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Summary HRM3704 - Study Unit 2
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- University Of South Africa (Unisa)
HRM3704_Study Unit 2_Competitive advantage in human resource management and the management of flexible patterns of work
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HRM3704 Contemporary Issues in Human Resource ManagementSTUDY UNIT 2 – Competitive advantage in human resource management and the
management of flexible patterns of work
Many organisations can obtain a competitive advantage by adopting a management style that involves employees in the business
of their organisation. A growing recognition that a primary source of competitive advantage derives from a company's human
resources; Also, that this source of advantage may be more inimitable and enduring than a particular product is. As a competitive
advantage lies primarily with its employees.
2.2 What is competitive advantage?
Historically, competitive advantage was thought of as a matter of position; companies occupied a competitive space and built and
defended their market share. The competitive advantage depended on the area in which the business was located and where it
chose to provide its goods and services. This was known as the strategic model. This strategy seemed to work well in a stable
environment, especially for large and dominant organisations.
However, with rapid competition appearing, it outlived its popularity and a new meaning of the phrase 'competitive advantage'
emerged. Barney - provided some interesting insight into the total area of competitive advantage.
Barney: A firm is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously
being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of
this strategy.
Companies cannot create strategies if they do not utilise their resources in the process.
Approach is known as the resource-based view (RBV), and is based on two assumptions:
• companies within an industry or group may be heterogeneous with respect to the strategic resources they control;
• these resources may not be perfectly mobile across the industry or group.
2.3 Sources of competitive advantage
The RBV plays a key role in achieving a competitive advantage. This view describes a company as a bundle of resources that enables
it to conceive and implement strategies that will lead to above-average industry returns. The differences in company resources
across an industry will be reflected in the variability in profits generated by them. No two companies are alike, because no two
companies have had the same set of experiences, acquired the same assets and skills or built the same organisational culture.
It is also important to note that the RBV of competitive advantage differs from the traditional strategy paradigm mentioned earlier,
in that the RBV is company focused. The traditional strategy model also sees company resources as homogeneous and mobile
across companies in an industry.
Barney indicates that a company's resources can be classified into four groups, namely:
• Financial capital resources. - debt and equity-retained earnings.
• Physical capital resources. - physical technology, machines, manufacturing facilities, and buildings.
• Human capital resources – knowledge, experience, insight
• Organisational capital resources – history, relationships, trust, organizational culture
Strategic specialized bundle:
Not all these resources can be classified as strategic resources (assets). To determine a resource’s value, managers
must address four questions concerning value, rarity, reproducibility and organisation.
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Summary by L Petzer
, HRM3704 Contemporary Issues in Human Resource Management
The question of value - do a company’s resources add value by enabling it to exploit the opportunities and/or
neutralise the threats in the company's environment? Managers link the analysis of internal resources with the analysis
of environmental opportunities and threats.
The question of rarity - how many other companies already possess the valuable resource? The valuable resources
must be rare among the competing companies.
The question of reproducibility - The third question to ask is do companies without a resource face a prohibitive cost
disadvantage in obtaining the resources other companies offer already.
If a competing company does not find it too expensive to imitate this resource, the competitive edge will soon
disappear.
Barney: imitation can occur in at least two ways: by
• duplication - occurs when an imitating company builds the same kind of resources it knows the competitor
possesses;
• substitution. - an imitating company may find a similar resource that provides the same result
The question of organization - is a company organised to exploit the full competitive potential of its resources? A
company's competitive-advantage potential depends on the value, rarity, and reproducibility of its resources.
Issues that are important in this regard are a formal reporting structure, explicit management-control systems, and
compensation policies. These components are also referred to in the literature as complementary resources, as they
have - in isolation only a limited ability to generate a competitive advantage.
Important to look at the aspect of flexibility. By aligning its strategy and its resources with the environment, a company
can achieve superior performance. In the literature this alignment is termed ‘strategic fit. However, with rapid external
and internal changes taking place, this strategic fit becomes more challenging.
Winfrey, Michalisin, and Acar - suggestions that will help a company sustain strategic fit.
Proposals is to give a system flexibility within the company, which will allow it to create batches of unique products
quickly, at a relatively low cost, as and when required.
Galbraith - a flexible system's transferability makes it a valuable resource.
The basis for this flexibility can be made possible by installing a company culture based on creativity and quick
response.
2.4 Role of HR in gaining a competitive advantage
A number of paradigms in the literature describe the contribution of HR to company performance:
• The first paradigm assigns value to a company's stock of human intellectual capital as a way of measuring the
contribution of HR to the company's performance
• The second paradigm attempts to identify HR's best practices. Researchers in this movement specify and
measure the bundles of typologies of HR practices associated with the high performance of labour.
• The third paradigm is a new perspective, designed by Raphael Amit and Monica Belcourt, which is anchored in
both the RBV and the best-practices theory, and is known as the ‘process' approach
Might be useful to evaluate the HR component against the measures of sources of competitive advantage.
• The value of HR - For human resources to exist as a sustained competitive advantage they must provide value
to the company.
• The rarity of HR - a resource must be rare. Wright and McMahan: due to the normal distribution of ability,
human resources with high levels of ability are rare.
• The inimitability of HR - Human resources must be inimitable to be considered a source of sustained compet-
itive advantage.
Wright and McMahan: concepts of unique historical conditions, causal ambiguity, and social complexity to
demonstrate the inimitability of human resources:
o Unique historical conditions are the historical events that shape the development of a company's prac-
tices, policies, and culture.
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Summary by L Petzer
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