Strategic HRM and sustained

competitive advantage

In this section of the book, we are concerned with concepts and models that
build bridges between strategic management and HRM. As Chapter 3 made
clear, contingency theory is important in this regard, especially when we locate
HR strategy within a more holistic, systemic understanding of business strat-
egy in which the various management disciplines, including marketing, HRM,
operations and finance, need to be integrated. The strategic HRM literature
is also heavily infused with a branch of strategic management known as the
resource-based view of the firm (RBV). Relating the RBV to the best-fit/best-
practice debate we have just been discussing, one might say that strategy
theorists who work with the RBV aim to discover how a firm can build an
exclusive form of fit. Fit is valuable and doing it better than others is clearly very
valuable. How might a firm develop, interrelate and manipulate its resources -
human and non-human - to become the best adapted, the most consistently
profitable of all firms in its industry, despite the efforts of other firms to emu-
late or undermine it? This is the nub of the debate in strategic management
around sustained competitive advantage. This chapter aims to explain what is
meant by the RBV, defining key concepts and exploring major models. In so
doing, it examines the ways in which HRM may help to lay a basis for sustained
advantage.

The resource-based viev^ of the firm: origins

and assumptions

The resource-based view is usually sourced to a remarkable book by a Uni-

versity of London Professor of Economics, Edith Penrose (1959). At the

97
time, texts on the economics of the firm were dominated by discussion of
equilibrium conditions under different forms of competition. The main
focus of these texts was on the relative merits of different types of market,
including 'perfect competition', oligopoly and monopoly. While valuable in
debates about market regidation, the traditional analysis ignored very impor-
tant issues inside the black box' of the firm's operations, leaving the study
of entrepreneurship and business management in a very rudimentary state
within the discipline of Economics.
Arguing that her interest was different from that of the standard texts on the
firm, Penrose set out to build a theory of the growth of firms. She made the
basic, but critical, obseryation that the firm is 'an administrative organization
and a collection of productive resources', distinguishing between 'physical' and
'human resources' (Penrose 1959: 31, 24).1 Her understanding of the qual-
ity of the firm s human resources placed heavy emphasis on the knowledge
and experience of the management team and their subjective interpretation
(or images ) of the firm's environment (showing an early grasp of the kind
of cognitive problems of strategic management discussed in Chapter 2). Her
analysis proceeded from what has become a fundamental premiss in the the-
ory of business strategy: firms are 'heterogeneous' (Penrose 1959: 74-8). As
Nelson (1991: 61) puts it, competition ('perfect' or otherwise) never entirely
eliminates 'differences among firms in the same line of business' and these
differences account for major performance variations.
Penrose s ideas lay dormant for some time. Her work was not brought
within the mainstream of strategic management theory until it was redis-
covered by Wernerfelt (1984) and then by a string of other strategy writers
from the late 1980s (see, for example, Dierickx and Cool 1989, Barney 1991,
Conner 1991, Grant 1991, Mahoney and Pandian 1992, Amit and Shoemaker
1993, Peteraf, 1993). The result has been an explosion of interest in the
resource-based perspective, focusing on the ways in which firms might build
unique clusters or 'bundles' of human and technical resources that generate
enviable levels of performance. Major reviews of the strategic management
literature now routinely recognise the RBV as a major body of thought con-
cerned with explaining sources of competitive advantage (see, for example,
Hoskisson, Hitt, Wan and Yiu lg99, Lockett, Thompson and Morgenstern
2009).
In effect, the growth of the RBV has provided a counterweight to the
marketing-oriented models of strategic management that were dominant in

In passing, we might note that Penrose was one of the first theorists to adopt the 'human
resources terminology.

98 Connecting strategy and HRM

the strategy textbooks of the 1980s. The best known of these models was
associated with the works of Michael Porter (1980, 1985), discussed in the
context ofbest-fit theory in Chapter 3. These models place greatest empha-
sis on critical choices associated with competitive strategy - primarily, choices
about which industry to enter and which competitive position to seek in it. In
so doing, these models make some fairly heroic assumptions (Boxall 1992,
1996). For example, they assume that the firm already has a clever leader-
ship team which can make these sorts of choices effectively. They assume
that the human resource issues that arise when particular paths are chosen,
such as hiring and motivating a capable workforce, are straightforward. They
assume that cidture change, when it might be needed to shift direction, is
also unproblematic. In contrast, it is exactly these sorts of people issues that
the resource-based view regards as strategic. In the RBV, the quality of the
management process and of the firm's workplace culture are seen as major
factors that explain enduring differences in business performance (Barney
1991,2000).
It can, however, be argued that the RBV is itself imbalanced, placing undue
emphasis on the internal side of the old SWOT acronym (strengths, weak-
nesses, opportunities, threats). In a response to criticism from resource-based
theorists, Michael Porter argues that 'resources are not valuable in and of
themselves, but because they allow firms to perform activities that create
advantages in particular markets' (Porter 1991: 108). Similarly, Miller and
Shamsie (1996: 520) argue that the RBV needs 'to consider the contexts within
which various kinds of resources will have the best influence on performance.
In a study of the Hollywood film studios from 1936 to 1965, they demonstrate
how knowledge-based resources (such as the exceptionally creative skills of
key writers and cinematographers, and big budget coordinating abilities) were
more valuable to the studios in the relatively uncertain and turbulent environ-
ment of the 1950s when the advent of television seriously afifected movie-going
habits. On the other hand, in the more stable conditions of the late 1930s
and the 1940s (movie-going was very popular before and during World War
II2), property-based resources (such as networks of theatres and long-term,
exclusive contracts with particular actors) were more valuable for studio per-
formance. In other words, the tyiman talents that helped the studios to think
and act outside the square' were indeed valuable when the context became less
predictable.

2 For example, some 90 miUion Americans went to the movies every week during World
War II. See [Link] accessed
26/5/10.

Strategic HRM and competitive advantage 99

 Internal analysis External analysis

Strengths Opportunities

r
Weaknesses
t
Threats

Resource-based models Positioning models

Figure 4.1 Internal and external dimensions of the strategic problem

Source-. Adapted from Barney (1991).

Wernerfelt (1984: 173) did recognise the interplay of resources and mar-
kets when he said there is a 'duality between products and resources'. In
other words, the strategic problem has both internal (strengths, weaknesses)
and external (opportunities, threats) dimensions (Figure 4.1). These dimen-
sions - what Baden-FuIler (1995) calls the 'inside-out' and the 'outside-in'
perspectives on the strategic problem - are interactive over tune. The point
is well-made. One should not get carried away with either external or inter-
nal perspectives: both are necessary for a sufficient view of a firm's strategy. It
seems safe, however, to suggest that what the resource-based perspective has
achieved is a re-balancing of the literature on strategy, reminding people of the
strategic significance of internal resources and their development over time.

