96 B. Schneider, M.G. Ehrhart, and W.H. Macey

A Funny Thing Happened on the Way tothe Future: The Focus on OrganizationalCompetitive Advantage Lost Out

BENJAMIN SCHNEIDERValtera Corporation

MARK G. EHRHARTSan Diego State University

WILLIAM H. MACEYValtera Corporation

We agree with and heartily endorse Ploy-hart’s (2012) elegant and insightful pleafor research that contributes to the psy-chological underpinnings of organizationalcompetitive advantage. It is clear to usthat the organizational focus in our workhas been severely lacking. Thus, reveal-ing how an individual will perform betterthan another in a company or how a teamexceeds safety performance standards betterthan another in a company do NOT revealanything about organizational competitiveadvantage. The rule, as Ployhart intimates,is this: When differences within a companyare revealed, whether those differences areamong individuals, teams, branches, orregions, we have learned nothing aboutorganizational competitive advantage. It isonly when we reveal differences betweenorganizations that we can discuss competi-tive advantage.

Ployhart also makes the point that weseem to care more about competitiveadvantage than the research we actually dowould suggest. By implication this meansthat we collectively accept the principle that

Correspondence concerning this article should beaddressed to Benjamin Schneider.E-mail: bschneider@valtera.com

Address: Valtera, 1363 Caminito Floreo, Suite G,La Jolla, CA 92037

if differences between individuals accountfor differences in performance, then thosedifferences aggregate to create competitiveadvantage. He proposes that a focus onaggregate strategically relevant knowledge,skills, abilities, and other characteristics(KSAOs) is the way to understand com-petitive advantage from a human capitalperspective. In what follows we present thenotion that a focus on strategically rele-vant KSAOs is incomplete because it is also(note the emphasis on also) the policies andpractices that characterize organizations’approaches to human capital managementthat foster competitive advantage.

It is helpful to put our approach in ahistorical context, one which is reflectedin our choice of title for this commen-tary. In a recent chapter, we (Schneider,Ehrhart, & Macey, 2011) presented a historyof the study of organizational psychologyas background to a history of organiza-tional climate. In that history, we revealedthat in fact the early research and writingin organizational psychology were explic-itly about competitive advantage. The levelof analysis of all the great organizationalpsychology scholars of the late 1950s andearly 1960s was clearly the organizationand the people in them. The goal of thesescholars was to reveal why an organiza-tion was more successful than others as

Competitive advantage 97

a function of the manner in which humancapital was managed. Argyris (1957) arguedconvincingly that the few organizations inwhich employees were permitted to expe-rience psychological success while work-ing were the same organizations that werecompetitively superior. McGregor’s (1960)Human Side of Enterprise had a similargenesis, focusing in on the management ofthe company and how different manage-rial cosmologies across companies resultedin more or less effective organizations; hisconcern was with the macro relationshipsbetween workers and management. Likert’smain thesis in his 1961 book New Patternsof Management (and in the 1967 update)was that a focus on individual workers asa means for understanding organizationalperformance was not useful. He arguedrepeatedly that the social issues workersconfront and the way they are handled(especially through participation in deci-sion making) is the key to understandingthe foundation for organizational successfrom a human resources vantage point: ‘‘formany variables related to the performanceof any organization, analyses reflecting thesituation for groups yield clearer and moresignificant differences than analyses dealingwith only the measurements for individu-als’’ (Likert, 1967, p. 38).

These three early and influential scholarsarguably form the very foundation for mod-ern organizational psychology. For presentpurposes, their important legacy is theemphasis on the ‘‘O’’ part of I–O; the man-agerial practices and policies (‘‘climate’’)instituted in and by organizations requireattention if competitive advantage is tobe achieved. This begs the question: Withsuch great early emphasis on organizationalperformance and competitive advantage,where did industrial–organizational (I–O)psychology lose its way to the future withus just now, thanks to writings like thoseof Ployhart in this issue, rejuvenating afocus on the importance of organizationaland not just individual effectiveness? Wesee two major explanations for the lack ofresearch on competitive advantage, or anykind of research at the organizational level

of analysis, in I–O: (a) the implicit beliefthat hiring new employees through the useof validated selection procedures yields notonly superior organizational performancebut competitive advantage as well; and(b) the field is rooted in the individual dif-ferences tradition that has persisted to thisday. We briefly discuss each of these inturn.

