Human Resource Management and Sustainable Competitive Advantage
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Abstract
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People have been cited as the key source of sustainable competitive advantage in organizations. People may refer to an organization’s customer base or the organization’s workforce and human capital. As the theories of competitive advantage demand, for resources to be considered as sources of sustainable competitive advantage, they must be valuable, rare, inimitable, and non-substitutable (Barney, 2007). Because an organization’s customer base may not meet this criterion for sustainable competitive advantage, this paper assumes human resources as the key sources of sustainable competitive advantage. Research studies illustrate that human resources are valuable, rare, inimitable, and non-substitutable, this making them a source of sustainable competitive advantage for organizations. Human resources are considered as valuable sources because they are closely linked with increased financial quality for organizations. Human resources are also considered as rare because.. in addition to this, human resources are inimitable owing to their uniqueness in their respective organizations and non-substitutable because substitution is only applicable to other resources other than human capital.
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Key Words: Sustainable Competitive Advantage, Human Resources, Value, Rareness,
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Inimitability, Non-substitutable
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Introduction
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One of the keys to the survival of any business organization is gaining competitive advantage. The term competitive advantage refers to the processes and procedures through which businesses set themselves as leaders in the market. It is whereby organizations develop differentiation strategies from their competitors; thus, granting these organizations a business advantage over their competitors (Barney, 2007). Building on the concept of competitive advantage, sustainable competitive advantage refers to the protracted benefit of employing all inimitable value-creating strategies based on a distinctive combination of organizational resources and capabilities. Current studies on the issues are aimed at identifying the different sources of superior performance of firms in their respective competitive markets. Accordingly, these studies have identified various sources of sustainable competitive advantage ranging from technology, human resource management, and capital equipment among other things.
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Organizations that are classified as having a competitive advantage are those that have the ability to identify value creating sources and strategies and implementing these strategies in their operations (Barney, 2007). More specifically, human resource management has been cited as the most important asset for an organization’s attainment of sustainable competitive advantage. This is because human resource management concerns the provision of workforce for the achievement of organizational goals and objectives. Human resources involves the management of human capital which is a necessary tool for the achievement of sustainable competitive advantage for firms and organizations.
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This paper examines human resources as a source of sustainable competitive advantage. The paper explains why people are the key source of sustained competitive advantage for organizations in relation to the socio-economic and business context of human resource management. The paper provides an analysis of human resources as a source of sustainable competitive advantage based on value, rareness, inimitability, and substitution.
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Human Resources as a source of Sustainable Competitive Advantage
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As mentioned earlier, people, who refer to the human resources of any organization, are one of the sources of sustainable competitive advantage in organizations and firms. As the concepts of sustainable competitive advantage explain, for a resource to be considered a source of sustainable competitive advantage, it should have the ability to add value to the organization, be rare and inimitable, as well as, lack substitutes (Barney, 2007). Researchers argue that in order to understand how human resources are sources of sustainable competitive advantage, individuals need to analyze human resources based on these four facets of sustainable competitive advantage. Accordingly, the analysis needs to include both human resource functions and activities in the organization for proper comprehension of how human resources are a source of sustainable competitive advantage.
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Value of Human Resources
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Just as other sources of sustained competitive advantage, the people who make up the workforce in the organization are valuable to the organization. This is because, these people provide the organization with an array of skills and capabilities that are necessary for the organization to attain sustainable competitive advantage. As Dyer explains, employees are unique to the organization, and the skills and capabilities of a particular employee are different in each organization (Dyer, 1993). This means that employees contribute differently in the organization, thus implying a sense of value addition by each unique employee. Understanding the value of human resources in the organization is a complex and multifaceted process that requires a measurement of the demand and supply of people or labor in the organization (Hatch & Dyer, 2004). The demand for human resources in the organization refers to the ability for substitution of employees. Put simply, it is whereby employees have similar skills and for that reason can be substituted for each other in the organization. Supply, on the other hand, refers to the productive capacity of the employees in the organization. This refers to the contribution of each employee in the organization for the achievement of organizational goals and objectives.
