Developing Human Capital as a Source of Competitive Advantage - Example

Running heading: Human capital and competitive advantage Student’s Name: Instructor’s Name: Course Name and Code: University: Date of Submission: Developing Human Capital as a source of Competitive Advantage Introduction For over the years it has been a great concern for individuals and/or governments, to invest much of its resources in the development of human capital, as a great resource for building its resources. The efforts towards developing human capital, has been part of the national policy of a number of countries. This has been seen through the initiatives by many Government authorities, such as setting funds for training and developing of their workforce, improving the learning programs that are directed towards upgrading the skills, and competencies of their efforts. However, as the 21 century came in and organizations are moving from the industrialized towards the technology age, many organizations took a front role in the development of their human capital, in their bid to catch up with the market demands and be able to make the business thrive amidst increased competition. This made development of human capital to greatly be a concern of the businesses; in a manner that businesses today invest much in their human resources as a means to outdo their competitors in the market (Hackman & Wageman, 2005 p.56-71). Competition has increased in the business world, due to factors such as the opening up of markets through the increased globalization. Other new trends in the business world such as the inception of information technology to the business operations today too, have played a significant role in increasing competition, through opening more new avenues in which businesses can market their products. Today many monopolies have melted away and the nations are too moving towards regional and international integration of business networks, and this has even made competition to be stiffer and stiffer over time. Business managers having realized that competition is an external environmental factor, that can neither be assumed nor be underplayed therefore, they have seen the need to increase competitive advantage of their businesses, as an effective solution to the increased market players, who compete with them. To compete effectively then, the businesses entities have to maximize the use of its resources, such as capital, machinery, land, labor among other resources. However, these resources forms a neutral playing ground for the business, for nearly all businesses would have them. It has been realized that human capital however, is a unique resource, for a human being is full of dynamism in ideas, ability, competencies, skills, innovation, which can developed to create competitive advantage to a business organization (Stewart & Watson 2001 p.67-84). This is why businesses have taken in development of human capital as business concern, in creation of sustained competitive advantage over their competitors. Executive Summary The paper makes effort to look at the findings and ideas that relate to management of organizations and the human resource management research. With respect to creation of sustained competitive advantage as a business concern, and goes further to present the human capital as a valuable and viable source of sustained competitive advantage. First, the concept of creation of competitive advantage and sustained competitive advantage is discussed. It further outlines the characteristics of the human capital that makes it the best tool for creation of sustained competitive advantage. The main four characteristics that are discussed in detail include; human capital as a valuable resource, a rare resource, as an imitable resource and finally as a non-substitutable resource. In addition to this, the paper looks further at how the human capital plays a great role in the creation of sustained competitive advantage. Finally, the paper looks at the roles and responsibilities of individuals, organizations through their HR mangers and governments in contemporary human resource development. Concept of Sustained Competitive advantage and Human Capital An organization of any nature is made up of resources that are to be collected together and through their interaction, some value is created. This value is evidenced through the realization of the set goals and objectives. The resources create value in which the organization is able to sell in terms of either produced good or service, destined for the market. Barney goes ahead to give competitive advantage the following description; “Competitive advantage occurs when a given organization is putting into practice a strategy that creates value and not simultaneously being implemented by any current or potential competitors” (Barney 1991 p.99-120). In other terms, competitive advantage is said to be realized when two assumptions are held by an organization. These are ‘resource heterogeneity’ and ‘resource immobility’. This two form the basis for the difference between the contemporary resources based management models and the traditional strategic management models. A firm’s heterogeneity relates to the organization resources varying between firms, which is in contrast with the firms’ resource immobility where resources are looked from the perspective that they are homogeneous across the many firms (Rurnett 1991 p.167-185). Actually immobility refers to the inability of competing firms to acquire some resources from the resource market and this is the basis for competitive advantage. Sustained competitive advantage exists within the contemporary resource based view management model. Sustained competitive advantage is said to be achieved in an organization when its competing firms are not able to duplicate or absorb the benefits of competitive advantage that the organization has acquired (Lappman & Rurmelt 1982 p.418- 438). Therefore, competitive advantage is only said to be sustained, when all efforts by the competing firms to duplicate its advantage are not successful. This has been evidenced in the human capital, for the human capital is made of individual employees, who carry with them competencies, skills, knowledge, abilities and talents that cannot be duplicated by any measure (Kuchinke 2010, p.575-578). Characteristics of Human Capital that Makes It Effective in creation of Sustained Competitive Advantage Of all the resources that an organization may possess and all the resources that have been researched on to date, human resource has been found to have unique characteristics that if given priority by the management, then they easily can be of great asset in the creation of sustained competitive advantage. This is why today it is a business concern for organizations to search for, recruit and select the appropriate human resource who are to add value to the organization; and in this case