Skills and Competitiveness - Essay Example

Skills and competitiveness It has been observed that industrialized and advanced economies in the past 20 years have attached high significance to education, training and skills as the critical ingredients of their economic success. There has been particular focus on intangible assets such as reputation, brands, customer loyalty and technological knowledge. The term “learning” organizations has been developed keeping in view the advantages accruing to firms by virtue of superior knowledge and innovation. This is in contrast to traditional theories, such as the Ricardian theory of comparative advantage, which claimed natural resources as the basis of a competitive edge amongst nations (Ashton & Green, 1996). The saturation in goods and factors markets has led intangible assets to develop as the basis for competitive advantage (Vargas-Hernandez & Noruzi, 2010). Furthermore, because contemporary organizations differ largely with their traditional counterparts (in terms of structure, culture, objectives and environmental forces), workers are required to take on new skills to adapt to the environment and innovate. It would, therefore, not be an exaggeration to state that learning organizations have a significant competitive advantage over their rivals. This is because learning organizations can innovate faster, adapt to the environmental pressures, transform the resources into customer needs, improve their quality across all levels, enhance their pace of change and acquire a positive market image (Pedler et al., 1997). The significance of knowledge skills remains high in the contemporary information age and knowledge village. This is because the widespread dissemination and availability of technology has shifted the focus on knowledge as a source of competitive advantage. Companies, therefore, no longer compete on the basis of technology but the knowledge skills required in managing business processes. Advancement in technology has placed an even greater demand for skills. This is because the rate of technical change leads to higher levels of uncertainty for organizations which results in greater demand for problem solving skills (Streeck, 1989). Countries such as the U.K are facing pressure from emerging countries such as India and China owing to their high growth rates and supply of high skills. Also, the demand for a highly skilled workforce has increased in the midst of intense global competition which has forced companies the developed nations to engage in ‘diversified quality production’ (Streeck, 1989). On the contrary, critical studies have downplayed the importance of skills in securing innovation. In fact, the recent trend towards innovation may require “de-skilling” or reduction in the content of skills (Toner, 2011). According to these authors, the reliance on skill development through training has been reduced. This is attributed mostly to developments in the labor market such as self-employment and casualisation which require non-standard nature of work (Toner, 2011). Furthermore, labor migration and labor mobility have further increased the power of workers and have reduced the incentives for firms to invest in developing skills of workers. Furthermore, the increased female participation in labor also acts as disincentive to train female employees with skills that they know will no longer benefit the organization once the females quit work (owing to family responsibilities or maternity leaves or child commitments). On the flipside, with globalization and the resulting technological change, the emphasis on hard skills has significantly been reduced and replaced by emphasis on soft skills such as the skills, knowledge and intellectual capital of firms. Studies have suggested how this intellectual capital, combined with business processes, has resulted in the superior performance and competitive advantage of global firms. The concept of intellectual capital itself encompasses the significance of “skills” as it has been defined as the utilization of knowledge resources by corporations for gaining competitive advantage. Furthermore, some researchers have also identified the course taken during development of intellectual capital by claiming that intellectual capital begins with the formation of human capital which translates to social capital and, finally, organizational capital. The significance of skills in ensuring that firms achieve a competitive edge has been reflected by the theories of human capital and social capital. The human theory requires individuals to be interpreted in terms of a “set of marketable skills” that constitute the capital for these workers and requires workers to invest in them (Acemoglu & Autor, n.d.). In simpler words, human capital may be understood as the stock of innate or acquired knowledge possessed by a worker that directly affects his/her productivity. Workers and organizations may make investments towards the development of these skills through training