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According to the human capital theory, when the demand and supply of human resources is homogenous, meaning the organization has similar jobs that require similar skills, the organization experiences no variance in individual contribution of employees in the organization (Wright et al., 1994). In such a case, human resources can be considered as having no value to the organization. However, if the demand and supply of human resources in the organization is heterogeneous, meaning that organizations have different jobs requiring different skills and capabilities, then human resources can be considered as valuable to the organization. In most organizations today, the latter is the most notable characteristic of human resources, thus implying a sense of value addition by human resources in the organization. Building on this idea, human resources has been linked with financial value in terms of employee remuneration and company profits. Put simply, the amount of money spent on employees, and the amount of money made by these employees through their performance. Researchers argue that high quality human resource management equals high financial value for organizations (Pfeffer, 1996). Therefore, if an organization invests in their human resources, there is the possibility that the organization will increase its financial value.
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Rareness of Human Resources
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The second requirement of sustainable competitive advantage is that sources need to be rare, meaning that it should be infrequent and exceptional. Arguably, the rareness of human resources is not based on numbers but the skills and capabilities that each employee in the organization possesses. All competing organizations have access to a wide workforce both within the organization and without. The key to having human resources as rare commodities lies in the recruitment and selection of the employees joining the workforce in an organization. In this particular case, skills and capabilities go beyond educational and technical skills, and instead they are highly focused on the employees’ cognitive skills and capabilities (Hatch & Dyer, 2004). In human resource management, cognitive skills refer to employees’ unique mental abilities that allow them to carry out their duties and responsibilities effectively and efficiently. Unlike the job-specific skills and capabilities, which may be similar in competing organizations, cognitive skills are unique to each organization. This is because the development of cognitive skills and abilities is dependent on the training and development provided by the human resource department.
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It is the role of the human resource department to establish training and development programs for their employees. This not only keeps the employees updated in the current trends in the industry, it also allows them to develop various skills that promote sustainable competitive advantage for the organization (Pfeffer, 1996). The rationale behind this is explained by Jackson et al. in their study, who states that organizational employees are in constant competition with each other. He continues on to state that the human resource department is responsible for this competition as it provides incentives for good performance and productivity (Jackson et al., 2003). Organizational employees devise various ways in which they can outdo each other so as to receive benefits. One of these ways may be through the development of smart business skills for the attainment of sustainable competitive advantage for the company. Cognitive ability is said to have a strong and positive association with individual job performance in the workplace. Organizations that manage to have a strong workforce with strong cognitive skills and abilities is likely to demonstrate an increased economic value for the firm. Cognitive ability is a necessary tool for organizations because it assures the organization of adaptability and flexibility to future problems and threats from competitors. In his argument on the topic, Boxall Explains that cognitive ability is distinctively distributed in the population, which implies that organizations that have high cognitive ability levels are, therefore, rare (Boxall, 1998).
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Because employee cognitive abilities are not guaranteed for all organizations, and for that reason are hard to come by, the organization that successfully manages to have a combination of employees with diverse cognitive abilities is said to be rare. Not all human resource departments have the capacity to ensure that their organization’s workforce is well equipped with the necessary combination of employees with cognitive abilities. Accordingly, those organizations that have this are said to be rare, thus gain a competitive advantage over their competitors in the industry (Wright et al., 1994). This, therefore, illustrates how human resources can be sources of sustainable competitive advantage through being rare.
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Inimitability of Human Resources
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For a resource to be considered a source of sustainable competitive advantage, it should also be inimitable, meaning that it cannot be copied by other organizations. Inimitability of human resources is examined on the basis of the organization’s unique human resource practices and strategies. This includes the remuneration and benefits offered for employees, as well as, all other human resource practices that involve the preservation of employees in the organization. These activities may or may not be imitable but in essence should not be. Competitors to an organization should not have the ability to imitate the human resource practices in a particular organization, if this organization is to be considered as having attained a sustainable competitive advantage. However, as Pfeffer explains, there are three main ways through which human resources may be examined to determine their inimitability. These include organizational history, elemental indistinctness, and socio-economic complexity (Pfeffer, 1996). In terms of organizational history refers to the activities and practices of an organization’s human resources that date back to when the charter of the organization in the industry. It refers to the human resource activities that have been practiced over time in the organization, hence becoming part of the organizational culture. Having a unique history in human resources assures organizations of attaining sustainable competitive advantage because this history cannot be imitated by organizations in the same industry. Elemental indistinctness exists when an organization’s resources and capabilities and the organization’s competitive advantage over its competitors cannot be easily understood (Wright et al., 1994). Put simply, competing firms should not have the ability to understand an organization’s human resources as being a source of sustainable competitive advantage.
