1.4 Organizations, Resources, and the Case for Training

Resource-Based View

A popular perspective on organizations today is the resource-based view (RBV) of the firm. This view pictures organizations as bundles of resources, such as people, capital, plant, and equipment. Besides these tangible resources, RBV also views as resources all organizational capabilities, processes, systems, attributes, and knowledge and information controlled by the firm. In the resource-based view of the firm, such resources are considered potential sources of competitive advantage in the marketplace. A competitive advantage is the ability of an organization to provide a product or service to a paying customer in a way that cannot be matched now or in the foreseeable future by a competitor.

According to RBV, a given resource can create a competitive advantage only when it is not available to other firms and when it cannot easily move across organizational boundaries (conditions that the theory refers to as firm resource heterogeneity and firm resource immobility). The resource-based view of the firm argues that sustained competitive advantage, as distinct from competitive advantage, is available only when other firms are incapable of duplicating the benefits of certain bundles of resources controlled by a given firm. Further, RBV hypothesizes that there are four characteristics a resource must possess before it is capable of providing a firm with a sustained competitive advantage. The resource must do the following:

1. Create value for the customer

2. Be rare and/or unique

3. Be non-substitutable

4. Be inimitable

This argument flows from the more general view that useful resources are different across organizations and cannot be copied by competitors.

It used to be the case that barriers to entry in an industry could be erected by building massive manufacturing plants or investing in research and development in order to be the first to patent new inventions. In other words, it used to be that competitive advantage could be built using tangible resources like capital, equipment, or inventions. In today's modern economy, there is a limited advantage to be obtained from such tangible resources. The large investments in massive factories that old-line manufacturers have made are now frequently a liability when smaller, quicker, nimbler, and more creative competitors show up in the marketplace. Patents and inventions are also of limited value for sustaining a competitive advantage as most can be duplicated quickly through reverse engineering and spinning off closely related products.

The search for resources around which to build a sustainable competitive advantage has therefore turned to intangible resources, such as organizational capabilities, processes, systems, attributes, and knowledge and information controlled by the firm. All of these intangibles rely on the common denominator of people—people develop and apply systems and processes and organizational capabilities. Human resources have come to be seen as the most likely source of a defensible sustained competitive advantage. Human resources, when combined in creative and productive ways, can build organizational systems, processes, and procedures based on cumulative knowledge, experience, and wisdom that will be difficult for a competitor to duplicate. Such knowledge and systems create organizational capabilities, such as the capability to merge distinct cultures quickly in an acquisition or the capability to bring out a steady stream of new products or services ahead of the competition. Cisco Systems is an example of a firm that has developed the former capability, and Apple is an example of the latter. Both exhibit their chosen capability in ways that keep potential competitors at bay over an extended period of time; hence, they demonstrate a sustained competitive advantage according to RBV. Listed below are examples of various types of intangible resources around which a sustainable competitive advantage might be built.

Examples of Intangible Resources1

Human Capital

• Tacit knowledge

• Education and experience

• Work-related know-how

Social Capital

• Corporate culture

• Management philosophy and practices

• Coaching/mentoring relationships

• Informal networking systems

Intellectual Capital

• Patents and trade secrets

• Copyrights

• Intellectual property

Organizational Capability

• Bring new products to market quickly

• Absorb and integrate other cultures in a merger

• Identify customer needs and respond directly to them

• Continuously improve production processes to drive down costs

Using Training and Development to Create a Sustainable Competitive Advantage

If human resources represent one of the few remaining defensible sources of competitive advantage, as RBV suggests, then a critical question facing organizations is how best to build a cadre of skilled and capable people. As noted at the beginning of this topic, one approach is simply to hire the best and brightest, and this is the approach taken by many firms (the buy approach). From the perspective of the resource-based view of the firm, however, one can quickly see why this strategy is flawed. Namely, it can be copied easily by competitor firms. Any organization with enough money can go to the labor market and hire bright and talented people. The inimitability and non-substitutability of human resources are built when an organization brings in bright and talented people and then combines their abilities in ways that create organizational capabilities. Further, organizational barriers become higher when these bright people learn new things faster and quicker than employees in other settings can. This is where training and development can make a strategic difference. If the training an organization designs and implements is targeted tightly at building organizational capabilities that ensure strategic success, and if during the course of training and development bright people from across the organization are brought together in settings that encourage idea sharing and building on each other's knowledge and experience, then the training function can be at the nexus of helping an organization build a sustained competitive advantage. Throughout this book, we will provide examples of exactly how this can be done.