An RBV of Human Resources and Competitive Advantage

Thus far, this chapter has established that, within an RBV of the firm, for a resource to qualify as a potential source of sustainable competitive advantage, the resource must add value to the firm, the resource must be rare or unique, the resource must be imperfectly imitable, and the resource cannot be substituted with another resource. Do human resources qualify as potential sources of sustainable competitive advantages?

Human resources add value to the firm: Most people would intuitively agree that human resources add value to the firm. Does this necessarily hold true? What does theory suggest? Firm-specific human-capital theory presents an explanation about the conditions under which human value creation is possible. Specifically, when the demand for labor is homogenous (i.e., individual employees are perfectly substitutable) and the supply for labor is also homogenous (i.e., all individual employees are seen as equal in their productive capacities), then there is no variance in the individual contributions to the firm and it is thus impossible to create value through human resources. Steffy and Maurer are of the opinion that the demand for labor is heterogeneous (i.e., different jobs require different skills) and the supply for labor is also heterogeneous (i.e., individuals possess different types and levels of skills), thereby arguing that human resources can add value to the firm.40

Human resources are rare: The RBV of the firm holds that human resources must be rare (or unique) in order to be viewed as a potential source of sustainable competitive advantage. With unemployment and underemployment at high levels, people would instinctively argue that there must be an excess of labor and that human resources are therefore not rare. Historically speaking, the scientific management paradigm has traditionally embraced the idea that firms need to focus on producing jobs that do not require employees with specialized skills. Therefore, within this mindset, the notion of special skills becomes largely irrelevant and employees are considered a commodity rather than a resource.

Assuming, however, that jobs do require specified skills and a variance in individual contributions, such rare, or unique, skills are distributed within the population. Therefore, human resources are believed to be a rare resource. Indeed, there are various measures on how to appraise the quality of human resources. Cognitive ability, for instance, is probably one of the most pervasive and consistent predictors of employee performance in firms.41 Thus, it has been concluded that firms with employees holding high levels of cognitive ability possess more quality human resources than those of rivals. Furthermore, since the total human resource (HR) pool is believed to be finite, firms that have a high level of cognitive ability among their employees have gained this resource at the expense of rivaling firms.42

Human resources are inimitable: For a resource to be considered a source of potential sustainable competitive advantage, it must be inimitable. Indeed, if the competitive advantage derived from having high-skilled employees could be copied, then human resources would not be a source of sustained competitive advantage. How can rivals imitate human resources? First, competitors must be able to identify the exact source of competitive advantage. In other words, the actual components would need to be known in order to be imitated. Second, the rivaling firm would need to be able to copy the actual components and the contexts under which these human resources operated. Interestingly, it has been pointed out that having the necessary skills among individual employees per se does not ensure that the firm has gained a sustainable competitive advantage. What is pivotal then is that employees must possess the skills and have the ability to exhibit the required behaviors to exercise those skills.43 A managerial implication in this discussion of resource inimitability is the notion of resource mobility. In certain countries, especially in the United States, human resources have historically been very mobile. However, employees are not perfectly mobile since there are sizeable transaction costs involved in moving individual employees.44 As such, if employees are indeed highly mobile (or perfectly mobile), rivaling firms would not need to imitate them since they could simply lure and hire them away. However, firms may not know exactly which employees provide a source of competitive advantage. Thus, firms would need to hire away entire teams or groups of individuals. This, however, would still not guarantee that the competitive advantage could be imitated as the human resources might be coupled to other resources (i.e., physical and organization resources) within the firm.45

Human resources are nonsubstitutable: Human resources must not have substitutes if they are to be a source of sustained competitive advantage. Human resources are believed to have the potential to avoid obsolescence and to be transferable across technologies, products, and markets.46 Ongoing training and development (T&D) among employees ensure that HR skills do not become obsolete. A brief study of human resources' practices reveals that cognitive ability is transferable across technologies, products, and services. A central element to this discussion is the question of whether or not technology has the potential for offsetting any competitive advantages that can be attributed to the utilization of human resources. It is probably safe to say that although technological changes have rendered certain technical skills obsolete, there is infinitely more to the inherent character of human resources than the technical elements that can be substituted. For any resource to replace human resources, it must be valuable, rare, inimitable, and nonsubstitutable. It appears that only human resources have the capacity to fulfill that requirement.