Theory of Human Capital Allocation and Development - Literature review Example

Question 1 Name Institution Date There are really no sources of enduring competitive advantage in human resources or in HR practices. Managers who pursue sustainable advantage through HRM are engaged in a fruitless search.' (anonymous) Discuss this contention with reference to the theoretical implications of the resource-based view of SHRM and its limitations. An organization should generate value for their customers in order to be successful in the market in modern days. Most firms don’t put more emphasis on the human resource management as an attribute to competitive advantage. The notion that the resources of a companyhas a subjective element and multiple relations between an organization`s employer or manager and his employee, has raised the reappearance of interest in an organization. The strategic human resource discipline deals with the practices and concepts that guide the philosophy of human resource management practice and tactical planning of the firm with a specific goal on human capital. The firm`s resource based view has influenced this area in several ways. This essay describes the theoretical resource based view on the strategic human resource management as well as its limitations. The empirical research programme of the strategic management explores the relationship between the management of human resource and the resources themselves as well as the firm`s effectiveness. The resource based view concentrates on the way firms maintain competitive advantage via human capital development rather than simply relating the resources to current tactical goals (Orrington et al 2002). The resource based view on strategic human resource management provides four main points that an organization should consider in order to enhance its organizational performance and also maintain a better sustained competitive advantage: the resource must be unique, that is different from its competitors who are current or potential, it must lead to the organization obtaining positive value, inimitable resource and the firm should always be organized. One of the basic sources of competitive advantage in a firm is the knowledge that is privately held. This forms the central theme of strategic human resource management resource based literature. Baxall (1996) said that as long as human resources are unique and are unsubstituted for or cannot be copied by other firms, they can provide competitive advantage. However, this comes if the organization creates distinctive capabilities after a given period of time. Apart from the human resource behavior, the organization should put more focus on the skill, competencies, attitude and knowledge of the individual which bring about long term attributes rather than the current behavior (Torrington et al 2002). On the other hand, Barney (1991) argued that the resource based theory of an organization is mainly viewed from a knowledge-based perspective that is a combination of the organizational economics concepts and strategic management concepts. Schuler and Jackson (1999) differentiated the traditional strategic paradigm from the resource based view on competitive advantage. They argued that the traditional analysis focus is on the industry environment while the RBV view links strategy and the firm`s internal resources. It is focused on the firm only. Therefore, if a firm is able to defend its advantageous positions in its resources of production and distribution, then it will be easy for it to reach and possess profitable market situations (cooner 1991). However, the strategic human resource management was not created fully by the resource based view as it has been important to its development. Baxall (1996) suggested that the resources are important to the firm if they include properties that have value and as such considered as assets of the firm when computing accounts. This means that qualities such as talents are not ignored but considered in the systematic interest area. This argument validates Barney (1991) suggestion that a combination of best practice, business intelligence and intellectual capital bring about business excellence to forestall the future. From the VRIO framework (Golding 2004), the human resource of an organization can obtain competitive advantage if it considers resource heterogeneity, rareness, resource immobility, inimitability and satisfaction of value requirements (schuler and Jackson 1999). Firstly, the human resource must create value to the organization for a constant competitive advantage to exist. One of the ways that organisations create value is by decreasing the cost of production or service. Alternatively, the firm can charge premium prices by differentiating the service and production. Therefore, how can human resource management department or function assistance in either increasing revenue or decreasing cost? (Barney and Wright 1998). Fahy (1999) stated that customer value is a very important principle of competitive environment. When the customer is well treated by the employees, there is a very high likelihood that he or she will come back, perhaps will his or he friends since they are trusting the organization. This makes the firm have a competitive advantage over the other organizations. Therefore, the human resource department should implement creative ideas that add value to the organization in any way possible hence creating a difference (Marchington and Wilinson 2002). To attain this, the labor demand must be heterogeneous and its supply involves persons with different capabilities (Torrington et al 2002). In an organization, there are human resources that may provide more influence on a firm`s competitive advantage than certain human resources. RBV suggests that the human resource management must identify the most valuable human resource that mostly contributes to better competitive advantage in the firm (Golding 2004). This