Relevance of Resource-Based View to Human Resource Management Expository Essay

Introduction

In a highly competitive economic environment, typified by such phenomena as the globalization of markets, shifting workforce demographics, changing customer preferences and increasing product-market differentiation, people and the way they are managed as a source of competitive advantage becomes of much significance to the organization, in part due to the fact that many other sources of competitive success are becoming exceedingly less powerful (Saa-Perez & Garcia-Falcon, 2002).

To achieve competitive advantage through people, however, organizations need to embrace a paradigm shift from the traditional way of viewing employment relationships to a more synchronized way of successfully working with people and viewing them as a critical resource for the organization rather than as merely a cost (Colbert, 2004).

This is where the relevancy of resource-based view to human resource management sets in as it provides the framework through which the human resource, or human capital, in which the organization invests, could be harnessed to generate superior performance and competitiveness (Boselie & Paauwe, 2009).

In addition to demonstrating the relevancy of resource-based view to human resource management in a much wider scope, this paper will also purpose to demonstrate the internal and external factors that come into play to shape this relevance.

Understanding the Concept of Resource-Based View

The resource-based view (RBV) of the firm provides an imperative point of view on the ongoing debate about human resource management (HRM) and organizational success (Saa-Perez & Garcia-Falcon, 2002).

According to Liu et al (2009), “…the RBV is a strategic theory for understanding why some firms outperform others” (p. 412).

Research into the theory has demonstrated that RBV is a strong analytical tool that can be used to explain the competitive heterogeneity between firms as it rests its man premise on the assumption that organizations are able to develop and sustain competitive advantage only by generating value in a way that is rare and complicated for other competitors to imitate (Saa-Perez & Garcia-Falcon, 2002; Paauwe, 2004).

Researchers have examined the antecedents and processes related to development of competitive advantage and creation of value (Haynie et al., 2009), and have conceded to the fact that many organizations fail to break through in the ever-competitive and continuously ever-shifting business environment of the 21^st century due to a perceived difficulty in developing core resources that are hard for other organizations to copy (Cleri & Dowling, 2006). This acknowledgement feeds the impetus to evaluate the relevance of RBV to HRM.

Classical RBV theory can be traced back to the ingenious works of Penrose (1959), who argued that a firm is not only an administrative unit, but it is also a collection of productive resources (Liu et al., 2009).

As such, it can be argued that Penrose contributed to our knowledge and understanding of the creation and sustenance of a firm’s competitive advantage.

Penrose was also one of the pioneer researchers “…to acknowledge the value and quality of human resources in terms of (unique) knowledge and experience” (Boselie & Paauwe, 2009, p. 422).

Modern RBV theory can be credited to the works of scholars such as Barney (1986), Dierickx and Cool (1989), and Peteraf (1993), who in their presentations argued that “…each firm is a collection of key resources and capabilities that determines a firm’s strategy” (Liu et al., 2009, p. 413).

Additionally, these scholars argued that competitive advantage can only be earned when the organization utilizes its valuable, rare, incomparable, and non-substitutable competencies and resources (Haynie et al., 2009; Boselie & Paauwe, 2009).

These assertions clearly demonstrate that RBV extends beyond the tangible assets of a firm and reaches into its intangible capacities which bear more relation with processes and activities (Liu et al., 2009).

According to Chadwick & Dabu (2009), RBV underlines the internal capabilities of a firm in developing strategies aimed at creating and sustaining competitive advantage.

The view assumes that an organization is made up of resources and capabilities which, through an enabling framework, can be configured or reconfigured to avail the much needed competitive advantage.

This implies that RBV takes an ‘inside-out’ approach, that is, it entices organizations to evaluate their internal competencies and capabilities so as to determine the strategic choices that could be used to compete favourably in the external environment (Collins & Clark, 2003).

Browning et al (2009) contends that an emerging source of competitive advantage for organizations is the knowledge, expertise, value propositions, and attitudes possessed by their employees as many of the traditional sources of competitive advantage, including technology, economies of scale, and patents, have for the past two decades diminished in value.

This therefore implies that HRM has been increasingly transformed from a reactive function centred on administrative and bureaucratic issues to a more proactive function that is impeccably linked to key business strategy, attainment of competitive advantage, and the creation of value (Browning et al., 2009).

Chadwick & Dabu (2009) are of the opinion that HRM functions as a critical component of organizational capabilities, while Jabbour & Santos (2008) argue that the orientation of a firm’s HRM practices to a large extent determines its sustainability especially when it comes to innovation. How, then, is RBV relevant to HRM?

Relevancy of the RBV to HRM

Delery & Shaw (2001) cited in Boselie & Paauwe (2009) argued that since human capital can be a source of an organization’s competitive advantage, and that since HR practices bears the most direct influence on the human capital of an organization, it therefore follows that the complex nature and scope of HR systems of practice can indeed be used to boost the inimitability of the system.

It has been noted that RBV lays much focus on the internal capabilities of a firm (Colbert, 2004), thus HRM practices can adopt this view to develop inimitable core competencies, tacit knowledge, and dynamic capabilities in a firm’s human resource base (Boselie & Paauwe, 2009).