Resources and barriers to imitation

What, then, are the basic definitions and concepts associated with the RBV? In
the resource-based perspective, resources are not simply understood as assets
in the formal accounting sense (which can be disclosed on a balance sheet)
but include any feature of the firm with value-a-eatmg properties (Hunt 1995:
322). This means that aspects of the business that are not formaUy owned by
it, such as the talents and interactions of the people who work in it, are not
ignored but come within the realm of analytical interest. Wernerfelt (1984:
172) defined resources in the following way:
»

By a resource is meant anything which could be thought of as a strength or weakness

of a given firm. More formally, a firm's resources at a given time could be defined
as those (tangible and intangible) assets which are tied semipermanently to the
firm. Examples of resources are: brand names, in-house knowledge of technology,
employment of skilled personnel, trade contacts, machinery, efficient procedures,
capital, etc.

100 Connecting strategy and HRM

 In an interesting study of chief executive opinion about the value of dif-
ferent kinds of resource, Hall (1993) found that CEOs rated the quality of
employee know-how and their firm's reputation with customers as their most
strategic assets. It is easy to see why the RBV is so attractive to human resource
specialists - here at last is a body of thought within strategic management in
which people issues figure prominently.
Clusters of resources, understood in this broader way, can be sources of
competitive advantage. Barney (1991, 2000), one of the most influential and
accessible theorists in the RBV school, distinguishes between a competitive
advantage which a firm presently enjoys, but which others will be able to copy,
and sustained competitive advantage, a characteristic which rivals find them-
selves unable to compete away, despite their best efforts. In his conception,
resources are valuable when they enable the firm to take advantage of mar-
ket opportunities or deal particiilarly well with market Areats in a way that
competitors are not currently able to. The task is to manage these valuable
resources in such a way that rivals are frustrated in their efforts to imitate or
out-flank them.
Using some fairly awkward terminology, RBV theorists are interested in the
conditions that make desirable resources 'inimitable' and 'non-substitutable'
(Barney 1991). What can be done to ensure others do not simply imi-
tate or copy a firm's strengths or find ways of substituting for them
that achieve the same ends? The key characteristics of desirable resources,
then, are that they are valuable and inimitable (with inimitability covering
both direct and indirect forms of copying) (Hoopes, Madsen and Walker
2003).
As CofF (1997, 1999) and others point out (for example, Grant 1991,
Kamoche 1996), it is important to add 'appropriability' to this list of traits.
Not only must the firm be able to generate and defend sources of high perfor-
mance3, but the RBV assumes that the firm is able to capture the benefits for
its shareholders. This is easier said than done because the firm is a network
of stakeholders. Some stakeholders, such as senior executives, have access to
the kind of information and power which can enlarge their share of the firm's
bounty. Where they are concentrated m a small geographical area, such as the
City of London or Wall Streefthe result can be quite extreme competition
for very high bonus payments in millions of pounds or dollars. Qualities of
desirable resources are shown in Box 4.1.

In the RBV literature, high financial performance is often described as 'rent', an

old-fashioned term in Economics for profits above the normal level in competitive
markets.

Strategic HRM and competitive advantage 101

 Box 4.1 Qualities of desirable resources

. Valuable: capable of delivering superior competitive resiilts

. Inimitable: very hard to imitate or copy, either directly or indirecdy
. Appropriable: capable of benefiting the firm's shareholders.

Having defined these sorts of desirable traits, Barney (1991) notes that
such resources are not immune to 'Schumpeterian shocks'. The great Austrian
economist, Joseph Schumpeter, referred to the propensity for capitalism to
generate 'gales of creative destruction' - radical breakthroughs which disturb
technologies or basic concepts of business (Schumpeter 1950). In the trans-
portation sector, for example, inventions such as railroads, automobiles, and
airplanes have had enormous impacts on the ways of providing transport that
preceded them. We are currently living through a time when computerisation,
telecommunications and the internet are making a major impact across var-
ious industries. The vast majority of firms cannot insulate themselves from
such radical trends but there is scope for firms to differentiate themselves in
ways which are relatively sustainable in a given competitive context.
The issue is one of how management might build valuable, firm-specific
characteristics and 'barriers to imitation' (Reed and DeFillippi 1990, Rumelt
1987), which make it hard for others to copy or invalidate what the successful
firm is doing. What, then, are the key barriers to imitation noted by resource-
based theorists?

Unique timing and learning

Models proposed in the RBV typically place emphasis on the way that histor-
ical learning acts as a barrier to newcomers and slower rivals. Theorists cite
the value to firms of unique historical conditions (Barney 1991: 107), 'first-
mover advantages (Wernerfelt 1984: 173) and path dependency" (Leonard
1998: 35). They argue that valuable, specialised resources (sometimes called
asset specificity) are developed over time through opportimities that do not
repeat themselves (or not in quite the same way). Competitive success does
not come simply from making choices in the present (as positioning models of
strategic management seem to imply) but stems from building up distinctive
capabilities at critical junctures and over considerable periods of time.
In simple terms, RBV theorists argue that a sense of time and place matters:
if you are not there at the time things are happening, you cannot expect to
be successful. Others will take up the unique learning opportunity. As Woody

102 Connecting strategy and HRM

 AUen once quipped, 'eighty percent of success is just showing up'. Shakespeare
expressed the same sentiment in a famous line from Julius Caesar: there
is a tide in the affairs of men, which taken at the flood, leads on to for-
tune. In other words, you have to be there when the tide is turning and
seize your opportunity at the best moment. This could be at a time when a
new technology is being developed, a new market is being opened up, or a
new management methodology is being developed. If you are there at such
moments, you can build business experience, important connections or com-
plex know-how ahead of others. There is now good evidence, for example,
using a data set that spans a 24-year period, that those British firms that first
learnt to integrate the HR and operational practices needed to support 'lean
manufacturing' have outperformed later adopters in terms of productivity
(de Menezes, Wood and Gelade 2010).
The special value of timing and learning is widely understood in the busi-
ness community. The difficulty of securing a firm's presence in an area where it
has no experience is often a reason for take-overs. Directors affirms often feel
they cannot make a mark in a new industry (or a new region) without buy-
ing an established player who has built up the necessary client base, employee
skills and operating systems. The international accounting firms very often
expanded this way in the 1970s and 1980s, taking over much smaller, but
well regarded, firms around the world. The small firms thus absorbed pro-
vided important political connections, a pool of appropriately qualified staff
and a weU-established client base. NaturaUy, the owners of these firms also
benefited enormously from the historical learning of the international firm,
gaining access, for example, to special audit techniques, management consult-
ing methodologies, and training systems developed at considerable expense
elsewhere.

