Why might one argue that the use of labour is the main component of a firm's profit strategy - Coursework Example

? Labour as the Main Component of a Firm’s Profit Strategy Insert Insert Grade Insert Labour as the Main Component of a Firm’s Profit Strategy Introduction Human labour is the most important component of achieving competitive advantage in firms in the modern days (Gibbons and Woock 2007). Human capital advantage is the ability to get exceptional human talent into the firm. The human advantage is achieved through combination of processes such as innovation, learning and cooperation. It is important to develop employees and teams in order to create a firm that is able to learn within and out of industry cycles. The supporters of Resource based view argue that human labour are resources that offer above normal returns and not assets bought and traded. This is because physical assets are usually purchased and are available in the market, therefore, competing firms having the free discretion to acquire the assets and be at par (Bowman 2003). The resources that offer competitive advantage are the ones that are not easy to duplicate. Human resources have specialized skills or talents that are embedded in the routines of a particular firm. These resources are difficult to duplicate or export from one firm to another. Thus, most firms have used human labour as the strategy for improvement in their profits and competitive advantage. Barney and Porter illustrate how it is hard to duplicate human labour strategy by saying that even if one firm was to steal researchers from one company to theirs, they will not reap the maximum benefits from these scientists because the environment and business strategies differ. Labour as the Main Component of a Firm’s Profit Strategy In business organizations, both the undertakings and behaviours those of value to the firms’ routines, social structure, and cultures of the firm, and directing and using these resources in combination with other inputs, are all the activities done by employees in the firm. This means that firms profits comes from the activities of employees’ labour that transforms other inputs into goods and services. This leads the proponents of resource based view to conclude that resources that produce more profits are human resources than inert or physical resources. RBV also state that in order to get maximum output from the human resource, a strategy must be put forward to achieve this. They refer this as the creation of the resource. An example of this is a producer who uses a new invention before it is adopted by other firms, will sell more than his competitors and gets surplus profits. RBV argues that it is the manipulation or use of physical assets by the workers that are a source of profits. The assets as stated earlier, are available and each firm is free to acquire them. However, the main constraint is their price. They are not taken as a resource in resource based view because they are not unique. However, labour that is employed is unique and taken as the most crucial resource. If the prices of these assets necessary for production of commodities were to go down, then individuals or groups would take over scale production without requiring to be employed by the capitalists. An example is that if the prices of car parts were within the reach of the masses, then capitalists would abandon this industry (Bowman, 2003). The reasoning behind this is that the financial power is what enables capitalists to purchase physical assets and employ talented and skilled workers to produce commodities for them at a profit. The assets are not unique but the unique factor that enables them to get profits is the use of human resource or labour. In addition to labour, RBV also categorises inert inputs such as special equipments as resources. However, these resources are just used in some stage of production and moreover they are also produced by human labour. RBV supporters argue that if the workers are used to create resources for the firm, then the current deployment of the resource is greater than the price originally paid for. This is because the worker is not paid extra money for the production that the resource is producing. This surplus amount is what produces profits and is a product of labour. Marx (1954) in his labour theory of value argues that the profits derived from the commodity come directly from the labour used in its creation. Marx argues that profits come by due to exploitation of workers. He claims the workers work for more hours like say eight hours and yet they are paid for the value of four hours. The rest of the hours are what constitutes the business profits. He claims if the workers could have produced commodities for themselves they could have earned more than their wages. However, they cannot do so because they lack the capital. In an article “The Marxist Cultural Theory” the author analyses how profits come. Based on Marx theory of labour he says; profits come by due to the distinction between labour and the labour power. Here, the definition of labour is defined as the ability to do valuable work which improves the value of commodities. On the other hand, labour power is what the firms pay the worker for. Marx disputes the arguments of previous economists who had argued that firms get profits by selling commodities for more than their worth price. Marx says that this can be a short term situation because the market forces would compel these prices to their real values. Marx says profit is realised through the difference between