Firm's Resource example essay topic

OVERVIEW Effective human resource management is undoubtedly critical to the success of virtually all firms. Thus its importance is huge in the study of business strategy; which is the system of the firm's important choices that are critical to the firm's survival and relative success (Boxall and Purcell 2003). Getting more specific, strategic human resource management as a field of study is concerned with the strategic choices associated with the use of labour in firms and with explaining why some firms manage them more effectively than others (Boxall and Purcell 2003). Traditionally there has been much debate in the field of strategic HRM over two main schools of thought; "best fit" (contingency theory), and "best practice" (universalism). The "best fit" school of thought argues that HR strategy will be more effective when it is appropriately integrated with its specific organizational and broader environmental context (Boxall and Purcell 2003). This proposes questions about which are the most critical contingencies in this context and how they are best connected.

The 'best practice's chool of thought argues that all firms will see performance improvements if only they identify and implement best practice. This perspective requires top management to commit themselves to key HR practices. Basically, the idea is that a particular bundle of HR practices has the potential to contribute improved employee attitudes and behaviour's, lower levels of absenteeism and labour turnover, and higher levels of productivity, quality and customer service. This has the ultimate effect of generating higher levels of profitability (Boxall and Purcell 2003). Both of the aforementioned "best theory" approaches to strategic HRM place emphasis on critical choices associated with competitive strategy; such as which industry to enter and what competitive position to seek in it (Boxall and Purcell 2003). However, these models make some serious assumptions of the firms HRM.

They assume that the firm already has a clever leadership team that makes the competitive strategy choices effectively. They also assume that human resource issues such as hiring and training a capable workforce are straightforward and basic. The resource-based view (RBV) of strategy, a modern school of thought in the field of strategic HRM, sees these issues as strategic rather than straightforward. THE RESOURCE BASED VIEW OF THE FIRM In the last two decades, one of the most fundamental questions emerging in strategic management is how firms achieve and sustain competitive advantage.

The resource based view has its origins in the new business strategy literature and has very quickly become influential, giving rise to developments in pay systems and training as well as overall models or approaches (Sisson and Storey 2000). It is the variety of different resources that makes each organization unique which leads to differences in competitive performance across an industry (Marchington and Wilkinson 2002). The RBV states that companies can "sustain competitive advantage by implementing strategies that exploit their internal strengths, through responding to environmental opportunities, while neutralizing external threats and avoiding internal weaknesses" (Marchington and Wilkinson 2002). The central argument in RBV is that while tangible resources have often declined in their strategic value, intangible and human resources have increased as a source of value.

Looking at internal sources of viability and advantage, emphasis is placed on resources which are critical to organizational success yet are rare, or not commonly available, are not substitutable and are combined together to form organizational capabilities or processes which are imperfectly imitable, or hard for others to copy; namely value, rarity, imperfect imit ability, and a lack of substitutes (Boxall and Purcell, 2003) It is the combination of these resources that will allow companies to gain sustained competitive advantage. Value means that the resource must be able to make a difference to the organization in the sense that it adds value somehow. Rarity means that there must be a lack of these particular resources within the industry so that they are not plentiful for competitors to use. Imperfect imit ability refers to the idea that it is very difficult for other employers to copy (or imitate) the firms processes.

Also, these resources must not be easily substitutable by other factors so that they are rendered obsolete or unnecessary. A study was conducted in the highly competitive 'hire and reward's ector of the British road haulage industry (Marchington and Wilkinson 2002). Most firms within this industry were small businesses employing on average 50 drivers. In RBV terms the drivers were valuable in that they allowed for more trucks on the road and interacted with customers. Drivers are crucial for survival, let alone success. Drivers were seen as rare as many drivers were in and out of jobs pursuing those firms that offered more money and better working hours.

Firms could alternatively approach temp agencies for drivers but there is a fear that they may damage trust and customer relations. Generally, temp workers are not very reliable either. There were no substitutes to drivers as each driver must be qualified and licensed. This study helps one understand the key ingredients in RBV. (Marchington and Wilkinson 2002) In some industries, technologies can substitute for human resources, whereas in other industries the human element is fundamental to the business. To illustrate, contrast labour-intensive and knowledge-intensive industries.

The latter may be more conducive to the use of strategic HRM as a means to gain competitive advantage (Schuller and Jackson 1999). According to the RBV, competitive advantage can only occur in situations of 'firm resource heterogeneity' and 'firm resource immobility'. It is these assumptions that make the RBV different from the traditional strategic management model (Schuler and Jackson 1999). Firm resource heterogeneity refers to the resources of a firm and how different these resources are across the firms. In the traditional model, firm resources are viewed as homogeneous across firms. Firm resource immobility refers to a situation where a firm is not able to obtain from other firms.

In the traditional strategic management model, resources are considered mobile where firms can purchase or create resources held by a competing firm (Schuler and Jackson 1999). Therefore, given resource heterogeneity and resource immobility and assuming value, rareness, imperfect imit ability, and non-; a firm's resource (s) can undoubtedly be the source of sustained competitive advantage. Moreover, a limitation of RBV is that it neglects the forces that lead to similarity in the same industry. The pressures for similarity within industries include a mixture of external coercion, mimicking other successful organizations, and normative traditions (Marchington and Wilkinson 2002).

