Development of the resource-based view
Moving away from models purely used to define Human Resources, let’s now look at a method of describing organisations that also greatly affects the theoretical underpinnings of HRM.
The resource-based view (RBV) of the firm has been established as one of the main approaches to strategy formulation for the development of sustainable competitive advantage.
In essence, it is a view of organisations as a collection of resources and it is the quality of these resources that define performance and competitiveness.
Proponents of the RBV (Penrose, 1959; Wernerfelt 1984) argue that it is the way in which resources – including human resources – are manipulated that give an organisation its uniqueness and sustainable competitive advantage. Advocates of the RBV within strategic HRM also argue that it helps us to understand the conditions under which human resources may become scarce, valuable, organisation-specific or difficult-to imitate. In other words, key strategic assets (Winter 1987; Barney and Wright 1998).
The RBV, therefore, recognises HR function and the employees themselves as key strategic players in developing and maintaining sustainable competitive advantage.
To gain a competitive advantage, a business must have a resource exhibiting four attributes:
- It must be Valuable in the sense that it exploits opportunities or neutralises threats
- It must be Rare amongst a firm’s current and potential competition
- It must be Imperfectly imitable
- It must be Non-substitutional, so there cannot be strategically equivalent substitutes for this resource that are valuable but neither rare nor imperfectly imitable
(Barney 1991: 105)
In 1995, in his later work, Looking Inside for Competitive Advantage, Barney introduced the VRIO framework, which was an improvement of the VRIN model. VRIO analysis stands for four questions that ask if a resource is:
- costly to Imitate?
- is a firm Organised to capture the value of the resources?
A resource or capability that meets all four requirements can bring sustained competitive advantage for a company.
Is it valuable?
Firstly, the framework asks if a resource adds value by enabling a firm to exploit opportunities or defend against threats. If the answer is yes, then a resource is considered valuable. Resources are also valuable if they help organisations to increase perceived customer value. This is done by increasing differentiation and/or decreasing the price of a product. The resources that cannot meet this condition lead to competitive disadvantage. It is important to continually review the value of the resources because constantly changing internal or external conditions can make them less valuable or even useless.
Is it rare?
Resources that can only be acquired by one or very few companies are considered rare. Rare and valuable resources grant temporary competitive advantage. When more than one company has the same resource or use a capability in a similar way, this results in competitive parity. This is because firms can use identical resources to implement the same strategies and no organisation can achieve superior performance.
A firm should not neglect the resources that are valuable but common. Losing valuable resources and capabilities would hurt an organisation because they are essential for staying in the market.
Is it costly to imitate?
A resource is costly to imitate if other organisations that don’t have it can’t imitate, buy or substitute it at a reasonable price. Imitation can occur in two ways: by directly imitating (duplicating) the resource or providing the comparable product/service (substituting).
A firm that has valuable, rare and costly-to-imitate resources can (but not necessarily will) achieve sustained competitive advantage. Barney (1991) has identified three reasons why resources can be hard to imitate:
- Historical conditions: resources that were developed due to historical events or over a long period are usually costly to imitate
- Causal ambiguity: companies can’t identify the particular resources that are the cause of competitive advantage
- Social complexity: the resources and capabilities that are based on a company’s culture or interpersonal relationships
Is it organised to capture value?
The resources themselves do not confer any advantage for a company if it’s not organised to capture the value from them. A firm must organise its management systems, processes, policies, organisational structure and culture to be able to fully realise the potential of its valuable, rare and costly-to-imitate resources and capabilities. Only then can companies achieve sustained competitive advantage.
If the staff have rare and not easily imitated skills, there is a need to nurture these talents and retain the intelligence and specialist skills of its workforce. The organisations need to ensure that they are organised so that they can capitalise on adding value, rarity and imitability. Coordinated and coherent HR policies and practices could enable employees to reach their potential (Guest 1987; Wright et al. 1996).
Can you identify any organisations that are attempting to exploit the rare characteristics of their employees, as a key source of their competitive advantage?
Barney, J. (1991) ‘Firm Resources and Sustained Competitive Advantage’. Journal of Management. 17 (1), 99-120
Barney, J.B., and Wright, P.M. (1998) ‘On Becoming a Strategic Partner: The Role of Human Resources in Gaining a Competitive Advantage’, Human Resource Management 37 (1), 31-46
Penrose, E.T. (1959) The Theory of the Growth of the Firm. 1st ed. Oxford: Basil Blackwell
Wernerfelt, B. (1984) ‘A Resource-based View of the Firm’. Strategic Management Journal. 5, 171–180
Winter, S. (1987) ‘Knowledge and Competence as Strategic Assets’. The Competitive Challenge. 159–184
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