The Resource-Based Theory and Human Resources

By Olalla [*], Marta Fossas | International Advances in Economic Research, February 1999 | Go to article overview

The Resource-Based Theory and Human Resources


Olalla [*], Marta Fossas, International Advances in Economic Research


This paper applies the resource-based theory on human resources and analyzes its effect on human resource management. This focus considers that each firm is heterogeneous, and it can keep that heterogeneity for a long period of time. A resource is a kind of production factor which is at the firms' disposal, that is, each one is controlled by the firm in spite of having no property right to it. Additionally, any resource is able to create a competitive advantage if it has certain features. This paper will analyze whether human resources can be considered strategic. The answer will be positive because employees are able to create a sustainable competitive advantage, making human resource management a key function. Finally, some practices of human resource management will be named that could make it possible to attain a higher position than a competitor. (JEL M12)

Introduction

The resource-based theory has been an important step in strategic management, as it has provided a new point of view to explain a firm's success. According to the focus on resources, a firm's success is due to joint resources and capabilities which an enterprise owns and which makes it different from its competitors.

Among such resources and capabilities, this paper centers on human resources and the crucial attributes of knowledge, skill, know-how, and talent. These resources and capabilities may constitute a source for a competitive advantage. From this point of view, human resource management is changing so that new practices and politics are appearing which might strengthen or eliminate those significant capabilities and knowledge.

This paper will begin by reviewing the resource-based theory and will pay attention to intangible resources which include human resources. Can human resources be considered strategic? Can it be a source for a competitive advantage? The last section contains comments on those practices in human resource management that can put an enterprise in a higher relative position than its competitors.

Resource-Based Theory

Influenced by Porter's [1980, 1985] studies in the 1980s, strategic management explains a firm's success regarding industrial sector features. From this point of view, firms in the same industrial sector having the same opportunities with few, if any, differences between them, remain that way only for a short period of time [Cuervo, 1993]. Nevertheless, it is observed that an enterprise from the same industrial sector can be profitably different for a long time. How is this explained? Not only do external factors determine the firm's success and profitability but internal factors also play an important role.

This idea is the origin of the resource-based theory. This new perspective considers that each enterprise is heterogeneous, having different established resources which arise from its own past history. Heterogeneous character can be maintained for a long time, thereby, having long-term income [Fernandez and Suarez 1996]. The origin of the resource-based theory can be found in Penrose [1959]. This author defined the enterprise as joint productive resources lending various services which determine the growing possibilities of the enterprise.

Andrews [1971] defined a firm's "distinctive competence" as what it is that an enterprise does especially well. For this reason, Andrews considers that a competitive advantage' depends on the relationship between environmental opportunities and a firm's distinctive competencies.

Officially, the beginning of the resource-based theory is found in a paper by Wernerfelt [1984]. Since this paper, new studies and investigations appeared in the 1990s such as Prahalad and Hamel [1990], Conner [1991], Grant [1991], Peteraf [1993], and Amit and Schoemaker [1993]. The resource-based theory considers that internal aspects of an enterprise are very important. Lado and Wilson [1994] state:

"The firm is viewed as a nexus of resources and capabilities that are not freely bought and sold in the spot market. …

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