Social complexity
The phenomenon of historical learning or 'paA dependence' is intimately
linked to a second barrier to imitation - 'social complexity' (Barney 1991,
Wright, McMahan and McWilliams 1994). As firms grow, they inevitably
become characterised by complex patterns of teamwork and coordination,
both inside and outside the firm. As we emphasised in Chapter 1, successful
firms become strong clusters of'human and social capital' (Lovas and Ghoshal
2000: 883). Productive work communities, such as outstanding schools and
universities, take time to build and are inherently complex systems. The net-
work of these internal and external connections is a kind of natural barrier to
imitation by rivals, a prime reason why firms in some industries try to recruit

Strategic HRM and competitive advantage 103

an entire team of employees. Loss of all or most of an outstanding team of
staff can decimate an organisation's reputation. Something like this happened
in 1957 when eight scientists and engineers working on the development of the
silicon chip resigned from the Shockley Semiconductor Laboratory, a research
and development company led by the Nobel laureate physicist. Bill Shockley:
Their mass departure cut the productive heart out of the laboratory, leav-
ing behind a carcass of men working.. .on the four-layer diode project plus
a bunch ofaimless technicians and secretaries' (Riordan and Hoddeson 1997:
252). The group left to form Fairchild Semiconductor. The rest, as they say, is
history.
Mueller's (1996) discussion of'resource mobility barriers' is one that places
strong emphasis on socially complex attributes of firms. Mueller argues that
sustained advantage stems from hard-to-imitate routines deeply embedded in
a firm's 'social architecture' (Mueller 1996: 774). By contrast, he sees little
enduring value accruing to the firm from top management's codified policy
positions (which are easily imitated because of their public visibility). Indeed,
he (1996:771,777) implies that litde value is created by those senior managers
who are highly mobile:

Corporate prosperity not seldom rests in the social architecture that has emerged
incrementally over time, and might often predate the tenure of current senior
management... The social architecture is created and re-created not only or even
primarUy at senior management levels in the organization, but at other levels too,
including at workgroup level on the shopfloor.

According to Mueller, outstanding organisational value is more likely to

come from persistent, patient management processes that, over time, encour-
age skill formation and powerful forms of cooperation deep within the
firm. A key factor in here must be the quality of the motivational incen-
tives inside firms that foster skiU-building and cooperation. As Gottschalg
and Zollo (2007) argue, many forms of competitive advantage depend
on strong interest alignment between companies and critical groups of
employees.

Causal ambiguity
A third type of resource barrier noted in the RBV literature - causal ambi-
guity - is more controversial. As with social complexity, ambiguity about the
cause/effect relationships involved in the firm's performance is an inevitable

104 Connecting strategy and HRM

outcome of firm growth (Barney 1991, Reed and DeFillippi 1990). It can
take some time to figure why an established firm has become successful and
to discern how successful it really is. There is no doubt that firms wanting
to acquire other firms should be very careful in the 'due diligence' process
that precedes (or ought to precede) the purchase of another business. There
are inevitably elements of ambiguity about a firm's performance, as there are
about the performance of individuals and teams.
Havmg said this, it is likely that causal ambiguity is over-rated as a bar-
rier to imitation (McWilliams and Smart 1995). Human rationality is always
bounded, as was noted in Chapter 2, but if one pushes the notion of causal
ambiguity too far, management is virtually meaningless, as is theory (Priem
and Butler 2001). The 'paradox of causal ambiguit/ has been explored by
a study in two US industries: textiles and hospitals (King and Zeithaml
2001). This study examined the way senior and middle managers perceive the
competencies of their organisations and their links to competitive advantage.
Interestingly, the study was one in which chief executives were very keen to
participate (which is quite unusual given 'survey fatigue' among managers in
the USA). It involved finding out how other members of their senior team
and a cross-section of middle managers understood the firm's resources and
their impacts. CEOs were interviewed and the other managers selected in the
17 firms were surveyed (with very high response rates). The study contains
evidence that high-performing firms benefit from building consensus across
management levels about the resources that enable them to out-perform
rivals. An understanding of the key competencies and the most important
links among them ought to be high. This does not mean, however, that all
the micro aspects of particular competencies will be transparent because there
is always some degree of ambiguity embedded in organisational culture and
employee know-how. As we explore further below, 'tacit knowledge' is always
present in organisations.
The findings of this study are consistent with the arguments of advocates
of the 'balanced scorecard' (Kaplan and Norton 1996,2001,2004,2006) who
claim that, given enough effort, it must be possible within business units to
evolve a broad theory of how the business works or might work better (see
Chapter 11). Not only this, but the benefits of having agreement about where
we are going and how we can get there must be more valuable than con-
fusion and working at cross-purposes! It seems, therefore, that while causal
ambiguity will always be present to some degree, it is likely to be a less impor-
tant barrier to imitation than the processes of historical learning and social
interaction that characterise established firms.

Strategic HRM and competitive advantage 105

 Competencies, 'table stakes' and dynamic
learning

The discussion so far might convince us that the RBV contains some impor-
tant insights but leave us wondering what we can do about it. How can all this
talk of valuable resources and barriers to imitation be made useful?
One of the more popular frameworks is associated with the work ofHamel
and Prahalad (1993, 1994). They argue that competitive advantage, over the
long term, stems from building 'core competencies' in a firm which are supe-
rior to those of rivals. Their notion of core competence is very close to the
concept of 'distinctive competence' discussed in the older strategy texts as
something that the firm does particularly well. Their definitions of the term
(shown in Box 4.2) place strong emphasis on analysing a firm's collective skills:
skiUs found in the complex teamwork embedded in the firm.
The writings of Hamel and Prahalad are important for leaders of
multidivisional firms (discussed in Chapter 10). CEOs and directors of these
firms are encouraged to identify the underlying clusters of know-how in their
companies that transcend the artificial divisions of 'strategic business units' -
or which might do so, if they were appropriately managed. Sony's 'unrelenting
pursuit of leadership in miniaturization' - manifesting itself in various prod-
ucts over time - is one of Hamel and Prahalad's standard examples (Hamel
and Prahalad 1994: 119). Another example, offered by Goold et al. (1994)is
that of Canon which has deliberately sought to integrate development engi-
neers in different strands of the business to exploit fibre-optic technology.

