The process of managing people within organisations is a key part of present-day human resource functions. Recognising the value of people has prompted companies to invest in human capital management as a mechanism for building their competitive advantages. Considering the role of people in influencing business success, the concept of capital management has attracted scholarly views. For example, diverse arguments have been raised concerning the management approach to deploy to realise a competitive advantage through people. Achieving effective human capital management is not an easy task. In the due process of implementing best practices, difficulties have been noted, especially when determining the correct and most effective set of motivational factors that can guarantee optimal performance of work teams.
Increased organisational output is critical since it forms one of the essential parameters for assessing an organisation’s level of competitive advantage in its industry of operation. Businesses also encounter the problem of balancing customers’ needs and those of their employees. Building competitive advantage through people paves the way for workers to have a well-defined and timely communicated performance. An effective way of accomplishing this goal involves designing and implementing software application systems for rewarding, allocating, and scheduling various tasks in an optimal manner whereby all employees are motivated and satisfied with their tasks. These efforts indicate that businesses now focus more on the value of their human capital resources. This paper reveals that while there are many benefits of using people to realise competitive advantage, such a strategy does not come without its challenges that range from legal suits to workplace conflicts.
Establishing Competitive Advantage through People
Employees form an important asset, especially in an institution whose success is determined by its capacity to transform various operational approaches to meet demands associated with the ever-changing business environments (Afonina & Chalupsky 2013). To operate successfully in a particular market, a firm needs to establish and maintain a leading edge compared to its competitors. It should have a competitive advantage, which refers to a superior market position established by an organisation to enable it to perform better in comparison to its rivals. Competitive advantage strategies help an institution to develop product differentiation approaches that, in turn, lead to cost leadership in its line of business (Kaleka & Morgan 2017). In this case, cost leadership implies the ability of an organisation to produce and sell goods and services at reasonable prices while at the same time making significant profit margins. Product differentiation indicates the capacity of a firm to manufacture commodities or offer services, which customers prefer to those of competitors. This goal is achieved by ensuring quality, strategic business location, and implementing marketing tactics that present a company’s products or services as having superior qualities (Bel 2018).
Human capital entails an essential aspect of enhancing organisational competitiveness (Davis & Simpson 2017). Businesses undergo transformations in terms of the characteristics of their workforce. This situation requires strategic leaders to go through a similar process of revolution by looking for alternative ways of increasing employees’ performance while at the same time optimising land, labour, and capital. According to Kaleka and Morgan (2017), technology and workforce have evolved to become other critical enablers of organisational competitiveness. In an extremely aggressive business environment, the manner in which companies’ resources are deployed in production processes requires leaders to make critical decisions regarding key internal and external materials and property with a view to overcoming competition. This concern has forced organisations to consider aligning their businesses and corporate strategies with human resource strategies to ensure competitive advantages. In fact, strategic leadership focuses on “human capital’s effectiveness, value, output, and operational performance” (Hirschi & Freund 2014, p.13). Hence, any effort to achieve a leading position in an environment that has several competitors should consider the role of human capital and its efficient management in influencing an organisation’s overall productivity.
There is a growing body of literature that discusses the importance and value of the proper management of human capital in companies. Borrowing from the available theoretical arguments, various institutions deploy dramatic changes in their human resource management, including incorporating IT into HR strategies. For example, Vos and Segers (2013, p. 156) argue that such transformational techniques “have created a growing consensus that effective human capital management is critical to an organisation’s success.” Consequently, it is crucial to examine the best strategies, which companies can deploy to manage human capital with particular concerns on the contribution of different HR functions to their anticipated competitive advantage.
Many businesses operating in the global market find strategic initiatives important in ensuring that they gain success in the short and long-term. Therefore, they have established HR departments whose objectives involve handling issues related to employees, including enhancing motivation and executing conflict resolution mechanisms, with a view to ensuring they remain effective in their work. According to Stone and Dulebohn (2016), HR roles and responsibilities within an organisation are inspired by the perception that employees act as the most important source of its competitive advantage.