is achieved by grouping the employees in their respective jobs and identifying their skills and capabilities that the organization requires. The theory suggests that when both demand for labor is heterogeneous and the supply of labor is also heterogeneous, there is no adjustment to the individual support to an organization. The customer needs must be met by the organization effectively and efficiently through various strategies implemented by a resource. This means that if the resource does not create value but complies with other conditions, then it is not an appropriate source of competitive advantage. Goding (2004) stated that competitive parity in organizations comes about as a result of the other competitive firm having the same value in resource. As a result, sources that make an organization competitive than others must be rare. This introduces the subsequent level of the VRIO framework which is rarity. Rarity is defined as a situation where there must be shortage of resources that enhance competitive advantage in the market in such a way that not all organisations will get these resources (Marchington and Wilkinson 2002). Therefore it is the obligation of the human resource executive to develop unique characteristics in the human resource with an aim to reach a certain level of competitive advantage (Golding 2004). Most organisations provide services that are very rare and use this to attract their customers and retain them. Therefore the organization creates value for their esteem customers. Just like a monopoly gets its power from being the first in the market, an organization can obtain competitive advantage if it gets the unique human resource first in the market. However this does not happen in all circumstance. Rarity is very important because suppose a firm as value but no rarity, other organizations will get the same identical resource hence even the firm that got the resource first will lose the competitive advantage. For a firm to enjoy constant competitive advantage, it must improvise a value created approach that other organisations in the same market cannot implement (Barney 1991). Torrington et al (2002) argues that the abilities of most human resources are normally identical and as such, obtaining the one with a very high level of ability is usually very rare, by definition. Therefore firms ensure that the human resource hired has a high level of ability with the quest to achieve competitive advantage. However, this depends on how valid the system of selection is and whether the firm can attract and retain those interviewees who are considered to have the high level of ability. Other than the valuable and rare resources that an organization should acquire to maintain a constant competitive advantage, the common organizational resources should also be considered as important. When the organization is led to create parity, common resources come in to help and ensure that the firm still survives. Therefore it is always advisable not to dismiss the common resource of the firm. The valuable and very rare human resources usually lead to abnormal profits for the organization in a short period of time but if other organizations can copy these important qualities, it will lead to competitive parity among the organization hence no competitive advantage (Barney and wright 1998). The next level of the framework is that the human resources are supposed to be inimitable. This is also another important element to consider when obtaining to maintained competitive advantage and improve the performance of an organization. Fahy (1999) argued that resource based view maintains the inability of other firms to duplicate resources as a central element. If other organizations are not capable of coming up with a duplicate of the resource, then the firm can continue to enjoy continued competitive advantage. Wright et al (1992) explains the inimitability of the competitive advantage by using the concepts of social complexity, historical conditions which are unique and casual ambiguity. Wright et al (1992) noted that the history of the resources in the first firm was very important to inimitability because it will influence the individual’s behavior through improvement of unique customs and culture. If a person as put in a new environment, with different people, he will try to adjust to the new environment. Suppose a firm hired a certain number of people who used to work in another competitive firm, the organization will not be able to attain the same level of success, profit or competitive advantage as the other competitor firm. This is because the individuals will be introduced to a new environment with different culture as expected and hence it is difficult for them to produce the same results as before. Therefore, the firm should not expect the same kind of results as another firm due to duplication of resource. Casual ambiguity defines a condition where it is not really known the reason for an organization’s competitive advantage over the other firms. It can also be termed as a corner stone to research based view.Their argument states that competitors are unable to understand the cause of superior performance of other firms to obtain constant competitive advantage for the organization already performing at a superior level. Therefore at acts as a very good barrier to the imitation by other competitors. Social complexityidentifies that in many circumstances, the competitive advantage usually comes from very unique social relations which cannot be duplicated or copied (Mahoney and Pandian 1992). It is a sociology discipline which is a conceptual framework that is useful and used to analyse the society. Peteref (1993) argues that resources are very complex that even the organizations themselves cannot be able to manage or influence. This is another reason why an organizations resources are inimitable. When the competitive advantage of an organization is established on the