Box 4.2 Hamel and Prahalad's notion of 'core competence'

A 'core competence':
. is a bundle of skills and technologies that enables a company to
provide particular benefits to customers
. is not product specific
. represents... the sum of learning across individual skill sets and
individual organization^ units
. must... be competitively unique
. is not an 'asset' in Ae accounting sense of the word
. represents a 'broad opportunity arena' or gateway to the future'.
Source: Excerpted from Hamel and Prahalad (1994: 217-28).

106 Connecting strategy and HRM

Hamel and Prahalad (1994) argue that companies which make the effort to
understand their core competencies (and envision the core competencies they
ought to build) are much less likely to get left with outdated products or miss
important new applications of a knowledge base. In effect, their work is an
argument for developing a 'knowledge-based', rather than a product-based,
understanding of the firm. This might be a simple distinction to make but
it suggests quite a profound change in the way corporate directors review
company strengths and analyse their strategic opportunities.
A similar analysis is advanced by Leonard (1998) who uses the word 'capa-
bility' instead of 'competence' (but is concerned with the same idea). Her
framework helps executives to identify the distinctive or 'core capabilities'
underpinning their products or services. Core capabilities are 'knowledge sets'
composed of four dimensions: the 'content' dimensions which include the
relevant employee skills and knowledge and technical systems, and the pro-
cess dimensions which include managerial systems, and values and norms
(Box 4.3). Her framework is perhaps the most helpful in terms of spelling
out the HR implications. This is because managerial systems include the crit-
ical HR practices needed to recruit, develop and motivate employees with
the relevant skills and aptitudes (Leonard 1998: 19). Employee development
and incentive systems are a key part of her notion of core capability. She
also emphasises the interlocking, systemic nature of the four dimensions
and the resulting tendency of core capabilities to become 'core rigidities'
over time, unless firms learn to practise continuous renewal. According to
Leonard (1998: 30), every strength is also simultaneously a weakness. The
recognition that firms can also have weaknesses or 'distinctive inadequa-
cies' is an aspect of the RBV that ought to be given greater attention (West
and DeCastro 2001). Some weaknesses can result from having 'too much of
a good thing', as Leonard implies, while others can simply be 'bad things'
(such as not developing sufficient skills in environmental analysis and change
management).

Box 4.3 The four dimensions of a 'core capability'

1. Employee knowledge and slcill: This dimension is the most obvious
one.

2. Physical technical systems: But technological competence accumulates

not only in the heads of people; it also accumulates in the physi-
cal systems that they build over time - databases, machinery, and
software programs.

Strategic HRM and competitive advantage 107

 Box 4.3 (Continued)

3. Managerial systems: The accumidation of employee knowledge is

guided and monitored by the company's systems of education,
rewards, and incentives. These managerial systems - particularly
incentive structures - create the channels through which knowl-
edge is accessed and flows; they also set up barriers to undesired
knowledge-creation activities.
4. Values and norms: These determine what kinds of knowledge are
sought and nurtured, what kinds ofknowledge-building activities are
tolerated and encouraged. These are systems of caste and status, ritu-
als of behavior, and passionate beliefs associated with various kinds of
technological knowledge that are as rigid and complex as those asso-
dated with religion. Therefore, values serve as knowledge-screening
and -control mechanisms.

Source: Reprinted by permission of Harvard Business School Press. From

Leonard, D, Welkprings of Knowledge: Building and Sustaining the Sources oflnno-
vation, p. 19. © 1998 Harvard Business School Publishing Corporation. All rights
reserved.

In oudining her model of how firms might develop outstanding capabilities,

Leonard (1998: 5-16) discusses the interesting case ofChaparral Steel, a very
successful US 'minimiU'. While only the tenth largest steel producer in the USA
at the time of this study, Chaparral enjoyed a reputation as a world leader in
productivity (1998:6):

in 1990, its 1.5 person-hours per rolled ton of steel compared to a US average of
5.3, a Japanese average of 5.6, and a German average of 5.7. Chaparral was the first
American steel company (and only the second company outside of Japan at the
time) to be awarded the right to use the Japanese Industrial Standard certification
on its general structural steel products.

With strong values and incentives supporting the creation of new knowledge,
Chaparral employees have pdshed the company's equipment well beyond its
original specifications (1998: II):

The rolling mill equipment its vendor beUeved [was] limited to 8-inch slabs is
turning out 14-inch slabs, and the vendor has tried to buy back the redesign.
The two electric arc furnaces, designed originally to melt annual rates of 250,000

108 Connecting strategy and HRM

 and 500,000 tons of scrap metal, now produce over 600,000 and 1 million tons,
respectively.

Leonard (1998: 15-16) explains how Chaparral has achieved these results
through building an 'interdependent system' of employee skills and technical
systems supported by HR policies, practices and cultural values:

Chaparral's skills, physical systems, learning activities, values and managerial

philosophies and practices are obviously highly interdependent. Competitively
advantageous equipment can be designed and constantly improved only if the
workforce is highly skilled. Continuous education is attractive only if employees
are carefully selected for their willingness to learn. Sending workers throughout the
world to garner ideas is cost-effective only if they are empowered to apply what they
have learned to production problems.

Leonard s model, therefore, places emphasis on the fact that cleverly devel-
oped systems of this kind - where the parts do reinforce each other in powerful
ways - are very hard to imitate. This is certainly the view within Chaparral.
Leonard (1998: 7) notes that the CEO is happy to give visitors a fuU plant
tour, showing them almost 'everything and... giving away nothing because
they cannot take it home with them'. This kind of story lends some support to
the argument made earlier that even if we have a good understanding of why a
firm is successful (low 'causal ambiguity'), the unique path that company has
travelled and the social complexity this brings remain significant barriers to
imitation.

