Resource-Based View on Strategic HRM - Literature review Example

Strategic HRM and competitive edge in the context of resource-based view (RBV) Student’s Name: Course Code: Lecture’s Name; Date of Submission: Strategic HRM and competitive edge in the context of resource-based view (RBV) Human Resource management has developed in its range to the point where it has become an industry rather than just a simple profession. Even though there may be significant argument regarding the actual functions human resource should carry out and how it should be done, human resource established a place at the senior management table by the early 1990s through their capacity to unravel and solve practical problems in areas such as staffing, employee relations, training among others (Peter, 2003). Jackson and Schuller (1995) explain that the practice of Human Resource Management revolves around all aspects of how people are employed and managed in institutions. Therefore, human resource management can be explained as a strategic, integrated and articulate approach to the employment, development and well-being of the people working in firms. It has a robust conceptual basis drawn from the behavioral sciences as well as from human capital, strategic management and industrial relations theories. Whether in the public or private sector, all organizations, aspire to attain strategic objectives. Private sector organizations have particularly been on the forefront compared to public institutions. Therefore, private sector firms have taken advantage of SHRM of RBV approach in realizing competitive advantage. This calls for a clear understanding and connection between these strategic objectives and the key competences required for their realization. To realize sustainable competitive advantage firms need two kinds of capabilities; non-contingent and differentiating capabilities (Hoopes et al., 2003). Non-contingent capabilities are those competences which every firms needs, in varying extent, for instance effective financial management. These capabilities are the basics that will enable an institution to be “just as good” as its competitors. Differentiating capabilities are competencies that distinguish one institution from another and are the basis of real competitive advantage (Petra and Juan, 2002). Many human resources activities aim at developing non-contingent capabilities. However, these can only meet the fundamental requirements for future strategy and most of the times are not related to the strategy. As a consequence, very few human resource plans tackle the real need to realize competitive advantage through differentiating capabilities. In effect, most organizations model their human resource plans with an aim to develop employees who are proficient in the same areas as their competitors; this cannot facilitate realization of competitive advantage. This behavior by most organizations could be the major reason why human resource functions have generally been unsuccessful in creating a clear link between activities towards the accomplishment of business strategy (Cleland et al., 2000). Certainly, people and the management of people are progressively seen as principal elements for attaining competitive edge (Makadok, 2001). Today, organizations are seeking to understand how one of the last really competitive resources (their human resources) can be managed to attain competitive edge over peers. This move has been propelled by the rising competition, ever changing technological, globalization and other factors. As Rugman and Verbeke (2002) argues the unique feature of human resource management is its inference that better performance is attained through the people in the organization. Therefore, if proper human resource policies and processes are adopted, it can also be inferred that human resource management will make a significant influence on institutional performance. It’s noteworthy that human resource practices lead to improved performance and lead to competitive advantages of firms only when they are integrated with firms’ strategy. Furthermore, human resources can play a strategic role in attaining organizational higher performance which necessitated formation of strategic human resource management (SHRM) field. The initiative that strategic human resources management can serve as a competitive advantage has been in existence for several decades. Batt (2000) talked about the potential for capitalizing on superior human resource management as a means of gaining and maintaining a competitive entrepreneurial advantage. The resource-based view of competitive advantage vary from the traditional strategy paradigm in that the prominence of the resource-based view of competitive entrepreneurial advantage is on the link between strategy and the internal resources of organizations. Essential to the understanding of the resource-based view of the firm are the definitions of competitive advantage and its sustainability. Boxall and Purcell (2000) elucidated that competitive advantage could be achieved as organizations implement a value creating strategy not concurrently being undertaken by any current or potential competitors. A sustained competitive entrepreneurial advantage exists only after efforts to imitate that advantage have died down (Barney, 1991). The resource-based view (RBV) of Strategic Human Resource Management (SHRM) The resource-based view (RBV) of an organization characterizes a paradigm shift in SHRM idea by focusing on the internal resource endowment of the firm, rather than examining performance from an external approach. It seeks to strengthen the internal capacity of a firm. The proponents of