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Title: How people in an organization can be source of competitive advantage and the role of HR functions in the process


The evaluation of the effectiveness of human resource functions in an organization is of increased emphasis in the contemporary world. Historically, human resource management functions were considered costly and expensive. Given that the money allocated for human resource activities was within the budget, then everything was assumed to be fine. However, the current outlook of human resource management in organizations has been view in changed light. Apparently human resource management functions can now be subcontracted or even outsourced to external stakeholders and therefore institutions are closely monitoring the actual cost incurred when in-house MRM functions are introduced.

Most organizations view HRM practice as competitive activities often apply their human resources in ways that generate a strong competitive advantage over other organizations. This perception creates an ideological concept (framework) that defines the roles of people in the organization and the way they are developed to create competitive advantage. Human resource management as a process takes two dimensions depending on the resources and the outlook of organizational structure of an institution. It can be an essential source of competitive advantage or it may not.

According to DeNisi (2003), today’s managers in organizations need to concentrate in three strategic level decision making: corporate strategy, business and functional. It is apparent that the three strategies have impact on human resource management functions and therefore a strategic approach is needed in order to use HRM practise as a source of competitive advantage. Activities like globalization, advance in technology and change in the nature of workforce and workforce diversity means that the organizational should be better.

Role of people and HR functions in enhancing competitive advantage

Intellectual capital and organizational learning theory

Intellectual capital has undertaken an extraordinary advance in the 21st century. Organizations at the moment are focusing on intellectual capital as a key in managing a rising difference between the organization’s market value and its book value. Use of intellectual capital framework enables to identify the value contribution of intangible assets (in this case people). Strategic perspective theory is subsidiary to intellectual capital it focuses on identification and valuation of core competencies that promotes competitive advantage.

Intellectual capital is classified into three; human capital, which focus on employees competences, skills and their capabilities in performing assigned roles, relationship capital, where the focus is on relationship with customers and stakeholders, and organizational capital, where the focus is on processes, system and structure. The three intellectual capital resources are acquired through organizational learning where human resource management functions play an important role in training and development of employees. The capabilities attained in the process (organizational learning) will improve the company’s value and therefore a sustainable competitive advantage is achieved.

Human capital can be very essential factor in creating sustainable competitive advantage since it is difficult to emulate by the competitors in the market (DeNisi, et al, 2003). The mobility of human capital may not necessarily raise the competitive advantage but rather, the complementary resource from HR functions is what develops and sustains competitive advantage. The theory of intellectual capital simply implies that HRM functions generate and implant knowledge and skills to individuals. This promotes social interaction that is later institutionalized and owned by an organization thus creating a sustainable competitive advantage.

Competitive advantage arises especially when the organization’s resources are valuable, not easily accessed by competitors and appropriate (Barney, 1995). Learning processes offered by HR practice leads to the improvement in human resource capacity (people), and this is the source of distinctive competencies within the organization that is hardly imitated. This knowledge management system offered by HR functions promotes propagation of knowledge within the organization’s individuals and departments thus creating sustainable advantage.

HR functions provide higher levels of human capital that enables high productivity of an organization compared to its competitors (Barney, 1991). For example, cognitive ability offered by HR functions allows employee to devise efficient method of performing tasks thus increasing production. This shows a strong linear connection between cognitive ability and employees’ job performance.

People (employees in the organization) play an important role of increasing capacity (effectiveness of skills and knowledge usage) to adapt to a dynamic and complex market environment. Normally, organizations are faced with dynamic environments which keep on changing, and functional subunits under HRM in the organizations often response to top management seeking effective decisions. Therefore, individuals in this case sense variables in the environment, develop strategic response to the variables and act as the platform of implementing these strategic decisions. This implies that a firm that possess effective pool of human resources have higher competitive advantage relative to the competitors with limited capability of workforce.

Specific aspects of human resources that promotes sustainable competitive advantage

Successful organizations often use training and development packages through HR practices to enhance organizational learning (Barney and Wright, 1998). Training and development programs normally focuses on updating employees with explicit knowledge of the current situations in the environment. Explicit knowledge may not serve as a platform of competitive advantage however, tacit knowledge normally contain subjective, personal or procedural capabilities which are hardly or not imitated at all. Therefore, this can be used to define superior competitive advantage of an organization over the others in the industry (Barney, 1991).

Research and development is a human resource element that serves to promote organization’s competitive advantage. The primary objective of research and development is to come up with new ideas relating to products and processes in the organization. The knowledge on the market activities integrated into the social capital provides success of training and development programs. To convert the knowledge into effective productivity needs appropriate procedure of integrating market concept with the ability of human capital. This simply means the process of training offered through HR practices exploits the potential of human capital existing and derive unique capability. This in turn leads to sustainable competitive advantage.

Employees need to be motivated and knowledgeable in order to contribute largely on the organization’s competitive advantage (Barney, 1998). This means that organization must continually invest on individual’s skills and knowledge, motivation as well as behaviour. It therefore unquestionable to be in HR system especially when high performance is achieved with the help of human resource functions. HRM functions do not only influence the behaviour of individuals in the organization but also turn employees into effective recourses of development which is a source of competitive advantage.

