CHAPTER 6

RESOURCE-BASED AND INSTITUTIONAL

PERSPECTIVES ON SHRM
 Learning Objectives
By the end of this chapter you should be able to:
● Define the resource-based view (RBV) of the firm and
explain its core elements.
● Analyse the usefulness and limitations of the RBV as a
framework for theorizing in SHRM.
● Appreciate the contribution made by new institutionalist
and resource- dependence perspectives to extending the
RBV.
● Critically evaluate theoretical frameworks that seek to
explain the importance of HRM to organizational success.
 About this Chapter
In this chapter we will examine:
1. How the application of the resource-based view
(RBV) led to a shift in research and thinking in the
SHRM domain.
2. Origins of the RBV of the firm
3. Application of the RBV to SHRM
4. Institutionalism and resource-dependence theory to
shed more detailed and nuanced light on how
SHRM ‘works’.
 Origins of the RBV of the firm
• A central concern within the field of corporate strategy has been to
generate theories that can help to explain why, how, and under
what circumstances firms are able to achieve superior
performance.
• Many theorists have focused on the relationship between the firm
and its external environment, and examined the positioning of the
firm in relation to its competitors (Porter, 1980).
• Relatively little attention has been paid to the question of what
actually happens inside the firm, which led to the alternative
perspective – RBV
 Origins of the RBV of the firm

• The origins of the RBV have been attributed to the economist

Edith Penrose who published the book The Theory of the
Growth of the Firm (1959).

• The central idea was that some resources are common and
necessary for an organization to perform its activities, while
others can differentiate it from competitors
 Origins of the RBV of the firm

• A business strategy (and by extension an HR strategy) that focuses

more on utilising internal resources than on locating the best market
position is known as ‘the resource-based view’ .

• Sirmon et al. (2007, p. 2273) defined RBV as:

“Resource management is the comprehensive process of structuring
the firm’s resource portfolio, bundling the resources to build capabilities,
and leveraging those capabilities with the purpose of creating and
maintaining value for customers and owners”.
 Definitions within the RBV
• The RBV can be a complex idea to understand, partly
because the terms associated with it have a very precise
meaning.
• Resources
• Sustained competitive advantage
• The four attributes of resources
 Definitions within the RBV
• Resources
• . . . all assets, capabilities, organizational processes, firm
attributes, information, knowledge, etc. controlled by a firm that
enable the firm to conceive of and implement strategies that
improve its efficiency and effectiveness (Barney, 1991, p, 101).
• Physical capital resources (e.g., plant and machinery)
• Human capital resources: (e.g., KSA)
• Organizational capital resources: (e.g., organizational
systems and processes)
 Definitions within the RBV
• Sustained competitive advantage
• firms need to have an advantage over both current and
potential future competitors.
• a competitive advantage is regarded as sustained only
when it persists after competitors have abandoned efforts
to copy the successful firm
• Of course, circumstances change over time – something
advantageous today my become disadvantageous
tomorrow
 Definitions within the RBV
• The four attributes of resources
1. Valuable
2. Rare
3. Imperfect imitability
4. Non-substitutable

•Where resources meet all four of these conditions, then they can
be a source of sustained competitive advantage.
 Application of the RBV to SHRM
• RBV has become the dominant theoretical framework
within the SHRM field
• It helps to explain how HRM impacts on organizational
performance
• It emphasizes the role of HR in securing firm competitive
advantage
• It sheds light on the complexity of the HR system
 Human capital advantage
• Wright et al. (1994, p. 394) define HR as: “the pool of
human capital under a firm’s control in a direct
employment relationship”.
• Firms that recruit and effectively deploy people with a
high calibre of skills and capabilities are more likely to
secure sustained competitive advantage
• Individuals’ KSAs, and their behavior can be a potential
source of advantage
 Human capital advantage
• Entire workforce should be taken into consideration, however,
advantage is most likely to accrue through ‘core’ employees
• It may be particularly important to reward, retain, and motivate
this group
• Create a longer-term ‘relational’ contract with them
• This approach is termed as the ‘HR architecture’ model,
whereby different HRM approaches are deemed suitable for
different groups of workers.
• Differentiating too much could damage firm social capital
 Advantages through core competencies
and capabilities

