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There is an agreement that human capital can be a basis of competitive advantage; that human resource practices are more influential on the human resource part of the firm; and that the complex nature of HR systems of practice can enhance the inimitability of the system. Human resources belong to a firm’s most valuable assets (Hendry & Pettigrew, 1986, p. 3).
In the past few decades, there has been an upsurge on the body of literature focusing on creating sustained competitive advantage for organizations through the development of core competences, tacit knowledge, and dynamic capabilities. Reflecting on these literatures, it can be concluded that the resource-based view has become one of the dominate theories in debate on strategic HRM and on how human resources and related HR practices can have an effect on firm performance (Barney, 2001, p. 42).
Models preceding RBV
Resource-based view led to a change in strategic management thinking from an ‘outside-in’ approach – with an emphasis on external, industry-based competitive issues to an ‘inside-out’ approach, in which internal resources constitute the starting point for understanding organizational success (Wright, Dunford & Snell, 2001, p. 701).
During the 1980s, the main developments in analyzing strategy emphasized on the relationship between strategy and the outside environment. A befitting example on such studies is an analysis done by Michael Porter who analyzed the structure of the industry and competitive positioning (Boxall, 1996, p. 59). However, the link between strategy and the organization’s resources and skills has been neglected in research.
Most research focusing on strategic implications of the inside environment of a company has focused on matters pertaining the implementation of strategy and how to analyze the firm process through which strategies come up. Recently, there has been a revival of attention in the role of the firm’s resources as the basis for firm strategy (Bowen & Ostroff, 2004, p. 203).
The roots of the RBV
The resource-based view roots go back to the mid-twentieth century when the value and quality of human resources in terms of knowledge and experience. In essence, RBV offers a critique of the dominant models of the 1980s, in particular, the model of Michael Porter.
Porter-like approaches make implicit heroic assumptions about the cleverness of the leadership team and their ability to make efficient choices and the relative naiveté of cultural changes within a firm (Hendry & Pettigrew, 1986, p. 5). Porter’s framework of industry analysis and resulting competitive strategies focus on the relevance of the external environment, which also makes part of the early HR strategic models.
The outside-in approaches put a lot of emphasis on the external analysis in terms of opportunities and threats, while the inside-out approach focuses on the internal analysis and the strengths and weaknesses of the organizations. This shift in strategic management has had significant implications in the field of HRM (Barney, 2001, p. 46).
Sustained competitive advantage is determined by resources that are valuable, rare, inimitable, and non-substitutable. These are the qualities of desirable resources.
These resources can be distinguished in financial resources in terms of equity, debt and retained earnings, physical resources like machines and factories, human resources in terms of experience, intelligence and wisdom associated with the firm, and organizational resources such as teamwork, trust, systems, organizational design, management information systems and budgeting techniques (Wright, Dunford & Snell, 2001, p. 706).
There are three reasons as to why firm resources can be imperfectly imitable. The first reason is the ability of the firm to obtain a resource depends on unique historical conditions (path dependency) (Bowen & Ostroff, 2004, p. 205).
Secondly, the link between the resources owned by the company and a firm’s sustained competitive advantage is causally ambiguous (causal ambiguity); and thirdly, the resources generating a firm’s advantage is socially complex (social complexity) (Barney, 2001, p. 47).
Path dependency captures the idea that valuable resources are developed and the fact that their competitive success does not simply come from making choices in the present, but have theory origin and starting point in a chain of events, incidents, and choices in the past. This chain of events and managerial choices over time, in combination with the complexity of social interactions of actors involved, form the basis of the second barrier to imitation according to RBV: social complexity (Wright, Dunford & Snell, 2001, p. 710).
Unique networks of internal and external connections are natural barriers for imitation by rivals. The third type of barrier in RBV is causal ambiguity; it is difficult for people who have not been involved in the decision-making process to assess the specific cause-effect relationships in organizations (Boxall, 1996, p. 64).
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Application of RBV to the field of HRM
The resource-based view when applied to the field of HRM posits that it is people who encompass the properties of value because they contribute to firm efficiency or effectiveness; rarity, since they are not widely available, inimitability, as they cannot be easily replicated by competitors; and non-substitutability, given that other resources cannot fulfill the same function. The above qualities are the necessary conditions for organizational success (Barney, 2001, p. 49).
The RBV focuses on competitive advantage from the perspective of inimitable human resources that are less visible or transparent, in contrast with, for example, technological, technological, and physical resources. In addition, the RBV emphasizes the complexity of organizational systems in determining competitive advantage, related to the bundles and systems approach to HRM research.
Furthermore, the RBV is concerned with sustained competitive advantage or profitability at the firm level, whereas other theoretical frameworks focus on behavioral outcomes or internal efficiency issues (Hendry & Pettigrew, 1986, p. 6).