It is clear that through HRM activities, employees create competencies that promote higher competitive advantage. Furthermore, the competitive advantage may not be only based on people in the organization but also positive organizational climate and culture which influence positively the output of HRM functions (Barney and Wright, 1998). HR practices provide encouraging work climate where individuals can easily conjoins personal goals with those of organization, creates cohesion and ensures teamwork excellence. This would definitely lead to organizational success.

Consequently, the start point of value creation through human capital is from HT department (Barney and Wright, 1998). Since the contemporary business environment entrust employees as the major source of competitive advantage, organizations need to invest knowledgably on recruitment, selection, motivation, compensation and benefits procedures. These aspects may not contribute directly to the sustainable environment but they are agents of appropriate organizational culture and climate.

HRM practices on display

According to Barney and Wright (1998), the amount of time allocated for administrative functions by HRM practices is decreasing since the focus of its (HRM) functions is to be strategic partner, change agent as well as workers advocate. Apparently, human resource functions are shifting its current operations to strategic demands by preparing human resource managers to focus on extensive human resource practices. The concept of shared service model helps the organization in controlling costs and improves appropriateness of HR practices. For example, provision of centres of excellence such as training improves transactional tasks of the organization. Business partners are usually HR staffs who prepare employees to have strategic minds. At the end of the day creation of compensation plan will prepared high level achievers managers which will develop a competitive advantage.

Human resource practices have encouraged strong partnership between human resources and line managers where they combine to help the business achieve its objectives. For instance, in McDonald’s Corporation, two thirds of employees are located outside United States in the respective franchises. An issue with culture perhaps may be a big deal for the organization, but with flexibility of HR practices, HR functions are designed to fit the diverse cultural norms. In Brazil, McDonald decided to organize learning through interaction program in order to make people realize what kind of jobs they offer to individuals. This HR function serves two objectives at ago: creating sustainable competitive advantage and reaching offering products to customers in the segment.

On the other hand, not all organizations can successfully integrate HR practices and use it as a source of competitive advantage (Barney and Wright, 1998). This is because HR activities are characterized by complexity and ambiguity. If the HR practice base is not present in an organization, then the strategic planning cannot be determined by human resource capital from HR practice. For example, total quality management directly invest in human capital for effective delivery of products.

The focus on HR as a pool of intellectual capital means that any change of strategic activities would compromise the cost invested in human resource interventions. Traditional method, the costs associated with training and development of employees in HR is viewed as operating expense. HR in this case develops competitive advantage if implemented effectively, and this is reflected as investment in capital assets in a traditional method. The investment on human capital by HR functions has equal potential with the tradition system, and both can be referred as capital investment.

Organizations through human resource practice may outsource HR functions as recruiting. This streamlines the recruiting process by creating new job demands, interviews feedback and job offers generation among others. Looking on the tradition system of employee management, each department usually took care of employees’ problems and present before administration. Employee issues in traditionally were addressed immediately if they were directly connected to business. The point here is company value created by contemporary HR practice is creating sustainable advantage in the long run. However, it may cost time and money in the initial stages of embracing HRM processes in an organization unlike using the traditional method (Barney, 1991).

A Chief Executive Officer of VF Corporations, a world clothing enterprise knows that he needs money, strong brands and talent in order to enhance business growth. The main role of HR practise is to develop talent on about 1400 employees. This is very critical when it comes to coming up with the right talent that will be necessary to drive growth in the company. The big question is: What will HR functions do to ensure the right people with the right skills are executed for the business strategy? If at all inappropriate persons are recruited, the organization will not be in a position to achieve strategic objectives.

The argument, then, is that HR functions are key aspects in creating sustainable competitive advantage in the contemporary business environment. Today’s business environment is defined by successful innovations which are achieved by organizations through training and development programs. It is apparent that training and development are HR functions that need to be evaluated regularly to promote continuous value creation in employees. Just having human resources is not important for creation of sustainable competitive advantage. However, the process of aggregating human resource capital to the highest level of use is thus important, and this is achieved through embracing HR functions.

In conclusion, HR practice should be encouraged in organizations especially in the current complex environment. Human resource functions often focus on development and continuous improvement of capabilities of employees thus leading to development of a sustainable competitive advantage. An organization’s HR department should regularly experiment innovated ideas in the external environment and consolidate resourcefully within in order to acquire valuable knowledge. This will enhance outer acquisition of knowledge which will help an organization to develop better ways of doing things than others in the industry.


Barney , J. B. (1991). Firm resources and Sustained competitive advantage. Journal of Management, 17: 1, 9 9 -120

(1), 31-46.37 ,Human Resource Management Barney, J. B., & Wright, P. M. (1998). On Becoming A Strategic Partner: The Role Of Human Resources In Gaining Competitive Advantage.

DeNisi, A. S ., Hitt, M. A., and Jackson, S. E. (2003). The Knowledge Based Approach to Sustainable Competitive Advantage. New York: Ox ford University press.