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Summary - Principles of Human Resource Management

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Vrije Universiteit Brussel (VUB)

This document starts from the second lecture (because the first lecture was only an introduction) and contains the information from the slides with additional notes from class.

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Principles of Human Resource Management
05/10: Chapter 2: Strategy-driven HRM
1. Humans are a source of competitive advantage (but are they really?)
2. HR is internally and externally aligned

1. Humans are a source of competitive advantage
Competitive advantage
Porter’s five forces of competition model
1. must add positive value
2. must be unique or rare (among current and potential competitors)
3. must be imperfectly imitable
4. cannot be substituted w another resource by competing firms

Are human resources valuable?
homogeneous supply and demand >< heterogeneous supply and demand

● (1) Must add positive values: Huselid et al.’s studies:
○ A one standard-deviation increase in such HR practices is
associated with a relative 7.05% decrease in turnover
and, on a per employee basis $27.04 more in sales and x
more in market value and profits.
○ It’s a cross-sectional study so it’s hard to conclude the impact HR practices
has on firm performance; it could be that
HR practices → firm performance
firm performance → HR practices
firm performance ←→ HR practices
Or there could be a third unknown factor that influences this (eg; a good boss)
○ = we can conclude there is a correlation between them but not that the one
leads to the other
● (2) must be rare:
○ where unemployment exists, there is an excess of workers. Where all current
and potential employees have the same skill levels, human resources cannot
be considered rare; irrelevant to performing a job; a commodity
○ Cognitive ability (intelligence) is normally distributed, so high levels of
intelligence are by definition rare (less than 2%)
● (3) must be perfectly inimitable:
○ A resource can be imitated when:
■ Competitors can identify exactly the source of competitive advantage.
■ Competitors must be able to duplicate exactly the relevant
components of the human capital and the circumstances under which
these resources function.
>< difficult to do because resources are developed within companies:
- Path dependency
the current decisions that are being made depend on the
history you have with your team (eg; QWERTY board, the
design of horse wagons,..)
- causal ambiguity

, It’s almost impossible to trace back the process by which a
team product came about and to identify the individual
contributions of each team member. Because of the rareness
of HR, a competing firm couldn't create a team w the exact
same attributes. (eg; why Club Brugge is more successful this
year than before)
- social complexity
the informal interactions between the employees, the trust or
distrust among them which may result in a competitive
advantage for the firm... it’s very complex and difficult to
disentangle and to imitate
=> when people work together over an extended period on solving complex
work-related problems, the whole becomes greater than the sum of its parts; The
exact mechanisms that are responsible for the emergence of firm-level human capital are
difficult to identify (=causal ambiguity), but probably have to do with the tasks
people work on and the constellation of the team, factors that are unique to the firm
(=path dependency) and inherently social in nature (= social complexity)

- Can we just move teams? Not likely because of practical constraints (transaction
costs), but also change of context doesn’t guarantee the same level of performance
(culture and contextual structures).

● (4) cannot be substituted w another resource by competing firms
○ Do other resources, such as technology, have the potential for offsetting any
competitive advantages attributable to human resources?
■ Yes; the more repetitive the job, the more likely it’ll be done by robots,
up to 20 million manufacturing jobs could be done by robots. Also
lawyer, food delivery,...
■ No; if the resource (eg, technology) is not rare, inimitable, or
non-sustainable, then it will be imitated and human resources will
once again constitute a competitive advantage.

When are humans a source of sustained competitive advantage?
We can conclude that very often human resources provide a source of sustained
competitive advantage. However we cannot conclude that they always and
everywhere contribute to achieving sustainable competitive advantage.
Yes they add value to the extent that they are not interchangeable, unless there is a
surplus of workers, and because they are difficult to imitate. They could be
substituted by robots but there will always be a human characteristic that cannot be
copied or imitated; ethical decision-making or empathy.

2. HR is internally and externally aligned
Different types of alignment
(a) The business strategy → vertical/strategic alignment
(b) aligning HR policies w other HR policies → horizontal/internal alignment
(c) between HR policies and all other aspects of the organization → organizational alignment
(d) The institutional environment (external pressures) → environmental alignment

, ● Vertical Alignment (business strategy)
Thinking of bundles of activities that need to be taken and resources to be allocated
to go from your current situation to you desired future situation (goal), eg; IKEA
Types of strategy: Michael Porter’s generic strategies
● Cost leadership
○ try to lower costs required to
produce products/services
○ sell more at lower price (Aldi)

● Differentiation
○ gain advantage by offering smthn
that no one else offers, thus can be
demanded a premium price

● (cost) Focus
○ cost leadership or differentiation in a specific market; narrowing customer
base to buyers with specific needs

● Differentiation focus
If we have chosen one of the strategies, how can we make sure that this is aligned with the
human resource department, what will be our system/strategy. (culture)

● Horizontal Alignment (HR ← → HR)
○ ‘Powerful’ connections: employee involvement & extensive employee
development
○ ‘Deadly’ connections: teamwork & individual pay-for-performance

● Organizational Alignment (HR ← → other relevant aspects of the organization)
○ Functional structure

○ Product structure

○ Customer/market structure

, ○ Geographic structure

○ Matrix structure

○ Process structure

○ Network structure

● Different types of alignment
○ Environmental alignment
■ institutional theory:
the behavior of organizations is a response not solely to market
pressures but also to institutional pressures (state, professional
bodies, social expectations and actions of leading organizations,...)
■ organizations conform to contextual expectations to gain legitimacy

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