This essay looks at whether people can be seen as a key source of sustained competitive advantage for organizations. Both positives and negatives about the idea that staff offer ongoing competitive advantage are discussed. The discussion is framed in terms of human resource management (HRM) and looks at both the immediate business context and wider social and economic contexts framing the question.
The following essay examines whether people can be seen as a key source of sustained competitive advantage for organizations. A critical perspective is taken, drawing out the positives and negatives about the idea that staff offer ongoing competitive advantage. The discussion is framed in terms of human resource management (HRM) and looks at both the immediate business context and wider social and economic contexts framing the question. The essay is structured as follows. First, the nature of HRM is discussed generally, followed by an examination of the particular requirements of the newer discipline of strategic HRM (SHRM). This outlines the way in which the understanding of HR has changed, and with it ideas about people as an organizations main resource. Notions of sustainable competitive advantage are also examined. The following sections look at how people can offer competitive advantage through SHRM in terms of a range of factors. Finally, criticisms of the idea that people can be a source of sustained advantage are discussed.
2 The Traditional View of HRM
Traditionally, that is, during the early and mid years of the twentieth century, human resources was seen as a reactive, rather than a proactive function. This classical view of HR saw it as concerned primarily with administration, for example of wages and recruitment and discipline (Foot and Hook 2008). It was rooted in the scientific approach to management of F W Taylor, and assumed that most work was mechanical and predictable in nature, with little scope for creativity on the part of individual employees. The emphasis was upon ensuring employees compliance with regulations (Deckop 2006). This view is still put forward to some extent today, for example Boxall et al (2008) emphasize that HR is to do with administrative management of people at work. Under this, limited view of HR, there is little scope for bringing the best out of employees and hence little chance to use them as a source of competitive advantage.
This view began to be challenged during the mid part of the 20th century, as it was realized that ideas from psychology might have an impact upon employee performance. Peter Drucker was instrumental in pointing out the reactive nature of HR, and opening up new possibilities for the discipline (Sims 2007). He paved the way for theorists such as Armstrong (2006), who describes HRM as “a strategic and coherent approach to the management of an organisation’s most valued assets—the people working there, who individually and collectively contribute to the achievement of its objectives”. It should be pointed out that while this new strategic HRM offers many benefits, and can help capitalize upon an organisation’s employees as a resource, the traditional approach offers benefits which should not be overlooked. For example, although not suitable to all organizations, a personnel / reactive approach which sees the employee’s role as performing mechanistic tasks might be more suitable for certain industries, for example manufacturing (Torrington et al 2008). In the factory setting, it might even be appropriate to do away with people operating machinery where possible. In the case of industries where mechanization of the production process is possible, employees might be seen as a disadvantage, not a source of competitive advantage.
3 Strategic Human Resource Management and its Advantages for Competitive Advantage Through People: Key Notions
With a move to a more holistic view of human resources in the mid to late 20th century, the idea that people are an organization’s main assets was discussed. This section looks in more detail at the notion of SHRM, and also at some of the issues with defining the term.
The idea was originally put forward in the USA, possibly influenced by the widespread turn away from manufacturing there, as more and more manufacturing processes were outsourced to Japan. Numerous other factors such as the growth of individualism and downplaying of collectivism also played a part (Millmore 2007) Key to the notion of SHRM is the idea that it involves an approach to managing people “that enables the organization to achieve its objectives and take into account the changing context in which the firm operates and its longer-term requirements” (Armstrong 2011, p. 62). The notion of competitive advantage is written into SHRM as one of the key purposes of the approach, through boosting commitment and enhancing capabilities (Storey 1995). Certainly, it seems that SHRM offers a way to improve organizational performance through focusing upon the capacity and potential of the individuals employed. It also suggests that the role of HR is not simply record keeping and administration, but rather than people need to be written into the long-term planning of an organisation, through such strategies as including HR staff on the board. By thus including HRM in a company’s overall vision, and by including an awareness of the firm’s overall future in planning HR, the idea is that organizations can be more effective and have an advantage over their competitors (Mathis and Jackson 2011).
