competitive advtg and hr

8/8/2019 Competitive Advtg and HR

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ACHIEVING CCMPET~T~VE ADVANTAGETHROUGH HUMAN RESOURCE STRATEGY:TOWARDS A THEORY OF INDUSTRYDYNAMICS

This art icle us es the resour ce-bas ed view of th e firm , along with other th eo-ret ical s ources, to out line t he ba sic elemen ts of a theory of hu ma n resour ceadvant age. It asks the question: how can firms build an d defend competi-tive superiority through HR strategy across the phases of the typical indus-try life cycle? Human resources capable of yielding sustained advantage arethose which meet tests of (1) ra re valu e, and (2) relat ive immobility an dsuperior appropriability. While we can identify certain broad principles as-sociated with hu ma n resour ce advant age, cycles of esta blishm ent, ma tu rityan d renewal in indust ries add importan t complexities. The ar ticle identifiessituations in which we can he reasonably confident we understand the re-quirements for HR advantage and others where much more research isneeded.

IntroductionHow can we progress th e th eory of str at egic hum an resource ma na gement(SH RM)? S ince th e mid-lQQOs, SH RM res ear chers ha ve increasin gly looked toconcepts as sociat ed with th e res our ce-bas ed view (RBV> of th e firm in th eirat tempt s to build models of th e ways in which hum an resources cont ribute toth e basic viability, an d relat ive perform an ce, of firm s (Coff 1997; Kam oche1996; Lad o & Wilson 1994; F. Mueller 1996; Snell et al. 1996; Wright et al.1994). The resour ce-bas ed view of th e firm is an increasin gly popular pers peotive on str at egic ma na gement which empha sises th e role of intern al capa -bilities, developed hist orically. in firm s, in explaining busin ess out comes (see,for examp le, Bar ney 1991; Pet era f 1993; Werner felt 1984). On th e face of it, th e

Direct all c o r r e s p o n d e n c e t o : Peter Boxall, Departm ent of Mana gement a nd Em ployment Relations, Univer-sity of Auckland Privat e Ba g 92019, Aucklan d, New Zealand. E -mail: p.boxall@au ckland.ac.nzHuman Reeome M a n a p m k e n t R e v ie w , Copyright 6 1998Volume 8, Num ber 3, 1998, pages 265-288 by JAI Press Inc.All rigbte of reproduction in any form reserved. ISSN:1053-4822


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266 HUMAN RESOURCE M~A~EME~ REVIEW VOLUME 8, NUMBER 3,1998resource-based view provides the logical link between the theory of HRM andth e th eory of str at egic ma na gement . We mu st, however, ma ke great er effort s tomove beyond tautology, as Snell et al. (1996) advise us. Simply saying thatha rd-to-imitat e resources ar e necessar y for compet itive advant age, an d th athu man resources are especially valua ble in th is sense, does not get us very far .This ar ticle at tem pts to move from a conceptual fra mework, ma pping keyideas an d rela tionsh ips (Boxall fort hcomin g), to begin th e process of building adyna mic th eory of hu ma n resour ce a dvan ta ge (HRA). It aim s to locate re-source-based ideas within the typical competitive terrain of a firm: its histori-cally-evolved industry or competitive sector. (In the interests of theory-build-ing, the complex case of the firm which competes in multiple industries orsectors is deferred for futu re work.) The paper ta kes a pun ctu at ed equilibrium view of indu str ial chan ge (Eldr edge & Gould 1972; Gers ick 19911, consisten twith a Schu mp eter ian model of economic development (Schu mpet er 1950).While change is occurring all the time, there are periods of crisis in industries,includ ing per iods of foun ding, an d subsequ ent sh ocks caused by techn ologicalbreak-throughs and other traumas (Miller & Friesen 1980; D. Mueller 1997;Tushman et al. 1986). Periods of crisis create winners and losers. Firms thatfail to adjust th eir str at egic par ad igm in times of indu str y crisis become th evictims of receivership or ta ke-over. Firms th at successfully adjust th eir stra te-gic configuration consolidate their position until the next crisis.This perspective should not be tak en to imply th at firms ar e merely reactiveto environmental changes beyond their control. The model is not deterministic.Firms which reach novel solutions first can often impose change costs on ri-vals, moulding the competitive environment through creating new concepts ofbusiness (Baden-Fuller 1995). This implies that management matters, thatmore skilful management has the potential to create new competitive re-sources an d dis-able th e hist orical r esources of rivals (Bar ney & Wright fort h-coming).Before proceeding, the concept of human resource strategy requires someclarification. All firms face strategic problems. The primary problem is how tobecome an d rem ain a viable player in th e fnm s chosen ind us tr y or sector.Var ious as pects of ma na gement -comp etitive positioning, techn ology an d op-era tional st yle, finan ce, HRM an d so on-have a critical role to play in th is.The fundamental priority of HR strategy in a firm is to secure and maintainth e kind of hu ma n resources th at ar e necessary for t he firms viability. Thesecond order -or high er level-st ra tegic pr oblem is th at of how to developsources of su sta ined competit ive a dvan ta ge, a problem which n ot all firm schoose to tackle. In theory, however, there exists opportunity for any firmwhich remains viable in its industry to build some relatively enduring sourceof super ior perform an ce th rough out sta nding m an agement of hu man r e-sources. How this second order problem might be tackled is the concern of thisarticle.The a rt icle is str uctu red as follows. The first section defines wha t is mea ntby hu ma n resour ce advan ta ge, consolida t~g th e existin g tes ts for ident ifyingwhether a firm possesses any form s of it and r elating th em t o critical featu resof th e employment relationship. The second section presen ts a theoretical out-


