The HR function –
the Competitive Advantage
Whilst top mangers might cite the human resources function within their organisation as one of its most important assets their actions can sometime show otherwise.
When an organisation needs to cut costs they often look first to the investments they are making in training, marketing, wages and headcounts.
Some of the problem lies in the fact that HR executives can struggle to explain how they can influence the competitive advantage of the business by helping to improve the value of the human capital within the organisation.
To correctly identify the value of an organisations human capital and the ability of its HR department to assist in achieving a sustainable competitive advantage four questions need to be asked. These questions centre on the four principles of Value, Rareness, Imitability, and Organisation or what is referred to as the VRIO framework (Barney, 1995).
The Question of Value
The HR function needs to aid in decreasing costs or increasing revenues.
Examples of this for organisations are in its ability to harness the economic advantages of Preferred Supplier Agreements with recruitment companies and training organisations.
Research has consistently shown that when an organisation invests in its peoples development it translates into higher revenue realised.
The Question of Rareness
The HR function needs to be able to develop and exploit rare characteristics of its organisations human resources.
A HR department needs to understand the unique skills that exist within a homogenous business team and provide incentives to encourage grow of these skills. For example a skilled technical business analyst may be able to rotate their focus to provide insightful market intelligence for the business to gain a competitive advantage.
The Question of Imitability
HR executives need to attempt to develop and nurture characteristics of the organisations human resources that cannot easily be imitated by competitors.
For example Woolworths Limited entered a phase a number of years ago where most of the Senior Management Team had been employees of the company when it was close to collapse in the 80’s. Through providing guidance and motivation and the teachings of what they learnt during this unique time in their organisations history to their younger colleagues they were all able to make better decisions that prevented them from re-entering this phase something their competitors could not easily avoid.
The Question of Organisation
HR executives to be successful must be in a position to exploit the resource.
Recent work on HR practices and company performance seems to indicate that HR
practices are maximally effective when they exist as a coherent system. (Wright-Barnaby 1998).
The important implication of the VRIO framework is the understanding that when a HR department manages the organisations human capital to drive competitive advantage it increases its own internal brand value.
If you are in charge of an HR department then we are help with your VRIO.