RBV- your one-stop-shop for why HR is important.

RBV= Resourced based view of the firm.

RBV is a key theory in business strategy that an organisation’s success comes from internal competencies and resources.  This is distinct from the more situational focus that business strategy focuses on; for instance- when McDonald’s has great success with a new product line, the tendency is to analyze the market conditions that allowed that success, not what it is about McDonald’s that makes them good at selling fast food.

The key concepts of RBV are: 

·       Internal Focus:  Unlike external analyses that focus on market conditions or competitor behaviour, RBV emphasizes what the firm controls internally—its tangible assets (like machinery, technology, and capital) and intangible assets (such as brand reputation, patents, and employee skills).

·       VRIN Criteria:  For a resource (including, and especially people) to provide a sustainable competitive advantage, it generally must be:

o   Valuable: It helps the organization exploit opportunities or neutralize threats.

o   Rare: It is not widely possessed by competitors.

o   Inimitable: It is difficult for other firms to replicate due to unique historical conditions, complex interrelationships, or causal ambiguity.

o   Non-Substitutable: There are no equivalent resources that can replace its benefits. 

= Sustainable Competitive Advantage:  RBV argues that firms with resources meeting the VRIN criteria can achieve advantages that are hard for competitors to duplicate, thus leading to sustained superior performance.

RBV for the organisation 

RBV focuses on what are the resources and capabilities within a firm that makes them good.  This can be many things (for example, Coke and KFC’s secret recipes), but employees can be key parts. The practical lessons that organisations should take from this are:

·       Strategic Decision-Making:  Managers should invest in resources and capabilities that meet the VRIN criteria, rather than solely focusing on external market trends.  Put the focus on what makes you different, not same.

·       Resource Allocation:  By identifying key strengths within the firm, organizations can allocate resources more effectively to maintain or enhance their competitive edge.  Invest where it makes a key difference.  Will extra nice company cars make the organisation perform better?  Or is ‘good enough’ the smarter option?

·       Innovation and Growth:  Organizations that continually develop unique resources and adapt their capabilities are better positioned to innovate and grow in dynamic markets.

The Resource-Based View provides a framework to look at the inside of the business, not just the outside.  In practice it pays to look at both.  It helps understanding why some firms outperform others by focusing on the internal strengths that are difficult for competitors to match, ensuring a long-term competitive advantage.

RBV for the HR department

For HR, applying RBV to HR practices show us that the employees and HR practices can serve as a source of sustainable competitive advantage. Instead of viewing HR as just an administrative function, RBV suggests that HR should focus on developing unique, valuable, and hard to imitate human capital. For HR to create a sustainable advantage, it must ensure that its people and practices meet the VRIN criteria:

·       Valuable – Employees must contribute to the company’s success by driving productivity, innovation, and performance. HR policies should ensure talent is used effectively.

·       Rare – Exceptional talent, strong leadership, or a unique organizational culture can differentiate a company from competitors, and this retained.

·       Inimitable – Strong employer branding, a collaborative work culture, and well-developed HR systems (like training and development programs) are difficult to copy.

·       Non-Substitutable – The right mix of skills, knowledge, and HR strategies cannot be replaced by automation, bought or outsourced easily.

This is all very clever but what can I do to add value?  Well I’m glad you asked.

·       Talent Acquisition:  Hire based on cultural fit and long-term potential rather than just ‘ready now’. 

·       Retention:  Retain your top talent through competitive compensation, career growth, and work-life balance policies.

·       Employee Development & Learning:  Train as much as you can, even if you don’t need them right now.   You will one day, and you’ll build both skills and a depth of skills that competitors cannot easily replicate.

·       Next generation:  start building tomorrow today.

·       Organizational Culture & Engagement:  Fostering a strong company culture that promotes collaboration, innovation, and loyalty.

·       Engagement:  Employee engagement strategies to boost morale and reduce turnover.