A firm's talent philosophy and business strategy influence the human resource strategy that guides its staffing strategy. As explained in Staffing to Support Business Strategy, this philosophy reflects how organizations think about their employees. Its business strategies are created to leverage resources and capabilities in ways that result in superior value creation compared to competitors. Its competitive advantage depends on its ability to leverage the resources and capabilities that derive from the talent it is able to hire and retain. How it positions itself to compete in the marketplace determines the competitive advantage it needs to create and the staffing strategies it needs to pursue to acquire and retain the appropriate talent. A company's choice and execution of its staffing strategy influences the number and types of people it hires, and thus its ability to maintain a competitive advantage and execute its business strategy. This book also discusses the nine strategic staffing decisions all firms must make.
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Staffing to Support Business Strategy
By Jean M. Phillips, Stanley M. Gully
Society For Human Resource ManagementCopyright © 2009 Phillips, Gully, and Associates
All rights reserved.
Resource-Based View of the Firm
Most organizations recognize that a large budget and state-of-the-art facilities do not guarantee success. Success really depends on employees' motivations, competencies, and skills. The resource-based view of the firm describes how employees' motivations, competencies, and skills can help to create a sustained competitive advantage.
What Is the Resource-Based View of the Firm?
The resource-based view of the firm proposes that a company's resources and competencies can produce a sustained competitive advantage by creating value for customers by lowering costs, providing something of unique value, or some combination of the two. To create value, the hiring programs, policies, and practices of an organization must either lower the costs of the organization's products or services, enhance the differentiation of the organization's products or services in the eyes of customers, or both. To the extent that staffing influences who has the opportunity and desire to pursue an employment relationship with the organization, staffing serves as a gatekeeper in influencing the level and composition of an organization's talent. This can add value to the organization through employees' competency levels, experience, judgment, social relationships, and so on.
Human resources can be a source of competitive advantage because they meet the criteria for being a source of sustainable competitive advantage: they add value to the firm, are rare, cannot be imitated, and cannot easily be substituted with other things. Other companies cannot necessarily replicate another firm's capabilities just by imitating the competitor's HR practices.
The resource-based view of the firm focuses attention on the quality of the skills of a company's workforce at various levels, as well as on the quality of the motivational climate created by management. HR management is valued not only for its role in implementing a given competitive scenario but also for its role in generating strategic capability. Staffing has the potential to create organizations that are more intelligent and flexible than their competitors, and that exhibit superior levels of cooperation and performance.
Requirements of a Competitive Advantage
Peoples' efforts, talents, knowledge, and skills matter to organizations. If you don't believe this is true, then fire all of your organization's employees and replace them with cheaper workers. Few successful organizations would accept this challenge because they understand that their people are the key to their performance and survival. A competitive advantage is something that a company can do differently from its competitors that allows it to perform better, survive, and succeed in its industry. Sometimes an organization's competitive advantage is defined by its technology. Other times, innovative product lines, low-cost products, or excellent customer service drive competitive advantage. In every case, the company's employees create, enhance, or implement the company's competitive advantage.
How do people make a difference? At companies such as Microsoft and Google, key technology is devised, implemented, and updated by the people who create and use it. Employees at Apple Computer, Pfizer, and 3M create and sell new and innovative product lines. Employees identify and implement the systematic manufacturing system improvements that create low-cost, high-quality automobiles at Hyundai. Finally, customer service at Starbucks is all about employee-customer interactions and experiences. In every case, employees influence and implement key drivers of business success. From where do these employees come? It all begins with the staffing process.
Jay Barney identifies the five criteria (in Table 1) that a resource must meet to provide an organization with a sustainable competitive advantage.
Table 1. Requirements of a Competitive Advantage
1. It must be valuable to the firm by exploiting opportunities and/or neutralizing threats in an organization's environment.
2. It must be rare among the company's current and future competition.
3. It must not be easily imitated by other firms.
4. It must not be easily substituted or replaced with another resource.
5. The company must be organized to be able to exploit the resourc
Staffing activities can create value for a firm because they can help it to exploit opportunities and/or neutralize threats. The return on staffing investments and the retention and performance of employees can be increased by rigorously evaluating the effectiveness of various staffing practices and targeting staffing activities to identify and attract the best types of applicants for the organization's needs. Providing applicants with realistic information about the job and organization can also help reduce subsequent turnover, reducing overall labor costs and improving productivity. Hiring people who do a better job for the same pay is also a way that staffing investments can create value.
The potential of strategic staffing to create value and a sustainable competitive advantage for an organization has been recognized by investors as well. An Ernst & Young study found that institutional investors are more likely to buy stock based on a company's ability to attract talent, suggesting that the quality of a company's staffing practices can differentiate it to investors. Staffing thus appears to meet the value requirement of creating a competitive advantage.
