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The Role of Human Capital as a Potential Source of Sustainable Competitive Advantage Has Recently Been the Focus of Considerable Interest in the Academic and Popular Press

The Role of Human Capital as a Potential Source of Sustainable Competitive Advantage Has Recently Been the Focus of Considerable Interest in the Academic and Popular Press

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Published by Ashish Arora

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Published by: Ashish Arora on Jun 18, 2012
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05/13/2014

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The role of human capital as a potential source of sustainablecompetitive advantage has recently been the focus ofconsiderable interest in the academic and popular press . Thecurrent "terms of art" such as intellectual capital, knowledgework and workers, and high-performance work systems(HPWS)all reflect a new interest in "people" as a source ofcompetitive advantage, rather than a cost to be minimized . Byextension, intellectual assets and the organizational systems thatattract, develop, and retain them are emerging as significantelements in strategic decision making . This evolution in the roleof human resources (HR) follows directly from the demands ofrapidly changing product markets and the corresponding declineof command and control organizational structures . A skilled andmotivated workforce providing the speed and flexibility required bynew market imperatives has increased the strategic importanceof human resource management (HRM) issues at a time whentraditional sources of competitive advantage (quality, technology,economies of scale, etc .) have become easier to imitate . Ineffect, while the markets for other sources of competitiveadvantage become more efficient, the subtleties surrounding thedevelopment of a high performance workforce remain a significantunrealized opportunity for many organizations .for competitive advantage
there is a strong foundation for the expectationthat superior human capital strategies will be reflected in valued firm-leveloutcomes.Empirically, however, we have only begun to "peel back the onion" to gainan understanding of the processes through which HPWS add value, as wellas toprovide significant econometric evidence of the magnitude of such an effect. Wedo know, however, that changing market demands and organizationalstructures
 
have increased the strategic importance of a skilled and motivatedworkforce (Pfeffer, 1994) . As firms move away from centralized commandand control management structures, HPWS should be able to provide asignificant, and increasingly important, source of value creation . Within thiscontext, a firm's workforce,and its systems for managing people, are seenas an investment rather than a cost to be minimized . Much more thansimply following orders or simple job routines, employee performancereflecting the discretionary application of employee "local knowledge"constitutes the firm's intellectual capital . A HPWS serves both todevelop and motivate the optimal deployment of that intellectual capital .Beyond the explicit internal and external alignment of the elements of aHPWS, many of the functional recommendations that can be derived fromthis line of research are entirely consistent with familiar principles of soundHRM, including :
 careful selection and hiring that is consistent with the firm's competitivestrategy and operational goals ;
 reward systems that reflect the elements of successful strategyimplementationin appraisal systems and compensation ; and
 development strategies that emphasize training and performancemanagementsystems guided by business objectives .There is more tentative evidence that it is more effective to improve theelementsof the HRM system systematically and holistically than to optimizeindividual elementsof the system. For example, in our most recent work we have found that themost effective human capital strategy appears to include both a high-performanceHRM system as well as the appropriate supporting "organizational logic" ;however,a strategy that focused primarily on the pay-performance linkage has nearly75% of the effect on firm performance . While we would advise firms topursuesystemic solutions to the human capital elements of their businessstrategies and

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