The Implicit Belief That HiringSuperior People Will YieldCompetitive Advantage

Every personnel selection researcher andpractitioner fundamentally believes that thehiring of talent with appropriate KSAOs todo specific jobs is the key to organizationalsuccess even though, as Ployhart has soclearly articulated, validated selection pro-cedures used to hire people to do specificjobs in a company may enhance overall per-formance on those jobs, but this does nothave anything to say about organizationalcompetitive advantage. This implicit beliefin the consequences of approaches fromtraditional I–O psychology has severelyheld back progress toward the actual studyof competitive advantage, and the lack ofprogress has been both in academics andin practice. In the former case, it wasnot until researchers in human resourcesmanagement showed that effective HRpractices might be reflected in competi-tive advantage (e.g., Huselid, 1995) thatwe gained appreciation for how strategichuman resources might actually work—andthat research was not done by I–O psy-chologists. In the case of I–O psychologypractitioners, for many years in industry wewere treated as important but not when itcame to understanding organizational per-formance and competitive advantage. Thiswas true because the evidence simply didnot exist—and for the most part still doesnot exist—that using validated selectionprocedures produces organizational differ-ences relevant for competitive advantage.

Ployhart’s major argument is that ifthe KSAOs tested for measure the KSAOsstrategically required by the organization,

98 B. Schneider, M.G. Ehrhart, and W.H. Macey

then competitive advantage will likelyfollow. We agree with this point but wefurther believe that this is only one stepon the road to competitive advantagefrom a human capital perspective. Theother very necessary step relates backto our history of the ‘‘O’’ part of I–Oreviewed earlier; the managerial practicesand policies (‘‘climate’’) instituted in and byorganizations also require attention.

It is very important that this conclusionbe understood as we wish it to beunderstood. First, we are proposing thatKSAOs required for strategic effectivenessby organizations be identified and thatthey be tested for when making hiringdecisions in addition to testing for thoseKSAOs required for performance on specificjobs. The relevant competitive marketplacefor an organization needs to be carefullyspecified in order to produce specificationof the KSAOs that need assessment. Thus,as Ployhart notes, when Company A testsfor the same generic KSAOs as CompanyB, this will not likely produce competitiveadvantage in the marketplace.

Second—in keeping with the emphasesof Argyris, McGregor, and Likert—it is notsufficient for companies to test for KSAOsthat might yield competitive advantage intheir markets; they must also attend tothe strategic climates in which people willwork. We use the term ‘‘strategic’’ climatebecause it is not just any situation that willyield competitive advantage but it is thecreation and maintenance of a strategicallyappropriate climate for people at workthat will yield competitive advantage.Thus, just as it is important to focus onstrategically relevant KSAOs to achievecompetitive advantage, situations must alsobe strategically designed in ways thatyield not only competitive advantage butthat are difficult to imitate by others. Forexample, the research on organizationalclimate clearly shows that companieswith superior strategically relevant serviceclimates achieve competitive advantage byhaving both more satisfied customers andsuperior financial performance (Schneider,Macey, Lee, & Young, 2009).

Why a strategic climate results in com-petitive advantage is clear by looking atthe four characteristics of inimitability sum-marized by Ployhart. First and probablyforemost is the issue of resource inter-connectedness. A strategic climate is builtthrough the combination of multiple actions(multiple policies, practices, and proce-dures) that create a gestalt for employeesthat a particular strategy is valued by and apriority for management. A single practicewill not do this; it is only when a host ofpractices are bundled together that a strate-gic climate results. With regard to socialcomplexity, part of the value of a strategicclimate is that it yields a common perspec-tive for employees and acts as a kind of gluein the coordination of their common goals.Thus, Mayer, Ehrhart, and Schneider (2009)found service climate was positively relatedto customer satisfaction most significantlywhen employee interdependence was high.The third element, causal ambiguity is rele-vant because the tactics for the creation of astrategic climate are ambiguous and difficultto identify precisely because it is a bundle ofmultiple policies, practices, and proceduresthat create the gestalt that is climate, not asingle cause. The fourth element is pathdependency, and it suggests that a strategicclimate cannot be built overnight. In fact,when organizations do try to take shortcutsin building a strategic climate, they are oftenmet with cynicism and doubt from employ-ees. It takes time to build a strategic climate,with individual practices building on eachother, all communicating a common mes-sage about the organization’s strategic goalor goals.

Third, we are proposing joint main effectsfor aggregate KSAOs and the situationon organizational performance, not aninteraction. For example, as shown inFigure 1, a selection predictor of servicequality performance may have the samevalidity in Company A as in Company B andboth companies may use the same cut-offsfor hiring, but Company A achieves a higherlevel of average service quality performancethan Company B. How can this be? It canbe because Company A has policies and

Competitive advantage 99

Positive serviceclimate

Usual serviceclimate

Predictor KSAO

Serv

ice

Perf

orm

ance

Figure 1. How climate may influence cor-porate performance differences.Note. Oxford Handbook of PersonnelSelection edited by Schmitt (2012). Fig. 2from Chp. ‘‘The social and organizationalcontext for personnel selection” by RobertPloyhart and Benjamin Schneider. Bypermission of Oxford University Press.

practices (i.e., service climate) that yieldincreased levels of service behavior forthose hired; competitive advantage follows(Schneider et al., 2009). Note that thismeans there is a positive main effect fororganizational policies and practices onthe aggregate levels of service behavior inCompany A compared to Company B. And,as the intercepts on the performance axisare where the differences lie, there is nomoderator involved.

