The Resource Based View of the Firm and Sustained Competitive Advantage

Content

INTRODUCTION

The Resource-based View (RBV)

The VRIO (Value, Rare, Inimitable, Organisationally Appropriate) Model

Soft HRM, Havard Model and High Performance Work Systems (HPWS)

CONCLUSION

REFERENCES

INTRODUCTION

The management field has seen the emergence of multifarious perspectives, including the resource-based perspective of the firm. Perhaps a more accurate description cannot be proffered than that of Newbert (2007, p.121) which places it as “a dominant theory upon which academic arguments have been grounded.” Rather than praise the popularity of this perspective, this paper seeks to find out how human resource management can contribute to a firm’s competitive advantage. In the process of the critical analysis, categories of critiques of the resource-based view will be presented. The resource-based view (abbreviated to RBV) will first be explored specifically, and then it will be related to competitive advantage.

Subsequently, the VRIO ((Value, Rare, Inimitable, Organisationally Appropriate) model, the concept of soft HRM – with a brief mention of hard HRM – will be explored, and then high performance work systems will be adumbrated.

The Resource-based View (RBV)

In its most simple form, RBV – notably contributed to by Wernerfelt (1984), Rumelt (1984) and Barney (1986) – “stands at the point that company's competitiveness is conditioned by its resources and capabilities, precisely by their combination.” (Pesic, Milic and Stankovic, 2012, p. 575).

Human resource is one of the three categories of an organisation’s resource (Barney, 1991); and in his definition of a resource, Barney includes the condition that it enables the firm to create and realise strategies that ameliorate its productivity and efficiency. Since a firm’s resources provide competitive advantage (Pesic et al., 2012), and human resources are a type of resource (Barney, 1991), then a conclusion is logically made that a competitive advantage is provided by human resources – impliedly necessitating human resource management (HRM).

To Peter Drucker, also, competitiveness depends on the acquisition, productive use and application of knowledge (Drucker 1985, cited in Pesic et al., 2012) – cohering with Ananthram and Nankervis (2013, p. 455) who claim that the importance of human resources as a competitive advantage source is supported by various research results which suggest that the skills and creativity possessed by a firm’s employees are vital to sustainability within an increasingly dynamic global business context.

The RBV has been criticised as implying infinite regress and being adoptable only by large firms with significant market power (Kraaijenbrink et al., 2009). Since firms are advised to seek superior capabilities for innovation, the firms are led into an endless search for ever higher-order capabilities. However, Kraaijenbrink et al. (2009) note that although there is abstract truism in this critique, it does not work against the RBV. As for the latter critique, Kraaijenbrink et al. (2009) note that this argument is dissolved whenever non-tangible resources – in this case human resources – are introduced.

It is important for a resource to possess four attributes for it to be labelled a source of competitive advantage. These attributes are explained by the VRIO model (Barney, 1991).

The VRIO (Value, Rare, Inimitable, Organisationally Appropriate) Model

Value is created by an attribute and transforms into a resource if the exploitation of opportunities and/or the neutralization of threats is enabled by it (Barney, 1991). Uniqueness and rarity must exist in the features of the resource amongst current and potential competitors.

If most competitors hold the same valuable resource, they will likely implement the same value creating strategy (Cardeal and Antonio, 2012). The resource should also be difficult for competitors to imitate. The easy imitability, of a human resource, regardless of possession of valuable and rare features, would quickly be copied by competitors and competitive advantage potential would disappear (Cardeal and Antonio, 2012). Wright et al., (1993) posit that a sustained competitive advantage exists when the capability of competitors to duplicate the benefits of competitive advantage is non-existent. Lastly, a resource needs to be organisationally appropriate. The resource should not have attributes that can, by competing firms, be substituted with another resource.

Gibbert (2006), cited in Kraaijenbrink et al. (2009) argues that the notion of resource rarity and uniqueness denies the RBV potential for generalisation , in terms of definition. However, Levitas and Ndofor (2006) refute this critique by claiming the utter possibility of generating useful insights about degrees of resource uniqueness. Although some scholars have also criticised the VRIO framework for failing to inform managers about how to develop VRIO resources (Kraaijenbrink et al., 2009), Pesic et al. (2012) find empirical evidence that VRIO framework provides managers with the facility to, according to the VRIO criteria, evaluate all activities undertaken within the human resource department.

