Resource-Based View and Strategic Human Resource System Design

Introduction to the Resource-Based View

Eric D. Brown (2007) argues that most organizations do not place sufficient focus on human capital management as a component of competitive advantage. In order for an organization to succeed in any market, it must create value for its clients. This value can be created through a new strategy, new technology, or some other mechanism, but in order to sustain that value — and the competitive advantage it brings — organizations must develop and maintain an engaged, knowledgeable, and creative workforce.

Brown (2007) explains that the Resource-Based View (RBV) suggests that the method by which resources are applied within a firm can create a competitive advantage. According to Brown, drawing on Mata et al. (1995), there are two primary assumptions underlying RBV:

1) Resource diversity (heterogeneity): If a firm owns a resource or capability that is also owned by numerous competing firms, then that resource cannot provide a competitive advantage.

2) Resource immobility: This refers to a resource that is difficult to obtain by competitors because the cost of developing, acquiring, or using that resource is prohibitively high. (Brown, 2007)

An example of resource diversity can be seen when a firm contemplates implementing a new information technology product believed to offer a competitive advantage — but only if no other competitors possess the same functionality. If competing firms have similar functionality, "then this new IT product doesn't pass the 'resource diversity' test and therefore doesn't provide a competitive advantage" (Brown, 2007).

Brown (2007) argues that these two assumptions "can be used to determine whether an organization is able to create a sustainable competitive advantage by providing a framework for determining whether a process or technology provides a real advantage over the marketplace." The resource-based view further suggests that "an organization's human capital management practices can contribute significantly to sustaining competitive advantage by creating specific knowledge, skills, and culture within the firm that are difficult to imitate" (Brown, 2007). Through the creation of resource diversity and resource immobility, sustainable competitive advantage can be created and maintained.

RBV Foundations: Assumptions and Competitive Advantage

For an organization to create human capital resource diversity and immobility, it must have adequate human capital management practices, as well as sufficient organizational processes, knowledge management practices and systems, educational opportunities of both formal and informal natures, and social interaction practices.

The Resource-Based View of the firm holds as its main independent constructs the assets, capabilities, and resources of the firm. Barney and Penrose (2008) state that RBV argues that firms possess resources, a subset of which enables them to achieve competitive advantage, and a further subset of which leads to superior long-term performance. Resources that are valuable and rare can lead to the creation of competitive advantage, and that advantage can be sustained over longer time periods to the extent that the firm is able to protect against resource imitation, transfer, or substitution (Barney and Penrose, 2008).

Morris, Snell, and Wright (2005), writing on international human resource management, note that various theoretical approaches have been applied in the study of IHRM, and that it is unsurprising that RBV "has emerged as perhaps the predominant perspective." RBV is particularly attractive to IHRM researchers because it focuses directly on the potential value of a firm's internal asset stocks for conceiving and executing various strategies. This represents a departure from traditional industrial-organization (I/O) economic models of competitive advantage, which focus on the structure of markets as the primary determinant of firm performance (Morris, Snell, and Wright, 2005).

In contrast to those models, RBV rests on two core assumptions: (1) resources are distributed heterogeneously across firms, and (2) resources remain imperfectly mobile over time (Morris, Snell, and Wright, 2005). Because these asset stocks are unequal, there is a potential for comparative advantage. When resources are also immobile, that advantage may be difficult for rivals to appropriate or imitate, creating a sustainable competitive position.

Geisler (2007), in "The Metrics of Knowledge: Mechanisms for Preserving the Value of Managerial Knowledge," identifies a gap in RBV research regarding socialization, tutoring, mentoring, and continuous reporting — all of which are necessary to reduce the loss of critical organizational knowledge. Because knowledge is "fundamentally a cognitive phenomenon, these mechanisms emphasize the sharing of knowledge by experienced with less experienced managers" (Geisler, 2007). Organizations that neglect these practices risk losing irreplaceable human capital assets.