Such an arrangement will not only have a direct impact on the firm’s performance (Collins & Clark, 2003), but will provide a framework through which the firm will be able to align its human resources to compete favourably against a myriad of factors presenting in the external environment (Gill & Meyer, 2008).

The RBV emphasizes the need for organizations to come up with “…valuable, rare, inimitable, and non-substitutable resources” (Boselie & Paauwe, 2009, p. 422) if they are to create and sustain competitive advantage.

As such, its relevancy to HRM can be underlined by the fact that people encompass the properties of value by their unique contribution to the efficiency and effectiveness of the organization, not mentioning that people cannot easily be replicated or substituted by other competitors in the market (Kuei-Kuei et al., 2009).

If we evaluate the RBV from a HRM perspective, it could be argued the theory provides the organization with inimitable human resources that are less perceptible or translucent in contrast with, for example, technological resources or a firm’s physical infrastructure (Boselie & Paauwe, 2009).

This therefore implies that developing human resources using the resource-based perspective will ultimately provide to the organization the needed internal capabilities that will enable it to compete favourably in the external market.

Boselie & Paauwe (2009) argue that “…certain HRM practices increase employees’ discretionary effort and that this type of behaviour will lead to superior firm performance” (p. 424), while Priem & Butler (2001) argue that investment in the development of human capital plays a major role in the achievement and sustenance of competitive advantage.

These observations enshrines the relevancy of the RBV to HRM in that it lays much focus on the organization’s internal sources of competitive advantage, which, it has been argued by strategic human resource management (SHRM) scholars, encompass such organizational characteristics as the organizations’ pools of human resources, the approaches that organizations use to structure employment relationships, and the approaches that organizations use to organize work and design jobs (Chadwick & Dabu, 2009).

Consequently, the RBV assist HR managers to drive forward the notion that people are indeed the main source of competitive advantage for their respective organizations (Browning et al., 2009).

It is also imperative to note that some HR managers explicitly build on the RBV theory to postulate that “…the central role of the human resource function of a firm is to enhance the firm’s competitive position by creating superior human resources, in parallel with the product/market strategy the firm pursues at any given time” (Boselie & Paauwe, 2009, p. 424).

With this in mind, it can be argued that the RBV tenets assist HR managers to select policies, practices, and structures that promote effective management of people with a view to accomplish the goals and objectives of the organization.

Organizations that strongly value HRM and people as a source of competitive advantage have often relied on the RBV theory to develop high-involvement HRM strategies which encompass high-level training, empowerment, flexible communication, highly selective training and career development, performance-based pay schemes, and broad job design (Boselie & Paauwe, 2009).

In the development of high-involvement HRM strategies, it is assumed that an organization’s capacity to generate and sustain competitiveness is a function of the human resource endowments of the firm and, as such, HRM practices should specifically focus on the development of human resources with the view to have, in the firm’s possession, resources that are valuable, rare, and hard to copy (Boselie & Paauwe, 2009; Browning et al., 2009).

Some HRM scholars, however, have highlighted some limitations associated with the RBV. According to Saa-Perez & Garcia-Falcon, (2002), the RBV argument resonates around the fact that “…bundles of resources, rather than the product market combinations chosen for their deployment, lie at the heart of a firm’s competitive advantages” (p. 124).

This assertion has come under criticism for its overly constricted focus on the importance of the internal bundles of resources at the expense of other important external factors that are also deemed necessary for a firm to achieve and sustain competitive advantage (Boselie & Paauwe, 2009).

Boxall (2001) cited in Chadwick & Dabu (2009) observed that simply arguing that hard-to-copy internal resources are obligatory for competitive advantage, and that human resources are particularly valuable in this sense, cannot in anyway guarantee the competitiveness of organizations owing to a multiplicity of other external factors, such as technology adoption, customer preferences, and product market differentiation, which influence a firm’s trend towards competitiveness.

Consequently, Lado et al (2006) feels that the RBV should be institutionalized and balanced in such a way that it takes into account the diverse exterior environments and the interior resources, competencies, and administrative heritage of the organization.

Another problem for the RBV lies in the fact that the theory is principally oriented toward describing how organization-level heterogeneity drives or slows competitive advantage based on either the abundance or insufficiency of economically valuable and inimitable resources and capabilities (Chadwick & Dabu, 2009).

However, the main advocates of the RBV, according to the authors, have not been successful in delineating the processes and activities leading to such heterogeneity.

Additionally, the RBV does not adequately address considerably important issues about how resources and capabilities of a firm can develop and change over time.

A major limitation of the RBV, though, is that it does not address the dynamic role played by people within organizations and instead assumes it to be self-evident (Hitt et al., 2006). Consequently, the absence of such details makes it extremely difficult for organizations to implement the RBV.

Internal Factors Shaping RBV Relevance to HRM

It has been described here that one of ways in which the RBV is relevant to HRM is that it focuses on the organization’s internal sources of competitive advantage and harnesses them in a way that the organization is able to achieve competitive advantage (Chadwick & Dabu, 2009).