and development programs, better education or positive attitudes towards work. Human skills are particularly useful in emerging economies with growing businesses that hire employees with particular levels of human skills either by hiring themselves or “poaching” talented/skilled employees from competitors. Not only does the higher productivity of workers (by virtue of possessing these skills) contribute to superior organizational performance but also helps organizations adapt to the volatile changes in the contemporary marketplace. This is because individuals possessing human capital skills can perceive and anticipate any external change, analyze information and reallocate resources as and when required. However, variation in these skills can occur across countries owing to differences in social infrastructure such as institutional and government policies that dictate the accumulation of such skills. Furthermore, these skills may not significant ‘per se’ but in context of the job requirements. One researcher suggested, for instance, that over-education and the resulting employee dissatisfaction was responsible for a loss of output in an organization. Also, the concept of “multiple intelligence” has been identified under the human capital theory with researchers pointing out how successful personalities were unskilled in some areas (Smith, 2008). In congruence with the human capital theory is the social capital theory which is embedded in the idea of human interaction and reciprocal relations based on trust. Social capital has been defined as existing ‘between’ humans, thereby highlighting its interactive nature as opposed to human capital which is intrinsic and isolated to the individual in question (Cross & Cummings, 2004). However, this notion has been debated with social capital being recognized as being individual in nature. It is embedded in the connections and networking skills possessed by individuals and establishing relations purposefully to take advantage of long term social, economic, psychological or emotional benefits. For instance, developing informal teams and having an informal discussion regarding aspects of the organization that result in mutual benefits is an example of social capital. The significance of developing social capital has never been as high as it is in the recent years with the focus shifting towards developing stronger leadership skills by enhancing relational skills. These skills may be critical for organizations operating in a cross-cultural environment. Based on Hofstede’s cultural dimensions, some national cultures may inherently be rich in terms of interpersonal skills. For instance, doing business in China would require developing “Guanxi” or mutual trust based on personal connections and networking with the Chinese business community (Edfelt, 2010). These skills are highly tacit in nature and require adapting to the Chinese business culture based on socializing and ‘hanging out’ on dinners and other modes of entertainment. It is not surprising, therefore, that some businesses have failed in China because of lack of social capital skills. For instance, Electrolux (a Western corporation) failed to adapt to the local Chinese culture simply because its team did not succeed in developing mutual trust and strong network with the Chinese (Deresky, 2010). Therefore, achieving competitiveness in cross-cultural settings may be a daunting task for businesses requiring them to rank high in terms of social capital skills. However, the skills, abilities and knowledge of workers are useless for the organization until they are shared with others in the organization. The willingness of employees to share their human capital with others is determined by social capital (discussed later) (Kwantes, 2007). Furthermore, these skills by themselves have little value in guaranteeing firms a competitive advantage without the support of the structure and culture of the organization. Here, the strategic role of HR comes into play as HR professionals must hire employees that possess the required skill set and those who can fit in with the organizational culture. Therefore, although skills play an important role in guaranteeing firms and edge over rivals, this is limited by other mediating factors such as organizational culture. Organizational culture, by virtue of particular values, has a direct impact on the work environment and commitment of employees (Mihaela et al., 2008). Furthermore, cultures that promote organizational learning and skill development tend to have achieved an unrivalled position in the market. Such organizations include General Electric, 3M, Proctor and Gamble and IBM (Mihaela et al., 2008) . Considering that workers’ skills are innate and untapped, organizational cultures affect employee behaviors and their willingness to contribute their skills towards the organization. There is no doubt about the fact that skills play in important role in enhancing the productivity of most organizations. Part of