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Human Resource as Competitive Success

1.   Introduction

The rapid technological change and the increased flows of information have shifted the customer demands and loyalties.  Traditional sources of success such as product and process technology, protected or regulated markets, access to financial resources, and economies of scale can still provide competitive leverage, but to a lesser degree now under the fierce global competition (Pfeffer, 1994).  More and more organizations recognize that they must improve performance through internal dependability and adaptability to reduce costs, increase product quality and innovation, and their speed to market (Sparrow et al, 1998).  Lippman et al (Fiol, 2001) argue that human assets can achieve this performance objective as they are hard to imitate because of scarcity, specialization and tacit knowledge.  This view has clearly shifted the balance of competitiveness towards human talents and skills instead of traditional sources of success (Verespej, 1999).  Competitive success has become increasingly dependent on human resources (HR) but Pfeffer (1994) emphasizes that this requires managing people to derive organizational culture and capabilities for the effectiveness.

2.   Discussion

Competitive success relies on the organization・s distinct competitive advantage.  Stone (1998) has defined competitive advantage as .the special edge that permits an organization to manage environmental influences better than its competitors do to ensure long-term success for the organization・.  Barney (Barney et al, 1997) suggests a resource-based view that focuses on firm resources (physical capital resources, organizational capital resources and human capital resources) can be sources of competitive advantage within the industry. 

However, physical capital resources (plant, equipment and finances, etc) and organizational capital resources (structure and systems, etc) become easier to obtain and emulate nowadays.  The search for sources of sustainable competitive advantage increasingly pointed inward towards organizational capability: the human capital resources such as skills, judgment and intelligence of employees (Dyer et al, 1995; Barney et al, 1997).  Pfeffer (Lawson et al, 2001) argues that how HR works within an organization is a critical differentiating factor and represents a unique source of competitive advantage.

2.1  How does competitive advantage come about

Barney et al (1997) propose a VRIO framework (value, rareness, imitability and organization) to describe how competitive advantage comes about (Figure 1).  According to the framework, organizations create value through the adoption of either one of Porter・s Generic Strategies: Cost Leadership, Differentiation and Focus.  Aspects of HR that do not provide such value can only be a source of competitive disadvantage with below normal performance.  The creation of such value is a necessary but not sufficient to develop competitive advantage.  If the same characteristic of HR is found in other competing firms, then that characteristic cannot be a source of competitive advantage.  Hence, aspects of HR that provide value but are not rare are sources of competitive parity with normal performance.  Temporary competitive advantage stems from resources that provide value and are rare, but are easily imitated.  It provides above normal performance for the short-term only as other firms will soon imitate them.  Finally, aspects of HR that are valuable, rare and uneasily imitated can be a source of sustained competitive advantage above normal performance for the long-term, but only if the firm is organized to capitalize on these resources. 

2.2  The resources necessary through HR

To create sustainable competitive advantage, organizations must first identify the resources necessary through HR.

2.2.1 Value: firm specific skills

Barney et al (1997) argue that greater potential for sustainable competitive advantage stems from investments in firm specific skills.  It is the competencies, experiences and knowledge of HR that provides economic value to a particular organization and these skills cannot be easily duplicated by competitors (Lawson et al, 2001; Barney et al, 1997). 

Firm specific skills can be developed from an employee・s ability to think, create, communicate, reason and use judgment with integration to organizational specific processes and procedures (Armstrong, 1997).  Torrington et al (1995) argue that becoming a learning organization is a way of keeping ahead of the competitors and gaining competitive advantage.  Garratt (Torrington et al, 1995) also argues that for an organization to survive, learning in the organization has got to be greater or at least equal to the degree of change.  Therefore, through training and education, organizational learning helps in developing and disseminating firm specific skills to every employee, and in turn creating value to the organization. 

2.2.2 Rareness: synergistic teams

According to Barney et al (1997), the exploitation of the synergistic value from a large number of individuals who work together is costly and difficult for competitors to imitate rather than an individual.  Thus, teams or larger groups provide greater potential to be a source of competitive advantage due to causal ambiguity and social complexity (Barney et al, 1997). 