The fundamental explanation to the resource-based view is relatively straightforward. It begins with the presumption that the top management of a firm desires for the company to have a sustained competitive advantage (SCA). A company that attains an SCA is able to earn economic rents or returns that are above average. In turn, emphasis is laid on the means by which organizations attain and sustain advantages (Boxall, 1996, p. 67).
The resource-based view holds that the solution to this is through possession of certain principal resources. These resources, in return, should also have precise features of value, inimitability (Wright, Dunford & Snell, 2001, p. 715). A sustained competitive advantage can be obtained if the company uses these major resources in its product markets.
Therefore, the RBV focuses mainly on strategic choice, holding the company’s management responsible for crucial roles of identification, development, and use of major resources to make the most of returns (Barney, 2001, p. 50).
Key Elements of the RBV
The essential elements of the resource-based view are sustainable competitive advantage and superior performance; key resources; and strategic choices by management. Each of these components is discussed below. Despite its various definitions, strategy entails an attempt by a firm to achieve and sustain competitive advantage in relation to other firms (Hendry & Pettigrew, 1986, p. 7).
Although the notion of competitive advantage remains central to the strategy literature, clear definitions of the concept are rare. Advantage can be viewed as a relative concept. In other words, advantage is deemed meaningful only when compared to another entity or set of entities (Barney, 2001, p. 48).
Advantages are relative to an arena or context, and that what counts for an advantage in one contest may not be so in another, and, indeed, be a disadvantage. A competitive advantage, therefore; is a merit that one company has over its competitor in a particular market, or even an industry (Bowen & Ostroff, 2004, p. 221).
The resource-based view argues that advantages can be sustainable if they are derived from key resources possessing certain characteristics. These features include inimitability, rarity, and non-substitutability. Concisely, a firm’s resources are a source of sustainable competitive if they possess the three characteristics of market value and barriers to duplication (Boxall, 1996, p. 70).
The second element of resource-based view is identifying key resources. The current literature is replete with discussion that attributes the superior performance of firms to strengths such as customer service excellence, design capability, managerial expertise and teamwork. At any given, an organization is likely to have a wide range of resources at its disposal (Hendry & Pettigrew, 1986, p. 8).
From a resource-based perspective, the normative challenge facing firms is to identify and deploy those resources that meet the characteristics earlier in this essay.
Resources can be divided into three principal groups: tangible assets, intangible assets and capabilities. Tangible assets are those assets in a firm, both current and fixed that have long-run capacity. In addition, these assets are transparent and weak at resisting duplication. Intangible assets, on the other hand, are particularly pronounced in industries such as pharmaceuticals, consumer goods industries, and service firms where company reputation is critical. These assets have relatively unlimited capacity (Barney, 2001, p. 47).
Firms possessing intangible assets can leverage their value by using them in house, renting them, or selling them. These assets are relatively resistant to duplication efforts by competitors due to their regulatory of position gaps or differentials. Capabilities are skills that the company. The firm manager has a role of converting resources into valuable products for customers (Bowen & Ostroff, 2004, p. 208).
The initial task facing mangers is to try to identify the resources possessing the potential to generate sustainable competitive advantage. In order to do this, resources must provide potential access to a wide variety of markets; are relevant to the key buying criteria of customers; and they are difficult to imitate (Boxall, 1996, p. 72).
The resource-based view posits that the firm’s management ream assumes responsibility for identifying, developing, protecting and deploying value-generating resources. Given the practical difficulties of these tasks, good-quality top management in itself can possibly exhibit the characteristics of a key resource. The resources and capabilities of an organization are the main factors in formulating strategy (Barney, 2001, p. 51).
They are the basic constants upon which a company can establish its identity and frame its strategy, and they are the chief sources of the firm’s profitability.
The key to a resource-based view to strategy formulation is the comprehension of the links between resources, capabilities, competitive advantage, and profitability- especially, comprehending the mechanisms through which competitive advantage can be sustained over time (Bowen & Ostroff, 2004, p. 215). This calls for the design of strategies that explain to maximum effect each firm’s unique characteristics.
Barney, J 2001, ‘Is the resource-based view a useful perspective for strategic management research? Yes’, Academy of Management Review, vol. 26 no.1, pp. 41-56.
Bowen, D, & Ostroff, C 2004, ‘Understanding HRM-Firm Performance Linkages: The role of the ‘Strength’ of the HRM System’, Academy of Management Review, vol. 29 no. 2, pp. 203-221.
Boxall, P 1996, ‘The strategic HRM debate and the resource-based view of the firm’, Human Resource Management Journal, vol. 6 no. 30, pp. 59-75.
Hendry, C, & Pettigrew, A 1986, ‘The practice of strategic human resource management’, Personnel Review, vol. 15 no. 5, pp. 3-8.
Wright, P, Dunford, B, & Snell, S 2001, ‘Human resources and the resource based view of the firm’, Journal of Management, vol. 27 no. 6, pp. 701-721.