Whereas RBV focuses on how firms can become competitive through differentiation, some firms which are too different from the rest of the industry face challenges since they do not necessarily represent what customers want (Deephouse 1999). An attractive organization and one that will represent customer wants, is one that is different from other firms' niches yet similar enough to be rational and understandable. (Marchington and Wilkinson 2002). BARRIERS TO IMITATION The resource based view implies that competitive success does not come simply from making decisions in the present, but rather comes from building up specific capabilities over significant periods of time (Mabey 1998). This process of "historical learning" acts as a barrier to a firm's competitors and newcomers in an industry. Valuable resources are developed over time as a result of experiencing unique and often uncommon opportunities.

This point makes it clear that regardless of the proficiency of a firm's leadership, it is extremely difficult for it to prosper without resources that have been developed over time. This is often the reason for takeovers in various industries. A company will find it extremely hard to be successful if they open up in a new country or a new industry where other firms already operate and thrive. These firms have developed their resources over time through various experiences that the new company will not be able to instantly emulate. It would take the new company a great deal of time to face the same amount of resource-shaping experiences as firms that are already established, and thus their resources may prove to be inferior, and may render the firm uncompetitive. Thus the only way for the firm to compete is to takeover a company that already is established.

By doing this, they are implicitly taking over a company that has resources that have been positively developed from many historical experiences. This is common on the public accounting industry, where it is very difficult for firms to compete in new environments. Potential clients would more often then not already have accounting firms that they deal with; and various public accounting firms would have huge and diverse data-bases of clients. It would take a new firm many years to establish a decent client-base if they started from nothing. Thus, larger accounting firms wishing to expand and compete in new markets often takeover smaller accounting firms in the market they wish to expand into. By doing this they acquire all the talent and resources that the smaller accounting firms have developed over years of experiences and competition.

Historical learning also plays a factor in another important barrier to imitation, the barrier of social complexity. This barrier pertains that as a firm grows, it develops complex patterns of team-work and coordination, both inside and outside the firm (Boxall and Purcell, 2003). Thus, strong clusters of human and social capital are developed in successful firms, and it is the network of these clusters that acts like a barrier to imitation by rivals. A firm essentially develops routines over time that get embedded in a firms 'social architecture' (Boxall and Purcell, 2003). It is these 'routines' that give firms sustained competitive advantage. Since these routines are a product developed over time, they are very difficult to imitate at will.

This all implies that a company should understand the importance of their 'clusters of human and social capital' and work towards maintaining and developing them. Also, it implies that if a firm wants to be as successful as are more successful firm in the industry, they may have to acquire a 'cluster of human capital' from another firm, rather than just one employee. This is the reason for firms often trying to recruit an entire team of employees. These employees would have developed patterns of teamwork and coordination that have proven to be successful and extremely difficult to replicate.

A firm acquiring such a network of resources can undoubtedly improve their performance in the industry and a firm that were to lose such a network of resources could surely suffer greatly in terms of their competitive advantage. There is a great example from 1957, of a group of scientists working on the development of a silicon chip for Shockley Semiconductor Laboratory (a research and development company) (Boxall and Purcell, 2003). Once the group of 8 left the company, it was in ruins. It had lost a key network of human capital that was impossible to replace. The company that the 8 scientists went on to form, Fairchild Semiconductor, is now a leading global supplier of high performance products. IMPLICATIONS It is crucial to understand the difference between 'human capital advantage' and 'human process advantage'.

A firm can gain human capital advantage by hiring employees and keeping the outstanding ones and firing the inefficient ones. In effect, a firm only works with those employees that have been carefully assessed and are understood to be considered 'exceptional'. Human process advantage "may be understood as a function of causally ambiguous, socially complex, historically evolved processes which as learning, co-operation and innovation which are thus very difficult to imitate (Schuler and Jackson 1999)". Ultimately RBV separates out these two forms of advantages. 'Human resource advantage' can then be expressed as the collective sum of both the 'human capital advantage' and 'human process advantage' (Schuler and Jackson 1999). Therefore, human resource advantage is hiring better people with better processes.

Due to the intense focus on internal resources, the RBV is creating new avenues for strategic HRM researchers to explore ways that firms attempt to develop human resources advantage. In light of resource-based thinking, strategic HRM can be valued for its role in generating strategic capability, for its potential to create firms which are more intelligent and flexible than their competitors over the long haul, and for firms which exhibit superior levels of co-ordination and cooperation (Schuler and Jackson 1999). However, some firms do not adequately utilize and support their intelligent managers due to excessive in-fighting between departments and therefore lack human resource advantage. Moreover, non-managerial staff may also be neglected as some firms fail to offer opportunities which develop their talent.