they add value to the organization through creation of sustained competitive advantage in today’s business organizations. The key characteristics of human capital that makes it relevant in sustenance of competitive advantage include: (a)Human capital is a Rare Resource An obvious look at the human resources may make one to regard human resources, as not being rare based on the concept of existence of unemployment that means there are an excess of workers. The earlier classical management theories such as that by Taylor were based on homogeneity of labor supply. They operated on the view that all potential and current employees have some similar skills thus, the skills focused on work being designed in a way that human skills that were variant came to be irrelevant in job performance (Taylor 1911 p.45). As the thought and research on management progressed, there was the realization of human capital as a resource that was made of individuals with unique skills, knowledge and abilities that were subject to their different cognitive abilities. This made human capital to be a rare resource. In today’s business world, jobs require skills that allow variance of individual contributions. These skills are distributed among employees depending on their innate potential or what they are best at, without training and what one is based at due to training. In this context, it can be said that high quality human resources are rare, particularly with respect to high quality with regard to high cognitive ability of an individual worker (Hunter & hunter 1994 p.72-98). Organizations would want the best and therefore would employ the human capital that will yield the best and this will be through selecting individuals with high cognitive abilities, who are rare in the market. Despite such employees being rare, organizations have to have above average workers with high cognitive ability, so as to have sustained competitive ability that will make the organization to compete effectively in the market (Kuchinke 2010, p.575-578). The uniqueness in cognitive ability of individual workers has been found to have a direct positive relationship with the individual job performance (Hunter & Hunter 1994 p.96-111). This cognitive ability among employees who form the human capital, play a great role in boosting performance that can be sustained and cannot be duplicated, and therefore, it enhances sustained competitive advantage of an organization. This forms the rationale why today’s recruitment and selection exercises by human resource managers, has had emphasizes on examination of the cognitive ability of the candidates, through carrying out the cognitive ability tests (Bourdeau 1983 p.77-93). It has further been realized that it is the cognitive abilities that are responsible for the increased economic value of firms, and this ability can be sustained when an organization comprise of the best human capital, characterized by high cognitive abilities among its staff. Increased competition among firms needs adaptability and flexibility in the workforce. This can be achieved through having a high caliber of employees, with high cognitive abilities. This is beneficial for it increases the sustenance of competitive ability of an organization, amidst the market challenges (Snow & Snell 1992, p.68-81). The fact that cognitive abilities among the human resources are distributed in the employee population, then it follows that human resources with high cognitive abilities are rare. This gives a conclusion that a firm with an average level of cognitive ability as compared to its competitors automatically, has valuable human capital that those possessed by its competitors; and this brings forth sustained competitive advantage to the firm. (b)Human capital is a valuable Resource It is common knowledge that if human resources have to be regarded as a source of sustained competitive advantage then it has to add value to the organization. Sustenance is only said to be realized when there is consistency in the addition of value to the organization through the human capital. Steffy and Maurer (1988) illustrate this through the human capital theory, which outlines the conditions under which the value creation is possible and the conditions by which it is impossible. The theory goes ahead to suggest that in the event that the demand for labor supply is homogeneous, then the employees are perfectly substitutable and when the labor supply is homogeneous, then employees and potential employees are equal in their capacity to produce. This condition implies that it is not possible to create value through investing in the human capital (Kuchinke 2010, p.575-578). However, Steffy and Maurer (1988) went further to note that the demand for labor is heterogeneous, implying that the organizations have different jobs that need different skills altogether and this would make different employees with variant skills. The supply of labor is also viewed to be heterogeneous, where the individuals that are found in the labor market where organizations recruit its employees from are different in types and the skills, that they posses are also different. This concept implies that there is variance in how individuals contribute their values to the organization. Therefore, Human capital can create value to an organization. Traditionally the concept of the value of human capital has been elusive; however in today’s business world, the analysis of human resources program has led to the provision of theoretical reasons on why the human capital resources increases a firm’s value and the technical reasons for estimation of the increase in value of human capital. Bourdeau & Berger’s (1985), demonstrate the value of human resources to be in monetary terms (i.e. in dollars). They view this matter in two ways, first through the sales value added by the human resources in the firm’s production process. Secondly they view the value of human resources in terms of the human resources pool as current employees leave and as the new ones are brought on board to replace the ones who have left. Therefore there is shift of focus to from the value changes attributed to human resources practices to the absolute value of human resources. When all these attributes are considered, it comes clear that human capital resources leads to provision of value to firms, as well as they provide methods where these values can be estimated. The value that is on human capital is what makes it a great tool for creation of sustainable competitive advantage (Boudreau & Berger 1985, p.581-612). (c ) Human capital is Inimitable There is minimal possibility of imitation of the competitive advantage that results from organizations, having high quality human capital resources. This makes human resources to be a formidable source of sustained competitive advantage. Effectiveness in the discussion of how there can be imitation of high quality