Table stakes' and distinctive capabilities

While sources of valuable differentiation are very important in the RBV, it is
worth injecting a note of caution here. A problem with some writing in the
RBV is the tendency of authors to focus only on sources of idiosyncrasy, thus
exaggerating differences between firms in the same industry. As we argued in
Chapters 2 and 3, aU viable firms in an industry need some similar resources in
order to establish their identity in the minds of customers and to help secure
legitimacy in broader society (Carrell and Hannan 1995, Deephouse 1999,
Peterafand Shanley 1997). For example, retail banks must act like retail banks
(having the requisite information technology and the typical range of services,
such as the capacity for speedy cash withdrawals through ATMs and a suite
of account services through internet and phone banking). They must inspire
confidence in the banking public and satisfy investors and regulators that they

Strategic HRM and competitive advantage 109

 Supplemental capability ) ( Enabling capability

Low High

Figure 4.2 Strategic importance of capabilities to the firm

Source-. Reprinted by permission of Harvard Business School Press. From Leonard, D., Wellsprings of
Knowkdge: Building and Sustaining the Sources of Innovation, p. 4. © 1998 Harvard Business School
Publishing Corporation. All rights reserved.

can behave as responsible repositories and lenders of funds. Without these

baseline features, banks lack recognition in their industry and legitimacy in
their wider society, as was graphically illustrated in the failures of many banks
in the global financial crisis of 2008-9.
Some writers in the RBV are so focused on the firm that they do not recog-
nise these wider connections. However, it is a strength of the frameworks
outlined here that the authors do see the importance of table stakes' (Hamel
and Prahalad 1994) or 'enabling capabilities' (Leonard 1998). These are fea-
tures of the business which enable participation in the industry but which do
not make the firm distinctive or account for superior performance.
Leonard (1998) makes useful distinctions among three kinds of capabilities:
core (which are superior and cannot be easily imitated), supplemental (which
add value to core capabilities but can be easUy copied) and enabling (which are
necessary conditions of being in the industry). These distinctions are shown
in Figure 4.2. Both Leonard (1998) and Hamel and Prahalad (1994) note the
dynamic nature of capabUities: over time, one company s distinctive or core
capability (such as outstanding quality) tends to be emulated by other firms.
It then becomes part of the table stakes in the industry and firms that seek
superior performance must search for other ways to differentiate themselves.
Hamel and Prahalad (1994: 232) note this dynamic in a case most of us can
attest to - that of automobile manufacturing:

in the 1970s and 1980s quality, as measured by defects per vehicle, was undoubt-
edly a core competence for Japanese car companies. Superior reliability was an
important value element for'customers and a genuine differentiator for Japanese
car producers. It took more than a decade for Western car companies to close
the quality gap with their Japanese competitors, but by the mid-1990s quality,
in terms of initial defects per vehicle, has become a prerequisite for every car
maker. There is a dynamic at work here that is common to other industries. Over
long periods of time, what was once a core competence may become a base-line
capability.

110 Connecting strategy and HRM

 From an HR perspective, table stakes' or 'enabling capabilities' include
the minimum HR policies and practices required by each firm to play the
competitive game (including similar types of work organisation and employ-
ment conditions) (Boxall and Steeneveld 1999, Boxall and Purcell 2000). The
types of minimal HR investment needed inevitably vary by industry or, more
accurately, strategic groups or customer segments within industries, as we
explained in Chapter 3. The key point is that viable firms in a particular indus-
try we partially rather than totally idiosyncratic. Valuable resources, therefore,
include some elements in common with other firms in the industry and some
differences.

Competitive dyiiaimsm: the role ofkiiowledge anc

organisational learning
Standing back from the commentary so far, it should be clear that the man-
agement of knowledge plays a key role in resource-based models of the firm.
For Hamel and Prahalad (1994), building a focus on knowledge management
is much more important than the historical focus of Western firms on product
management. For Leonard (1998), understanding the wellsprings ofknowl-
edge is the key issue in the long-run renewal of the firm. On a practical level,
a lot of interest in the area is directed towards models of knowledge manage-
ment, of how to identify, protect and enlarge a firms intellectual capital' (see,
for example, Edvinsson and Malone 1997, Stewart 1998).
The RBV, therefore, encourages researchers to focus on knowledge and its
creation and exploitation within firms (Grant 1991, Hoskisson et al. 1999).
How to build the organisation s capacity for learning or its dynamic capa-
bility becomes the fundamental issue (Teece, Pisano and Shuen 1997, Helfat
and Peteraf 2003). Some go so far as to talk of a knowledge-based view'
(KBV) of the firm (for example. Grant 1996) but we think this is generally
unwise: knowledge is extremely important to organisational success but access
to money, properties and natural resources also continue to be vital. In an
energy-strapped world, for example, companies that can access cheap and
plentiful energy sources are definitely at an advantage.
Where the KBV comes into it» own is in those companies where the
knowledge and brain-power of employees is the only substantial source of
competitive advantage (Kinnie et al. 2006). These are 'professional service
companies' in such industries as consultancy practice, media, law and IT. They
own very few assets in terms of natural resources and property yet often have
a very high market value, like Microsoft. In these firms, professionally quali-
fied employees often have distinctive needs concerned with multiple identities.

Strategic HRM and competitive advantage 111

Do they, or indeed should they, identify with their employer, their major client,
their team or their profession (Swart 2007)? The assumption of the KBV is that
the firm is able to leverage this professional knowledge and intellectual capi-
tal in a unique way that others cannot copy, to gain competitive advantage
and appropriate value. However, rival firms wUl seek to poach talented staff,
often forcing up pay, thus challenging the level of appropriation. And manag-
ing talent is not just about pay: it includes ensuring that professionals work
on stretching assignments with other talented colleagues in project teams at
the forefront of their profession. This, in turn, will have a strong influence on
the business strategy of these knowledge-intensive firms since the need to keep
talented staff drives the search for innovative and creative work.
It is clearly important that we build an analysis in which we are able to
explain why some firms are better at learning and renewal than others. Why
do some firms have greater dynamic capability? A large part of the answer
must be associated with the people involved and with how they are managed.

HR strategy, competitive parity

and sustained advantage

It should be obvious, therefore, that resource-based models of strategic man-

agement are replete with references to the human dimensions of resources.
A major part of any firm s strengths - and weaknesses - does stem from the
calibre of the people employed and the quality of their working relationships.
At the most elementary level, the resource-based view of the firm provides
a conceptual basis, if we were ever in any doubt about the matter, for asserting
that human resources can be competitively valuable. Taxonomies of valu-
able resources always incorporate an important category for 'human capital'
(Barney 1991,2000) or 'employee know-how' (Hall 1993) and resource-based
theorists stress the value of the complex interrelationships between the firm's
human resources and its other resources: physical, financial, legal, informa-
tional and so on (for example, Penrose 1959, Grant 1991, Mueller 1996). This
much is self-evident: as we emphasised in Chapter 2, a firm is a system ofinter-
connected parts and the firm^ human resources form a necessary, though not
a sufficient, part of this system.
But this does not get us very far. The key questions raised by the RBV
are twofold: what is it that can be valuable about human resources and
how might a firm develop and defend these sources of value? Identifying
what is most valuable and protecting it with 'barriers to imitation' is at the
heart of resource-based thmking. It helps to remember that the value of