this role is ‘direct’ in nature, meaning that skills enhance the human capital in a firm, whereas, part of this is ‘indirect’ which implies that skills have a spillover effect on the productivity of other workers in the organization. Finally, skills enhance productivity by virtue of other drivers such as promoting innovation and investment. This concept is best illustrated with the case of Microsoft’s initiative to develop youth skills through “incubator hubs” (Macharia, 2013). The company has partnered with African developer community by providing them with superior access to opportunities for skills development and easy access to startup capital with Microsoft (Macharia, 2013). The relationship between skills and organizational performance and competitive advantage has been further examined by the theory of strategic HRM. The strategic nature of HRM has been recognized by some authors as the procedure with which employment relationships are handled in order to contribute optimally towards the achievement of organizational objectives (Legge, 2005). Furthermore, it has been highlighted as the development which connects the human, social and intellectual capital to the strategic requirements of organizations (Ulrich, 1997). Ultimately it comes down to developing organizational systems that capture the unique potential of each employee as a means of delivering sustainable competitive advantage (Snell et al., 1996). Competitive advantage, therefore, is achieved by developing superior resources (valuable, rare and inimitable) compared to competitors. However, this is no longer just restricted to the resource-based view and extends to the adaptation of internal resources with external demands. In other words, the strategic “fit” and flexibility have been described as the ability of firms to adapt to environmental changes. It is the achievement of such a strategic fit that guarantees the firm a sustained superior position compared to competitors. To this end, it is argued employees must be viewed as valuable strategic assets whose intangible and tacit knowledge and other skills are rare and inimitable. For instance, Southwest Airlines has been able to achieve a competitive advantage in terms of high profits and low costs owing to its strong human capital base. The company has been included in Fortune’s top 100 list for companies to work for. Southwest’s business strategy of guaranteeing ‘customer satisfaction’ has been connected with its HRM strategy of securing ‘employee satisfaction’ (O'Reilly & Pfeffer, 2000). This is based on the premise that happy employees make happy customers. The fun-loving and relaxed corporate culture at Southwest encourages people to “break the rules” if required and deal with “compassion” and “common sense” (O'Reilly & Pfeffer, 2000). Strategic HRM has evolved as a means of securing sustainable competitive advantage. This is in line with the theory of “rational choice” which claims that giving strategic importance to HRM is a logical and conscious decision by managers to ensure the achievement of a sustainable competitive advantage that is valuable, rare and inimitable (Barney, 1991). It is therefore, the unique, untapped potential for employees that make firms stand out from one another. If an organization succeeds at motivating people to come to work and being more productive with less inclination to leave the company or be absent, it achieves an edge over its rivals that do not manage to do so. This is the idea behind the strategic alignment or fit between HR and the business. It is, therefore, the unique skills of individuals working in organizations that contribute to their competitiveness. The importance of skills in management and leadership can be analyzed from the fact that these have received great attention in literature. For instance, German corporations put workers’ previous experience at high priority when hiring (Tamkin et al., 2006). This experience is equated to the technical capabilities and skills development provided on job. UK corporations pay great attention to management education as opposed to internal skills training (Tamkin et al., 2006). It is also important to understand how these skills requirements change over a period of time. The managerial skills required to handle larger groups of people in the organization’s maturity phase are entirely different from the skills required to handle smaller teams in volatile markets. Furthermore, the importance of international management skills has gained importance with CEOs requiring to have worked in more than one international location. Cultural clashes may be quite common (as noted earlier with the example of Electrolux) and organizations may struggle to strike a balance between the objectives of their home country objectives and host country objectives. This is exactly where the strongest criticism for the strategic fit theory of HRM comes from. In cross-cultural situations achieving congruence between HRM systems and organizational strategy