Torrington et al (1995) argue that teamwork is a way of empowering employees and facilitating the flowering of their full potential in order to enhance organizational performance.  Synergistic teams can be enhanced by developing and nurturing the relationships among organizational members.  The research from the London Business School has shown that high level of trust, commitment and honesty among employee relationships can achieve better organizational performance (Whiteley, 2000).  This relationship complexity cannot be reverse engineered or easily teased out for its social and historical embeddenness (Ferris et al, 1999), and hence it is rareness. 

2.2.3 Imitability: interdependent HR system

In order to create imitation resistance, the challenge for HR is to develop HR systems that create a synergistic effect rather than a set of independent best HR practices (Barney et al, 1997).  It requires time and energy to develop highly interdependent HR systems and structures such that they complement, rather than conflict with one another (Barney et al, 1997).

Organizational culture can help to build such a highly interdependent HR system as it includes aspects of the organizational philosophies, values, beliefs, work systems and practices, expectations and limitations on employee behavior that are not easily imitated (Nankervis et al, 1999).  Therefore, all HR functions such as work/job design through recruitment, selection, training, career and performance management, etc must be blended into unity to reinforce or develop organizational cultures.

2.3  The implications for managing human resources

The above section implies that HR plays an important role in managing organizational human assets to create sustainable competitive advantage.

2.3.1 Value creation: HR competence

The understanding of the value of people and their role in competitive advantage is crucial to manage the HR function strategically (Barney et al, 1997).  According to Nankervis et al (1999), the value and role of employees is to achieve cost reduction (Cost Leadership strategy), innovation (Differentiation strategy) and quality service (Focus strategy) by harnessing their skills and efforts, which in turn offer a positive impact to the way how customers perceive the organization・s products and services.  Quality workforce can also facilitate organizational change and adaptation in responding to the dynamic competition.  Hence, organizations must manage its HR・s competence for value creation.  This requires effective HR policies and practices such as attract, retain, motivate and develop employees with the abilities, skills, knowledge and competencies required to achieve the organization・s strategic business objectives (Stone, 1998). 

2.3.2 Rareness creation: HR commitment

HR practices can directly impact the skills of the workforce that provide value to the organization.  These practices can also help to develop committed employees who are willing to allocate their discretionary behavior toward organizational ends (Barney et al, 1997).  Hence, organizations must manage its HR to contribute commitment.  A high level commitment can result in more loyalty, increased teamwork and reduced labor turnover, along with a greater sense of employee self-worth, dignity, psychological involvement, and feeling of being integral to the organization (Stone, 1998).  It also has a significant effect on the capability and willingness of employees to behave in certain ways (Boudreau, 1996).  This requires effective HR policies and practices such as career development, internal advancement opportunities, information sharing, participation and empowerment, incentive pay, etc (Luthans, 1998). 

2.3.3 Imitability: HR and organizational congruence

Barney et al (1997) argue that the role of the HR function is important in building organizational capability for the future.  Hence, effective organizations must manage its HR through strategic HR management (SHRM).  Tyson (1997) has defined SHRM as .those decisions and actions which concern the management of employees at all levels in the business and which are related to the implementation of strategies directed towards creating and sustaining competitive advantage・. 

SHRM implies that HR policies should generate (or sustain) congruence between management and employees, different employee groups, the organization and community, employees and their families, and within the individual (Stone, 1998).  This combines the organizational resources into capabilities (Sluijs et al, 1994), and offers a clear, consistent guide for behavior to the achievement of both employee goals and organization・s strategic business objectives.  According to Tyson (1997), the effectiveness depends on two kinds of .fit・: the .fit・ to external economic and social conditions through the stage of development of the organization, and the .fit・ to the HR function・s way of internal operation.  This eventually builds the organizational culture that can be sustained for the long-term.

3.   Conclusion

As a conclusion, competitive success has become increasingly dependent on HR.  The challenge of organizations is to create sustainable competitive advantage through HR that provide value, are rare, and cannot be easily imitated by other organizations.  This requires resources through HR like firm specific skills, synergistic teams and interdependent HR systems.  This also illustrates the increasing importance of HR in influencing organizational performance in today・s competitive environment.  Hence, effective organizations must manage their HR・s competences (through organizational learning and skills to deliver products/services), HR commitment (to encourage teamwork and trust), and HR and organizational congruence (through organizational culture and coherent systems to support these aims). 


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