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268 HUMAN RESOURCE MANAGEMENT REVIEW VOLUME 8. NUMBER 3.1998ta ined compet itive advant age when th ey add ru re or exceptional value in thefirm s indu str y or str at egic group (Bar ney 1991; Bar ney & Wright fort hcomin g;Pet era f 1993; Wright et a l. 1994). F or th is to be possible for s ome firm s, h um anabilities-including managerial abilities mu st be un evenly distribut ed acrossindividua ls an d th us, potent ially, across firm s. It tak es very litt le experience oflife to rea lise tha t this is invar iably th e case.In the example cited above, adequate operator skills and a sufficient level oflabor-mana gement cooperat ion ar e needed t o establish credible opera tions an dmainta in indust ry membership but are not scarce am ong th e indust ry players.While valua ble for viability, t hey ar e not exceptional an d will not pr ovide th ebasis for superior returns. The superior firm possesses something of scarcevalue: its skill level is discernibly higher and the quality of its collaborativeprocesses is tangibly superior.Value Creation and the Core Workforce of the Firm. Common sense suggeststh at it is not r eally possible t o argue th at all employees or cont ra ctors associ-at ed with a firm-part icular ly a large one- constitute a source of rare value.The resour ce-based view of th e firm in evita bly drives u s to ma ke a distin ctionbetween core employees who are critical to value creation and peripheralgroups (Pu rcell 1996, fort hcoming). In ana lysing a firms workforce, it is help-ful if we define an inner and outer core.The inner core consists of th ose m an agers, techn ical specialists an d str at egi-cally located workers who are responsible for valuable innovations or for suc-cessful imitation (the former attracts all the glamour but the latter is easiersaid th an done). Arguably, an open, egalita rian ma na gement process is bestsu ited to th ese key value gen era tors so th at criticism s can be used crea tivelyto genera te new ways of opera ting, to fost er th e kind of cont ent ion tha t st imu -lat es var iety a nd ada pt ability (Pa scale 1991). Loss of key members of th e inn ercore underm ines th e firms capa city t o ada pt to a cha nging environm ent an d tolead adaptive change in the industry, as we shall illustrate in the case of theFord Motor Compa ny in t he 1920s. The out er core cons ists of th ose emp loyees,who have appropriate industry skills, with whom stable employment relationsmust be built if the firm is to meet its commitments to customers withoutprocess disruptions. Furthermore, these are the employees on whom the firmwill depend for continuous improvement within a given strategic paradigm.The inn er core, one might say, pr ovides t he ada ptive cap acity of th e firm wh ileth e out er core p rovides it with credible opera tional cap acity. Fr om an organ i-zational behavior perspective, the functions of the cores can be thought of astwo kinds of learning: double loop and single loop learning respectively (Ar-gyris & Shon 1978).The two part s of th e core a re int eractive (they need eachoth er) a nd both ar estrategic (i.e. critical) to the firms success. All-firms must build and defend asatisfactory inner and outer core to secure viability with acceptable profitperformance in any environment subject to alternating periods of crisis (whenth e ada ptive learn ing of th e inner core is critical) a nd st able growth (when th edependable services and incremental learning of the outer core are critical).


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ACHIEVING COMPETITIVEADVANTAGE 269

Sustained advantage, however, is associated with superiority in the inner andouter cores. Recruiting brighter individuals in the inner core, and managingth em in ways th at achieve powerfd int ellectu al s ynergies,.,along with theestablishment of a highly positive pattern of working relations with a well-qualified outer core, from the very earliest stages of the firms life, are usuallyth e goa ls of firms seek ing a green fields effect. Es ta blishin g th is kind of virtu -ous cycle at the outset is mu ch more desirable t ha n ha ving to try an d creat e iton a brownfields site wher e year s of low tr us t ha ve un derm ined cooperat ionand create severe adjustment costs (Ichniowski et al. 1997).Before m oving on, it is vital to note t ha t th is definit ion of th e t wo cores is nothierarchical. Some managers will be in one core and some in the other andsome may play valuable roles in both. Some, however, are not much good ineither sense: th ey neith er assist t he organ izat ion to ada pt t o ra dical chan genor effectively facilitate ongoing operations and incremental learning. Theseindividua ls sh ould be helped to see th is as soon a s possible because th ey de-stroy value.Resource Immobility and Appropriability Test

Resources capa ble of yielding sus ta ined a dvan ta ge mu st not only be valu-able and scar ce but a lso difficult to imitat e or neutr alise by substitu tion (Bar-ney 1991; Pe te& 1993; F. Mueller 1996; Wright et al. 1994). Advant age-gener -at ing res our ces m us t be subject to isolat ing m echen isms (Rum elt 1987) ormobility barriers. While we should not think of absolute or completely imper-meable barr iers, it is helpful to th ink of bar riers in term s of th eir r elativeheight a nd rat e of erosion (Reed & De~l~ppi 1990).The sort of mobility bar rier s ident ified by resour ce-based th eorist s includesocial complexity (for exam ple, th e comp lex int erd epen den cies involved intea mwork d eeply embedded in side a large orga nisa tion), causa l am biguity(the difficulty of identifying the most critical elements in the human valuechain ) an d un ique h istorical cond itions or pa th depen den cy (th e imp ossibilityof exactly replicating the history that creates particular cultures and compe-ten cies in orga nizat ions) (Bar ney 1991; Wright et al. 1994).In this light, there is clearly a problem with resources derived from thecontributions of employees and contractors. Because labour services are tradedin free labor ma rk ets, it is possible for firm s to lose key skills when more a stu terivals induce talented employees to resign (Coff 1997). On the other hand,there are inertial forces that tend to restrain human mobility. Mature adultswith family responsibilities, for example, are reluctant to disturb their lives bycha nging jobs an d towns when ever th ey feel some elemen t of work dissa tisfac-tion. The best an d brightest worker s ma y stay with a firm th at u nder-valuestheir contribution because their present location suits their spouse and chil-dren : assessed at a househ old level, ra dical cha nge is often mu ch less desir-able. There are not only domestic constraints operating but talented individu-als ma y defer m obility becau se th ey find t he qua lity of th e firm s non-hu ma nresour ces (e.g. th e quality of technology, t he quality of es~blished bus iness