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If competing firms are unable to identify how an organization utilizes its human resources for competitive advantage, then it will be impossible for them to imitate human resources for their organizations (Hatch & Dyer, 2004). Lastly, social complexity of human resources describes the complexity of the social aspects of human resources that make them impossible to, systematically, manage or influence. Social complexity may be brought about through the combination of a diverse workforce with each employee originating from a different background hence providing different capabilities for the organization. Further, inimitability of human resources is analyzed based on ability and behavior of the employees in the workplace. Although employees may have the ability to perform certain tasks in the organization, this does not guarantee that they will behave in accordance with the organization’s requirement. Inimitability comes in when an organization can successfully boast of having a workforce that can perform as opposed to one that has the ability to perform. Ensuring performance in human resources is key to reducing the possibility of imitation by competitors, as they cannot imitate employee performance for sustainable competitive advantage (Wright et al., 1994). Each organization has its own unique human resource culture and practice that is responsible for employee performance. This human resource culture has been identified as one of the hardest to imitate owing to its long-term nature and the uniqueness across all organizations. This, in turn, illustrates how human resources can be sources of sustained competitive advantage through their inability to be imitated.
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Substitution of Human Resources
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The last condition for sustainable competitive advantage is that all sources should not be easily substitutable. Put simply, this means that sources of competitive advantage should not provide the opportunity for substitution by competitors. In the search for competitive advantage, it is natural that if a competitor cannot imitate the sources of competitive advantage, then they can provide substitutes to these resources. Though substitution implies a lower quality of resources for the organization, it also suggests some benefits such as reduced costs, and increase in quantity among other things. For that reason, substitution poses a great threat to competitive advantage for firms and organizations (Hatch & Dyer, 2004). Organizations that successfully manage to provide resources that cannot be substituted are, therefore those that attain sustainable competitive advantage in their respective industries. Human resources are considered as sources of competitive advantage owing to the simple fact that unlike other resources, they cannot be substituted. Substitution of human resources for competitive advantage would imply a reduction in the quality of human resource activities in the organization. For example, the substitution of cognitive ability, which may be a source of competitive advantage, would means that the employees in the competing organization cannot enjoy the benefits of cognitive ability for sustainable competitive advantage. As Pfeffer explains, substituting human resource activities, does not inherently, result in gaining sustainable competitive advantage in organizations (Pfeffer, 1996). If competitors to an organization need to attain sustainable competitive advantage, then it would not be a viable approach for them to take on substitution for the achievement of this. However, competitors can substitute other resources such as technology and financial resources. This, therefore, illustrates how human resources can be a source of sustainable competitive advantage owing to the fact that it cannot be substituted.
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Conclusion
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It is correct to assume that people are the key sources of sustainable competitive advantage in an organization. As the paper explains, people in this case refer to the human resources available for organizations. Human resources provide the necessary human capital for organizations to perform their operations accordingly, for the achievement of the set goals and objectives (Hatch & Dyer, 2004). Because sustainable competitive advantage demands that organizations provide for their customers exclusive high quality products and services. As previously mentioned, human resources meet the criterion for sources of sustainable competitive advantage, and for that reason, they have been cited as the key sources for market leadership. Because human resources are unique to each organization, they are rare, and inimitable, thus qualifying for the first requirements of sustainable competitive advantage. Additionally, human resources cannot be easily imitated or substitutable from organization to organization, hence passing the last two requirements for sustainable competitive advantage. Based on the analysis presented in this paper regarding human resources as a source of market leadership, it is therefore, safe to assume that indeed human resources are sources of sustained competitive advantage.
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