What you need to know:
- Employees are viewed as a capital resource that requires continuous investment.
- Superior firm-specific human capital can create a competitive advantage as human capital improves learning by doing, thereby reducing the firm’s costs.
The Resource-Based View (RBV) model is a managerial framework that sees possession of a resource or a mix of resources that are rare among competitors as a competitive advantage.
One such resource is human capital. Human capital refers to the knowledge and skills of a firm’s entire workforce.
Employees are therefore viewed as a capital resource that requires continuous investment and, as the dynamics of competition accelerate, human capital is perhaps the only sustainable source of competitive advantage.
This places the human resource function of the organisation at the centre of the pursuit of its strategic objectives through developing a competitive advantage. Valuable and rare resources provide a basis for value creation.
Such resources are sustainable if they are inimitable and lack substitutes, and therefore create a competitive advantage that drives the firm’s ultimate superior performance over its competitors.
We should keep in mind the fact that mere possession of these resources does not guarantee competitive advantage or value.
For the creation of value, firms must accumulate, combine and exploit the resources in their possession.
This is the reason why developing human capital is a key focus area for firms that wish to surge ahead of the competition.
Training and development programmes not only build human capital knowledge and skills, but they also inculcate a common set of core values, forming core competencies, presenting a systematic view of the organisation, promoting its vision and helping form an effective organisational culture.
To the extent that learning produces knowledge in individuals that is difficult to imitate and is superior in use, it can be a source of sustainable competitive advantage for an organisation.
When successful investment in human capital is in place through effective high-quality training and development programmes, the outcome is a workforce that is capable of continuous learning and, combined with the organisation’s expanding knowledge base, it results in strategic success.
To the extent that it is specific to the originating firm, human capital can generate sustained rents such that adjustment costs in a new environment prevent immediate expropriation by rivals.
In the process of learning within a firm, the human capital becomes more firm-specific, with tacit knowledge that is inimitable and therefore potentially less useful to rivals.
In industries where competition for talent can become a fierce battle, firms can build barriers by investing in building firm-specific knowledge and skills in its people that would be less attractive to the competition.
Superior firm-specific human capital can create a competitive advantage as human capital improves learning by doing, thereby reducing the firm’s costs.
Learning from failure
Strategic leaders learn more from failure than from success and hence good leaders recognise the importance of learning from both success and failure.
Managers worry that an understanding response to failure would create a lax work environment in which mistakes multiply.
The converse is actually true. They should recognise the inevitability of failure in today’s complex organisations so that the recipe for success would be to catch, correct and learn from the mistakes before others do, instead of wallowing in the blame game.
Learning from failure occurs by detecting of failure, analysing failure and promoting experimentation.
Granted, there is more tolerance for failure in the more complex types of work than for the routine work type, as the failure in the routine type of work is more of the preventable type.
In today’s organisation, where automation is gaining currency, systematically eliminating most of the routine type of work and leaving the complex type where human judgement is more applicable, room for the preventable type of failure will also diminish.
As a leader, you will help your team learn better from failure by being involved, which helps team members’ perception of psychological safety and gives them a ‘group success experience’.
During economic downturns, as was witnessed as a result of the Covid-19 pandemic and the current geopolitical tensions, most organisations resort to rightsizing, which is usually a politically correct term for downsizing.
Downsizing actions reduce costs, but also produce a loss of valuable human capital that can exceed the benefits resulting from the lay-offs, especially with the larger downsizing actions associated with aggressive organisation restructuring.
Ironically, it is during such downsizing that companies reduce their investment in training and development programmes, while this is the important time to increase investments in these programmes as the companies have less slack and cannot absorb as many errors and the remaining staff may not have the required skills for the positions they thereafter assume.
This is food for thought for leaders who may be contemplating the next move on their human capital in the aftermath of the Covid-19 pandemic.
Dr Olaka is the Chief Executive Officer of the Kenya Bankers Association.