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270 HUMAN RESOURCE MANAGEMENT REVIEW VOLUME 8. NUMBER 3.1998

connections) highly stimulating even though they themselves are presentlyunder-valued.3 Human resources, then, are potentially mobile but not typ-ica lly footloose (as as su med in th e neo-classical th eory of per fect comp etit ion ):there is a lot of natural friction in labor markets.Besides th e need for a significan t degree of resour ce imm obility, hu ma nresources will only yield su sta ined advant age when th e firm is able to czppro-priate th e superior retu rn s th ey are displaying (Gran t 1991; Kamoche 1996). Itis not sufficient simply to retain superior performers on the payroll: the firmmust avoid the kind of lop-sided sharing of economic rents in the unfoldingexchange that eventually destroys the special surplus. As time goes by, work-ers who become awar e of th eir sup erior per form an ce ar e likely to bar gain forincrea sed ret ur ns. Where th ey do not achieve a more sat isfactory distribut ion,they may demonstrate their mobility through resignation, as discussed, orthey may remain and exercise some form of individual or collective protest.The latter receives most of the attention in the industrial relations literature(e.g. work-to-ru le, str ikes , picket ing, pu blicity camp aigns) bu t individua l pr o-test is far more prevalent (LaNuez & Jermier 1994). Individuals can reducetheir motivation and, thus, their performance in a variety of subtle ways.Where workers feel the firm has taken unfair advantage of their superiorperformance, they are likely to reduce the flow of economic rent over time.The Principle of Mutuality and HR Superiority The key point in all of this isthat managers have little choice but to grapple with the complex problem ofhuman motivation in the workplace if they wish to sustain superior returnsth rough h um an resources. To an importa nt extent , th e employment relation-ship can be ana lysed as a defining feat ur e of bus iness in all sectors of adva ncedcapita list societies. Although na tiona l s ystems of labor ma rk et r egulation, an doth er un ique na tiona l featu res, int roduce significan t variat ion in employmentpractices, the employment relationship has certain irreducible features in allsettings: it is a voluntary human exchange with uncertain outcomes (Cartier1994; Coff 1997; Simon 1957; Webb & Webb 1902). Sufficient overlap in inter-ests between an employer and potential employees can never be taken forgra nt ed, a s agency th eorists em pha size (J ensen & Meckling 1976; McMillan1992). The esta blishm ent an d maint enan ce of employment in any kind of busi-nes s depend s on adequa te mu tu ality between th e employer an d individua lsseeking work in the industry (c.f. Kochan & Osterman 1994; Walton 1985).Mutuality should be understood as the extent to which the employment rela-tionship works well for both parties. It is concerned with the quality of align-ment between business and employee interests. A summary of the main im-pacts of different levels of mutuality is shown in Table 1.Adequa te alignmen t occurs when employees s at isfactorily meet bus inessrequ iremen ts-for productivity, flexibility, commit men t an d so on-while th ebusiness satisfactorily meets employee needs. Over time, of course, businessneeds shift. In recent years, for example, many businesses have come to seek akind of employee with greater potential to work flexibly and participate inwork place pr oblem-solving but ha ve offered less employment securit y an d pro-


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ACHIEVING COMPETITIVE ADVANTAGE 271

TABLE 1Variations in Employment Mutuality and Their Likely Impacts

Quality of Alignmentbetween Business &Employee Interests

Short-term BusinessContext Long-term BusinessContext

Adequate

Strong

Weak Likely to have chronic HRproblems (e.g. highturnover, low productivity)which create, or contributeto, business failure.

Likely to recruit and retaina competent workforce butmotivational levels areunlikely to support anyforms of HR advantage.

Creates the motivationalbasis to move beyondbasic viability issues anddevelop superior short-runproductivity.

Likely to become victim ofmajor market changesbecause of loss of keyvalue generators and lowmotivation amongremaining staff.

Likely to survive as acredible member of theindustry but not to developany leadership positionthrough human resources.

Creates the motivationalbasis to secure theemployees likely to play adecisive role in the long-run direction of industrychange.

motion possibilities in retu rn (Osterm an 1994). Em ployer needs are not neces-sar ily straightforwar d an d some firms a re clearly mu ch m ore effective t ha noth ers in ha ndling th e tens ions th at arise am ong ma na gement objectives (Box-all 1996, forth comin g; Ost erm an 1987). As we sha ll ar gue in th e discussion ofma na ging a complex work force in th e ma tu re cont ext, an ability to perceivean d plan for critical t ra de-offs an d ten sions in labor ma na gement is ra re andvaluable to th e firm.

What a bout employee in terest s? On th e subst an tive level, employees typ-ically seek a mix of intr insic an d extrinsic rewar ds consisten t with their per-ception of th eir contr ibutions to th e firm , as ar gued by equity t heory (Ada ms1965). In th e broadest sense, int rinsic rewar ds include sat isfaction with th ena tu re of th e work itself and with possibilities for fut ur e growth while extr in-sic rewar ds include sat isfaction with pay, sta tu s, securit y an d so on. Nat ur ally,employees vary in how mu ch of each of th ese rewa rd groups th ey can rea l-istically expect given th eir educat ion, accum ula ted experience an d skills, an dth e quality of th eir altern at ive employment opport un ities. Expecta tions ar enot purely subst an tive, however. Over time, how th ey ar e tr eated also ma tt ersto employees. Expecta tions about substan tive element s in th e employmentrelationship ar e typically un derpinned by expecta tions of appr opriat e leader-ship styles and cont ra ctu al governan ce, as ar gued by th e growing literat ur e onpsychological cont ra cting (Rous sea u 1995; Schein 1978; Wolfe, Morr ison, &


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272 HUMAN RESOURCE ~NAGEMENT R.EVlEW VOLUME 8, NUMBER 3stSS8