A critical factor considered by global corporations in their human capital management approaches entails their workforce diversity levels. Such institutions believe that employing people from different backgrounds provides a competitive advantage since they acquire the capacity to tap and benefit from a wide range of talents and knowledge bases (Goswami & Goswami 2018). Hence, a company can innovate and create an array of products, which while traded in global markets, translate into increased profitability. Nevertheless, it is crucial to note that diversity also brings together people from different cultural backgrounds. Therefore, people-centric approaches to organisational competitive advantage expose businesses to challenges, for instance, culture conflicts, which may lower work efficiency levels and, consequently, their comparative advantage.
Effective human capital management as a source of competitive advantage is critical in all industries. For example, in the IT industry, Chintalapati (2013) presents people as important in the process of innovating new designs, service development, and in devising solutions that meet customers’ concerns. Indeed, effective responses to clients’ issues help to develop and create trust in companies’ products and services. This way, customers’ loyalty and organisational reputation are enhanced. These two aspects are important forces, which help to depict an institution as delivering high-utility products compared to those of competitors. Therefore, a company that effectively manages its human capital in a manner, which effectively responds to customers’ demands, stands a better chance of building a competitive advantage aligned to the concept of product and services differentiation. Employees’ motivation, expertise, experiences, competence, and capabilities influence innovation and creativity levels in a company (Brooke 2015). These factors demonstrate the ability of a firm to manage its human capital effectively.
According to Brooke (2015), today’s managers and leaders understand that human capital is one of the vital resources, which can pay off when proper investments are put in place. Kumar and Pansari (2016) support this assertion by noting that the effectiveness of an organisation depends on the availability of incentive plans, performance appraisal frameworks, systems for handling employees’ grievances, and its involvement of workers in decision-making processes. These authors also argue that institutions, which have implemented these strategies, are likely to gain long-term productivity. This claim presents human capital management as critical for enhancing a firm’s efficiency and, consequently, its competitive advantage. According to research by Brooke (2015), a study conducted in 293 publicly traded companies in the United States found a positive correlation between HRM practices and increased competitive advantage. Having systems that seek to ensure effective human capital management is vital because they contribute to an organisation’s increased productivity and performance. They also lead to enhanced competitive advantage. However, as discussed in the next section, such strategies come with various merits and demerits.
Benefits Associated with the Establishment of Competitive Advantage through People
Achieving cost leadership and product differentiation requires the existence of aspects such as innovation and creativity. Developing new processes or innovative IT systems cannot be successful without the input of people. Therefore, using them for competitive advantage purposes has the benefit of guaranteeing the availability of competence and expertise, which facilitate the development of new business approaches that help to overcome competitors’ strengths in a particular industry. Human resources play a huge role in ensuring innovation, which constitutes an important aspect of product differentiation (Lawler & Boudreau 2015).
According to Brooke (2015), while modernisation is important, process innovation helps to alter approaches to organisational operations. Such initiatives reduce costs, thus requiring competitors to take a long time before discovering product imitation mechanisms. Therefore, competitive advantage strategies that focus on people constitute a significant way of ensuring industry leadership through innovation and creativity. For example, when America Online developed its user-friendly interface, namely, Nascent Internet, this company grew massively after incredibly reducing its production costs (Brooke 2015). This illustration confirms that building competitive advantage around people ensures institutional innovation, which translates into saving billions of money with time.
In addition, establishing competitive advantage through people enables an organisation to acquire cost leadership and product differentiation because of the associated improved quality due to technological innovations. Indeed, developments made in communications technologies have contributed to the success of manufacturing corporations following their enhanced capacity to provide quick and easy means of accessing innovative components and improved deals with clients and suppliers (Brooke 2015). Such approaches help production firms to increase their profitability tremendously. Through technology that has been made available by people, businesses have managed to align manufacturing functions and processes to clients’ needs and suppliers’ information management processes. Hence, people have played a significant role of using technology to enhance companies’ online visibility, especially pertaining to inventory management and the execution of effective quality control standards. Such gains are unachievable without investing in human capital as the source of competitive advantage.
Moreover, unlike land and capital, which are highly limited in supply, present-day organisations can tap into the global labour market using the best talent to enhance their innovation and creativity processes. While the supply side of land diminished as time goes by, the global population increases. Inventiveness and modernisation also amplify based on people’s experience and expertise. Indeed, scientifically proven mechanisms for ensuring that people improve their productivity to enhance an organisation’s competitive advantage are available. For instance, embracing creative thinking enhances innovation that, in turn, leads to the development of technologies (Bondarouk & Brewster 2016). The theory of motivation presents inspiration as a driving force that enables people to perform a given activity to particular levels (Hammersley 2014). Through their performance, various psychological and physiological needs of people are achieved (Gautam & Ghimire 2017). Satisfying these needs depends on diverse internal and external business-related factors. The study by Afonina and Chalupsky (2013) identify these elements as job fulfilment, workers’ achievement, being appreciated, contentment with salary and wages, working conditions, and an organisation’s perception of success. Realising these aspects requires huge investments in HR human capital management.