Value creation alone is not enough to produce sustainable competitive advantage. For a company to outperform competitors, its staffing practices must also result in a set of rare workforce attributes. The ability to identify and attract rare talent varies across organizations. For example, some organizations such as Google and Costco are able to hire and retain the best talent at a greater rate than their competitors, distinguishing the competencies of their workforces. Because strategic staffing practices can increase an organization's ability to identify and attract rare talent, staffing meets the rarity requirement for providing a competitive advantage.
If an organization's strategic staffing practices are imitable or easily copied by a competitor, the organization's resulting talent will not be as differentiable from the talent of its competitors. The ability of competitors to copy an organization's staffing practices is determined by: the availability of unique attributes in the labor market; the ambiguity surrounding which staffing practices contribute to the acquisition of the valuable and rare employee characteristics; and the difficulty of replicating practices deeply embedded in social relationships, including recruiting networks and longstanding relationships with talent sources. The organization's unique history and the resulting organizational reputation and culture can also influence competitors' ability to copy an organization's staffing practices. Together, these factors make it unlikely that competitors will easily imitate and implement another organization's constellation of staffing practices.
Imagine if an established company, highly respected for its integrity and community philanthropy, simply passed out business cards at a community function that read, "We're hiring!" and provided an Internet address for further information. This well-known and respected organization is likely to receive a more favorable response to this recruiting initiative than a start-up company with little visibility and no reputation. Two companies that do the same thing may not experience the same response to the same staffing initiative. To the extent that many interrelated factors contribute to the success of an organization's staffing effort, it will be difficult for a competitor to copy all of them exactly. If a competitor can copy or imitate an organization's successful staffing methods, the company's competitive advantage will erode. Staffing thus meets the inimitability requirement for providing a competitive advantage.
A staffing practice should have minimal substitutability, or be difficult for another practice to effectively substitute for it. If a staffing practice is to provide a sustainable competitive advantage, then there can be no good substitute for it. If one company successfully recruits by flying an airplane banner over a popular beach near a university known for its technological capabilities and a competitor can effectively reach the same audience by handing out recruiting brochures at the same beach, then neither company will experience a competitive advantage from recruiting beachgoers. Similarly, if a competitor can find a substitute for the type of talent another organization has acquired, neither organization will realize a competitive advantage.
The nature and talents of the people hired through a particular strategic staffing effort are often not substitutable by technology or other alternatives. If an organization attracts and hires experienced talent with an in-depth understanding of its customers and its industry, it will be difficult for competitors to effectively substitute for these qualities. Technology is also unlikely to sufficiently replace what these talented employees contribute. Because most employee contributions to organizations are not substitutable (e.g., intelligence, judgment, and innovation), staffing meets the competitive advantage criteria of nonsubstitutability as well.
Organization of the Company
For talent to be a source of sustained competitive advantage, a company must be organized to take full advantage of the talent it employs. Inconsistencies in the set of HR activities implemented by organizations (e.g., recruitment, selection, compensation, and training systems used) often cause them to work against each other. For example, if an organization is able to recruit and select the top talent it is pursuing, but offers compensation that is well below the market rate for this talent, then it is unlikely to be able to hire or retain them despite the success of the staffing function in identifying and attracting talented individuals. If an organization successfully hires lower-skilled people with the intention of training them in the necessary job skills but the training program is poor, the organization's ability to fully capitalize on its effective staffing system is constrained. It is thus critical that staffing be integrated with the other HR management functions and with other policies and practices throughout the organization. Staffing provides the input into the other aspects of the HR management system, and the success of the staffing function, as well as the rest of the HR management system, is influenced by its degree of integration and consistency with the other components of the system.CHAPTER 2
Business strategy defines how a company will compete in its marketplace. The purpose of a business strategy is to determine how a firm "will deploy its resources within its environment and so satisfy its long- term goals, and how to organize itself to implement that strategy." A company's business strategy states what it intends to offer that will create value for its customers and lead it to be preferred over the competition. Business strategy should reflect what the organization's customers want, what the firm wants, and what the firm can cost-effectively deliver. Business strategies are likely to differ across multiple business units in a diversified corporation. Procter & Gamble, IBM, and General Electric have different strategic approaches to ensure success in their various lines of business. Business strategy addresses product choices and methods of gaining competitive advantage, and it hinges on a company's capabilities, strengths, and weaknesses in relation to market characteristics and the capabilities, strengths, and weaknesses of competitors. For a company to successfully execute its business strategy, its HR management policies and practices must fit with its strategy, its competitive environment, and with the immediate business conditions that it faces.
Successful business strategies are grounded in creating and maintaining a sustainable competitive advantage, which exists any time an organization has an edge over rivals in attracting customers and defending itself against competition. Hiring and retaining the right people are critical to business strategy execution, because it is an organization's people who are responsible for gaining and keeping a competitive advantage. Michael Treacy and Fred Wiersma have identified many sources of competitive advantage, including having the best-made or cheapest product, providing the best level of customer service, being more convenient to buy from, having shorter product development times, and having a well-known brand name.