may be quite challenging. Consider the case of Lundbeck Korea which involved a conflict between the regional manager Rajar and the Korean Manager Jun (Roberts, 2010). Rajar was adamant at imposing the global objectives on the highly profitable Korean subsidiary which demanded a different decision. Furthermore, Rajar lacked the skills of adapting to the Korean culture which required informal lunches and entertainment. This resulted in conflicting relations between the subsidiary and parent company, thereby jeopardizing progress. Clearly, lacking the skills to adapt to a different culture can cost the organization its survival in the international arena. At the same time it is important to note that achieving a synchrony between HR and business/corporate strategy may not always be possible. Clearly, the two may not be aligned in the modern era of cross-culturalism. Generally, literature has identified the need for different levels of skills for leadership at different tiers of the organization. Managers may require technical, conceptual, and interpersonal skills in order to fulfill organizational goals (Katz, 1974). The manager's job in hand and level in the organizational hierarchy determines the mix or proportion of these skills. Technical skills are embedded in the specialized knowledge or know-how of the individual (Katz, 1974). Technical skills require workers developing an understanding of the organization’s rules, policies, procedures and standard operating procedures. They are usually ascribed to the lower levels of organizational hierarchy where there is little need for strategic thinking. Next in line are the interpersonal skills which refer to the skills gained by virtue of individuals communicating with each other and understanding the motivations of individuals in the process of getting tasks accomplished (Katz, 1974). Finally, conceptual skills require thinking creatively and innovating the vision and strategic direction that the organization must adopt (Katz, 1974). Ideas at the abstract level are usually converted into those that may be worked upon by subordinates. Therefore, conceptual skills are critical for leaders and top management. The significance of leadership skills can be ascertained by the case of Steve Job’s turnaround of Apple Inc. He was able to “focus” on a range of limited products and innovate (using both technical and conceptual skills) resulting in Apple’s stock price surging from $10 to $400 during his tenure (CNN Money, n.d.). As a result, Apple became one of the most valuable technology corporations in the world during his leadership. This demonstrates how Steve Job’s focus, confidence and resilience skills helped transform the company, delivering it a sustained edge over its rivals. Even though many articles have attributed Apple’s competitive advantage to Steve Job’s leadership skills, some authors have criticized this and pointed out other aspects such as Apple’s marketing strategy, business integration, and overall vision responsible for the company’s competitive advantage (Ragnetti, 2011). Therefore, even though the skills of people have played a significant role in Apple’s success, they are by no means the only factor having done so. The fact that skills are responsible for organization’s competitiveness has been criticized by researchers who claim that the strategic ‘fit’ achieved by organization’s HR and business strategy does not translate to superior performance. Since individuals’ skills are only a mediating factor, their impact on the organizational performance cannot be traced directly. Therefore, the fact that superior skills result in superior performance has not been empirically proven. This criticism has been taken a step further by the constituency-based model of HRM which claims that the concept of “strategic” HRM has been deliberately used by HR managers as a tool for enhancing their own worth, respect and position within the organization and that such concerns are embedded in the political interests of managers in organizations (Bratton & Gold, 2012). To this end, it is argued that the unique skills of workforce and HRM does not deserve sufficient attention as it is not significant in guaranteeing firms a competitive advantage over their rivals. Similarly, studies have questioned the casual relationships that underpin the skill-performance linkage. It follows that education may, in effect, be a positional competition. Individuals who gain power over business processes may be termed as “skilled” rather than power over business processes being rewarded to people possessing skills. Studies that have demonstrated the skill-performance link have often clumped together organizations of the same sector causing a fundamental error. This is because skills are not the basis of competition amongst all corporations or sectors. Perhaps, one of the most obvious reasons why it would not be appropriate to link skills with competitive advantage is the difficulty in defining, evaluating and measuring