the RBV of SHRM assists us to comprehend the circumstances under which human resources become a limited, valuable, organization-specific, difficult-to-replicate resource, that is they become key ‘strategic assets’ (Doorewaard and Meihuizen, 2000). Advocates of the resource-based view of the organization (Barney, 1991) proposes that it is the range and exploitation of an organisation’s possessions, inclusive of human resources, that give a firm its ‘distinctive’ characteristic and basis of sustainable competitive advantage. Their work has led to ‘explosion of interest in the Resource-Based view’ (Boxall and Purcell, 2000), principally in looking for ways to build and grow ‘distinct bundles’ of human and technical resources aimed at superior institutional performance and sustainable competitive edge. Proponents of Human resource management like Barney (1991) made important contributions in regard to the resource based view and invention of the VRIO framework tool. They laid a fundamental foundation in provision of economic examination in the role of human resource management in attaining sustainable competitive advantage. They also considered the repercussion for actualizing human resource strategy and also stressed the function of the human resource expert as a strategic associate in developing and sustaining a firm’s competitive advantage. The RBV recognizes the human resource function, sometimes called human resource department as a major ‘strategic’ actor in building up sustainable competitive edge and the importance of firm’s human resources in modeling and maintaining sustainable competitive advantage. The working of RBV is based on two significant assumptions, resource heterogeneity (differences in resources among similar firms) and resource immobility (costly for firms to acquire). This means that if a firm has resources that are valuable compared to other firms. If other organizations cannot imitate these resources without incurring high costs then the organization having these valuable resources will definitely have sustainable competitive advantage. Analysis of VRIO framework in the context of resource-based view Strategic human resource management in the context of resource base view is increasingly becoming important in today’s business world. The RBV of SHRM investigates the ways in which a firm’s human resources can contribute to sustainable competitive advantage. The effort can be best analyzed and expounded by the VRIO framework. VRIO stands for value, rarity, inimitability, organization and value. To start with firms need to look into how the human resources function can be geared towards creating value. This is a common practice in firms to cut costs through human resources for instance the cutback in headcount and the adoption of flexible working practices while at the same time they consider how they could enhance revenue. Human resources’ input to the firm is a key driver to efficiency. In addition to this human resource are involved in customer selection, customer retention as well as customer referral which highlights the effect of human resource contribution in the line of customer service and customer added value (Eaton, 2000; Peccei and Rosenthal, 2001). The customer needs approach indicates a paradigm shift from traditional value addition through economy and efficiency. The resource based view approach ensures that the potential value of outputs is exploited by make sure that the needs of the customer are fully met. The perception of the resource-based view (RBV) is that if human resources wanted to become ‘strategic partner’, they should know with clarity which human resources input the most to sustainable competitive advantage in the organization. This is pegged on the notion that some human resources might afford greater influence for competitive advantage than some would (Peccei and Rosenthal, 2001). For instance, Nokia Corporation runs dedicated sales and marketing, logistics and sourcing functions, concentrate on making products that best suit their customers and randomly responds to the changing customer needs. The corporation is also keen on respect for individuals by offering opportunities for individual growth and responsibility, teamwork and freedom for creativity. The company emphasizes on minimal rules and regulations as a way of promoting creativity. Further, the corporation emphasizes on achievement of its goals by adopting new strategy in response to change in the global market, continuous refocusing of their goals and being at the right place at the right time. As part of its corporate culture Nokia Corporation stresses on continuous learning through strong focus on research and development. This helps to keep the company at par with customer needs as well as the direction of technology (Miller, 2000; Smith et al., 2005). In regard of importance of some human resources Frenkel (2000) was of the view that productivity and performance could be enhanced by attaining the same output from lesser resources (rightsizing). This would be boosted by being able to produce more output from given resources (leveraging). These two approaches present strategic tools or actions for ensuring optimal utilization of the available organization resources. This encompasses human resources in the area of strategic human resource management. In achieving optimal utilization of resources and maximization of output human resources need to know how the firm will distinguish itself from competitors, how to boost innovation, increase production efficiency and customer service. They also need to identify where on the value chain they can achieve the greatest leverage towards attaining