates HC between business units, a tradeoff occurs at the firm level: the advantage that destination units receive from sharing knowledge and the loss of the colleague-specific value of the HC at the incumbent unit. By analyzing firm-level human capital data from the video game industry, this research shows that when the value of strategically important core HC lies mostly in the socially complex team, rather than in an individual, firms might lose more value by reallocating them. We also suggest that reallocating relatively fungible non-core HC might provide firms with flexibility and, thereby, achieve higher performance. The empirical results show that reallocating core HC might reduce firm performance while reallocating non-core HC can have an inverse U-shaped relationship with firm performance.
