Multi-location Workers in Multinational Firms? Tradeoffs in Contextual Specialization of Employees and Organizational Outcomes

We study how “contextual specialization,” the act of focusing workers’ organizational tasks within a particular locational context, and “contextual non-specialization,” the practice of diversifying workers’ organizational tasks among multiple locational contexts, affects individual performance outcomes. Operations and strategy scholars have studied the effect of context on the performance of the firm, but the focus has been in a singular context. In this paper, we study the decision of a multi-location firm to deploy human capital across multiple contexts and identify a tradeoff between achieving immediate productivity gains through contextual specialization, and long-term productivity gains through contextual non-specialization. We exploit a natural experiment where individuals employed with the United States Army Corps of Engineers (USACE) in Europe are treated with an exogenous shock in HR policy related to how long they can be employed in Europe. We exploit this exogenous shock to study how contextual non-specialization and contextual specialization at the employee level affects project performance. We find that employees engaged in the contextually-specialized manner can initially be extremely productive; however, over the long-term these employees begin to plateau and eventually stagnate. We also find that employees working in the contextually-non-specialization environment, can initially be unproductive; however, over the long-term these employees become the most productive.