112 Connecting strategy and HRM

human resources can range from forms of human and social capital that are
competitively superior, enabling a firm to .build and sustain advantages,
through to those which are inferior, which actually undermine competi-
tive performance. Outdated skills, excessive levels of employee turnover, and
conflict-prone industrial relations are examples of the latter. In between, there
are human resources that are competitively neutral or indifferent. As we noted
in Chapter 2, all firms need a relevant set of human resources to be viable, in
order simply to survive or attain 'competitive parity'. These are competitively
valuable but they do not contain the kind of exceptional qualities that help the
firm to outperform its competitors.
At a deeper level, then, what has value in HRM? We can certainly rule out
the value of formal policy positions in HRM (what top management says the
firm should do in managing work and people). These can simply be run off a
photocopier or downloaded ft-om the internet. As Mueller (1996) argues, it is
hard to see any distinctive and inimitable value in policy positions per se. For-
mal policy statements are, at best, competitively neutral. Furthermore, because
they are a set of promises, they actually carry a level of risk: they can turn
bad in terms of value. If there are major disconnections between senior man-
agement's espoused HR policies and the actual HR practices enacted by line
managers, this can be a source of competitive Asadvantage (Purcell 1999).
There is always a danger that gaps between management rhetorics and work-
place reality will destroy competitive value through undermining employee
trust and commitment (Legge 1995, 2005, Grant 1999), as we shall explain
further in Chapters 7 and 8.
Since people vary in their capabilities and cannot work for all firms at once,
Wright et al. (1994) argue that we are more likely to find value residing in the
human resources themselves, in the human capital pool. Human capital is the
quality of the individual human talent recruited to the firm and retained m it.
All firms need certain kinds of individual talent relevant to implementing the
organisation s mission and, if they wish to survive over the long run, capable of
helping the organisation to adapt to change or, better still, lead it (Boxall and
Steeneveld 1999). Firms which recruit and retain exceptional individuals have
the possibility of generating, human capital advantage' (BoxaU 1996,1998).
Why can individuals be so valuable? The answer lies in Polanyi's (1962) clas-
sic distinction between 'tacit' and 'explicit' (or 'articulated') knowledge. Tacit
knowledge is 'nonverbalized or even nonverbalizable, intuitive' while explicit
or articulated knowledge is 'specified either verbally or in writing, computer
programs, patents, drawings or the like' (Hedlund 1994: 75). Table 4.1 illus-
trates this distinction with examples across four levels of analysis, starting
with the individual and moving up to the 'inter-organizational' domain. The

Strategic HRM and competitive advantage 113

 Table 4.1 Types of knowledge

Type Individual Group Organisation Inter-organisational

domain

Explicit Knowing A quality circle's Organisation A supplier's patents

knowkdge calculus documented chart and documented
analysis of its practices
performance
Tacit Cross-cultural Team Corporate Customer attitudes
knowledge negotiation coordination in culture to products and
skills complex work expectations

Source: Adapted from Hedlund (1994: 75).

distinction helps to explain why firms are vulnerable to certain kinds of labour
turnover (Coff 1997, 1999). They can never entirely capture what individuals
know. Some of what and whom we know - including many of our best skills -
cannot be reduced to writing or to formulas. When we leave the firm, we take
our job know-how and networking knowledge with us. No two individuals are
exactly alike and the differences are particularly noticeable in high-skill jobs:
as job complexity increases, so does the range of human performance (Hunter,
Schmidt and Judiesch 1990). When whole teams of highly talented individuals
leave, as was noted earlier in a case from the semiconductor industry, the effect
can be devastating.
Moreover, individual human capital is embedded in a social context. The
quality of social capital - of human relationships in the firm and with its
environment - plays a major role in whether or not firms make outstanding
returns from their human capital (see, for example, Ghoshal and Nahapiet
1998, Swart and Kinnie 2003, Collins and Smith 2006). In other words,
firms need organisational process or social capital advantages if they are
to realise the potential of human capital (Boxall 1996, 1998). This type of
advantage is a function of historically evolved, complex processes such as
team-based learning, and high levels of trust and cooperation, both between
management and labour and among co-workers, processes which are very
difficult to imitate. Both humay capital and social capital can generate excep-
tional value but they are likely to do so much more powerfully when they
reinforce each other. Kay (1993) refers to this as the 'passing game', nicely
indicating that teams may have highly talented individuals but their capac-
ity and willingness to play together is vital if they are to achieve outstanding
results. Thus, we can say that human resource advantage (HRA) is a prod-
uct of highly talented people (human capital advantage) and an exceptional

114 Connecting strategy and HRM

working environment (organisational process advantage). In mathematical
notation:

HRA=f(HCA,OPA)

But does the resource-based view imply that all employee groups in a firm
generate outstanding value? In a nutshell, no: it suggests that there are some
critical, core' workers in all firms, while other individuals are less critical or
more peripheral (Purcell 1999). As we explained in Chapter 1, some forms of
human resource advantage depend more on an elite group of employees than
they do on excellence throughout the workforce. Lepak and Snell (1999,2007)
have picked up on this aspect of the RBV, and related economic theories, in
developing what they call an HR architectural perspective' (Figure 4.3). This
framework utilises two dimensions: the extent to which the particular form
of human capital represents a valuable resource for the firm and the extent to
which it is unique or firm specific. This leads to four types of HR system that
fit different sets of human resources.
Lepak and Snell argue that firms need a commitment-oriented HR system
for employees whose skills are critical to a firm's core or distinctive capabilities
(quadrant 1). Firms should invest heavUy in the motivation, empowerment
and development of those who hold vital knowledge. Thus, when workers are

Externalised Internalised

4. Alliance partners 1. Knowledge

High
(Idiosyncratic employees ?
knowledge) (Core knowledge) I"

Collaborative HR Commitment-based HR

Uniqueness
3. Contract workers 2. Job-based
(Ancillary knowledge) employees
(Compulsory
j
Compliance-based HR knowledge)

Productivity-based HR §
Low

-Strategic
Low value High

Figure 4.3 Lepak and Snell's 'HR architectural perspective'

Source: Adapted from Lepak, D. and Snell, S., 'Employment sub-systems and the "HR architecture"'.
In Boxall, P., Purcell, J. and Wright, P. (eds) The Oxford Handbook of Human Resource Management.
Oxford: Oxford University Press. © 2007 By permission of Oxford University Press.

