Performance as a Random Variable

Individual performance is stochastic, but strategic human capital research evaluates workers and policies only in terms of mean or expected performance. This omission embeds strong but rarely stated assumptions about organizations’ ability to absorb bad draws and capitalize on good ones. Using a portfolio model in which hiring managers choose between reliable (lower-mean, low-variance) and volatile (higher-mean, high-variance) workers, I examine how organizational wealth, scale, team composition, and production interdependence shape exposure to performance risk. The analysis shows that fragile, resource-constrained, or tightly coupled organizations pay a volatility tax and should favor reliability, whereas large, well-capitalized, or modular organizations can take advantage of more volatile talent. I develop this insight as Human Capital Portfolio Management and discuss implications for research in strategic human capital, entrepreneurship, and organizational theory.