differentiation. In addition, identify employee with highest potential in differentiating an organization from its competitors (Ramsay et al., 2000). In order to undertake rightsizing and leveraging, there will be additional repercussions for the function of human resource managers in an organization. The HR managers needs to understand the likely consequences of the approaches on human resource practices economically and also understand where they would fit in the firms value chain. In light of this Barney (1991) proposes that the human resources function requires ability to investigate the firm’s customers, whether institutional policies and practices hamper the success of internal clients exist, services the firm provides, services the firm should provide and services the firm should not provide. In the emerging business environments value of a firm’s resources is not adequate alone in attaining sustainable competitive advantage since other firms have the same value. The value can only bestow a competitive parity on a firm. Therefore, a firm needs to consider the next element of the resource based view VRIO framework, rarity. The human resource managers need to look into how to build up and exploit rare features of an organization’s human resources to grow competitive advantage. Apple Incorporation and Pixar Animation Studios are interesting, because they operate in highly competitive retail industries. Pixar Company is concerned about the growth and development of its staff. In order to promote skills growth and development Pixar university was set up to ensure attraction and retention of quality artistic oriented employees whereby the company is keen to raise the level of the best, cross-train and develop mastery of their employees. This is a strategic investment for Pixar on gaining competitive edge. Pixar university courses are geared toward fostering creativity, promoting collaboration and preventing burnout of the staff thus retaining a motivated team of staff (Pinder, 2008). Further, the staffs of Pixar are recognized for their achievements. They are paid significant pay packages, much higher than competing firms. Pixar technological and creative staff has contributed in extensive commendation and various films industry awards. Pixar staffs have won 16 Academy Awards and other awards as well. Recognition for achievement at the workplace has boosted the motivational status of Pixar Company which has translated to increased creativity, innovation and productivity. As Andrew Stanton (a writer and director) puts it that people outside of Pixar are ‘pale in comparison’ to Pixar’s employees. This is a clear indication of rarity in Pixar’s human resources (Gray, 2000a). One of the important driving incentives of Pixar workers in gaining competitive advantage is that they are granted creative freedom which boosts creativity and quality of people at the company. Freedom ensures that there is no limitation on the ability of Pixar employees. This is a great move in accelerating innovation and development of software and animated films. The quality of personnel at Pixar is way beyond other animation companies at Andrew Stanton puts it. Employees are allowed to attain their potential (Latham and Pinder, 2005). This approach makes the resultant products rare and boosts inimitability. On the other hand, Nordstrom, focused on its salespeople as a chief stronghold of its competitive advantage. It therefore concentrated in attracting and retaining youthful college educated individuals who preferred a profession in retailing. To boost horizontal integration, Nordstrom also offered an exceedingly incentive-based remuneration system (up to double the industry standard), and it supported human resources to undertake a ‘heroic effort’ to focus to customers’ requirements. By Nordstrom devoting its resources towards human resources while retaining an integrated perspective to development, recognition and reward; it has adopted a fairly homogeneous labour team and maximized utilization of its rare characteristics towards attaining a competitive advantage (Doorewaard, and Meihuizen, 2000). When a firm’s human resources are able to add value and have rarity characteristic, it makes they can enjoy competitive advantage though on short term basis. Once the competitors imitate these distinct characteristics, they lose competitive advantage and it’s replaced by competitive parity. Therefore, for a firm to enjoy long-term competitive advantage it necessitates human resources to build up and foster characteristics that are less imitable by the firm’s competitors. In recognizing the importance of firm’s unique history and its culture, an organization can capitalize on them to establish its identity which could enable it to ‘leapfrog’ over competitors; referred to as social complexity (Doorewaard, and Meihuizen, 2000). Social complexity as a source of long term organization competitive advantage is build upon synergy from effective teamwork. This approach is said to promote rarity and inimitability characteristics. This formidability is provided by the casual ambiguity of social complexity since its specific source of the competitive edge was intricate to discover. Further, social complexity is not transferable to other organizations. A good example is Apple Incorporation. In Apple Incorporation, a culture of secrecy has been cultivated whereas maintaining consistency and comprehensiveness across its organizational practices. In furthering this culture, employees involved in particular projects have to go through maze of security doors with high security requirement identifiers. These controlled workspaces are closely