Strategic HKM and competitive advantage 115

perceived as especially valuable to the firm's strategy, the question of how to
defend them turns on adopting HR systems which enhance their motivation
and retention in the firm. In their analysis of the role of HRM in competi-
tive advantage, Gottschalg and Zollo (2007) underline this point, arguing that
firms need the kmd of motivational resources that will build strong interest
alignment with these types of critical workers. Their model incorporates both
intrinsic and extrinsic motivators. The former relate to the extent to which
people find their work enjoyable and the degree to which they commit to
the company's values and norms while the latter includes rewards such as
pay and promotion. Protecting special human resources depends on creat-
ing a positive motivational climate and low rates of employee turnover within
this core group of workers. The relationship is much more of a long-term,
relational kind than a short-term 'transactional' kind (Rousseau 1995). How-
ever, firms can adopt a more productivity-based approach to those, such as
accounting staff, whose work is valuable in the labour market but not unique
(quadrant 2). This means hiring people who can be productive quickly and
rewarding them on a more short-term, results-oriented basis. Those whose
skills are low in value and generic are prime candidates for contracting out
(quadrant 3) while individuals whose skills may be 'unique in some way
but not directly instrumental for creating customer value' (Lepak and Snell
1999: 40), such as a firm's attorneys, are likely to be engaged in some form of
longer-term alliance (quadrant 4).
This model, then, offers a way of helping firms to distinguish which types of
HR system are appropriate for which kinds of human capital. Implementing
it is not always easy, however. The debate around who should be considered
core in a particular firm has both cognitive and political elements. In real-
ity, managers make different interpretations, as illustrated in the bottled gas
market in the UK in the mid 1990s (PurceU 1996). British Oxygen was a
long established player in the market with a dominant share. Air Products
was a relatively new entrant but with lots of experience in the USA. In 1992,
British Oxygen needed to improve delivery, cut costs and get customers to
trade up where possible. They had a large existing distribution fleet. Painful
negotiations with the drivers' union led to new hours of working, wider job
responsibilities including customer relations, more training, and cab-based
information technology. Drivers became seen as key staff in direct contact
with customers. At the same time, Air Products decided to outsource dis-
tribution to a specialist haulage contractor. There was no expectation here
that drivers would know anything about gas beyond safety considerations. In
the case of British Oxygen, drivers were considered a core part of the firm
because they always had been, not because they had typically shown distinctive

116 Connecting strategy and HRM

organisational knowledge or skills. Indeed, this knowledge of the customer
and the level of skill relating to gas systems had to be developed once the
decision was made to give them customer relations' responsibilities. A simi-
lar case in New Zealand involved the privatisation of gas companies. Meters
in domestic properties need to be read, but company managers had to pon-
der the difficult question: are meter readers just 'data harvesters' (carrying out
single-task jobs suitable for outsourcing) or are they front-line customer ser-
vice representatives, who should be trained, and retained, as employees (Peel
and BoxaU 2005)?
In practice, firms come up with different answers. Some decide that the
core should be broadly based and then design the jobs and the employment
relationship to fit these core attributes, as in the case of British Oxygen. This
seems very explicable: 'many activities in firms... are so taken for granted or
so strongly endorsed by the firm's prevailing culture and power structure that
decision-makers no longer even question the appropriateness or the ratio-
nality of these activities' (Oliver 1997: 700). To put it another way, the costs
of change, both financial and moral (social legitimacy), can be too high. It
can be difficult to overdy differentiate between types of workers within the
same organisation, especially where people share the same site and have strong
emotional ties.
Baron and Kreps (1999: 460) suggest subtiy different criteria in choosing
whether to externalise certain jobs or manage them internally that can help
with this difficult decision making. First, they suggest that 'the degree to which
the task is strategically important for the firm, that is, whether it is a 'core
competence' is critical. Here, they are on the same ground as Lepak and SneU
(1999) with their emphasis on 'strategic value'. However, Baron and Kreps's
second criterion is not the uniqueness of the skiU involved but 'the degree
to which the activity displays high technical or social interdependence with
tasks done by regular employees' (Baron and Kreps 1999: 460). In this regard,
Purcell, Purcell and Tailby (2004) studied a call centre where the failure to
appreciate the social interdependences of staff - in conditions in which agency
'temps' worked alongside permanent staff- led to escalating labour turnover
among both temps and experienced staff.
The real extent of interdependence between employee groups in the work
unit is a very important variable that managers should consider before
any kind of restructuring. Boxall (1998: 268) makes a distinction between
inner- and outer-core workforces. The 'inner core... provides the "adaptive
capacity" of the firm while the outer core provides it with "credible opera-
tional capacity"'. One cannot operate effectively without both capabilities. In
Chapters 6 and 8, we draw attention to the firm as a social entity, a community

Strategic HRM and competitive advantage 117

in which management may try to develop a distinctive culture. Too much dif-
ferentiation between core and periphery can damage the creation of a sense
of community through challenging perceptions of fairness. For example, in
2005, an American company in the UK established an employee forum for
the first time. One of the first items raised was the fact that management and
professional staff were given free health insurance but other staff members
were not. This was deemed unfair and at odds with the compan/s aspira-
tion to be 'an employer of choice' and its emphasis on togetherness (that is,
social interdependency). Free health insurance was subsequendy extended to
all employees.
Despite the point we make here, issues ofcost-effectiveness inevitably come
into play, as we have seen since the late 1990s in corporate decisions to out-
source or offshore large parts of manufacturing and services. Location on a
separate site, and performance of technically different tasks from those in
the home base, means that both social and technical interdependencies can
be minimised. Outsourced sites, especially those offshored to third-world
countries, can quickly become 'out of sight and out of mind. As Lepak and
Snell (2007) recognise, many firms now locate operating workers in countries
with lower labour costs. In Chapter 1, we considered the case of the British
manufacturer, Dyson, which has done exacdy this, ofFshoring its assembly
operations to Malaysia. The intention in these situations might be to treat
these workers as core resources employed within the firm but management is
doing so within a much lower cost structure or is using either a sub-contractor
or an alliance partner (quadrant 3 or 4 in Figure 4.3) who does this. The crit-
ical core in the firm is thus defined even more sparingly, as the firm's senior
executives and the R&D, marketing and other specialists it still employs in its
home-country head office.
Leaving aside these labour cost issues, which we will explore in Chapter 5, a
key implication of the argument so far must be that carefully enacted Hi? 575-
tems can be sources of superior and hard-to-imitate value. Arguably, the scarce
and hard-to-imitate value stems from the historically developed, socially com-
plex elements, including the way in which these have formed a variety of
important connections over time. Thus, while knowledge of individual HR
policies is not rare, the knowledge of how to build and customise appro-
priate HR systems and create a positively reinforcing blend of HR systems
within a particular context is likely to be very rare. The value is greater when
these astute HR decisions are complemented by a mbc of other intangible
and tangible assets: senior management commitment, consistent line manager
support for critical HR practices over significant time periods, adequate finan-
cial resourcing, up-to-date technology, sympathetic management accounting