• It is particular aspects of employees individually and

collectively that constitute the ‘resource’
• Core competencies are defined as bundles of skills and
technologies that are unique to the firm
• Capability is the condition of having the capacity to do
something
• Core capabilities that underpin an organization’s products and
services.
 Advantages through core competencies
and capabilities

● Core capabilities, which are superior and cannot be

easily imitated.
● Supplemental capabilities, which add value to the core
capabilities but can be easily copied.
● Enabling capabilities, which are necessary conditions to
be in a particular industry.
 Social capital advantage
• Social capital arises out of interaction between groups
and individuals employees
• The quality of these interpersonal and intergroup
relationships can also constitute a source
• When human capital and social capital operate
synergistically, this can be a distinctive source of
sustained competitive advantage
 Human process advantage
• Boxall and Purcell (2008) argue that HR processes or practices
can in their own right be a source of competitive advantage.
• Human process advantage rests on the organization’s ability to
configure HR systems
• Bowen and Ostroff (2004) suggest that there are two important
factors
• Process factors (how the HR system is designed and administered)
• Content factors (policies and practices themselves)
 Human systems advantage
• Wright et al. (2001) argue that Human Systems can be a
source competitive advantage
• System refers to the alignment of people’s skills and
motivation with organizational systems, structures, and
processes, rather than simply employing the right people.
• RBV should be considered holistically and that core
competencies comprise a mixture of human capital,
social capital, and organizational capital
 Critiques of the RBV
• RBV does not currently constitute a theory and they question
the extent of its explanatory and predictive power
• RBV does not take sufficient account of the external
environment
• It may be very difficult to identify resources that fit all the
criteria all the times
• For example, if one characteristic of a resource is that it is
impossible to know how it helps to create advantage, then
how can an organization manage that resource effectively
 Critiques of the RBV
• Can RBV be applied to all kinds of organizations and all kinds of
circumstance (e.g. SMEs, public sector organisations)
• Dearth of empirical studies that seek to test out the propositions
inherent in the RBV, small firms, public sector org.)
• RBV does not contain any inherent prescription that would be
useful for practitioners
• RBV contains no real explanation as to the processes by which
resources are translated into a source of sustained competitive
advantage
 Extending the RBV
• Due to limitations of RBV, researchers have explored how other
theoretical frameworks might provide a better explanations of
how SHRM contributes to performance.

• New institutionalist perspective

• A core criticism of the RBV is that it overlooks the importance of
factors external to the firm, most particularly the potential impact
on SHRM of societal-level factors
 Extending the RBV

New institutionalist perspective

• A core criticism of the RBV is that it overlooks the importance of
factors external to the firm, most particularly the potential impact
on SHRM of societal-level factors
• Management practices frequently reflect the rules, norms, and
structures prevalent in their societal setting
• It is important to take account of the fact that organizations are
embedded in a wider social and institutional environment.
 Extending the RBV

New institutionalist perspective

• The argument is that organizations within one type of setting will
tend towards similar solutions to managerial dilemmas due to
pressures exerted from the environment, creating a situation
where organizations in the same industry tend to become
increasingly similar over time.
 Extending the RBV

New institutionalist perspective

• DiMaggio and Powell (1983) identified three mechanisms by
which organizations are pushed towards similarity isomorphism:
• Coercive: to comply with the legislative frameworks of a country
institutions such as trade unions, governments, work councils)
• Mimetic: organizations tend to copy the strategies and practices
of competitors as one way of dealing with uncertainty
• Normative: these mechanisms are associated with professional
and group norms arising out of associations
 Extending the RBV

New institutionalist perspective

• The RBV and the institutionalist framework are therefore based on
different assumptions
• Institutional theory assumes that individuals are motivated to
comply with external social pressures
• RBV assumes that individuals are motivated to optimize available
economic choices
 Extending the RBV

Resource dependency approach

• RBV tends to assume that organizations have a completely free
choice in how to deploy their resources
• The new institutionalist framework suggests that constraints over
choice exist at the societal and national level
• While the resource dependency approach is based on the idea
that firm’s ‘freedom to develop HR policies may be severely
restricted by the actions of other more dominant members who
are able to exercise power in the network