SHRM involves a number of other things. Central is strategic planning, the process whereby the HRM professional defines an end goal and plans HR strategy or allocates resources towards that end. Importantly, all employees should be included where possible in planning, both in terms of the overall vision for the organisation, and in terms of their role in fulfilling this vision. It is thought that including employees in a corporate vision is strongly motivating in terms of individual performance and organizational loyalty (Halldorsson 2007). Another central idea in SHRM is the notion that people should be treated as assets for the organisation (Armstrong 2006; Legga 1995; Armstrong and Baron 2002). Previously, it was thought that employees were useful only to the extent they carried out mechanical tasks in a similar way: SHRM recognizes the differences between people and the contribution each can make to competitive advantage through a process on increased motivation and commitment. A related notion is that of ‘human capital’: the idea that employees play a large part in adding value (Baron et al 2007; Scarborough and Elias 2002; Chatzkel 2004). The notion of human capital has been expressed as economic theories (Elliot 1991; cited Baron and Armstrong 2007).
However, it seems likely that the relationship between SHRM and sustained competitive advantage is complex. Not only is the definition of sustained competitive advantage problematic, the mechanics of how it is delivered through SHRM are obscure.A large number of empirical studies have looked at the relationship between SHRM and organisational performance: some suggest that mediating variables such as employee attitude can enhance or boost the impact, others look at the role played by mitigating variables such as job satisfaction, perceptions of justice, and organisational commitment (Bebenroth 2010).One common finding is that improved HR functions, particularly more streamlined subsytems and consistency of messages has “a positive impact on employee motivation and therefore does result in improvements” in terms of performance (Cornelius 2002). However, there is much disagreement on the topic, and the relationship is said to be complex (Bryman and Bell 2007). In other words, there is evidence that people can contribute to increased competitive advantage, but the relationship is not a simple or straightforward one, additional attitudes on the employers part need to be taken into account, for example.Additionally, the extent to which SHRM is effective in delivering positive outcomes for organizations is variable: Armstrong (2012) suggests that in order to be effective it needs to be wholly integrated into overall strategy.
Before looking in more detail at what SHRM can deliver, it is necessary to look at the notion of sustainable competitive advantage, as some confusion in the term means it is tricky to assess to what extent it is delivered by SHRM policies. Competitive advantage, it should be noted, can itself be defined in different ways. The two main definitions concern, on the one hand, purely financial advantage for the organisation, and, on the other, alternative, non-financial measures, for example public perceptions of a product (Webb and Schlemmer 2008). It is therefore unsurprising that the notion of sustainable competitive advantage is also somewhat ambiguous. The concept was originally devised by Porter (1985), and arose from a desire to offer added value for customers through a process of continual innovation. Porter felt it could be achieved through a combination of strategies: innovation, cost leadership and good quality products. While the term seems to designate the sort of advantage over competitors which will be long-lasting, “”there is… no agreement on the term “sustainable competitive advantage”. Some say that all competitive advantage is temporary” (Rogers 2009, p. 2). It has recently been questioned whether the goal of sustainable competitive advantage is even obtainable: anything which promises to deliver such advantage is likely to be outdated in a short period of time (Saravathy, 2008). Perhaps it is best therefore to look for sustainable competitive advantage in a way that involves flexibility to changing business needs. Certainly Pfeffer (1994) suggests that the sources of sustained competitive advantage have always shifted over time. The traditional sources of competitive advantage, products, technology, financial and economics, are less powerful than they once were. More recently, Zwilling (2010) has suggested that new ways of creating sustainable competitive advantage have developed, including a dynamic approach, sensitivity to price, strong focus, and teamwork.