Robinson 1997). As tim e goes by, employees as sess whet her th e orga nizat ionsleader s honour wha t they perceive as the organ izat ions obligat ions in th eirpsychological cont ra ct. They a ssess whether th eir leaders show appr opriat erespect for procedural fairness in personnel decisions and so on. An ongoinginform al ass essm ent by emp loyees of whet her th e organ izat ion is playing a fairgame seems to be a universal tr ait while expecta tions of appr opriat e gover-na nce str uctur es vary somewha t. For some em ployees, appr opriat e governan ceimplies th e right to ha ve th eir employmen t cond itions deter min ed by collectivebargaining, historically the most effective of voice mechanisms adopted in theAnglo-American world. For others- currently the majority in English-sag-ing co~t~es-indi~dual cont ra cting ha s become th e norm an d exit, ra th erthan voice, has become the dominant response to disillusionment with theemployers behavior. This gener al out line of th e role of mu tu ality serves s implyto flesh out the general principle: the sort of policies and practices that willmesh employer objectives with employee expectations in any firm are subjectto a ra nge of contingen cies, including firm-specific factors, a nd wider indu str ytraditions and cultural norms (Becker & Gerhart 1996; Jackson & Schuler1995).Summary of the Argument

Figure One provides a summary outline of the concepts we have talkedabout in this section an d the linka ges among th em. Firm s that seek HR advan-ta ge mu st be able to ma na ge m ut ua lity th rough super ior resour ces a nd pro-cesses for aligning employee interests with those of the firm (e.g superior payscales, better opportunities for personal growth, greater consistency betweenHR policy and practice). Strong mutuality provides the motivation for individ-ua ls and team s to join, sta y and grow with th e firm ra th er t ha n one of its

U@CtkC)

). Asindicated, this often requires an ability to overcome resource mobility barrierselsewhere in the labour and capital markets. Small firms that cannot matchth e resour ces of a lar ge, int ra pren eur ial corp ora tion such a s 3M mu st findsome other way of inducing highly talented workers, normally attracted toblue-chip em ployers, to comm it th eir tim e a nd t alen ts (work ers, like employ-ers, incur opportunity costs). What possible routes are available? For the verysma ll new vent ur e, foun ded by an under -capita lised individual ra th er th an awell-kn own, m tiltidivisiona l corporat ion, th is often mea ns clever u se of pers on-al networking (Hendry et al. 1995) at a str at egic moment in the indu str ysdevelopment.Take th e example of a young, entr epreneur ial softwar e engineer who usedtheir network from Engineering School to recruit highly intelligent individualswilling to work out side large orga nisa tions (perh ap s because th ey preferr ed aninform al, can do environmen t) an d swift ly offered those who gener a ted out-standing value an ownership stake in the firm to align their interests over thelong term. Having worked with them at University, the young entrepreneurhad special knowledge about the abilities and predispositions of class mates.This created an edge over corporate recruiters forced to rely on formal andmore opaqu e form s of inform at ion (e.g. un iversit y grad es) ra th er th an deta iledpers ona l kn owledge. The youn g ent repr eneu r tu rn ed th e un ique h istory ofpersonal experience an d th e am biguity th at sur rounds th e intellectu al an demotiona l stren gth s of str an gers (no ma tt er how good th eir grades look onpap er) to out -ma noeuvre recru iter s from orga nisa tions which t ypically enjoyreputational advantages in the labor market. One way or another, the entre-preneurial leader must overcome resource mobility barriers outside the firman d esta blish ones inside th e firm s developing int ern al labor ma rk et th atbuild and protect outstanding sources of value. In this case, the young entre-pren eur used per sonal knowledge coupled to a willingness to quickly aligninter ests with out sta nding em ployees to esta blish and ra pidly expand th e busi-ness.

In sum ma ry, our knowledge a bout sour ces of hu ma n resource advant age inthe establishment phase is still very limited. It seems likely, however, thatearly a l i g n m e n t of inter ests am ong h i g h l y t a l e n t e d people plays a decisive role.This mean s th at history-being th ere at th e right time-mat ter s enormouslyin the creation of positions of strength in industries. It also implies that cleverus e of pers ona l kn owledge-su ch as an ability to net work a mong likemind edan d similar ly gifted people-is needed t o overcome t he form idable resour cebarriers associated with firms that are more established in labor and capitalmarkets .

The Mature ContextThe mature context arrives when th e indu str y or sector set tles int o a periodof sta ble growth ba sed ar oun d one or two domina nt designs for pr oducts orservices a n d th e organ isations th at pr ovide th em (Tush ma n et al. 1986). These