Soft HRM, Havard Model and High Performance Work Systems (HPWS)

Soft HRM implies the fulfilment of the employees’ needs Edgar and Geare (2005). In the words of Greenwood (2004, p. 4), “the focus of soft HRM is on winning the ‘hearts and minds’ of the workers in order to further the interest of the corporation”. It seeks to integrate individual contributions, cooperation, communications, incorporating a larger number of stakeholders (pluralism) (Davidson, McPhail and Barry, 2010, p. 501). Soft HRM necessitates a more penetrating and intricate management method for full potential to be reached by the human resources (Davidson et al., 2010). It basically proposes that employees, being a type of resource, need to be seen as ends in themselves (Edgar and Geare, 2005), and that HR managers should balance employee-centeredness with strategic partnership within the organisation (Brown et al., 2009).

Brown, Metz, Cregan and Kulik (2009, p. 287), in a study of HR managers, discover that a majority of the managers see employee-centred activities as generating organisational benefits, with the inclusion of commitment and employee engagement productivity. Recognizing employee concerns aids in identifying effective structures of operation for providing the support that is necessary (Brown et al., 2009). This study supports the practicality of soft HRM and its status as an approach to creating competitive advantage. Davidson et al. (2010, p. 505) proposed that “employee training has formed the basis of skills development in the hospitality industry with considerable financial, and human resources expended in an effort to ensure that employees can perform to the required service standards.” This statement contributes towards the soft approach which also calls for employee training and participation (Greenwood, 2004).

Barney and Wright (1998) use the example of the company, FedEx, which conducts an annual attitude survey to gain insight into its most glaring organisational problems. By linking rewards (bonuses) and punishment (probation) of managers to employee satisfaction levels (using the survey results as a basis for a ‘leadership index’), FedEx ensures that employees are treated right by the managers. This is an example of a practical way by which a firm can apply and encourage soft approaches.

Perhaps the most widely recognised model which projects soft approach is the Havard model (Beer, Spector, Lawrence, Mills and Walton, 1984). The Havard Model argues that one of the fundamental aims of HRM should be to create employee commitment. In line with the indication of Davidson et al. (2010), Edgar and Geare (2005) also indicate that the Havard model recognises multiple stakeholders, believing that ‘neo-pluralist mechanisms’ can be a tool for the achievement of HRM practices and benefits.

Hard HRM is contrarily only concerned with the effective utilisation of employees and emphasises the quantitative, calculative and business strategic aspects of managing the head count resource as just another economic factor (Edgar and Geare, 2005, p. 535). It is unitarist in orientation and merely concerns itself with the effective utilisation of employees (Guest, 2002, as cited in Edgar and Geare, 2005).

Edgar and Geare (2005, p. 535), from the observation of the works of certain academics, suggest that “even though the rhetoric of HRM is soft, the reality is almost always ‘hard’, with the interests of the organisation prevailing over those of the individual.” However, this critique is empirically confronted by Brown et al. (2009) whose study shows that there is greater ‘soft-orientation’ involved in soft HRM than hard HRM.

Greenwood (2004, p. 5) summarised the view of many theorists, who claim that soft HRM is merely a disguised hard HRM, by saying that generally, “the critical perspective sees HRM as rhetorical and manipulative … rather than being a way for employees to fully develop and contribute within the organisation, HRM practices are a way of intervening in employees’ lives in order to ensure they make a greater sacrifice to the needs of the organisation.”

Nevertheless, Greenwood (2004) admits that there is an ‘inescapable rhetoric’ of soft HRM being somewhat healthier for workers than hard HRM, suggesting that the former approach is at least in part undertaken for the benefit of the employees as opposed to the latter.

Coming to the subject of high performance work systems, the concept behind it revolves around the assertion that there exists a system of work practices that leads to superior organisational performance (Boxall and Macky, 2009). It is important to note that influencing employee behaviour, attitudes and beliefs is important for management to realise organisational outcomes (Boxall and Macky, 2007). Consequently, since high employee involvement (which influences employee attitudes) leads to high employee commitment (Boxall and Macky, 2007), and employee commitment is what the Havard model and soft HRM seek to gain, then HPWS – specifically High Involvement Work Systems (HIWS) – can be inferred to be suitable practices which a firm can use as tools to achieve competitive advantage.