118 Connecting strategy and HRM

systems, and so on (Boxall 1998, 2003). A commitment-oriented HR strategy,
which Lepak and Snell (1999, 2007) argue firms need for their core workforce,
depends on a sympathetic social context within the firm (Collins and Smith
2006). We take this argument further in Chapters 8 and 9 in our discussion
of the 'mediators' between HR systems and company performance and in our
discussion of the role of HR strategy across cycles of change in industries.
In summary, human resource strategy, supported by other sympathetic
elements, can enable a firm to build sources of sustained competitive advan-
tage. In any industry, there are likely to be particular firms in which human
resource advantage' has contributed to this level of success. The evidence dis-
cussed by Leonard (1998) certainly implies that Chaparral Steel had built an
extensive kind of human resource advantage throughout its workforce, which
underpinned outstanding performance in its industry, at least for a reasonable
period of time.4 On the other hand, many forms of competitive advantage
hinge more on non-human resources. There are, for example, multidivisional
companies achieving high success through skilful financial and outsourcing
strategies, as we will explain in Chapter 10. There is no doubt that this depends
on the expertise and networks of an elite group of highly skilled executives and
specialists but it is not likely to require superior human resources throughout
all parts of the company or all of its business units, some of which are only
held temporarily and then spun off to other owners. Some element of human
resource advantage is clearly desirable for all companies in the long run but
the location and extent of this special resource is variable.
Before moving on, let us recall again that there is a problem with thinking
about resources only at the level of the firm. Clusters of valuable resources
occur at both industry and societal levels. Industry clusters can benefit all
firms through providing a skilled labour pool and netivorking connections
across the supply chain, one of the reasons why Dyson found it attractive to
locate in Malaysia, as noted in Chapter 1. In addition, countries provide vari-
able resources of infrastructure, politico-economic systems, social order and
so on. Some firms have a 'head start' in international competition because
they are located in societies which have much better educational and techni-
cal infrastructure than others (Porter 1990, Boxall 1995). American, Japanese,
German, British and French firiqs, for example, are all assisted by the existence
oflong-established traditions of excellence in higher education which enhance

4 Since Leonard's (1998) study, Chaparral Steel became the second largest producer of
structural steel products in the USA and was bought in 2007 by Gerdau Ameristeel Cor-
poration for $4.2 billion or $86 per share: [Link]
20601087&sid=aP4iRhmtbjmY&refer=home, accessed 24/3/10

Strategic HRM and competitive advantage 119

the knowledge-creating capacities of business organizations. The point here is
that the potential to develop competitive advantage through human resources
does not lie solely in the hands of managers within individual firms.

Conclusions

The resource-based perspective is an important lens for understanding how

firms might build competitive advantage. It focuses on the ways in which they
can develop valuable resources and erect barriers to imitation of them, so that
a superior performance is maintained despite the best efforts of other firms
to copy (that is, imitate), or outHank (that is, substitute for), the resources
that underpin it. Shareholders benefit when they enjoy better returns from
these resources, meaning that the returns are not entirely appropriated by the
bargaining activities ofwell-placed managers and other critical employees.
Resources are valuable when they enable a firm to be successful in its cho-
sen markets, either helping it to grasp competitive opportunities or to counter
threats. This includes much more than the type of assets, such as property
and cash, that are easily valued in a company's accounts: it includes the more
intangible, less-easily valued resources such as a firm's reputation with its cus-
tomers, its unique production know-how, and the quality of its employees'
skills and commitment. RBV theory argues that such resources are built up
through astute timing and learning and accumulate in the social complexity
that grows as teams of people work together. These can be strong barriers to
imitation by other firms, although all resources can be undermined through
major, Schumpeterian shocks to an industry or economy. Some element of
causal ambiguity is always going to be present in a firm, and can also be a bar-
rier to imitation, but if ambiguity implies confusion and a lack of managerial
consensus about how to improve the business, this is usually a bad thing for
company performance.
As the name itself implies, the resource-based perspective presents an
account of strategic management that is richly laced with human resource
issues. This is seen in the emphasis on identifying the firm's core or distinctive
capabilities, which are inevitably linked to its managerial leadership abilities
and its employees' skills. It is seen in the interest in knowledge management
and organizational learning. When we take a resource-based perspective on
the strategic problem, questions of human resource strategy are going to loom
large. A firm's human resource strategy is needed to support its competitive
survival or parity but it can also help add exceptional value or destroy it. There
is little value to be had in formal HR policies or in highly mobile, 'hit-and-run'

120 Connecting strategy and HRM

managers. In fact, major disjunctures between managerial promises and real-
ities in HRM can undermine employee trust and commitment, contributing
to competitive disadvantage. A heritage of conflict-prone industrial relations
almost always destroys value through alienating customers. On the positive
side, a central issue is how to enhance the motivation and development of
those individuals whose contribution is core to the firm's mission. Defining
who is 'core' is not easy, however. Is it the whole workforce, certain parts of
it or a much smaller elite? In answering this question, there are technical and
social interdependencies in firms that benefit from careful handling. A second
key question is how to build the kind of organisational processes that enable
individuals to function effectively or, better still, exceptionally well. What kind
of development activities, and what kind of motivational climate, will bring
out the best in individuals, moulding them into a high-performing team? It
is the interaction of the firm's individual talents (its human capital) with the
quality of its collective working environment (its social capital) that is likely
to create most value. This means much more than adopting particular HR
practices: it is a much more systemic and contextualised question, in which
HR models and other systemic features, such as senior management commit-
ment, consistent line-manager implementation, and suitable financing of HR
investments, aU need to play an appropriate part.
The reader will not be surprised that we regard this line of analysis as
extremely important. Our exploration of the resource-based view continues
in various parts of the rest of the book. We aim, however, to build on the RBV
while staying alert to its [Link] must avoid getting carried away with
the notion of idiosyncrasy or heterogeneity. To be sure, all firms are somewhat
different and superior firms have valuable differences from others but all firms
in an industry or strategic group need a similar resource profile ('table stakes)
in order to identify their line of business and to meet typical customer expec-
tations. The RBV, like most of the strategy literature, can become too absorbed
with the firm as the unit of analysis, failing to recognise that firms are embed-
ded in a wider context. Competitive resources vary in quality across industries
and nations and this variability affects the strengths that firms are capable of
building. For example, educational institutions are much stronger in some
societies than in others and the knowledge and graduates they produce help
to regenerate the research and development capabilities affirms.

Strategic HRM and competitive advantage 121