complex social occurrences, it becomes very difficult for other businesses to imitate such resources. The last level is that a firm should be well organized to enhance competitive advantage. A well-organized organization is capable of establishing inimitable and valuable resources which are rare (Golding 2004). For an organization to be considered organized, it must have practices and systems that will encourage the human resources to act at their best so as to obtain constant competitive advantage. Lado and Wilson (1994)argue that if an organization has obtained the highly qualified and competent individuals to work for them but they are not organized, the individuals will not cooperate effectively and exhaust their skills to get the best result. Hence without organization, the competitive advantage will be impossible for the firm. This forms the backbone to sustainable competitive advantage because a well-organized human resource works efficiently to achieving success. The resource based view on the strategic human resource management has however, noteworthy potential limitations. The first limitation is that there are some forces that would eventually lead to resemblance in the organisations within one industry that the RBV has not considered (Marchington and Wilkinson 2002). The hypothesis obtained cannot be tested and it is not necessary (Barney and Zajac 1994). It is reported that most research that are carried out using the resource based view are unable to test its essential concepts. The approach is solely focuses on the firm`s internal context. Competitive advantage of most organisations are in other cases influenced by the external forces surrounding the organization. However, RBV only considers the internal affairs of the firm only in coming up with reasons for competitive advantage. Priem and Butler (2001) state that the argument explained by this approach is descriptive. That is it recognizes generic features of rent generating human resources but it provides less attention to situation which differ or the comparisons in the resources. The approach does not clearly explain as to how the rent is generated except their heterogeneity. Wright et al (2001) emphasizes that the empirical studies done using this approach focuses only on two principles, human resource performance and practices. Oxall and Steenveld (1999) state that the RBV approach lacks quantitative data that would support the subjective data extracted from the research. The data cannot be quantified by measurement or any other means. For example, the tactic knowledge, is one of the resources which cannot be measured (Lado and Wilson 1994). The activities of human resource lead to improvement of the skilled workforce thus ensuring a contestant competitive advantage over other firms. This leads to performance being increased and the results are more profits for the firm (Becker and Husseid 1998). Mabey et al (1998) found no strong numerical correlation concerning human resource programs and the performance of a company. This means that the management of the firm and the policies implemented does not influence highly on the economic performance of an organization. Porter (1991) responds to the criticism from other theorists who are resource based by arguing that the resources are not much valuable in themselves. To establish a workforce providing a sustainable and strong competitive advantage, an organization should come up with an environment that leads to increased human capital. Zander and Zander (2005) argue that this growth creates sustained competitive advantage. The growth is expressed through increased knowledge, reputation of the firm, increased engagement and increased motivation. The main purpose for writing this essay is to examine the management of human resources that leads to a firm obtaining sustained competitive advantage. We established, using theoretical approaches that the human resource is also one of the firm`s sources of constant competitive advantage since they comply with the framework of being rare, valuable, nonsubstitutable and inimitable. Human resources are therefore characterized by social complexity, causal ambiguity and unique history. These three points evidently reveal that an organization cannot attain constant competitive advantage from other firms through imitation or any other way. They act as barriers to imitate other organisations. The resource based approach outlines an agenda for examining the possibility of human capital to perform a given strategy. Finally, the resource based view on the strategic human resource management offers a framework for explaining and examining the function of human resources towards competitive success of an organization. REFERNCES 1. Mahoney, J. and Pandian, J. (1992) the resource-based view within the conversation of strategic management. Strategic management jornal, 13 (5) 2. Mabey, C. salonan, G. and Storey J. (1998) strategic human resource management. London Sage publishers 3. Peteraf, M. (1993) the cornerstone competitive advantage: A resource based view. Strategic management journal 4. Porter , M (1991) towards a dynamic theory of strategy. Strategic management jornal 12 (2) 5. Schuler, R. and Jackson, S. (1999) strategic human resource management. Oxford, Blackwell publishers. 6. Chandler, A.D. Jr. (1962), strategy and structure; Harvard : the MIT press 7. Prahalad, C.K. G. Hamel. 1990; the core competence of the corporation. Harvard bus. Rev. May-June 8. Lepak, D. P. S. A. Snell. 1999. The human resource architecture: towards a theory of human capital allocation and development. Oxford Longhorn Publishers 9. Huseid M. A. 1995. The impact of human resource management practices on turnover, productivity and corporate financial performance. Cambridge University The MIT press 10. Coff R. W. 1997. Human asset management and dilemmas: coping with hazards on the road to resource-based theory. Oxford, Blackwell Publishers Read More