CONCLUSION

Although the word limit has disallowed the inclusion of greater elaboration, from the analysis presented, and from the exploration of the VRIO model, soft HRM, and HPWs, it can be seen how HRM can contribute to a firm’s competitiveness – supporting Roche, Teague, Coughlan and Fahy (2011, p. 38), cited in Pesic et al. (2012) who find that the significance of HRM is confirmed in both theory and practice. The VRIO model provides a basis for evaluating employees’ competitive advantageousness to a firm (Barney, 1991), soft HRM is an approach to managing employees towards becoming VRIO resources; and high performance work systems are tools for the HR manager to use to influence employees to become VRIO resources.

REFERENCES

Ananthram, S. & Nankervis, A. (2013). Strategic agility and the role of HR as a strategic business partner: An Indian perspective, Asia Pacific journal of human resources, 51(4), 454-470.

Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17, 99-120.

Barney, J. (1986). Organizational culture: Can it be a source of sustained competitive advantage? Academy of Management Review, 11, 656-665.

Barney, J. & Wright M. (1998). On becoming a strategic partner: The role of human resources in gaining competitive advantage. Human Resource Management, 37(1), 31-46.

Beer, M., Spector, B., Lawrence, P. R., Mills, Q. D. & Walton, R. E. (1984). Managing human assets. New York: Free Press.

Boxall, P. & Macky, K. (2007), High-performance work systems and organisational performance: bridging theory and practice. Asia Pacific Journal of Human Resources, 45(3), 261-270.

Boxall, P. & Macky, K. (2009). Research and theory on high-performance work systems: Progressing the high-involvement stream. Human Resource Management Journal, 19(1), 3-23.

Brown, M., Metz, I., Cregan, C. & Kulik, C. (2009), Irreconcilable differences? Strategic human resource management and employee well-being. International Journal of Manpower, 34(7), 736-752.

Cardeal, N. & Antonio, N. (2012). Valuable, rare, inimitable resources and organization (VRIO) resources or valuable, rare, inimitable resources (VRI) capabilities: What leads to competitive advantage? African Journal of Business Management, 6(37), 10159-10170.

Connor, T. (2002). The resource-based view of strategy and its value to practising managers. Strategic Change, 11, 307-316.

Drucker, P. (1985). Innovation and Entrepreneurship. New York: Harper and Row.

Edgar, F. & Geare, A. (2005), HRM practice and employee attitudes: different measures, different results. Personnel review, 34(5), 534-549.

Gibbert, M. (2006). Munchausen, Black Swans and the RBV: Response to Levitas and Ndofor. Journal of Management Inquiry, 15, 145-151.

Greenwood, M. (2004). Questioning ‘ethical’ HRM. Department of Management Working Paper Series, Working Paper 2/04, March.

Guest, D.E. (2002). Human resource management, corporate performance and employee wellbeing: Building the worker into HRM. Journal of Industrial Relations, 44(3), 335-358.

Kraaijenbrink, J., Spender, J.C. & Groen, A. (2009). The resource-based view: A review and assessment of its critiques. Munich Personal RePEc Archive. Retrieved from http://mpra.ub.uni-muenchen.de/21442/

Levitas, E. & Ndofor, H.A. (2006). What to do with the resource-based view: A few suggestions for what ails the RBV that supporters and opponents might accept. Journal of Management Inquiry, 15, 135-144.

Michael, C., Davidson, R. & Barry, S. (2011). Hospitality HRM: Past present and the future, International Journal of Contemporary Hospitality Management, 23(4), 498-516.

Newbert, L.S. (2007). Empirical research on the resource-based view of the firm: An assessment and suggestions for future research. Strategic Management Journal, 28, 121-146.

Pesic, A., Milic, J. & Stankovic, J. (2012). Application of VRIO framework for analysing human resources’ role in providing competitive advantage. Tourism and Management Studies, 2, 575-586.

Roche, W., Teague, P., Coughlan, A., & Fahy, M. (2011). Human resources in the recession: Managing and representing people at work in Ireland. Final Report Presented to theLabour Relations Commission January 2011. Belfast: Graduate Business School and Queens University.

Rothaermel, F.T. (2013). Strategic management, (p. 91). New York: McGraw-Hill.

Rumelt, R. (1991). How much does industry matter? Strategic Management Journal, 12,167-185.

Wernerfelt, B. (1984). A resource based view of the firm. Strategic Management Journal, 171-180.

Wright, M., McMahan, C. & McWilliams, A. (1993). Human resources and sustained competitive advantage: A resource-based perspective. Center for Effective Organisations.