Negative Aspects Associated with the Establishment of Competitive Advantage through People
Deploying human capital to realise competitive advantage involves organising employees as work teams. Considering the diverseness of the modern workforce, such groups are comprised of members of different genders, cultures, and professional backgrounds (Ray et al. 2017). Each team has a central role in enhancing the performance of an organisation. Nevertheless, diversity differences introduce workplace dynamics that should be controlled to ensure customer satisfaction through the delivery of products that meet the set quality assurance standards (Alemu 2013). Hence, this situation calls for the need to strike common grounds while making decisions based on opinions raised by different members of each workgroup. Otherwise, workplace conflicts are bound to occur if some teams realise that they are not consulted when crucial decisions are made. As a result, using people for competitive advantage purposes becomes disadvantageous because conflicts lead to low work team productivity levels (Ray et al. 2017).
Professional accreditation and reward rely mainly on the performance of people in their respective areas of specialisation. Thus, many members of a work team put efforts to ensure that processes do not stop due to quality problems anchored in their specialties. This disadvantage is significant because it bars the realisation of teams’ overall performance goals. Organisational compensation policies often discourage information sharing in the effort to preserve the intellectual property of different group members at an individual capacity (Li, Kirkman & Porter 2014). In a work team, this conflict arises from differences in employees’ professionalism. This diversity affects organisational and individual outcomes, hence indicating another disadvantage of using people to achieve competitive advantage.
Using people as the source of competitive advantage exposes an organisation to immense checks and balances that have various legal implications, particularly in the process of recruitment and selection. Considering that companies have specific milestones, goals, and objectives, they are expected to exercise the freedom to choose their most preferred employees who they think would be resourceful in facilitating the achievement of the set mission and vision. However, Sauser and Sims (2014) caution that this process is not only complex but also requires companies to be careful by ensuring fair hiring of workers, regardless of their gender, religion, or race.
Otherwise, denying a qualified candidate the chance to be part of a company’s workforce because of the above parameters may result in legal suits. Indeed, in an interview process, an organisation should exercise caution since some questions may be considered discriminatory. The Equal Employment Opportunity Commission illegalises any act of selecting employees based on their colour, ethnicity, faith, political ideologies, age, disability, or sexual orientation (Sauser & Sims 2014). An employer also has a limited freedom in terms of choosing the amount of money to pay as wages and salaries. Indeed, the U.S. Department of Labour controls wage structures by dictating the required minimum wage and overtime payments among other benefits (Schmitt 2015). Other regulations include the legally acceptable notice time before an employer can terminate an employee’s contract. Therefore, achieving competitive advantage through people is disadvantageous since a company cannot choose at any time when to reduce the number of workers or cut their wages and salaries to operate effectively, especially in periods of high production costs.
This study has presented people as the important organisational resources that are abundant in supply. Companies can effectively manage their human capital to achieve competitive advantage. Through innovation and creativity, new technologies in production processes have enabled businesses to acquire cost leadership or product and service differentiation due to increased quality. Employees also act as contact points between companies and their customers. Therefore, they help in building unique customer relationships, which influence clients’ choice and purchasing potential regarding particular products and services. In this case, workers enhance the superiority of their organisations’ commodities compared to those of competitor businesses.
However, for people to achieve these concerns, they need to be motivated and committed to an organisation’s mission and vision. This situation calls for the development and implementation of programmes that seek to ensure workforce motivation, proper management of employees and customers’ grievances, competitive remuneration packages, and consistent appraisal systems. As highlighted in this paper, these initiatives form some key functions of the human resource arm of an organisation. Hence, it has been revealed that realising competitive advantage through people cannot be achieved without clear and effective policies of human capital management. Nevertheless, while it is important to build a competitive advantage through workers and clients, such a strategy comes with it demerits, including the underlying legal implications and the possibility of workplace conflicts, which deter productivity.
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