Using People as a Tool of Business Differentiation

The Human Capital Index, which compares the practices of 2000 companies world-wide, found that superior human resource management correlates positively with financial returns (Watson-Wyatt, 2007). A firm’s “genetic code” is mainly the composite of its employees’ capabilities, knowledge, and integration. The quality, creativity, self-perception, thinking, and actions of employees is the DNA of the firm. Since few firms are democracies, high-level decision makers are valuable. The genetic code of the firm is a better predictor of success than distinctive or core competencies (Koch, 2011).

HR-based competitive advantage refers to the inimitable utilization of employee capabilities in the creation of value. This theory of advantage through HR comes from resource-based theories that emphasize internal factors (resources and their configurations) over external (industrial) factors as key to advantage (Wernerfelt, 1994). In Barney’s view, resources are the prime determinant of a firm’s capability and, consequently, competitiveness (1991). If human beings can be regarded as a resource similar to traditional resources such as finance, materials, plant, and technology, the human resource must be at least if not more important, since without human manipulation, resources are merely redundant matter.

Arguably a better term than “resources” for the assets provided by workers is “human capital”. Since no company can operate without human agency, and because no two humans are possessed of precisely the same set of skills, experiences, and attitudes (capital), acquisition of the capable human actor becomes a critical determinant of firm performance. Moreover, human capital is not easily substitutable. Employee skills that are company-specific cannot be easily transplanted, so are a source of sustainable competitive advantage (Lado and Wilson, 1994). As employees progress from physical to mental work, explicit knowledge (rules and procedures) elides into tacit knowledge. Problem solving, diagnostics, and decision-making are management processes that are tacit (unquantifiable) but vital, and not the product of mechanistic training alone. Powerful, cost-saving tacit knowledge resides in individuals. Retaining and rewarding those individuals provides advantage. If companies attract and retain capable employees, they deny their rivals access to that capability pool. Competitive advantage through people is thereby obtained.

The acquisition and retention of capable persons, for the strategic advantages they can potentially provide, is a high priority to any enterprise (Wright et al, 1994; Snell et al, 1996). In technological industries, persons possessing the required technical skills and knowledge are of high value. Lower level technical roles must also be filled by individuals who are suitably qualified and motivated to fulfil company objectives.

In the logistics function, differentiating advantage can be provided by persons who are conversant with (or, ideally, formally qualified in) the various technologies and concepts of critical logistics processes such as transport, warehousing, budgeting, purchasing, and communications. Such people are highly sought. Their market value is enhanced further if they possess management/leadership potential, insight, and the capability to reason strategically across silos while focusing on deliverables. Companies seeking growth will remunerate such individuals generously, reflecting degree of scarcity and value.

Staff in lower-level positions must receive training and compensation appropriate to responsibility. Collectively, the company translates its capability arsenal into competencies that produce competitive advantage. Companies lacking a skilled, vision-focused, and dedicated workforce will be less coordinated, less efficient, more waste prone, and less capable of utilising synergistic effects.

Since it is organisationally engaged humans that identify business opportunities, contact potential customers, design products and services, deliver products and services, create and maintain business relationships, serve stakeholders, and generate wealth and efficiencies that should provide broader positive social impacts in addition to profitability, the human dimension is irreducible from any theorisation of business organisations. The notion that capability – and thus business differentiation – resides outside the repository of human capital is untenable.

Human beings are one of the logistics company’s primary assets (arguably the primary asset), and since logistics is a syncretic discipline, variously talented people can deliver differentiation that rewards the organisation.

References

Barney, J. B. (1991) Firm Resources and Sustained Competitive Advantage. Journal of Management, 17 (1)

Koch, R. (2011) Strategy. London, FT-Prentice Hall

Lado, A. A. and Wilson, M. C. (1994) Human resource systems and sustained competitive advantage: a competency-based perspective. Academy of Management Review, 19 (4)

Snell, S. A., Youndt, M. A. and Wright, P. M. (1996) Establishing a framework for research in strategic human resource management: merging resource theory and organisational learning. In G. Ferris (ed.) Research in personnel and human resource management, 14 (1)

Watson-Wyatt Worldwide (2007) Annual Report. 

Wernerfelt, B. (1995) The resource-based view of the firm: ten years after. Strategic Management Journal, 16 (3)

Wright, P. M., Dunford, B. B. and Snell, S. A. (2001) Human resources and the resource-based view of the firm. Journal of Management, 27 (1)