Theoretical perspectives for strategic human resource management

Journal of Management, June, 1992 by Patrick M. Wright, Gary C. McMahan

Ulrich (1991) partially relied on the resource-based theoretical perspective in describing human resources as a competitive advantage. He expanded Porter's (1985) model of competitive advantage to include organizational culture, distinctive competence, and strategic unity as "mediators" in the strategy-competitive advantage link. He then discussed how human resource practices can be used by firms to develop strategies that will lead to a sustained competitive advantage, stating that there must be a focus on the relationship between human resources, strategies and competitive advantage.

Both Schuler and MacMillan (1984) and Ulrich (1991) provide practice-oriented perspectives, demonstrating the ways in which they believe that HRM can serve as a sustained competitive advantage. However, neither of these analyses were grounded in the resource-based view of the firm. Thus, they assumed that human resources could be considered as a sustained competitive advantage rather than providing any justification for their positions within the context of the theory. Given the fact that Barney (1991) seems to imply that true sustained competitive advantages are more likely to be discovered than developed, it is first necessary to examine the conditions under which human resources can be a source of sustained competitive advantage in the context of the resource-based view of the firm. This issue has been recently addressed by Wright, McMahan, and McWilliams (1992).

Relying on the assumptions of individual ability being normally distributed, Wright et al. (1992) considered the four criteria for a sustained competitive advantage and attempted to evaluate the conditions under which human resources meet these criteria. First, in order for human resources to exist as a sustained competitive advantage, they must provide value to the firm. This condition requires that there is a heterogeneous demand for labor (i.e., that firms have jobs that require different types of skills) and a heterogeneous supply of labor (i.e., individuals differ in their skills and level of skills). Under these circumstances, human resources can add value to a firm, and the utility formulas provided by Schmidt, Hunter, and Pearlman (1979) and more recently elaborated with regard to financial decision making by Boudreau (1983) provide examples of ways of estimating this value. In fact, Boudreau and Berger's (1985) formula explicitly considers the sales value of human resources (people) in dollar values.

Second, a resource must be rare if it is to be a sustained competitive advantage. Wright et al. (1992) noted that due to the normal distribution of ability, human resources with high ability levels are, by definition, rare. The goal of virtually all selection programs is to ensure that the organization is hiring only the highest ability individuals. The issues then, are the validity of the selection system and whether or not the organization is able to attract and retain those applicants deemed to be of the highest ability. Thus, a firm could theoretically obtain employees of superior ability through a combination of valid selection programs and attractive reward systems.