A misreading of what Lewin said hasresulted in a myth that the way per-son and situational attributes combine isthrough a quantitative interaction. WhatLewin (1935, p. 73) said was this: ‘‘Froma certain total constellation—comprising asituation and an individual—there resultsa certain behavior, i.e., B = f (P,E).’’ Theform of the combination is not specifiedand can be anything (Pervin, 1989), andresearch shows it is not likely an interaction.This conclusion of a linear combinationof person and situation is described byChernyshenko, Stark, and Drasgow (2011,p. 117) in their paper on individual differ-ences this way: ‘‘Interestingly, the person-by-situation interaction has been studiedfar less often and frequently accounts formuch less variance than the main effects

of people and situations.’’ Ployhart andSchneider (2012) made the same argu-ment, and we conclude that research onthe ways the assessment of strategically rel-evant KSAOs and situations designed forcompetitive advantage relate to organiza-tional performance differences should becharacterized by the assumption that theycombine as main effects. Research on thisconclusion is sorely needed.

Individual Differences Are theVery Foundation of I–OPsychology

Viteles (1932, p. 29) in his remarkably com-prehensive Industrial Psychology put it thisway: ‘‘Industrial psychology is based upon astudy of individual differences—of humanvariability—the importance of which asan objective of scientific inquiry seems tohave first been definitely recognized andstressed by Sir Francis Galton.’’ Later, heagain stresses the importance of individ-ual differences: ‘‘The science of industrialpsychology is largely a study of the waysin which individuals differ, and knowl-edge of the general principles of individualdifferences is essential for the comprehen-sion of its diverse applications and findings(1932, p. 58).’’

It is important to follow some of theimplications of this emphasis on individualdifferences to see the subtle and not-so-subtle ways in which it has influenced theindividual level of analysis on which wehave focused. To cite just a few examples,consider the following:

• Psychologists trained in the individ-ual differences tradition, when con-fronted with theories such as those byArgyris, McGregor, and Likert, devel-oped attitude and opinion surveys totest hypotheses derived from them andthen, with some notable exceptions atthe University of Michigan, analyzedtheir results all at the individual levelof analysis.

• When Smith (1977) studied employeeattitudes and related those at the

100 B. Schneider, M.G. Ehrhart, and W.H. Macey

group level of analysis to understandabsenteeism, he apologized for nothaving individual absenteeism data touse as the criterion.

• Most of the early ‘‘organizational’’climate research of the late 1960sand early 1970s was conducted at theindividual level of analysis.

• Early research on group effects werecriticized by I–O psychologists forlacking rigor (Dunnette & Campbell,1968), and early climate research wascriticized for failure to show 100%agreement on the data being aggre-gated to produce unit-level scores(Guion, 1973). Note that the criticismscame from established I–O psychol-ogists intimately associated with thestudy of individual differences and per-sonnel selection whose opinions werehighly valued.

• And the critiques continue. Forexample, Weiss and Rupp (2011) saythat studies of group and organiza-tional levels of performance through afocus on aggregates of people (whatthey call ‘‘collective purpose’’) areunappealing and perhaps not reallypsychological enough. They proposethat we study the whole worker, thatwe focus on ‘‘selves’’ and not aggre-gates, and that what we need is tohave a fuller focus on the individual atwork.

In summary, we agree with Ployhartthat the study of competitive advantageis essential. We have attempted to addto his argument not detract from it. Ineconomics, the principle of informationasymmetry says that those with increasedlevels of information compared to competi-tors create asymmetries that ultimately yieldadvantage (typically in the form of an eco-nomic transaction). More generally, usingPloyhart’s focus on KSAOs, the informa-tion advantage derives from knowing moreabout the KSAOs of your own workforcethan what your competitors can know ofyours or theirs, thus creating the possibil-ity for comparatively greater returns from

investment in human capital or the place-ment of that human capital. When appliedto climate, it says that the package or bun-dle of tactics that create a strategic climateis difficult to imitate and thus provides com-petitive advantage because competing firmsdo not have enough information to under-stand how the climate was created or howit works—they just know that it does! Ourlogic says that the creation of KSAO andclimate asymmetries would go a long wayto produce competitive advantage througha focus on people and the environments inwhich they work.

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