Human resources

Human resources: Human resource and competitive advantage, using the VRIO (value – rarity – imitability – organization) approach.

Introduction:

VRIO analysis:
VRIO is a business analysis framework that forms part of a firm’s larger strategic scheme. The basic strategic process that any firm goes through begins with a vision statement, and continues on through objectives, internal & external analysis, strategic choices (both business-level and corporate-level), and strategic implementation. The firm will hope that this process results in a competitive advantage in the marketplace they operate in. [1]

VRIO falls into the internal analysis step of these procedures, but is used as a framework in evaluating just about all resources and capabilities of a firm, regardless of what phase of the strategic model it falls under.

VRIO is initials for the four question framework asked about a resource or capability to determine its competitive potential:

  • The question of Value,
  • The question of Rarity,
  • The question of Imitability (Ease/Difficulty to Imitate),
  • The question of Organization (ability to exploit the resource or capability).

Once the analyst has realized the value, rarity and imitability of the company’s resources and capabilities, the next step is to organize the company in a way to exploit these resources. If done successfully, the company can enjoy a period of sustained competitive advantage.[2]

The competitive advantage:

In general, a firm has a competitive advantage when it is able to create more economic value than rival firms. Economic value is simply the difference between the perceived benefits gained by
a customer that purchases a firm’s products or services and the full economic cost of these products or services.[3]

Human resource as a competitive advantage [4]

VALUE

HR executives must start their functions with a eye on the bottom-line and address a primary question “How can HR aid in either decreasing costs or increasing revenues?”.
In today’s time when everyone is talking numbers; the HR department has to prove its worth and show that it creates value for the organizations. HR can help a firm achieve sustainable competitive advantage by creating value.

Example: FedEx, which are the market leaders in the courier business, believe people are the primary link in the value chain, and thus, value is created by focusing on employees first. HR practices should be related to employee attitudes which would be consequently related to customer satisfaction.

 

 

RARENESS

Only value alone cannot help the HR department to achieve sustainable competitive advantage for organizations. HR executives must examine how to develop and exploit rare characteristics of the firm’s human resources to gain competitive advantage. If the same characteristic of human resources is found in many competing firms, then that characteristic cannot be a source of competitive advantage for any one of them. In order to drive the strategic decisions, HR executives should being the ‘rare’ factor in the talent they recruit.

Example: Nordstrom is one of the most reputed brands in the retail sector. The recruiting process, compensation practices and culture at Nordstrom’s have helped the organization to maintain the highest sales per square foot of any retailer in the nation.

IMITABILITY

If the competitors in the business can easily imitate what you offer, then you are at loss! The HR executives must attempt to develop and nurture characteristics of the firm’s human resources that cannot easily be imitated by competitors. This essentially means leveraging on organization’s unique history or culture that helps in gaining competitive advantage. In any organization, the culture is nurtured and developed via the HR Department. Hence, by restricting and developing unique culture, executives can help firms in gaining competitive advantage.

Example: Even after purchasing the safety training programs, DuPont’s competitors are simply unable to match DuPont’s safety record. DuPont’s superior safety performance stems at least partly from its unique history that competitors find impossible to imitate.

ORGANIZATION

In order for any characteristic of a firm’s human resources to provide a source of sustained competitive advantage, the firm must be organized to exploit the resource. Organization requires developing the systems and practices that allow human resources characteristics to bear the fruit of their potential advantages.

Example: Both General Motors and Ford recruit assembly line workers from the same basic labor market. But, Ford has been more successful at developing a cooperative, team-based culture than General Motors. Clearly the HR function, through either directly controlling or strongly influencing the characteristics of human resources in organizations plays an important role in developing and maintaining a firm’s competitive advantage.

The VRIO framework enables business people in HR to transform the HR function into a contributor to firm performance rather than a drain on firm resources. Today, HR is not merely a burden on the organization and HR executives should communicate the ‘economic reason’ which compels the organizations to invite HR Executives to the strategic planning “table”.[5]

[1] (Strategic Management Insight | SMI)

[2]Barney, Jay B and Hesterly, William S. Strategic Management and Competitive Advantage: Concepts. 2005 Pearson Education, Inc., Upper Saddle River, New Jersey, 07458  (Barney, 2005)

[3] (Barney, 2005)

[4] (Sharma, 2012)

[5] (Sharma, 2012)

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