There are three basic resources that can provide competitive advantages:
- Physical capital resources include the firm's plant, equipment, and finance
- Organizational capital resources include the firm's infrastructure, planning, controlling, coordinating, and HR systems
- Human capital resources include the skills, judgment, and intelligence of the firm's employees
This article will focus on the characteristics of the firm's Human Resources, including all of the knowledge, experience, skills, and commitment of a firm's employee and their relationships with each other and with those outside the firm and examine the Value, Rareness, Imitability, and Organization (VRIO) framework for analyzing sources of competitive advantage, which can provide Human Resources executives with the tools necessary to analyze how they can manage the function to develop a firm's people as a source of sustainable competitive advantage.
The VRIO framework
Value
Firms create value through either decreasing the cost or differentiating the product/ service so they can charge at a premium price. The goal of Human Resource Executives is to create value through the Human Resource function.
Rareness
The value of the company's Human Resource is important, but not sufficient as a competitive advantage. If the same characteristic of Human Resource is found in many rivals then that characteristic cannot be used as a source of competitive advantage. Valuable but common characteristics of Human Resource provide only competitive parity. The challenge of Human Resource executive is to examine and develop rare characteristics of the company's Human Resource to gain competitive advantage.
Imitability
Valuable and Rare characteristic of a company's Human Resources can provide above normal profits for the company in short term, however if other firms can imitate these characteristics, then over the time these characteristics will become competitive parity. The Human Resource executives should attempt to develop and nurture the characteristics that cannot easily imitate by the rivals. The point is focus to the importance of a unique history and culture of an organization. This corporate history and culture will provide a foundation to create competitive advantages which will be impossible to imitate.
Organization
Organization focuses and gives attention on systems. In Order for any characteristic of the firm's Human Resources to provide a source of sustained competitive advantage, the firm must be organized to exploit the resource. Organization requires systems and practices that allow human resources characteristics to bear the fruit of their potential advantages. This can include the employee involvement to improve the system and process in the organization. In this employee involvement, the employee can participate in the decision making and to utilize their cognitive skills.