skills. Skills have been defined using various dimensions including cognitive abilities, education, innate expertise, experience as well as skills relative to the task in hand and social setting. Skills are almost always assessed through qualifications and formal training which may be easily measured. The “possession” of skills has received great attention in literature and policy which has resulted in the move to increase the supply of skills (Warhurst et al., 2004). On the contrary, significant variations in qualifications exist and that these are not adequately captured by simply considering the level of achievement. Furthermore, training is not always related to skill development. Research suggests that, in Britain, two of the most important types of training relate to induction and health and safety (Self, 2008). At other times, training may simply be provided for the purpose of enhancing employee’s motivation or entertainment. These activities contribute indirectly to organization’s performance and competitive advantage even though they do not reinforce skill-based competitive advantage. Therefore, defining skills in terms of training, education or other forms may not always be appropriate and possible. Furthermore, measuring the friendliness of employees, courtesy or communication skills and their impact on organizational competitiveness may be even more difficult. For instance, customer satisfaction surveys may measure the output required by customers which may not always be related to skill (Grugulis & Stoyanova, 2011). Studies suggest that customers may select organizational services pertaining to lower skills. For instance, Easyjet thrives on its low cost competitive advantage as opposed to the failed brand Swissair which has award-winning services (Grugulis & Stoyanova, 2011). Therefore, even though researchers have suggested the need for superior skills for gaining competitive advantage, practice suggests that organizations gain competitive advantage on the basis of low cost (Bach, 2005). In such companies, employees are assumed to be a cost to be minimized; therefore, training and other expenditures are reduced. Several corporations, therefore, thrive on the bottom line customers and hire unskilled, cheap labor to produce cheap products for such customers (Casey et al., 1999). In such cases, competitive advantage is rooted in the structure, design, recruitment, strategies and salary of such corporations. Considering the presence of other factors in securing competitive advantage for organizations, it is nearly impossible to trace the sole contribution that skills make towards superior organizational performance. As highlighted earlier, the overall external climate, including government policy regarding collaboration and competition affects the development of skills and their importance and usefulness in organizations (Brown, 2001). Most of the studies have been focused on measuring performance using quantitative means. Employee measures are usually not used to measure organization performance and are not really related to skills. Furthermore, as noted earlier, skills have become an all-encompassing domain whereby everything from smiling, problem-solving and self-confidence have been included in this concept (Grugulis & Stoyanova, 2011). It is questionable then, that if certain jobs such as air hostesses or stewards require being beautiful, does that mean that beauty will also be termed a skill? The diversity of this term has, therefore, rendered it meaningless in most cases. It is, therefore, impossible to trace the link between soft skills and superior firm performance. Furthermore, occupational skill is, to a great extent, influenced by the relative political position and organizational power that the individual possesses (Turner, 1962). This means that individuals, after ascertaining a certain position in the organization, are labelled as skilled. To conclude, it is an unrivalled fact that, in the contemporary learning age, achieving a knowledge advantage through superior worker skills is quintessential to gaining a competitive advantage. This has been reflected in Apple’s success by virtue of Steve Jobs’ skills. However, it is by no means the only factor responsible for securing competitive advantage owing to the existence of other mediating factors such as organizational culture, processes, brand image, goodwill, marketing practices and strategy (such as low cost). Furthermore, the fact that skills remain an elusive domain means that their contribution to performance cannot be directly traced. Also, as noted in the case of Electrolux, national culture greatly affects the success of firms across borders. Nevertheless, skills remain an important ingredient of most firms’ competitive advantage as they are necessary to utilize the physical resources of most firms. With technology becoming rapidly available, firms must rely on using the same resources differently through change and innovation. Furthermore, skills directly impact productivity which also guarantees superior performance. References Acemoglu, D. & Autor, D., n.d. The Basic Theory of Human Capital: Lectures in Labor Economics. LSE. Ashton, D. & Green, F., 1996. Education, Training and Industrialised Economies. In Education, Training and the Global Economy. Cheltenham: Edward Edgar Publishers. pp.11-21. Bach, S., 2005. Managing Human Resource: Personnel Management in Transition. Oxford: Blackwell. Barney, J., 1991. Firm Resources and Sustained Competitive Advantage. Journal of Management, 17(1), pp.99-120. Bratton, J. & Gold, J., 2012. Human Resource Management: Theory and Practice. 