human resources by a competing firm, is reached at when three factors are looked at in detail. These are causal ambiguity, social complexity and historical conditions are addressed effectively (Barney 1991, p.99-120). They are discussed in detail as under: (a)Unique historical conditions They in a big way determine the scope of organizational place in terms of its time and space (Barney 1991 p.99-120). In the resource based management model that is used by many contemporary organizations, the firm’s ability to acquire and exploit organizations resources, reflects some unique historical conditions of the organization. This unique historical condition causes the organization to have competitive advantage, that is imperfectly understood by the competitors and thus, the competitors can neither imitate nor make efforts to practice certain things that the organization does and this ultimately creates sustained competitive advantage (Reed & DePhillipi 1990, p.88-102). In other words, if the other firms are in a position that they cannot effectively identify specifically, the way in which human resource in the firm adds value to the firm through creation of competitive advantage, then it becomes an impossible thing for them to imitate the resources. Thus, a formidable ground on which the organization acquires sustained competitive advantage. In addition to the above, the social complexity refers to the fact that the social phenomena in an organization are so complex that makes it impossible for competitors to imitate them. If the social complexity of an organization contributes to increasing its competitive advantage then this can be a positive source of sustained competitive advantage for the business competitors cannot be able to find the details of this. This is because a competitive advantage that arises from the social complexity of an organization cannot be imitated. (d)Human capital is Non-substitutable To address the concept of human capital being non-substitutable; it is essential to note that among all the resources that are used by organization to realize its objectives, the human capital is among the few resources that have the ability to: (a)Not become obsolete Despite the rapid changes in technology that make the former technical skills have relevance for a short time span; many of the human capital resources can be generalized; in a manner that there application can be still relevant even with the technological advancements. For instance using the example of cognitive ability of employees as discussed in this paper before; the changes in technology that require new skills would cause the firm to invest in training an development programs that are designed to equip and empower its workforce with the required skills. The training and development programs are aimed at making the worker to be acquainted with the state of the art with respect to the technological knowledge; and this ensures that the human capital resource doesn’t become obsolete at any given moment. (b)Be transferable across a variety of markets, products and technologies. Generally the human capital resources such as the cognitive ability of workers and managers of an organization are transferable across a variety of products, technology and markets. This is what really happens in the real markets; which is seen when employees are transferred and they still use their cognitive abilities in the new markets they are placed, at times employees are given new products to work on and still they would thrive in the business e.g. in the marketing field, a marketer can be given a new product to market. Role of Individuals, Organization and Governments in the contemporary Human resource Development The introduction of this paper has pointed out why Governments are keenly interested in the development of human capital. Human resource development is aimed at developing the human capital resource. Throughout the paper there has been a detailed discussion on the reasons why organizations invest in human capital for the sake of creation of sustained competitive advantage. When these organizations invest in their human capital resource then they are meeting the main objectives of human resource development. In addition to the mentioned, the Government and organizations are involved in human resource development today through investing in human resource development research, instituting laws that promote good Human resource development practices such as training, engaging in the creation of human resource development training forums such as seminars, the Government is also greatly involved in the regulation of HRD programs in terms of checking its relevant to its population, individuals as well as Governments are involved in funding training activities aimed at training the human resources of organizations on life skills that is essential for workers. Training is one of the key ways that the human resources are developed therefore is an essential part of the HRD (Hackman & Wageman 2005, p. 269-287). The role of Individuals, Organization and Governments in the contemporary Human resource Development has continued to expand in scope with the three parties taking fundamental steps towards developing the human resource development. Many individuals have particularly contributed to human resource development through the suggestions they submit to the organizations. Many organizations today have the suggestion box in which complaints as well as complements are submitted to the organization (Hunsaker 2001, p.38-48). Complaints and complements related to the human resource management practice would contribute to the growth of human resource development. In addition to this, the employees in many organizations are asked trained on several aspects with regard to acceptable human resource and relational skills. This means, they develop their skills with respect to complying with the acceptable standards, and this consequently contributes to human resource development. Conclusion The paper has unveiled great views about human capital with respect to creation of sustained competitive advantage. This is in the view that in the contemporary business practice, human capital has remained to be a great tool in the creation of sustained competitive advantage. The reason why the human capital does this function is explained from its main characteristics that include; it is inimitable meaning it cannot be imitated by competitors, it is non-substitutable meaning it cannot have an alternative to be substituted with, it is a rare resource and more so it is a valuable resource. References Barney, J 1991, Firm Resources and sustained competitive advantage. Journal of Management, 17 (1), 99-120. Boudreau, J 1983, Economic considerations in estimating the utility of human resource productivity improvement program. Personal psychology, 36, 551-576. 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