labour used to transform the commodity to forms which are exchangeable and the labour power that is bought from the worker. Due to confusion of the two concepts, the firm can always get more labour than it pays for. Marx illustrates this by using the case of exchanging an ounce of gold for a ton of wheat; the two commodities will be equal in terms of labour invested to produce them. But both commodities would have been produced by workers labouring for longer hours than they are paid for. Therefore, both the commodities will have more labour embedded in them than the owners paid for. Hence the capitalists will make profits due to labour not paid for. In a nutshell the firms make profits by setting up strategies that see workers investing more labour and are paid less (Anonymous n.d.). To express how capitalists exploit the workers in order to get profits, Buhle (1975) reviews the book “Detroit: I Do Mind Dying” which studies the revolution that led to improvement of workers welfare. Before, the black workers had poor working conditions and were paid less in America. After the agitation of workers and demonstrations it led to a complete overhaul in the working population because better working conditions were introduced among the factory workers. If these factories still stayed in business then it means they were exploiting human labour to get surplus income. The human labour is given to the organization based on the knowledge and skills of a particular worker. In the next section, I will examine the importance of Skill and Knowledge in firms’ profit strategy. Importance of Skill and Knowledge in the Firms’ profit Strategy Most enterprises today have now turned on the non touchable and invisible element called intellectual capital. This is the knowledge and skills that workers possess (Durkovic, 2009). Assets employed in the production process that are tangible such as raw materials and basic tools and equipment are not seen as being able to create more profit for the firm. This is because most of this can be acquired by competitors and hence there is no edge in the market. Knowledge, innovation and cooperation are the most important components to create higher profit margins in the modern economy. In order to be able to get surplus profits enterprises need to invest in new knowledge rather than existing ones. The purchase of new technological equipment may easily be off-stated by the competitors acquiring the same equipment, but employment of labour with a unique skill might not be imitated by other competing firms. This calls for firms to invest more in labour through training and acquiring of new skilled labour in order to get profits. Since changes in development are making the world more abstract, there is need for firms to invest in higher quality labour in order not to be rendered irrelevant in the market. It is the human resources that enable the business systems to stay at a success level and even advance further. The modern economy depends more on the human labour skills and knowledge, more than the traditional market depended on them. The argument behind this is that these non-material resources are the sole carriers of the firms’ activities and these results from human labour. The important aspect in the new business world is having employees who have initiative, are innovative and have problem solving skills. The idea that workers may put to use their potential, as well as the potential of other resources, makes them to stand out as the most important resource in gaining profit advantage for firms in the business market. Other resources may also influence this but to get value from them mainly depends on the workers. Workers with specific knowledge that is unique are considered the key of gaining profit margins over competitors. Knowledge as the main resource of business activities and generator of profit is solely human product. While physical work is seen and measurable, knowledge is hidden in the human mind and only its results can be seen in the creation of a new item. It is the workers knowledge, however, that is transformed into physical labour in a firm. This can be explained by the fact that without knowledge or skill, a worker cannot perform a certain given task. It is also important for firms to note that human knowledge cannot be produced by use of force; it is given out by a good environment created by the firm. This shows that human resources are strategic and they are the most important tool for the firm to realise profits and for firms to benefit from this resources they need to create a good environment that will enable workers to develop their skills and harness them to the maximum (Danford et al 2001). The success of the firm highly depends on the skills and knowledge of the firm. Employees are the inventive components of the firm, and as such have a big role in creating and sustaining its competitive margin. Employees in the modern business world need to be highly educated, motivated, and should continually learn new skills to be able to counter challenges in the business world. The challenges include expansion of global market, competitors and development in technology. Firms that do not employ this strategy may run on losses and cannot survive in the long run. How Different Labour Categories Affect Firm Profit Strategy There are two categories of labour; Productive labour and non- productive labour. Productive labour can further be sub- divided into the following sub- categories: differential labour, homogeneous labour and entrepreneurship labour. Homogeneous labour (VH): This is labour that works similarly in all firms in the industry. This labour is undifferentiated and can be exchanged across competing firms without affecting the profit performance of the firms. This labour in combination of other constant capital elements produces average profits for the firm. Labour can be homogeneous because of the similar training that workers underwent across the competing firms. Because this type of labour is similar across all competing firms it cannot cause different profit margins among competing firms (Barney1991). Differential labour (VD): This category is important in the firms’ strategy to get good profits. For a given amount, M that is invested differential labour enables the firm to realise S+ profit where S+>S. Where S means normal profits and S+ denotes to surplus profits. This can be achieved by producing commodities of higher value than normal. This in turn can be realized through production of more commodities than the competing firms at the same investment amount or producing commodities whose quality is superior. By producing more commodities at the same investment amount, workers may not get value for their labour and the unpaid for labour account for surplus profits. The employees that produce these advantages in a firm include specialized trades such as designers and engineers among others. However, RBV argue that the main actors and the action of differential labour are difficult to identify. The advantage may be sourced from differentiated firm routines and cultures that are understood by managers. Differential labour is very important in the firms’ strategy for higher profits because it differentiates how labour is put to use within competing firms to produce commodities. Entrepreneurial labour (VE): This is the capacity to recognise and get an understanding of what offers this productive labour an advantage. The main idea here is to recognize and develop differential labour discussed above, as it is differential labour that is a source of superior profits. The capacity to pinpoint a business opportunity and to put in place the right type of human resource to exploit this avenue is important and is the only labour strategy performed in the business. Entrepreneurial labour is just merely having the knowledge of ventures that can produce good profits and putting in the right mix of workers who engage in differential labour and this gives the firm a competitive edge over the competitors. However, this labour has also its limitations because if the competitors were to get knowledge of the entrepreneurial labour they can easily duplicate this in their firms but if they are not careful they might not get the surplus advantage that is enjoyed by the inventor because of the environmental difference. The replication of knowledge might lead to reduction in capital advantage, a phenomena known as moral depreciation. The other disadvantage is that if the workers who offer differentiated labour recognize the value of their labour, they might put this as a premise to bargain for higher salaries and this might lead to deterioration of profits (Barney1991). RBV also recognize non-human resources that can generate surplus profits for the firm. Barney notes special undertakings that enable a business to acquire assets at a lower value and the firm’s manipulation of these resources offer the firm surplus profits and not the original owner. But he argues that this is just a product of the entrepreneurial labour of the procurement executive. The resources are valuable because of the insight. An established firm may operate without entrepreneurial labour, the originating entrepreneurs may be lacking but the differentiating labour continues to perform the established routines in order to give the firm a market advantage. Conclusion Labour is an important resource because it cannot be duplicated among the competing firms. It is the best strategy to get profits in the market. Resource based view (RBV) explains capitalists acquire physical assets and employ labour to produce the high profits. It is the interaction of labour with these assets that provide the capitalists with profits. On the hand in the Marx theory of labour value, we can conclude that surplus profits are derived in the capitalists’ failure to compensate fully the employees and not selling commodities above their market value. It is important for firms to invest in labour strategy in order to remain relevant in the firm but they should also offer adequate compensation in order to retain these valuable resources. Bibliography Anonymous, n.d, Marxist Cultural Theory, accessed 4th December 2012 from Barney, JB 1991, ‘Firm Resources and Sustained Competitive Advantage,’ Journal of Management, Vol. 17, No. 1, 99 – 120. Bowman, C 2003, Differential Labour and Competitive Advantage: Embedding Resource-Based Theory within Marx’s Labour Theory of Value, accessed 4th December 2012 from http://www.cranfield.ac.uk/som/research/working_ papers Buhle, P 1975, Books and Arts: Revolutionary Detroit: The Nation Dunford, B et al. 2001, Human Resources and the Resource Based View of the Firm, accessed 4th December 2012 from < http://digitalcommons.ilr.cornell.edu/cahrswp> Durkovic, J 2009, Development of Human Resources as Strategic Factors of the Companies' Competitive Advantage, accessed 4th December 2012 from Gibbons, J and Woock, C 2007, Evidence-Based Human Resources: A Primer and Summary of Current Literature. Conference Board Press, New York. Marx, K 1954, Capital, Volume III, Lawrence and Wishart, London. Read More