The Role of Human Resources in Gaining Competitive Advantage

The title

On Becoming a Strategic Partner: The Role of Human Resources in Gaining Competitive Advantage

The  abstract

What is this article about?

The article adapts the VRIO (value, rareness, imitability, and organization) framework to verify that Human Resource function is an important component of having sustainable competitive advantage, although other literatures hold an opposite point of view. The role of the HR executive is also being considered.

The introduction

How does the article contribute to our knowledge and understanding of a particular topic, concept, and area of study?

When top managers value the firm’s people, it tends to be two confused parts, HR function or people in the company. In this case which one can provide sustainable advantage remains a myth. Therefore two main approaches are discussed, the Resource-based view and the VRIO framework, accordingly how competitive advantages can be formed based on these approaches.

Body

In terms of the resource-based view, competitive advantages can be provided from three types of resources, physical, organizational and human capital resources. Furthermore the questions of Value, Rareness, Imitability, and Organization should be asked when identifying the value of a firm’s human resources to organizations as well as the proper role of the HR function in managing the firm’s human resources to achieve such an advantage. Organizations possess a range of resources including human capital resources which are “the characteristics of a firm’s human resources, including all of the knowledge, experience, skill and commitment of a firm’s employees, and their relationships with each other and those outside the firm” and also how people are managed as a source of competitive advantage (Barney and Wright 1997).

With respect to the term Value, HR function should aid in either decreasing costs or increasing revenues. Taking part in Preferred Provider Organization can easily achieve the goal and slash the cost. By rising up the revenues, firms should link the customer satisfaction together with employee satisfaction and treat people as priority. In the meantime the attitude survey is an important evaluation and reward process as it can form the leadership index using reported scores, which is a main standard of whether rewarding bonus or not. It’s supported by several empirical researches that HR practices improve employee’s satisfaction, which links to service quality. Also the on time bonus works, as it restores employee morale and thus increasing customer satisfaction.

With respect to the Rareness, companies must have something initial and special to be outstanding among other competing firms as the same characteristics of different firms cannot be treaded sources of competitive advantage, they don’t give any differences about this. Therefore key special characteristics may generate surprises, such as highly skilled labour pool, or high turnover for sales clerks.

With respect to Imitability, value can only be maintained by the difficulty of copying, it tends to be invaluable with high inimitability. The personality or namely the culture of the company becomes an important part of inimitability. The source of sustained competitive advantage because they create value, is rare, and is virtually impossible to imitate.

As a matter of fact, the HR function, through either directly controlling or strongly influencing the characteristics of human resources in organizations plays an important role in developing and maintaining a firm's competitive advantage.  Therefore aspects of human resources that are valuable, rare, and uneasily imitated, can be a source of sustained competitive advantage, but only if the firm is well organized to capitalize on these resources.

Sustainable Competitive Advantage Stems from Firm Specific more than General Skills. Generate skills can only form competitive parity, which is nonsense to be better when competing with other companies. The specific skills that can be used in particular firm merely talks. But it doesn’t mean that generate skills are useless; they can still add value although the highest level of them are rare and considered as specific.

Sustainable Competitive Advantage comes from Teams more than from Individuals. High intelligent individuals will easily quit and shift to another better paid job with his or her visible high performance and low synergistic level with colleagues. On the other hand, due to causal ambiguity and social complexity, people in a team tend to be united and be concentrating efforts on the same target, they will be willing to stay and contribute. Clearly trust and good relationships among organizational members are firm specific assets that provide value, are quite rare, and are extremely difficult for competitors to imitate.

Sustainable Competitive Advantage Stems from HR Systems more than from Single HR Practices. Individual practice is easily imitated as the competitors can copy it in a short period of time when the temporary advantage exists. The appropriate thing for HR is to create a synergistic system containing all the individual practices and make them as a whole.

A best HR practice can help finding the right CEO, outsourcing HR functions, or seeking sustained competitive advantage. There are four main implications for a HR executive. First of all, to understand the value of people in the firm and their role in competitive advantage. Executive should have fully knowledge of what the characteristic they are and in which role they can play their part better, furthermore, to low down conflicts. Secondly, to understand the economic consequences of the human resource practices in a firm. HR practices can directly impact the skills of the workforce that are valuable to the firm. Furthermore the efficiency of HR practices has a direct link to company performance as an efficient practice lows down the cost and help promoting optimal organizational effectiveness. Thirdly, executives should compare their HR practices with those of competing firms. Competitors cannot be ignored as comparisons always make one better off. Through comparison, it’s easy to identify what competitors cannot do, which is the save one that is hard to be imitated. Also by focusing on such a superior action, the ways to leapfrog competitors can be identified. Therefore, executives can maintain competitive parity by figuring out the practices that can be copied, to gain temporary advantages by innovation and generate competitive advantage by making it unique. Fourthly, executives should build organizational capability for the future. HR practices should keep improving with the time goes by in a going-concern basis.

Conclusion and discussion

This section will tell you what the findings mean and how they add to our knowledge of the topic.

VRIO framework is an important tool that helps firms to obtain competitive advantage. By applying the framework, HR practices should be decided as rare, valuable and cannot be imitated by competitors, more importantly; getting effective communications in an organization is a key mindset as a whole. It works like a bridge for integrating different kinds of people that can be mutually understood. To be concluded, the VRIO framework orients HR practices for better firm performance and better use of firm resources.

Finally

• VRIO framework is an important tool that helps firms to obtain competitive advantage
• HR practices should be decided as rare, valuable and cannot be imitated by competitors, more importantly; getting effective communications in an organization is a key mindset as a whole.