monitored by security cameras and it’s mandatory for employees who work in production testing rooms to cover devices with black cloaks. The employees are required to turn on red light when the products are unmasked as a way of making everyone extra careful. In case an employee is suspected of leaking product information is tracked and fired. This was further visible with the former Chief Executive Officer Health secrecy. The effect of this organizational culture may be analyzed in two ways. In one way, Apple has progressively improved its performance and has been a success story. The protection it places on new ideas and projects could be a way of ensuring continuous development of the company. This approach ensures that the company does not lose its ideas to its competitors. This enables Apple to retain competitive edge over its competitors in the long term (Stone and Vance, 2009). In order to further ensure competitive advantage is sustainable the human resources need to be organized. This would be key in managing the attained value, rarity and inimitability. For a firm to be organized it requires to focus on horizontal integration by creating coherent systems in its human resources practices. To achieve this, a firm requires that its policies and practices in the human resource useful areas are synchronized and consistent, not conflicting. If by any chance there are aspects of human resources that fail to provide value, they should be seen from competitive disadvantage perspective thus should be done away with. In advocating the RBV of SHRM, there is need to complement the existing human resources through an evolutionary perspective by creating their competencies (Hoopes et al., 2003). Application of the resource-based view of SHRM RBV utilizes the internal perspective of the business, human resource issues and practices are central to realizing sustainable competitive advantage. Firm’s focus on how they can define and develop outstanding competencies or capabilities which are better to compared to their competitors. Most proponents of RBV argue that the majority of firms, their inclination on competing in the existing business environment imply that a lot of management energy is dedicated to safeguard the past in detriment to creating the future (Hoopes et al., 2003). Rugman and Verbeke (2002) proposed that an organization’s human resource practices could afford a source of sustainable competitive advantage. In relation to perspective of investigating the role of human resource in pushing forward the competencies of the firm, Rugman and Verbeke (2002) also proposed that human resource systems can be unique, that is causally ambiguous and synergistic in how they propel firm competencies, and thus could be inimitable. In applying the resource based view of SHRM in a firm the system of human resource practices, a firm should capitalize on all the complementarities and interdependencies among the set of practices, which are hard to imitate in contrast to concentration on individual practices. Firms that concentrate on identifying and building up their competencies make them more likely to remain ahead of their competitors. This does not mean that an organization has to anticipate the future, but rather to create it. It challenges or rather keeps firms on their toes not only concentrating on organizational revolution and market share competition undertaking also regenerating strategies and intensifying opportunity share competition. Therefore, when firms step out to create their future, strategy is important in learning, planning and positioning but also foresight and tactical architecture. Firm’s tactics goes beyond attaining fit and resource allocation to attaining expansion and resource leverage (Batt, 2000). In applying the RBV the extent of both implicit and explicit knowledge in a firm together with the capability of employees to learn is of great importance. According to Boxall and Purcell (2000) there is a thin line of difference between resource based view (RBV) and the knowledge-based view of an organization. These approaches propose that firm’s ability to learn quicker than its competitors is a major determinant as to whether they will attain sustainable competitive advantage.  Conclusion In conclusion, the importance in terms of contributions of the resource-based view in human resource management and performance has been widely accepted. However, critics argue that the effectiveness of the RBV approach is inextricably connected to the external environment of an organization. A general acceptance of RBV critics is that the approach avails high value addition especially where the external environment is unforeseen. Human resource function in successful business firms is taken as a strategic partner who is no more acquiescent to other departments in a firm, is involved formulation of a firm’s strategies as well as executes those strategies. Implementation of strategic human resource management involves human resource activities such as enlisting, selecting, training and developing employees, recognition and rewarding them properly, and taking care of their wellbeing, health, and safety needs. The RBV of SHRM approach has been proven to yield good results in serious minded firms across the world. The bottom line is that for a firm to succeed, human resource managers must become professionally proficient, armed with knowledge, skills, and competencies linked to the best practices. References Barney, J 1991, “The Resource Based View of Strategy: Origins, Implications, and Prospects.” Journal of Management, vol. 17, no. 1, pp. 97-211. 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