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ACHIEVING COMPETITIVE ADVANTAGE 277cont ext, a nd in relation to th e st rength s an d weak nesses of its main rivals (cf.Bar ney & Wright fort hcomin g). Specialised kn owledge about ~~~~u~~~u~ Rpr actices is widesprea d (for example, th e kn owledge developed by recru itm entconsultants about selection tests or the knowledge developed by compensationconsultants about pay packages) but the ability to discern thepatterns embed-ded in th e firms unfolding labour ma na gement pra ctices is ra re. The ability toperceive ways of min imizing critical tra de-offs in labor ma na gement (such asth e tr ad e-off between short-run emp lo~ent flexibility and long-ru n em ployee~om~t men t) is also ra re (Boxall fo~hcoming). Resear ch su ggests th at fewma na gers h ave a su perior un derst an ding of how to bun dle or int egra te HRpr actices int o high p erform an ce work syst ems t ha t fit th e firm s specific con-text and its un folding s tr at egies (Bar ney & Wright fort hcomin g; MacDufEe1995). If, however, a firm employs in ~~dua ls with t his kind of ra re k nowledgean d perception, an d the opport un ity to exercise it, what might prevent it beinglost to rival firms? If much of the knowledge remains tacit, or associated withexecut ive t eam work , it ma y be dificult for rivals to discern wha t it is or whohas it (causal ambiguity and social complexity). There is little doubt, however,th at t h is sort of sk ill will eventu ally become visible to good sear ch consult an tsah ead-hu nt ers) an d th erefore vulner able to mobility. Ind ividua l perceptionremains, in effect, individual property.To sust ain hu man resource advan tage in th e ma tu re cont ext, th e firm needsto ad d fur th er disciplines which ar e more deeply inst itu tionalized. A su periorsystem of human resource phzning, which identifies and integrates key hu-man variables with other strategic concerns, is one way of institutiona~zingthe perceptual insights of key HR strategists (either specialists or generalmanagers) who may decide to resign from the firm. The kind of human re-source plan ning wh ich en cour ages firm s to ma na ge key value gener at orsproactively a nd plan to impr ove k ey processes (such a s learn ing across int ra -firm boun dar ies) is both valua ble an d ra re (Koch & McGra th 19961. Hu ma nresource planning for concerns that transcend the short-term business contexthelps to avoid th e all-to-comm on situ at ion wher e fina ncial ta rget s, reinforcedin the armual budget cycle, crowd out longer-term strategic issues in manage-men t plann ing (Goold 19911. Resear ch su ggests th at even very large firmshave problems developing sophisticated strategic planning systems which in-corporat e a fra mework of str at egic HR objectives capa ble of str uctu rin g int er-na l debat e an d derision-ma ~ng (Boxall fo~hcomin g; Pu rcell & ~ls~~d1994). How might such a discipline be developed and defended? Clearly itdepends on th e recru itmen t an d retention of leaders who ha ve exceptiona l HRinsight , a s discus sed above. But t his is not su fficient. At some point, a powerfulcoalition of ma na gers mu st evolve t he conceptual fra mework an d genera te th econsensu s for its ongoing applicat ion. At a minimu m, a shar ed u nderst an dingbetween th e firms most influential genera l ma na gers an d its top HR special-ists, which persuades other key managers, seems essential. Any firm thatachieves this has accomplished an unu sua l feat in th e ma na gement processgiven the political conflicts and paradigmatic disputes that typically afflictth e ma na gement tea ms of large organ izat ions (Ha mbrick 1987,1994; Hyrna n


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278 HUMAN RESOURCE MANAGEMENT REVIEW VOLUME 8, NUMBER 3, 1998

1987). The difficu lty of overcoming th ese int ern al con flicts is a powerful mo-bility bar rier. It is not, of cour se, perfect: t he loss of key individua ls who a ct a sprocess champions can compromise the quality of any planning system.The possibility of developing HR advan ta ge will be great er to th e extent th atintelligent HR planning is linked to superior consistency of enlightened prac-tice (Benkh off 1997; F. Mueller 1996). This is th e th ird discipline. I ncons isten tap plicat ion of well-designed HR policies often un derm ines desired impa ct, a sstressed in a recent study by McGovern et al (1997) of seven high-profileBritish organ izat ions:

Our evidence,which is drawn from a wider study of HRM in practice, sug-gests th at , while line ma na ger involvement is indeed possible, th eir prac-tices ten d to vary significan tly in th e consist ency of implemen ta tion acrossth e organisa tion (e.g. business unit s and depart ment s) an d in th e quality ofpra ctice between ma na gers. This finding challenges mu ch of th e rh etoricassociated with the idea of devolution to the line because it demonstratesthat line management practice may itself distort, and possibly even under-mine, the contribution which HR policies are supposed to make towardsorganisational success (p 12).

This kind of stu dy should r emind us t ha t th ere is no such t hing a s the singleHR practice of the firm. It is more accurate to imagine the HR practices of thefirm a s norms ar oun d which th ere is variat ion due to th e idiosyncra tic behav-ior of line ma na gers. In some ar eas, such as perform an ce appr aisal, ther e isnotorious var iat ion, even in th e best r egulat ed comp an ies.8As a result, consistency of HR practice is hard to achieve without strongaccountability mechanisms for line managers. A culture of devolution, how-ever, often favour s m easu remen t in ter ms of short-term finan cial r esults rat h-er than long-term HR priorities (Goold 1991; McGovern et al. 1997; Purcell &Ahlstrand 1994). The prevailing ideology of line manager autonomy in thepr ocess of HRM is likely to act a s a powerful rest ra int on t he ability to develophu man resource a dvanta ge. While t here is value in diversity, t oo mu ch a ut ono-my can discourage the transfer of excellent models of HRM within a firmacross ma na gerial boun dar ies. In th e ha ste to ta ke out HR Depar tm ent over-hea d a nd r emove what line man ager s often regar d as th e policing of policies,the firm may also lose the power to co-ordinate objectives for human resourcedevelopment over th e long r un . This is not a pr oblem if th e firm s main rivalsare equally weak at developing plans for long-run human resource develop-men t but it is not a recipe for building sust ained advant age or underm ining amore positively planful competitor.Hu ma n resource advanta ge in th e ma tu re cont ext, then, cont inues to rely onthe creation of high levels of mutuality with highly talented workers, bothindividuals and teams. This outcome is most likely to be achieved, however,when all three disciplines described in this section are practiced in concert:when exceptional perception about HR strategy is embedded in sophisticatedplanning systems which are connected to consistent practice. The level of in-