Costco's strong and loyal customer base, access to a broad range of high-quality products for a low price, and committed employees give it a competitive advantage over smaller and lesser-known retailers. Although Costco pays its employees substantially more than its closest competitor, Sam's Club, it has similar financial returns on its labor costs due to lower turnover and higher levels of employee productivity. This, in turn, results in a better-qualified workforce and a higher-quality customer experience. According to Michael Porter, to have a competitive advantage a company must ultimately be able to give customers superior value for their money (a combination of quality, service, and acceptable price) — a better product that is worth a premium price or a good product at a lower price can both be a source of competitive advantage. Table 2 lists some possible sources of competitive advantage.
Table 2 Sources of Competitive Advantage
Innovation: Develop new products, services, and markets, and improve current ones.
Cost: Be the lowest-cost provider.
Service: Provide the best customer support before, during or after the sale.
Quality: Provide the highest-quality product or service.
Branding: Develop the most positive image.
Distribution: Dominate distribution channels to block competition.
Speed: Excel at getting your product or service to consumers quickly.
Convenience: Be the easiest for customers to do business with.
First to market: Introduce products and services before competitors.
We next discuss business strategy in more detail, as well as how staffing can reinforce the organization's overall business strategy and support its execution.
Types of Business Strategies
A company may create value based on price, technological leadership, customer service, or some combination of these and other factors. Business strategy involves the issue of how to compete, but also encompasses:
The strategies of different functional areas in the firm;
How changing industry conditions such as deregulation, product market maturity, and changing customer demographics will be addressed; and
How the firm as a whole will address the range of strategic issues and choices it faces.
Business strategies are partially planned and partially reactive to changing circumstances. A large number of possible strategies exist for any organization, and an organization may pursue different strategies in different business units. Companies may also pursue more than one strategy at a particular time. According to Michael Porter, businesses can compete successfully by being the cheapest producer, by making unique products valued by consumers, or by applying their expertise in a narrow market segment to meet that segment's particular product or service needs. These three primary business strategies are cost leadership, differentiation, and specialization. Another strategic choice is whether to grow the business, and, if so, how to do it. We next discuss each of these strategies and their implications for what is required of the staffing function.
Firms pursuing a cost-leadership strategy strive to be the lowest cost producer in an industry for a particular level of product quality. These businesses are typically good at designing products that can be manufactured efficiently (for example, designing products with a minimum number of parts needing assembly) and engineering efficient manufacturing processes to keep production costs and customer prices low. WalMart is a good example of a firm pursuing a cost-leadership strategy.
Organizations pursuing a strategy of keeping costs and prices low try to develop a competitive advantage in operational excellence. Employees in these firms need to identify and follow efficient processes and engage in continuous improvement. Manufacturing and transportation companies frequently adopt this approach. These organizations' operational systems continually look for ways to reduce costs and lower prices while offering a desirable product that competes successfully with competitors' products. Dell Computers, Federal Express, and Wal-Mart are good examples of companies whose competitive advantage is based on operational excellence.
Because most operationally excellent firms require trainable and flexible employees who are able to focus on shorter-term production objectives, who avoid waste, and who are concerned about production costs, employees who display pretentious behavior are not desirable. Because operationally excellent organizations operate with tight margins and rely more on teamwork than individual performance, it is not as helpful to pay the high price required to attract top talent because the return on this investment is not high enough and the resulting pay disparity can hinder effective teamwork. Staffing goals for such an organization's core production workforce include hiring people who are adaptable, efficiency-oriented, trainable, and willing to follow standardized procedures.
A differentiation strategy calls for the development of a product or service that has unique characteristics valued by customers. The value added by the product's uniqueness may enable the business to charge a premium price for it. The dimensions along which a firm can differentiate include image (Rolex), product durability (Carter's children's clothing), quality (Lexus), safety (Mercedes), and usability (Apple Computer). Some companies, such as Southwest Airlines and ING Direct bank, differentiate themselves from their competitors by pursuing a strategy based on only providing no-frills, basic products and services at a low cost. As we mentioned earlier, companies can pursue more than one strategy at a time. In this case, Southwest Airlines and ING Direct are both cost leaders and differentiators.
Excerpted from Staffing to Support Business Strategy by Jean M. Phillips, Stanley M. Gully. Copyright © 2009 Phillips, Gully, and Associates. Excerpted by permission of Society For Human Resource Management.
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Table of Contents
Resource-Based View of the Firm,
Deriving Staffing Strategy,
Strategic Staffing Decisions,
Competitive Talent Advantage,
Goals of Strategic Staffing,
About the Authors,
Additional SHRM-Published Books,