As such, an organizational management that values HRM will not only ensure that its pool of human resources undergoes high-level training and empowerment to improve employees’ skills and competence, but it will also ensure that it lays the groundwork through which employees can be encouraged to become innovative through open management-employee communication and social support (Boselie & Paauwe, 2009; Baum, 2002).

Afiouni (2007) observes that organizations must develop an engaged, well-informed, creative and innovative workforce to sustain competitiveness.

The need for high-level training, empowerment, open communication, and innovativeness, therefore, are some of the internal factors that shape the RBV relevance to HRM.

This is inline with the resource-based perspective that encourages valuable, rare, and hard to imitate resources and competencies so as to beat competition (Mata et al., 1995).

According to Schuler & Jackson (2007) and Holtbrugge et al (2010), internal factors such as HR planning, staffing (recruitment, selection, socialization), appraising, compensation, training and development, and union management relationships need to be evaluated against the backdrop of how they can be best used to develop and sustain a firm’s competitive advantage.

Schuler & MacMillan (1984) observes that the result of effectively managing the above and other human resources within an organization “…is am enhanced ability to attract and retain qualified employees who are motivated to perform” (p. 242).

The mentioned internal factors shapes the relevancy of the RBV to HRM the theory assists managers to select HR policies, practices, and structures that promote effective management of people with a view to accomplish the goals and objectives of the organization.

The need to increase the efficiency of production to lower the cost of the products in line with various strategy theories also shapes RBV’s relevance to HRM (Gill & Meyer, 2008).

The cost/efficiency thrust, according to Schuler & MacMillan (1984), underlines the need for organizations to have a skilled workforce that will ensure that products or services entering the market place are cost-effective and efficient enough to meet or even surpass customers’ expectations.

The RBV emphasizes having an internal set of resources and competencies that not only valuable but also inimitable so as to develop and sustain competitive advantage for the organization (Hitt et al., 2006).

As such, an internal factor such cost/efficiency thrust could utilize the perspectives of RBV to ensure that that an organization has the needed human resources to ensure efficiency of production at a lower cost that competitors cannot imitate, hence sustaining competitive advantage.

External Factors Shaping the Relevance of RBV to HRM

Organizations do not operate in a vacuum; they affect and are affected by a wide range of external factors which determines their chances of achieving and sustaining competitive advantage.

New technology adoption, external competition, labour market pressures, and ease of replication of core organizational competencies by competitors come out strongly as some of the external factors that may shape the relevance of RBV to HRM.

According to Paauwe (2004), organizations need to continuously adapt to new technology in the market so as to achieve and sustain competitive advantage.

This implies that the human resource practices must have the capacity to train employees on new technology and ensure that the technology is used resourcefully to achieve the goals and objectives set by the organization.

The imperative orientation for HRM, according to Sirmon et al (2007), is to have a skilled workforce at its disposal which can readily adapt to various technological needs for the organization so as to drive competitiveness.

Many HRM scholars argue that the RBV can be used to create a skilled workforce as a valuable internal competency that could be employed to sustain competitiveness in technology adoption (Holtbrugge et al, 2010).

Valuable and inimitable organizational resources and competencies can be used to deal with external competition and labour market pressures.

According to Dunford et al (2001), the RBV could be used to drive internal innovativeness and value creation, thus enabling an organization to produce unique customer-specific products that competitors will find difficult to imitate. Such products are often likely to satisfy customer preferences and needs due to their unique features, thus assist the firm to fight off external competition and sustain competitive advantage.

The task for HRM in such an arrangement, therefore, is to come up with practices, processes, and structures that promote employee innovation and value creation. This is in line the resource-based view of resource immobility, which encourages organizations to develop resources (products) that are difficult for other competitors to acquire or obtain due to the high costs involved (Gill & Meyer, 2008; Sirmon et al., 2007).

To counteract external labour pressures, organization can use internal labour flexibility “…based on the adaptability of the organization’s current workforce to face non-routine circumstances and events that require creativity and skill” (Beltren-Martin et al., 2009, p. 1576).

Here, the relevancy of RBV to HRM is enshrined in the fact that HR managers need to develop and encourage their human resources to adopt permeable and expandable work roles that can assist the organization to cope with external labour pressures.

Conclusion

Most HRM researchers would agree to the fact that the resource-based view of the organization characterizes a leap in the right direction for strategic management.

As demonstrated in this paper, the RBV has important relevancies to the practice of HRM especially in ensuring that human resources are attuned to the broader organizational goals and objectives so as to achieve and sustain competitive advantage (Dunford et al., 2001).

Most important, this paper has demonstrated how RBV underlines the importance of a firm’s internal capabilities from an ‘inside-out approach’ so as to sustain competitiveness. Its limitations have also been mentioned at length.

Whether an interested party would go so far as categorizing the RBV as a new paradigm within SHRM is a matter that is open to debate; however, this paper has clearly demonstrated the RBV is of immense relevance to the HRM practice.

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