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ACHIEVING COMPETITIVE ADVANTAGE 279sight , an d the degree of intern al consensu s, required to achieve th is kind ofsuper iority should not be un derestima ted. It is indeed ra re.HR Strategy: Overtaking the Ear/y Leader. So far , we have ta lked a bout th e wayin which a n early leader might defend th eir HR a dvanta ge. Let us now consid-er the problem from t he perspective of th e rival wh o wishes to use HR str at egyto un dermine, an d overhau l, th e leader. Under what conditions can a firmwhich establishes HR advantage in the establishment phase be overhauled inth e ma tu re cont ext? A rival who seeks t o overh au l th e leader mu st ha veemerged from the establishment phase with sufficient human capital and or-ganizational process strengths to underpin viability. There must be no debil-itating record of low trust which creates the kind of negative history thatconsumes management time and energy (Ichniowski et al. 1997). Given anadequa te basis, th e rival can achieve super iority in HRM th rough sust ainingth e th ree disciplines ident ified above more professiona lly th an t he ea rly leader .Let us explore the competitive dynamics involved more fully. Suppose thecha llenging rival star ts to offer su perior incentives to ta lented work ers an dcar ries on the ta sk of building higher skills an d motivation with out losingsta mina . (We mu st exclude faint hear ted at tem pts at winn ing a dvanta ge.) Theearly leader may take some regrettable losses of key staff but learn from theexperience tha t key hu ma n asset s need to be mu ch bet ter defended. Tempora rysetbacks ar e un likely to un dermine histo~cally-won advant age. Th e dama gestarts to become strategic for the early leader when one or two kinds of debil-ita tin g syndr omes begin to cha ra cter ize t he orga nizat ion. The first concern sthe opportunity costs of staff losses. Where there is a significant productivitydifferential between the staff who are lost to rival employers and those whoreplace them, the quality of human capital starts to become seriously dam-aged. Key losses from the inner core are particularly hard to replace. Thesecond syndrome is related. It occur s when th e rival uses t heir improvinghu man capita l base, in conjunction with t heir sup erior organ izat iona l process,to reap increasing process advantages, such as superior kinds of double-looplearning. Some kinds of advanced processes only emerge when a critical massof super ior huma n capita l (out st~~ng cont ~butors in positions where th eycan influence events) has been assembled.In summary, then, given an adequate base of human capital and organiza-tional process, the patient, sustained application of more professional HRMcan be used to shift the structure of human capital in the industry and changethe key sites of advanced organizational processes away from the early leaderto more professional rivals. The leading firm which has been damaged in thisway ma y fall back to viability or ma y be fat ally un derm ined. Somet hin g liketh is occur red in th e 1920s as Genera l Motors out -ma noeuvred Ford th roughthe superior management processes developed by Alfred Sloan. Ford, the earlyleader in the esta blishm ent pha se, had little tolera nce for divergent opinion inhis executive team and lost key staff accordingly (Lacey 1986), one of whom,William Knu dsen, went on to play th e ma jor r ole in GMs development of th ecap ability to pr odu ce new models every year (Houn shell 1984). Fords inn er


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work force core was dam aged by t hese d efections. In Knu dsen, th e compa ny lostone of the key industry innovators of the 1920s and Ford, afraid of contention,was slow to lear n the value of blending inn ovation with clever imita tion (of GMspr ocess inn ovat ions). Sloan pr ofessiona lised th e administ ra tion of his compa nymore comprehensively and quickly. As Arthur Kuhn (1986, p. 6) puts it:

For th e au tomobile ndu str y,the 1920s and 1930s marked the transitionfrom an early entr epreneur ial pha se domina ted by th e Henry Fords to acorporat e pha se domina ted by th e Alfred Sloan s.

Or as Lacey (1986: 303) elegantly comments:Out of F ord in th e 1920s cam e a new car, with great tr avail. Out of GeneralMotors had come the modern corporation.

The Renewal ContextThe renewal cont ext cha llenges th e cont inuities built u p over th e esta blish-ment and mature phases. It threatens to turn previous strengths into weak-nes ses th rough techn ological (or other ) shocks which call for a reconfigur at ionof th e stra tegic par ad igm in th e firm (Barn ey 1991; D. Mueller 1997; Schu mpe-ter 1950; Tush ma n et al. 1986). Iwo kind s of ma tu re firm s m an age t o sur vive(Baden -Fu ller 1995). One is th e firm th at succeeds in domin at ing th e direction

of indust ry cha nge. The oth er is the firm t ha t ma na ges to adapt to th e directionof cha nge. Th is kind of firm incurs . ser ious cost s of adju stm ent but r eta ins itsviability by making the necessary changes without insolvency or loss of inves-tor confidence. All oth er firms fail. New ent ra nt s ma y, of course, a ppea r a t th ispoint and may hold a winning advantage if they can behave as clever andnimble entrepreneurial firms.What, t hen, are th e implicat ions for hum an resource a dvanta ge? Rat herthan assuming t hat firms with HRA in the mat ure phase are privileged byhistory (as we did in the tra nsition from est ablishmen t to ma tu rity), we mu sttreat all surviving firms as potential leaders. History is now a double-edgedsword. The surviving firms face what has become the most profound leadershipproblem of th e cont empora ~ corporat e world: a wide ran ge of indu st ries a recur ren tly experiencing r ad ical chan ge becau se of th e increasin g competit ivepressures associated with globalization and because of the impacts across in-dust ry boudar ies of th e new inform at ion techn ology. In order t o un dersta ndhow par ticular firms might build advanta ge th rough h um an resources, it helpsif we begin by examining the conditions firms must meet simply to survive therenewal context. We can then explore the possibilities for advantage. Therear e, ar guably, th ree conditions firms mu st meet t o reta in t heir viability duringthis kind of industry upheaval. Two of these conditions are primarily con-cerned with human resource problems but the third is not.The first is poLit~a1. The renewal context threatens the patterns of mutu-ality-of inter est ali~ment-tha t ha ve solidified over th e establishmen t an dmature phases. The renewing firm needs the kind of mandate from its stafY--


