Competitive Advantage Using Human Resources

Sustained Competitive Advantage Using Human Resources

Theoretical Critique essay format. Within a challenging economic environment role strategic human resource management insignificant. Do approaches strategic

There has been tremendous growth in the strategic management field, and this has made it more popular amongst the practitioners and academics in the previous twenty years. For research structuring, industrial organization strategist rely on the SWOT framework. This has been the case since strategy became a recognized area in the management field Oliver, 1997.

Recently there has been other contributions made to the literature strategy, and this has emphasized the external part of the SWOT framework. The external part focuses mostly on the environmental impacts of the firm’s performance. Models that focus on the environmental impacts of the firm’s performance have little use to the practitioners though they are well received. These models communicate little regarding the manager’s influence.

In strategic management, there has been a new entrant, and this is the resource-based view of the company. This view looks at the company from a competitive advantage view point. It differs from the environmental focused strategic management, as it emphasizes on the relationships between internal resources of the company, its performance, and its strategy. There is no theoretical discussion to show which resources can serve as sustained competitive advantage, and in which situations the resources might generate sustained competitive advantage Powell, 1992.

The paper will show that human resources can contribute greatly to the company’s sustained competitive advantage.

Resource based theory

This theory is rooted in the organizational economics literature. Theories of competition and profit associated with Schumpter, Penrose, and Ricardo focus on the company’s internal resources as been the main determinants of competitive success. Resources are defined as things which are thought to be a company’s weaknesses or strengths. The tangible assets that are semipermanently tied together with the company Rindova & Fombrun, 1999.

This definition can be expanded to include assets, organizational processes, capabilities, information, company attributes, and knowledge all of which are controlled by the company, enabling it to conceive and implement strategies which improve the company’s effectiveness and efficiency. A company’s resources are grouped into three categories: human capital resources, organizational capital resources, and physical capital resources.

A competitive advantage, is defined as the value implementation that creates a strategy that is not currently being implemented by the company’s current and potential competitors. In the resource-based view, competitive advantage only takes place in firm resource immobility, and firm resource heterogeneity situations. When the other competing companies are not able to duplicate the competitive advantage benefits, it is referred to as sustained competitive advantage from the resource-based view. Therefore, until all efforts from the company’s competitors to duplicate its advantage have stopped, competitive advantage cannot be considered sustained.

For a resource to be quantified as a sustained competitive advantage source by the company, it must add value to the company, must be inimitable, rare, and there should be resource substitutes Narasimha, 2000.

This is the resource-based view of a resource.

The role of human resource in sustained competitive advantage

When there is a heterogeneous supply and demand for labor, human capital becomes distributed. Companies have different histories and work processes characterized by social complexity and causal ambiguity Cockburn, Henderson, & Stern, 2000.

Human resource can then be transferred across technologies. This means that human resource has the potential of adding to the company’s sustained competitive advantage. This factor is always ignored. Having a high number of human capital should allow a company to gain productivity advantages as compared to its competitors. Individuals performing a specific task can come up with some efficient strategies for perfoming the task, and this would increase their productivity. A company that has a high number of human capital resources will generally be more productive than its competitors. This will be through the efficiency they use in doing their tasks.

Company strategies develop via an evolutionary process of decisions that are aimed at achieving its objectives, which move the firm in the desired direction incrementally. The company’s top management will set its overall strategic direction, but through the subunits responses to their environment, the specific tactics and strategies arise Ferligoj, Prasnikar, & Jordan, 1997.

Due to environmental changes, companies will have to monitor and respond quickly, to ensure they remain competitive and dynamic.

A company can be able to sense any changes to its critical environment, and change its activities, by using its human capital. There is need for a company to develop alternative methods for monitoring its environment, as these environments are getting more dynamic and complex. Having a high level of human capital resource will increase the company’s ability to monitor its environment through decentralization. This will ensure that the monitoring is not only performed by specific departments, but rather by all employees who interact more closely with the stakeholders. Leveraging on human capital, a company can devise effective strategies to respond to its environmental changes.

Sustained competitive advantage can be gained by using human resources. However, majority of the research concentrates on practice oriented perspectives which emphasize value of human resource practices instead of quality for the human resource pool Newbert, 2008.

There has to be focus on the interrelationship of human resource, competitive advantage, and strategies.

Managers’ role in developing HR as a sustained competitive advantage source

The role of the manager is limited when attempts to create competitive advantage using HR are made. This is because sustained competitive advantage requires value, inimitability, rareness, and non-substitutability. In the resource-based view of the company, assumption is made that the managers have limited ability for manipulating the characteristics if their companies. When seeking to have a sustained competitive advantage in their company managers then have a problem.

Free trading of resources in the markets, makes it impossible for the company to purchase the resources that will provide a source for sustained competitive advantage. This is because the resources will be priced according to the market for the company’s value. It is therefore, clear from the resource-based view that a company should not expect to purchase a sustained competitive advantagePowell & Dent-Micallef, 1997.

The advantages needed will be found in the imperfectly imitable, rare, and nonsubstitutable resources that are in the company’s control. Therefore, the managers’ role is to identify, exploit, and develop these resources from within the company.

Using human resource systems which assist in the development of the human capital, and elicits the appropriate behavior of the employees can help a manager in developing his/her human resource to be the source of sustained competitive advantage. Having a resource-based view will show the importance of managers playing an active role for the development of competitive advantages by using human resources. There are no other company resources that are under a managers direct control as human resources, and this is a fact.

Conclusion

A company can gain competitive advantage over its competitors by using its human capital. This resource is rarely utilized when companies are coming up with strategies for gaining competitive advantages over their competitors. Following the criteria for resources that can be sources for competitive advantage, human resource meets them all, as it is rare, valuable, nonsubstitutable and inimitable. The only reason this resource is not used properly is because it is characterized by social complexity, causal ambiguity and unique historical conditions. There are few companies that can develop and use human resource to be a sustainable competitive advantage.

References

Cockburn, I.M., Henderson, R.M., & Stern, S. (2000). Untangling the Origins of Competitive Advantage. Strategic Management Journal, 21(10/11), 1123-1145.

Ferligoj, A., Prasnikar, J., & Jordan, V. (1997). Competitive Advantage and Human Resource Management in SMEs in a Transitional Economy. Small Business Economics, 9(6), 503-514.

Narasimha, S. (2000). Organizational Knowledge, Human Resource Management, and Sustained Competitive Advantage: Toward a Framework. [Article]. Competitiveness Review, 10(1), 123.

Newbert, S.L. (2008). Value, Rareness, Competitive Advantage, and Performance: A Conceptual-Level Empirical Investigation of the Resource-Based View of the Firm. Strategic Management Journal, 29(7), 745-768.

Oliver, C. (1997). Sustainable Competitive Advantage: Combining Institutional and Resource-Based Views. Strategic Management Journal, 18(9), 697-713.

Powell, T.C. (1992). Strategic Planning as Competitive Advantage. Strategic Management Journal, 13(7), 551-558.

Powell, T.C., & Dent-Micallef, A. (1997). Information Technology as Competitive Advantage: The Role of Human, Business, and Technology Resources. Strategic Management Journal, 18(5), 375-405.

Rindova, V.P., & Fombrun, C.J. (1999). Constructing Competitive Advantage: The Role of Firm-Constituent Interactions. Strategic Management Journal, 20(8), 691-710.

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