5th ed. U.K: Palgrave Macmillan. Brown, P., 2001. Skil formation in the twenty-first century. In High Skills: Globalization, Competitiveness and Skill Formation. Oxford: Oxford University press. pp.1-55. Casey, B., Keep, E. & Mayhew, K., 1999. Flexibility, quality and competitiveness. National Institute Economic Review, 168(1), pp.70-81. CNN Money, n.d. Apple's stock under Jobs: from $10 to $400. [Online] Available at: HYPERLINK "file:///C:/Users/Shahid%20Saeed/Desktop/national%20skills/apple%20stock%20$10.htm" file:///C:/Users/Shahid%20Saeed/Desktop/national%20skills/apple%20stock%20$10.htm [Accessed 9 November 2013]. Cross, R. & Cummings, J.N., 2004. Tie and network correlates of individual performance in knowledge intensive work. Academy of Management Journal, 47(6), pp.928-37. Deresky, 2010. International Management: Managing Across Borders and Cultures. New Jersey: Prentice Hall. Edfelt, R.B., 2010. Global Comparative Management: A Functional Approach. California: Sage Publications. Grugulis, I. & Stoyanova, D., 2011. Skill and Performance. British Journal of Industrial Relations, 49(3), pp.515-36. Katz, R.L., 1974. The Skills of an Effective Administrator. Harvard Business Review, 9(10), pp.90-102. Kwantes, C.T., 2007. Organizational Commitment, Intellectual Capital and Organizational Competitiveness. South Asian Journal of Management, 14(3), pp.29-43. Legge, K., 2005. Human Resource Management: Rhetorics and Realities. Anniversary Edition ed. U.K: Palgrave Macmillan. Macharia, K., 2013. Microsoft to develop youth skills through innovation hubs. [Web] Capital Digital Media Available at: HYPERLINK "http://www.capitalfm.co.ke/business/2013/11/microsoft-to-develop-youth-skills-through-innovation-hubs/" http://www.capitalfm.co.ke/business/2013/11/microsoft-to-develop-youth-skills-through-innovation-hubs/ [Accessed 8 November 2013]. Mihaela, B., Ştefăniţă, Ş. & Alina, B., 2008. THE IMPACT OF ORGANIZATIONAL CULTURE OVER THE COMPETITIVENESS OF CONTEMPORANEOUS COMPANIES. Annals of the University of Oradea, Economic Science Series, 17(4), p.94. O'Reilly, C.A. & Pfeffer, J., 2000. Hidden Value: How Great Companies Achieve Extraordinary Results with Ordinary People. Boston: Harvard Business Press. Pedler, M., Burgoyne, J. & Boydell, T., 1997. The learning company: A strategy for sustainable development. 2nd ed. London: Mc Graw-Hill. Ragnetti, A., 2011. Apple's Competitive Advantage. [Web] AOL (UK) Ltd. Available at: HYPERLINK "http://www.huffingtonpost.co.uk/andrea-ragnetti/apples-competitive-advant_b_936215.html" http://www.huffingtonpost.co.uk/andrea-ragnetti/apples-competitive-advant_b_936215.html [Accessed 9 November 2013]. Roberts, M., 2010. Lundbeck Korea: Managing an International Growth Engine. Ivey, pp.1-19. Self, A., 2008. Social Trends. Basingstoke: Palgrave Macmillan and Office for National Statistics. Smith, M.K., 2008. Howard Gardner and multiple intelligences. [Web] infed.org Available at: HYPERLINK "http://infed.org/mobi/howard-gardner-multiple-intelligences-and-education/" http://infed.org/mobi/howard-gardner-multiple-intelligences-and-education/ [Accessed 8 November 2013]. Snell, Youndt & Wright, 1996. Establishing a framework for research in strategic human resource management: Merging resource theory and organizational learning.. Research in Personnel and Human Resources Management, 14, pp.61-90. Streeck, W., 1989. Skills and the Limits of Neo-Liberalism: The Enterprise of the Future as a Place of Learning. Work, Employment and Society, 3, pp.90-104. Tamkin, Mabey & Beech, 2006. The Comparative Capability of UK Managers. Research Report 17. Sector Skills Development Agency. Toner, P., 2011. WORKFORCE SKILLS AND INNOVATION: AN OVERVIEW OF MAJOR THEMES IN THE LITERATURE. Working Paper Series. OECD Directorate for Science, Technology and Industry (STI). Turner, H.A., 1962. Trade Union Growth, Structure and Policy. London: George Allen & Unwin Ltd. Ulrich, D., 1997. Human Resource Champions: The next agenda for adding value and delivering results. Boston: Harvard Business Review Press. Vargas-Hernandez, J.G. & Noruzi, M.R., 2010. How Intellectual Capital and Learning Organization Can Foster Organizational Competitiveness? International Journal of Business and Management , 5(4), pp.183-93. Warhurst, C., Grugulis, I. & Keep, E., 2004. The Skills That Matter. Basingstoke: Palgrave Macmillan. Read More