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ACHIEVING COMPETITWE ADVANTAGE 281both m an agerial an d operat iona l- which enables it to bring about majorcha nge without enormous resista nce. IIere th e impact of th e established hier-ar chy is import an t. To begin with , th e key players in senior m an agement mu stbe able to form a new micro-political cons ensu s. Significan t, un res olved con-flict in the senior management team over the need for change (possibly linkedto personal career ambitions and historical power bases) will disrupt renewalefforts at the outset (Hambrick 1987, 1994). Having said this, the ability toopen th e boo-political gatewa y a t th e sen ior level is necessar y but not s&i-cient for successful renewal in the industry. It is also essential to achieve thenecessar y change to business capa bilities a nd workp lace cultu re while main-ta ining a n adequat e motivat iona l clima te th roughout th e firms core work-force, th us ensu ring wider political a ccepta bility for th e desired cha nges. Or, ifa large par t of th e cha nges ar e to be form ulat ed from th e stern -up, it involvesachieving a cultur e of cha nge accepta bility which fost ers a willing accepta nceof new learning trajectories as a matter of course.The second condition is perceptua2. The firm n eeds leaders who can see whatcompetencies will retain their relevance in the future while perceiving whatcapabilities have already become liabilities. Where, in effect, should the firmcons olidat e it s learn ing and wha t should it un learn and t o wha t extent (Miller& Friesen 1980; Snell et al. 1996)? And when, and in what order, should itma ke t he desirable cha nges: how should it sh ape it s str at egic sta ircase (Bad-en-Fuller & Stopford 1994)? Senior management faces a complex cognitiveproblem in discerning t he kind, extent an d timing of th e cha nge t ha t is neededto enable the firm to survive. This has been called the problem of forming anew mental model (Barr e t al. 1992). It is highly likely, of course, that seniorma na gement doesnt ha ve all th e a nswers in which case th e firms leader shipmust perceive how to design the sort of participative processes that will gener-ate the necessary learning. The cognitive problem leaders face in renewal isnot sim ply about cont ent : it is also about pr ocess. It is alt ogeth er more complexthan the perceptual problems associated with the mature phase.The th ird condition is concerned with related resources. The tirm mu st actua lly-have th e access to the finan cial resour ces it needs t o mak e t he n ecessary changes.As ever, hu ma n an d non-hu man resources are interdependen t (Mueller 1996).When r enewal mean s radical cha nge, it requires m ore th an hu man willingnessand cleverness. It requires the cash box to make things happen. Lots of firmsfail at th e renewal phase simply becau se th ey ar e ~der-~pita~ed. Despitegreat ideas an d t he best of intent ions, no one will lend th em any m ore money.The t hr ee conditions can be illustr at ed in th e case of Fords dra ma tic tu rn -around in the early 1980s. By the early 19808, the success of Japanese automa nu factur ers th rough super ior quality-dependent on good hu ma n capita lan d (wha t were th en) novel pr ocesses of lean production-ha d begun t o affectall US firms in the industry. Between 1980 and 1982, Ford lost $3.3 billiondollars. In this context, Ford met the political conditions for renewal. Execu-tives genuin ely accept ed th at th e compa ny-an icon of Amer ican cap ita lism-might fail to adapt (,l?ascale 1991). Fur th erm ore, th e realisation th at th e firmfaced a life-th rea ten ing crisis perm eat ed a ll levels of th e compa ny, crea ting th e


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ma nda te n ecessar y for r ad ical cha nge. Significan t lay-offs d id occur: t he pr o-du ction work force fell from 191,000 to 105,000 between 1978 an d 1986 andwhite-collar employmen t fell by 47 per cent between 1980 an d 1986 (Schoen-berger 1997). Despite th is mass ive redu ction, Ford s eems to ha ve achievedsufficient mu tu ality with its remaining workforce th rough a new profit-sha r-ing agreement a nd thr ough a genuine shift to a more par ticipative style ofmanagement (Collins & Porras 1998; Pascale 1991).Besides having the political ability to change, Ford was blessed with leader-sh ip which met th e cognitive condition, which accur at ely perceived wha t oughtto cha nge. In the early 198Os, Ford d rew ast ut e lessons from t he J apa neseexperience while GM and Chrysler struggled to do so (Pascale 1991; Schoen-berger 1997). Donald Petersen, Fords CEO, cleverly encouraged the kind ofsh ift to pa rt icipat ive ma na gement -employee involvemen t-th at was neededto ena ble Fords design a nd p roduction activities t o ra ise th eir perform an cemuch closer to Japanese levels. As Pascale (1991, p. 117) puts it:

Petersendidn t s ee himself as having, or needing to have, the answers. Heserved as th e cat alyst th at enabled Fords em ployees to come up with th eanswers themselves.

This has undoubtedly created a gap in organizational process between Fordand its US-based rivals which still proves difficult to bridge (Barney & Wrightfo~hcoming), illus tr at ing th e import an ce of tim ing and pat h depend ence t obusiness performance. Ford started to make critical changes when they wereneeded a nd ha s reaped t he benefits ever since.Finally, despite its severe losses; Ford still had the necessary financialresour ces t o invest hea vily in product inn ovat ion an d employee development .Some $3.2 billion was spent on the Taurus vehicle program, an initiative thatpaid off handsomely (Pascale 1991). The company also had the resources nec-essa ry to engage in a ma jor progra m of sk ill forma tion an d process facilita tion.In 1986, Fords profits exceeded th ose of Gener al Motors for t he firs t t ime since1924 (Pascale 1992). In sum, Ford met the political, perceptual and resourceconditions necessary for successful renewal.Now, if these are the conditions for retaining viability in the renewal con-text, where do the opportunities lie for building sustained advantage throughhuman resources? One argument is that it is simply a case of hanging on, ofstill being th ere once restr uctur ing an d rightsizing st ra tegies-both good andbad-ha ve ma de th eir ma rk on th e indust ry landscape. Some rivals will ha vebeen fat ally weakened in th e process-perh aps becau se th ey divested thewrong bits-an d will go int o ban kr up tcy or suffer th e sort of st ock price col-lapse that makes them easy takeover targets. The firms with the bigger cashboxes then a cquire their weaker rivals, retaining th e bran ches or plant s (andpeople) they really want an d divesting or shu tt ing down the rest. The indu str yconcentrates around the strongest survivors. This process may not be pleas-an t-and ra rely, if ever, discussed in HBM textbooks-but it does suggest th atsuper ior hu man capita l will tend t o concentra te in the domina nt firms despite