These circumstances may cause employees to resign and this phenomenon is known as Internal Resignation (Schuler and Jackson 1999). Firms that are exercising this type of behaviour are deviating away from the principals of RBV and some are experiencing difficulty in attaining human resource advantage. However, this is not to say that those firms that follow RBV will definitely gain competitive advantage. There is a continuous debate around the issue of whether HR policies and practices are valuable and whether they can become advantageous in a competitive sense. Or are HR policies and practices to obvious to lack any form of competition because the 'secrets' behind a company's HR are not controlled. One might suggest that although the practices are widespread, "the knowledge of how to combine, implement and refine them within a particular context may not be (Schuler and Jackson 1999)".

In RBV terms, HR policies and practices are socially complex and historically sensitive, which makes HR valuable. These features are known as 'isolating mechanisms', attributes of workplace society that make replication difficult (Schuler and Jackson 1999). Assuming that employees are stake holders, we must incorporate a theory of employment relations into the theory of strategic HRM. A theory of this sort is missing from the behaviour al perspective. The behaviour al perspective "focuses on employee behaviour as the mediator between strategy and firm performance (Sisson and Storey 2000)". If the employment relation is understood as an exchange in which there are both complementary and competing objectives, then the need to adequately incorporate employee interests within the nexus of the firm becomes a strategic issue.

Thus, a firm which fails to stabilize its relations with non-management labour will seriously under perform and may not survive (Schuler and Jackson 1999)". Schuler's quote forcefully suggests that neglect of the employee relation can potentially destroy a firm. This is under the condition that the employee relation is an exchange of complementary objectives. It would be fitting to analyze business history in different economies of the world to get an idea of whether Schuler's point is relevant. In the 1980's and 1990's managers in the Anglo-American environment have been focusing on survival in more competitive product markets. A common approach to this has involved restructuring through 'de layering' and 'rightsizing' (Schuler and Jackson 1999).

Moreover, there has been a shift of emphasis on models of labour management. There has been more emphasis placed on 'performance management' and de-emphasis placed on life-time employment. Also, management has tried to create new forms of work organisation without an explicit pledge of employment security (Schuler and Jackson 1999). The amount of attention placed on work unions is declining. If this interpretation of change within the Anglo-American world is correct, it suggests a limited acceptance of RBV thinking as it applies to HRM. "Anxiety about survival has constrained the application of the RBV (Schuler and Jackson 1999)".

We can also look at the study of HRM in British multi divisional firms. Some favour development oriented HR policies while others do not. Some favour collaboration with trade unions in workplace reform while others see them as the enemy. Because all this can happen within one company, the ultimate effect is likely to be a downplaying of the strategic significance of HRM (Schuler and Jackson 1999). On the contrary, Japanese firms place great emphasis on long-term HRM and focus on skill formation and labour-management cooperation.

This could potentially be a threat to the Anglo-American and British world. The majority of researchers and practitioners argue that there needs to be more emphasis placed on HRM when it comes to strategic advantage within the Anglo-American and British world (Schuler and Jackson 1999). Therefore, the acceptance of RBV as it applies to HRM in countries like Japan is higher compared to the Anglo-American and British firms. CONCLUSION One must assume that particular companies have sustained human resource advantage in any economy of the world. This is done by recruiting the best of the best employees and holding on to the better ones. However, as it seems in the Anglo-American world the "dominant emphasis has been placed on short-term survival rather than long-term advantage (Schuler and Jackson 1999)".

On the contrary, in countries like Germany and Japan more emphasis is placed on achieving human resource advantage. In conclusion, a realistic assessment of different economies will find cases of human resource advantage, but one can also predict that comparative research will continue to show national differences (Schuler and Jackson 1999). Problems with business strategy have both internal (strengths and weaknesses) and external dimensions (opportunities and threats). RBV focuses on the internal strengths and weaknesses of a firm, but external opportunities and threats should definitely be given adequate consideration. Nonetheless, RBV has done extremely well in achieving a re balancing of modern literature on business strategy, in that people are reminded of the strategic significance of internal resources, their development over time, and their importance to sustained competitive advantage (Boxall and Purcell, 2003).

Bibliography

Boxall, Peter and Purcell, John. Strategy and Human Resource Management. Palgrave Macmillan. 2003.
Deephouse D. 'To be different, or to be the same? It's a question (and theory) of strategic balance', Strategic Management Journal, Vol. 20, 1999.
pp 147-166 Mabey, Christopher and Salam an, Graeme and Storey, John. Human Resource Management: A Strategic Introduction. Blackwell Business. 1998.
Marchington, Mick and Wilkinson, Adrian. People Management and Development: Human Resource Management at Work. CIPD Enterprises Ltd. 2002.
Purcell, John. "Business Strategies and Human Resource Management: Uneasy Bedfellows or Strategic Partners?" University of Bath. April 27, 2005 [ web strategies and HRM.
pdf] Sisson, Kieth and Storey, John. The Realities of Human Resource Management: Managing the Employment Relatoinship. Open University Press: Buckingham. 2000.
Schuler, Randall S. and Jackson, Susan E. Strategic Human Resource Management. Blackwell Publishers Ltd. 1999.