Resource-Based View of the Firm

Most organizations recognize that a large budget and state-of-the-art facilities do not guarantee success. Success really depends on employees' motivations, competencies, and skills. The resource-based view of the firm describes how employees' motivations, competencies, and skills can help to create a sustained competitive advantage.

What Is the Resource-Based View of the Firm?

The resource-based view of the firm proposes that a company's resources and competencies can produce a sustained competitive advantage by creating value for customers by lowering costs, providing something of unique value, or some combination of the two. To create value, the hiring programs, policies, and practices of an organization must either lower the costs of the organization's products or services, enhance the differentiation of the organization's products or services in the eyes of customers, or both. To the extent that staffing influences who has the opportunity and desire to pursue an employment relationship with the organization, staffing serves as a gatekeeper in influencing the level and composition of an organization's talent. This can add value to the organization through employees' competency levels, experience, judgment, social relationships, and so on.

Human resources can be a source of competitive advantage because they meet the criteria for being a source of sustainable competitive advantage: they add value to the firm, are rare, cannot be imitated, and cannot easily be substituted with other things. Other companies cannot necessarily replicate another firm's capabilities just by imitating the competitor's HR practices.

The resource-based view of the firm focuses attention on the quality of the skills of a company's workforce at various levels, as well as on the quality of the motivational climate created by management. HR management is valued not only for its role in implementing a given competitive scenario but also for its role in generating strategic capability. Staffing has the potential to create organizations that are more intelligent and flexible than their competitors, and that exhibit superior levels of cooperation and performance.

Requirements of a Competitive Advantage

Peoples' efforts, talents, knowledge, and skills matter to organizations. If you don't believe this is true, then fire all of your organization's employees and replace them with cheaper workers. Few successful organizations would accept this challenge because they understand that their people are the key to their performance and survival. A competitive advantage is something that a company can do differently from its competitors that allows it to perform better, survive, and succeed in its industry. Sometimes an organization's competitive advantage is defined by its technology. Other times, innovative product lines, low-cost products, or excellent customer service drive competitive advantage. In every case, the company's employees create, enhance, or implement the company's competitive advantage.

How do people make a difference? At companies such as Microsoft and Google, key technology is devised, implemented, and updated by the people who create and use it. Employees at Apple Computer, Pfizer, and 3M create and sell new and innovative product lines. Employees identify and implement the systematic manufacturing system improvements that create low-cost, high-quality automobiles at Hyundai. Finally, customer service at Starbucks is all about employee-customer interactions and experiences. In every case, employees influence and implement key drivers of business success. From where do these employees come? It all begins with the staffing process.

Jay Barney identifies the five criteria (in Table 1) that a resource must meet to provide an organization with a sustainable competitive advantage.

Table 1. Requirements of a Competitive Advantage

1. It must be valuable to the firm by exploiting opportunities and/or neutralizing threats in an organization's environment.

2. It must be rare among the company's current and future competition.

3. It must not be easily imitated by other firms.

4. It must not be easily substituted or replaced with another resource.

5. The company must be organized to be able to exploit the resourc

Value

Staffing activities can create value for a firm because they can help it to exploit opportunities and/or neutralize threats. The return on staffing investments and the retention and performance of employees can be increased by rigorously evaluating the effectiveness of various staffing practices and targeting staffing activities to identify and attract the best types of applicants for the organization's needs. Providing applicants with realistic information about the job and organization can also help reduce subsequent turnover, reducing overall labor costs and improving productivity. Hiring people who do a better job for the same pay is also a way that staffing investments can create value.

The potential of strategic staffing to create value and a sustainable competitive advantage for an organization has been recognized by investors as well. An Ernst & Young study found that institutional investors are more likely to buy stock based on a company's ability to attract talent, suggesting that the quality of a company's staffing practices can differentiate it to investors. Staffing thus appears to meet the value requirement of creating a competitive advantage.

Rarity

Value creation alone is not enough to produce sustainable competitive advantage. For a company to outperform competitors, its staffing practices must also result in a set of rare workforce attributes. The ability to identify and attract rare talent varies across organizations. For example, some organizations such as Google and Costco are able to hire and retain the best talent at a greater rate than their competitors, distinguishing the competencies of their workforces. Because strategic staffing practices can increase an organization's ability to identify and attract rare talent, staffing meets the rarity requirement for providing a competitive advantage.

Inimitability

If an organization's strategic staffing practices are imitable or easily copied by a competitor, the organization's resulting talent will not be as differentiable from the talent of its competitors. The ability of competitors to copy an organization's staffing practices is determined by: the availability of unique attributes in the labor market; the ambiguity surrounding which staffing practices contribute to the acquisition of the valuable and rare employee characteristics; and the difficulty of replicating practices deeply embedded in social relationships, including recruiting networks and longstanding relationships with talent sources. The organization's unique history and the resulting organizational reputation and culture can also influence competitors' ability to copy...