“Competitive advantage in business is not about having the best technology or the biggest budget; it’s about having the best people and empowering them to unleash their full potential.” – Richard Branson.
The idea that human resources are actually the most valuable asset within an organisation is a popular notion these days, but this hasn’t always been the case. Previously, in academia, Human Resource Management and Strategic Management were two separate issues and dealt with accordingly. However, it’s become abundantly clear over time that human capital is capable of providing a sustainable competitive advantage. Just take a look at Southwest Airlines whose sustained financial success was almost entirely achieved through HR practices. The CEO once stated:
‘Maybe someone could equal the cost…possibly they could. And maybe someone could equal the quality of service…possibly they could. But…they would find it impossible to equal…the spirit of our people and the attitude they manifest towards our customers.’
Through special recruitment practices, Southwest Airlines hired air hostesses whose personalities improved the experience of customers so significantly that it made them stand out in the market. The integration of strategy and human resources can obviously provide significant financial advantages, but can it improve the lives of the assets themselves? This blog will first, briefly, examine the concept of Strategic Human Resource literature paying close attention to the Resource-Based View (RBV). Then, it will critically examine whether the incorporation of the RBV into HR management has improved the lives of employees.
The Conception of Strategic Human Resource Management
Human resource management (HRM) is a vast subject with a multitude of theories facilitating its development to where it is today. Arguably the most significant development was triggered by Walker (1978) who called for the integration of HRM and strategic planning. The combination was named strategic human resource management (SHRM) and was officially born through Devanna, Fomburm and Tichy’s 1984 seminal piece. The resource-based view (RBV) is one of the key theories that has been instrumental to SHRM’s development.
The RBV was first pioneered by Penrose (1959) and sought to explain why certain firms enjoyed SCA over their competitors. Initially, strategy literature adopted an external view, however, the RBV shifted the focus towards an organisation’s internal resources. Adopting this view, Wernfelt (1984) articulated firms as a bundle of resources, which were either categorised as tangible or intangible (Itami and Roehl, 1987). Later, this was expanded to physical resources, organisational resources, and human resources (Barney, 1991). The recognition of HR as a fundamental resource capable of creating a sustainable competitive advantage reaffirmed the significant role people play in strategy. RBV is resultantly accredited to being ‘the central pillar of theory in strategic HRM field’ (Kaufman, 2015, p.516). This marriage between strategy and human resource management is instrumental to this day.
Looking at RBV in more detail, this theory proposed that organisations are a heterogenous, bundle of unique resources which arise from various elements of the organisation’s past (Olalla, 1999). When these resources are effectively matched to the opportunities and threats in the external environment, success can ensue. However, only resources with the following characteristics are capable of creating a SCA, often nicknamed the VIRO framework (Barney, 1998):
One can see easily how human resources can be capable of fulfilling the VIRO framework as humans obviously have the propensity to be valuable and rare. Moreover, they can be hard to imitate due to scarcity, specialisation, and tacit knowledge (Teece, 1982). The popularisation of RBV legitimised the relevance of SHRM and the theory’s continued relevance today can be demonstrated through Jiang and Messersmith (2018) findings that RBV was still the most frequently cited theory within SHRM reviews.
However, human resources are considered a special form of strategic assets as although they are human capital with the potential to stimulate economic growth, they are also under limited organisational control (Amit & Schoemaker, 1993). The recognition and appreciation of human resources as a valuable, if not the most valuable, strategic asset of a firm led to changes in HRM practices to account for this change in perspective. But did these changes lead to better working lives for employees?
Contribution to ‘better working lives’
Often organisations relying upon people as their SCA have utilised the RBV theory to develop high-involvement SHRM strategies. These strategies include high-level training, empowerment, flexible communication, highly selective training and career development, performance-based pay schemes and broad job design (Boselie & Paauwe, 2009). This submission will determine whether these practices have improved the working experiences of employees. There are two key ways this will be measured. Firstly, through engagement the CIPD, themselves, acknowledged that engaged employees will be happier, healthier, and more fulfilled (CPID, 2021) evidently resulting in better working lives. Secondly, through examining job satisfaction, which, according to the Job Descriptive Index can be calculated through pay, supervision, co-workers, promotion and work itself (Junh, Dalessio & Johnson, 1986).
One HR practice utilised is managing group demography and organising social activities to create a team-based work environment (Dimacrco, 1975), which aims to build relationships between co-workers. This is beneficial to the employees as countless studies have proven that closer work friendships result in 50% higher employee satisfaction (Luca, 2018). Furthermore, those with a best friend at work are seven times more engaged and tend to have stronger mental resilience/decreased blood pressure (Dojo, 2015). Evidently, increasing one area of the Job Descriptive Index can contribute to a myriad of improvements to the employees’ health and happiness. Arguably, RBVs’ impact can be viewed as a win/win for employees and organisations alike, with happier workforces outperforming their competition by 20% (Bell, 2015).
However, after realising the value of their employees, some organisations have been so concerned with employee turnover, rather than encouraging employees to stay by increasing job satisfaction, they have chosen to make it more difficult for employees to leave. This can be achieved by focusing training and development on firm-specific skills to create an organisation full of high-level firm-specific human capital. This problem is arguably a direct result of the RBV theory as the requirement of the resource to be inimitable has led many to believe that human capital with general skills cannot be SCA. Dittman, Juris and Revsine (1979) support this arguing that human assets must have firm-specific skills, with specificity being a requirement, for them to become strategic assets (Amit & Shoemaker, 1993). The problem with exclusively investing in firm-specific skills is described best by Campbell, Coff and Kryscynski (2012:379):
‘…workers increase their value to their employers, without accompanying increases in their exchange value in the labor market…’
In practice, employees can be disadvantaged as they are either trapped in an organisation they no longer wish to work in or have to accept a reduced wage elsewhere. Some justify this as the employees have more job security within their current organisation (Becker,1964), although this assumes the employee wishes to stay. This, therefore, calls into question whether RBV has truly inspired HR practices that are beneficial to the employee’s working lives.
RBV – genuinely better-working lives?
It could be concluded that whilst the creation of RBV has contributed to better working lives, this improvement is a byproduct as opposed to the main objective. Ultimately, any theory that primarily views human beings as a resource, is inherently limited in its ability to genuinely better-working lives. This is not to say the resultant HR practices have not contributed to happier, healthier, and more satisfied employees, but recognises that the primary purpose of organisations is profit based. Cynically, it could therefore be deduced that these improvements in working lives only happened due to the subsequent improvements in firm performance. This leaves meaningful improvements to working lives vulnerable, as it suggests that such practices would stop if financial success was not a byproduct.
In conclusion, the RBV has significantly developed SHRM and practices. Many of these practices have improved the working lives of employees, however, these changes have not been wholly positive. It is therefore submitted that whilst RBV has contributed to better working lives, the connotations of ‘championing’ does not accurately reflect the nuanced reality of the practical implications. Want to know more about Human Resource Management, check out our Convergence vs Divergence blog.