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a preva iling clima te of employment insecurit y. Argua bly, th is is pr ett y mu chwhat we see ar oun d us in th e cont emporary capita l an d labor ma rket s. On th eoth er ha nd, th e domina nt firms can not afford to be complacent becau se pro-cesses of concentration allow some clever teams to split away from the majorfirm s and occup y specialist ma rk et n iches (Car roll & Ha nn an 1995, pp. 215-221).An a lternative argument is more proactive, asserting tha t the sur est way toachieve hu man resource advant age in the ren ewal cont ext lies in prepar ing forit more effectively in th e ma tu re context. Abel1 (1993) a rgues th at th e out -sta nding firm man ages with dua l str at egies: ma stering th e present an d pre-empting th e fut ur e. Dua lity implies su perior perceptu al an d planning abilitiesin all contexts: the firm must not become locked into the inertia of a singlestr at egy at an y point in time. In th eory, th is kind of firm would not su ffer th epolitical pr oblems posed by th e r enewa l cont ext: it would be able to keepemploymen t (if not specific jobs) secure, avoiding th e risk s of sk ill dilution an ddem otivat ion (among su rvivors) as sociat ed with lay-offs. P roviding t he firmsindu str y does not collapse by becomin g techn ologically irr elevan t, th is scenar ioseems plausible in theory In practice, however, we see little evidence of it inthe Anglo-American world. The great corporate houses once committed to em-ploymen t secur ity-such as IBM-alm ost inevitably comm it th ems elves now-ada ys to th e mu ch less demand ing goal of employability. Clear ly we needmu ch more resea rch on the na tu re of orga nizat iona l agility, an d the kind ofHR stra tegies tha t support it, as Dyer a nd Shafer (fo~hcoming) ar gue. Thecontemporary environment contains greater tensions between corporate needsfor flexibility and investor demands for higher returns, on the one hand, andemployee needs for certain base-line elements of stability and equity, on theother. Further work on how these tensions can be better reconciled is vital(Evans forthcoming).

CONCLUSIONSThe model outlined in this article does not represent a fully comprehensivetheory: it constitutes some basic steps towards better theory than we havehith erto h ad. It ar gues tha t firms wh ich secur e ongoing viability in their indus-tr y ha ve th e potent ial to build hu man resource advan tage thr ough su periorhuman capital and organizational processes. In a nutshell, these sources ofsuper iority depend on th e quality of inter est alignm ent an d employee develop-men t in a firm compa red with indust ry rivals. These ba sic principles a re com-plicated by the specific challenges associated with different phases of the in-du str y life cycle. We can be rea sonably confident about th e value of exceptionalperception and sophisticated HR planning in the mature context, along withth e import an ce of str ong consisten cy between policy an d pra ctice. However, weneed much more work on both t he establishmen t an d renewal cont exts. Itseems likely th at clever u se of pers onal kn owledge an d ear ly alignment ofinterests is vital in the founding phase if small, vulnerable firms are to com-


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pete against th e ma tu re organizations which dominat e th e labor and capita lma rket s in which th ey ar e str uggling to become esta blished. The renewalcontext-so mu ch a par t of our cont empora ry experience-produces height -ened tensions between corporat e an d employee inter ests which need mu chmore st udy Work on organizat iona l agility (Dyer & Sha fer fort hcomin g) an ddua lity (Evans fort hcoming) repr esent s import an t lines of enqu iry.

The discussion t hr oughout ha s sh own th e value of resea rch in specific com-petitive sectors. The long-term rivalry between Ford an d General Motors,which h as been closely examined by business historians an d biograph ers,proved very useful. Pa tt erns of HR stra tegy ar e complex. It is somewhat easierto un derst an d th e variables involved when we stu dy th e dynamics of competi-tion in specific indu st ries or str at egic groups. Hist orical an d longitu dina lst udies of rivalr ous pair s (e.g. Bar r et al. 19921, or sma ll clust ers of firm s, offerth e best meth od for confirm ing (an d expanding) or invalidat ing th e ar gument scont ained in th is paper .

ACKNOWLEDGMENTSI am grat eful to Pa t Wright an d J ohn Pu rcell for th eir comm ents on an earlierdra ft and to th e jour na ls an onymous referees. The usu al disclaimer applies.

NOTES1. I us e th e ter ms compet ence an d capability int ercha ngeably because t ha t isclosest to common usage.2. In earlier papers, I have distinguished human capital from human process advan-ta ges. Her e I app ly th e adjective organ izational to th e lat ter to indicate th at p rocessadvan ta ges must be embedded or institu tiona lised in th e organization. One might note

that most of the arguments about human capital are to be found in the HRM literatu rewhile most of th e ar gument s about pr ocess advan ta ges ar e to be foun d in th e litera tu reon organ izationa l behavior an d development. It would help pra ctitioners significant ly ifacademics better integrat ed these two litera tur es.

3. I am gra teful to J ohn Pu rcell for this point.4. Similarly, societies wher e th e sta te fosters str ong skill form at ion (e.g. Germa ny)

ten d to creat e firms more likely to build advan ta ge in inter na tional compet ition (Boxall1995).

5. In th e broadest intellectu al cont ext, we need a th eory which explains why ent re-preneu rial ta lent em erges more often in some societies th an in others. At th e societallevel, this is one of th e most crucial hum an resource problems. Given th e firm-levelfocus of th is ar ticle, I simply assu me an adequate supply of ent repr eneur ial individuals,ma de available by a suita ble set of institu tions an d opportun ities in a sta ble capita listsociety.6. Int roduced in 1914. The effect wa s to roughly double t he income of au tomotiveworker s employed by Ford. The length of work shifts was reduced at th e sam e time:from 9 to 8 hours.

7. The Ford Motor Compa ny experienced 370 per cent labor t ur nover in 1913, th e


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year prior to th e pay reform s. Such a level was not un comm on in ma nu factur ing at t hetime (Meyer 1981).8. Apologies to Charles Dickens.

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