There are alternative views of how SHRM can actually deliver benefits. One widely-accepted view is the resource-based one: the idea that employees are one of a number of resources possessed by an organisation that helps define what that organisation uniquely is and hence help set it apart from others in the market (Armstrong 2010) Although there are some issues with definitions and fully understanding how treating people as a resource can actually deliver key benefits, there do seem to be a number of advantages to this approach. For example, it seems that investing time and energy in individuals in an organisation can lead to enhanced performance through targeted skills development where the education is in tune with the company goals. Where employees are better trained than those in other organisations, they will perform better, and so will the organisation as a whole (Pillbeam and Corbridge 2010). This needs to be a process which takes into account individuality in terms of employee ability, motivation and opportunities (Boxall et al 2008). Another advantage of SHRM is that, it is claimed, it is a much more suitable approach for the current economic system, which is based around knowledge rather than the production of goods (Harvard Business School Press). It also capitalises upon a new understanding of human nature and motivation: it is now widely accepted that humans have different motivations, from the basic need to have warmth, food and shelter to more higher level needs for self-esteem and value in the eyes of others. Any adequate HR system needs to take into account people’s psychology and motivation, yet not all such systems do this (Leonard 2012). Further, SHRM seems to have been adopted successfully by some of the world’s most successful organisations. For example, Sheryl Sandberg left a post with Google to become Chief Operating Officer for Facebook, and brought in a new approach to HRM including many SHRM practices in a porcess of “mobilizing human capital through the HRM process to best implement organizational strategies” (Schermerhorn 2011, p. 233)
4. Drawbacks of SHRM: Failures to Deliver Competitive Advantage
Certainly there have been many people who have argued for the effectiveness of SHRM, and some empirical evidence also seems to suggest it is useful. However, there are some drawbacks which mean it might not deliver the advantages it promises. It also seems that the literature is somewhat biased towards SHRM, and takes a stance which lacks any criticality (Storey 2008).
One theoretical issue concerns the competitive advantage.To offer competitive advantage in the marketplace, a company has to give something else which the other firms in the same market do not give. If all organisations working in one particular market all invest in SHRM, then this ceases to be a source of competitive advantage and no longer differentiates any particular organisation, as all enjoy its benefits.Perhaps if one organisation invests more heavily than another in SHRM, they might enjoy more competitive advantage, however, this brings us to another issue with the notion of SHRM and benefits it might deliver: the cost.Strategic HRM involves more investment in people in terms of training and ongoing support, and is likely to be more expensive than a traditional, administrative approach (Story 2009).It has also been pointed out that although many ideas about SHRM developed in the USA, they are often assumed to be globally applicable. In fact, it is doubtful whether they are suitable for the European context, for instance: the notions are unclear, too rule-bound, and fail to understand the European social context, particularly the role played by unions and workers’ rights (Stonehouse and Campbell 2004). A final problem with the theory behind SHRM is a lack of consistency across definitions, and ambiguity within different models. For example, there is confusion between description and prescription, and also critical evaluation in some sources. Additionally, it has been claimed that the arguments for SHRM are somewhat weak, and fail to take into account the advantages of the traditional approach (Beardwell and Claydon 2007)
There has also been criticism of the research which has been done to back up the idea that SHRM brings benefits, which, it has been claimed, relies upon a set of questioned assumptions. In particular, it has been claimed that “the HRM literature is strongly dominated by the assumption that recruitment, assessment and development processes deal with people who have stable sets of skills and capabilities”, and also fails to take into account the extent to which people can make reflective changes in their circumstances (Storey 2008, p. 55). In addition, and despite the existence of studies which seem to show its advantages, as Millmore (2007, p. 425) puts it “research collected in this field shows limited evidence regarding the reality of this process in observable organisational practice”. It seems that further studies need to be carried out before the results claimed for SHRM are proven.
Putting aside the theoretical issues and problems with the research, it is also possible that actually instantiating effective SHRM practices could be problematic.for example, organisations often have different business strategies, particularly if they operate in varied areas. In these cases, having a unified HR strategy might be difficult. Additionally, it might be tricky to adapt HR strategy to a rapidly changing business environment, as it is likely to represent a solid part of the “internal structure and culture” of the organisation. Quick solutions to problems proposed by management might also undermine the overall HR strategies in an organisation (Stonehouse and Campbell 2004, p. 261). In practice, it has been suggested, it is likely that while many organisations agree that strategic HRM offers great possibilities, they have adopted it only half-heartedly in practice. This might be due in part to ambiguities in the different models of SHRM (Beardwell and Claydon 2007)
There has been a move away from the idea that people benefit organizations only insofar as they can function like machine parts, to an idea that people are the main asset of any organisation. As new ideas about the role of employees developed from the mid 20th century, so did the notion of HRM change to take on a more strategic role. There are many benefits to organizations from treating people as a key source of sustained competitive advantage, for example employees are likely to be more motivated and productive, however there are some serious drawbacks with the notion of SHRM, particularly the lack of decisive empirical evidence to support its effectiveness. More research is needed to determine whether it really offers what is claimed.
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