Trace The Development Of Strategic Human Resource Management From The Resource Based View Of The Firm

Trace The Development Of Strategic Human Resource Management From The Resource Based View Of The Firm

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Today, human resources are seen as "the available talents and energies of people who are available to an organization as potential contributors to the creation and realization of the organization's mission, vision, strategy and goals" (Jackson and Schuler, 2000, p. 37).There exist two models that seek to describe what strategy is and how an organization should develop such strategy. The first model known as the Industrial Organization (I/O) model is based on the assumption that firms competing in the same industries are homogenous and emphasizes the external environment as the basis for organizational decision making. The second model, called the Resource Based View contrasts the I/O model by assuming that individual firms are unique and composed of distinct bundle of resources. According to the resource based perspective, firms attempt to develop and exploit distinctive competencies based on the physical, organizational and human capital resources under their control. Eventually, these distinctive competencies may lead to sustainable competitive advantages and superior performance. The emphasis on human capital resources leads to understanding the role of strategic human resource management in gaining competitive advantage.
Wright and McMahan defined Strategic Human Resource Management (SHRM) as "the pattern of planned human resource deployments and activities intended to enable an organization to achieve its goals" (1992:298). This field moves away from traditional ‘personnel management' and heads toward the view that employees play an integral role in the development of an organization's competitive advantage and as such carefully planned HR initiatives should be implemented to increase their value to the firm. SHRM conceptualized with Walker's (1978) article, which highlighted the need for linkage between strategic planning and human resource planning. However, it originated with Devanna, Fombrum and Tichy's (1984) article which analyzed in great detail the link between business strategy and HR. The field of SHRM has enjoyed a remarkable ascendancy during the past two decades as both an academic literature and focus of management practice.
While RBV may not have contributed directly to this evolution of SHRM, it did play a major role in its development. The development of SHRM only initiated when HR researchers realized that RBV provided a compelling explanation as to why HR practices led to competitive advantage. RBV highlights the necessity of internal factors and resources as sources of competitive advantage and this conjecture catapulted the great importance of employees (human resource) to the forefront of HR theory. RBV has placed ‘people' on the HR map thereby justifying the concepts laid out by SHRM.

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This is supported by Barney's (1991) article discussing the basic theoretical model and conditions for sources of sustainable competitive advantage.
SHRM makes managing people top priority and assimilates all HR programs and policies into the company's strategy. RBV demonstrates how valuable resources that are neither perfectly imitable nor substitutable without great effort (Hoopes, 2003, p891; Barney, 1991, p117), can assist the firm in sustaining above average returns. Huselid (1995) argued that HR practices can help create a source of competitive advantage, if they are aligned with the firm's competitive strategy. Wright and colleagues (1994) applied the resource based approach of strategic management to examination of the role of human resources in developing competitive advantage. According to their model, individual HR practices can be easily copied by competitors. Therefore, competitive advantage is derived from a human capital pool (stock of employee skills) that contains the necessary skills and willingness, when it can add value and cannot be easily imitated or replaced. Firms select individuals who possess the compulsory skills to carry out a chosen strategy.
However, according to Penrose (1959), the advantage a firm achieves may not be due to the fact that it has better resources but because it makes better use of these resources than other firms. The firm may maximize the use of its human capital resources by correctly assigning workers to positions in which they have high productivity (Tomer, 1987). Mahoney and Pandian (1992), gave support to this by stating that a competitive advantage may be more readily obtained when a firm's human resources are effectively matched with its strategy. Lado and Wilson (1994) opposed Wright's declaration of imitability and proposed that HR systems can be unique, casually ambiguous and synergistic in how they boost firm's competencies. These systems with all the complementarities and interdependencies among the set of practices would be impossible to imitate. A contemporary view came from Lepak and Snell (1999) who emphasized that variance presented itself among the uniqueness and value of skills. They proposed that seeking one HR strategy may place the variety of human capital available to the firm in the background of strategy implementation. Research carried out by Boxall and Steenveld's (1999) might hint that HR systems are more easily imitated than previously thought. Also, extensive study has not been conducted to determine whether HR practices impact on organizational performance
Another issue of importance is the link between an organization's strategy and its human capital pool. Even though the executives and top managers of firms are responsible for decision making relevant to strategy development and implementation, the total human capital pool is involved in the actual production of the goods and provision of services. The total human capital pool is an important determinant of the success of those strategies (Wright et al.). According to Olian and Rynes (1984), it is reasonable to assume that the effectiveness of any given strategy is a function of the skills found within a firm's human capital pool.
From this, it can be said that an organization with a planned strategy will seek to recruit individuals who possess skills congruent with that strategy. However, Cappelli and Singh (1992) noted that situations might exist in which a firm does not possess the resources necessary to implement a preferred strategy. They questioned whether it is easier to rearrange or acquire resources to suit a choice of strategy or to rearrange the strategy to suit the resources. Lengnick-Hall and Lengnick Hall (1988) suggested that the traditional models of strategy imply that it is easier to adapt people to strategy than vice versa.
Advocates of the RBV posit that the firm's current resources influence managerial perceptions and strategic decisions (Mahoney & Panadian 1992). Wernerfelt (1989) argued that the resources of a firm limit the markets it can enter and the levels of profit it can expect. Thus, an organization may be unable to implement a desired strategic choice because its human resources are incompatible with the strategy (Barney, 1991: Wright et al., 1994). This information has led to the formulation of two propositions: 1) In some situations it may not be possible to hire employees with the suitable skills for a strategy and 2) When a firm cannot obtain or groom employees with the required skills, the firm will change its strategy to match the skills of its employees.
RBV also helped in the development of three basic SHRM components in which sustainable competitive advantage might be achieved. Firstly the skills, knowledge and abilities of the Human Capital Pool, must comply with the strategy of the firm. Secondly, competitive advantage can only be gained if Discretionary Behavior of the human capital pool benefits the firm. Finally, he People Management System is what influences the human capital pool and encourages the right employee behavior.
In order for RBV to be used as a basis for analyzing the theoretical developments and empirical relationships within SHRM, its criticisms must be noted. Priem and Butler (2001) made four key criticisms: "1) The RBV is tautological, or self-verifying. Barney has defined a competitive advantage as a value-creating strategy that is based on resources that are, among other characteristics, valuable (1991, p106). This reasoning is circular and therefore operationally invalid (Priem and Butler, 2001a, p31). 2) Different resource configurations can generate the same value for firms and thus would not be competitive advantage. 3) The role of product markets is underdeveloped in the argument. 4) The theory has limited prescriptive implications." Barney (2001), counter argued by saying that research on the RBV has failed to test its elementary concepts. According to him "the focus is on the performance implications of some internal attribute of a firm and is not really a direct test of the theory."
The RBV of the firm has long provided a core theoretical rationale for HR's potential role as a strategic asset in the firm (Wright and Mc Mahan 1992). The concept that organizations can achieve financial success based on valuable, imitable resources with competitive advantage building potential offers an important rationale for HR's strategic importance. This integration tends to focus on human capital and RBV's emphasis on strategic resources rather than the development of them. However, there is little evidence of the impact of this theoretical work on the empirical SHRM literature. The link between HR architecture and RBV concepts remains too abstract. However, RBV's influence has been instrumental in establishing a macro perspective in the field of HRM research (Snell et al). It also provided a theoretical framework for a field accused of being atheoretical. Despite the lack of empirical support, it has become the theory most popularly used within SHRM.
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