Human Capital As A Potential Source Of Sustainable Competitive Advantage Business Essay


The role of human capital as a potential source of sustainable competitive advantage has recently has recently been the focus of considerable interest in the academic and popular press. The current "terms of art" such as intellectual capital, knowledge work and workers, and high-performance work systems (HPWS) all reflect a new interest in "people" as a source of competitive advantage, rather than a cost to be minimized. By extension, intellectual assets and the organizational systems that attract, develop, and retain them are emerging as significant elements in strategic decision-making. This evolution in the role of human resource (HR) follows directly from the demand of rapidly changing product markets and the corresponding decline of command and control organization structures. A skilled and motivated workforce providing the speed and flexibility required by a new market imperative has increased the strategic importance of human resource management (HRM) issues at a time when traditional sources of competitive advantage (quality, technology, economies of scale, etc) have become easier to imitate. In effect, while the markets for the other sources of competitive advantage become more efficient, the subtleties surrounded the development of a high performance workforce remain a significant unrealized opportunity for many organizations.

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In addition to widespread practitioner interest in the role of "people" as a source of competitive advantage, the subject as also captured the attention of academics. Recent special issues in the Academy of Management Journal, Industrial Relations, Journal of Accounting & Economics, and Strategic Management journal have focused broadly on the relationship between intellectual assets and firm performance. While still a nascent field of inquiry, both the theoretical and empirical work in this area is broadly consistent with the conclusion that there is a strong relationship between the quality of firm's HRM system and its subsequent financial performance. Paradoxically, these research findings come at a time when the HRM functions in many firms is under significant pressure to justify its existence. On the one hand, CEOs understand the essential strategic value of a skilled, motivated, and flexible labor force. On the other hand, the traditional HRM function has not typically been thought of as a strategic asset, and consequently is under pressure to reduce expenses and demonstrate efficiency in the delivery of their services. In essence, the HRM function within many organizations is being asked to develop new strategic capabilities while at the same time more effectively managing, and perhaps outsourcing, many of its traditional administrative responsibilities (Corporate Leadership Council, 1995; Ulrich, 1997).

Despite this turmoil, the changing competitive realities have provided the HRM function with an unprecedented opportunity to create significant shareholder value, through the effective (in contrast to the efficient) management of the firm's HRM system. We emphasize the importance of the global or overall HRM system because we believe that it is the systematic and interrelated influence of HRM policies and practices that provides their inimitability, and therefore provides a strategic lever for the firm. Such internally consistent and externally aligned (with firm competitive strategy) work systems are generally thought to include rigorous recruitment and selection procedures, performance contingent incentive compensation systems, management development and training activities linked to the needs of the business, and significant commitment to employee involvement (Arthur, 1944; Huselid, 1995; Ichniowski, Shaw, & Prennushi, 1997; Jackson & Schuler, 1995; MacDuffie, 1995; Milgrom & Roberts, 1995; Pfeffer, 1994). An internally consistent and implementing the firm's competitive strategy is the basis for the acquisition, motivation, and development of the underlying intellectual assets that can be a source of sustained competitive advantage. In contrast, elements of the HRM function that focus on transactions and compliance activities do not play an equivalent strategic role, and will continue to be evaluated as cost centers. Indeed, while the HRM system is typically thought of as the responsibility of the HRM function, or diffuse in larger firms that have attempt to embed them more broadly in management (e.g., Hewlett-Packard). In our view, one of the most significant impediments to developing a strategic system that provides solution to business problems rooted in human capital is thinking of the HRM system as a traditional HRM responsibility.

A high-performance work system (HPWS) can be defined as a specific combination of work structures, HR practices, and process that maximizes employee knowledge, skill, flexibility and commitment. Although some HR practices and policies tend to be incorporated within most HPWSs, it would be a mistake for us to focus too much, or too soon, on the pieces themselves. The key concept is the system. HPWS are composed of many interrelated parts that complement one another to reach the goals of an organization, large or small. I will start by the underlying principles that guide the development of HPWSs and the potential benefits that can occur as a result. Then I will outline the various components of the system, the workflow design, management process, HR practices and supporting technologies (fig.1)

Fig. 1: Developing High Performance Work Systems

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The notion of HPWS was originally developed by David Nadler to capture an organization's "architecture" that integrates technical and social aspects of work.

Edward Lawler and his associates at the Center of Effective Organization at the University of Southern California have worked with Fortune 1000 corporation to identify the primary principles that support HPWSs. There are 4 simple but powerful principles, as shown in fig. 2:

Shared information

Knowledge development

Performance reward linkage


These principles have become the building blocks for managers who want to create HPWSs. More important, they are also quickly becoming the foundation for current theories of HRM.

Fig. 2: Underlying principles of High Performance Work Systems

The principle of Shared Information

The principle of shared information is critical for the success of empowerment and involvement initiatives in organizations. The principle of shared information typifies a shift in organizations away from the mentality of command and control towards one more focused on employee commitment. It represents a fundamental shift in the relationship between employer & employee. If executives do a good job of communicating with employees and create a culture of information sharing, employees are perhaps more to be willing (and able) to work towards the goals for the organization. They will know more, do more and contribute more.

The Principle of Knowledge Development

Knowledge development is the twin sister of information sharing. HPWS depend on the shift from touch labor to knowledge work. Employees today need a broad range of technical, problem-solving and interpersonal skills of change, knowledge skills to work either individually or in teams on cutting-edge projects. Because of the speed of change, knowledge and skill requirements must also change rapidly.

The principle of Performance Reward linkage

A time tested adage of management is that the interests of employees and organizations naturally diverge. People may intentionally or unintentionally pursue outcomes that are beneficial to them but not necessarily to the organization as a whole. A corollary of this idea, however, is that things tend to go more smoothly when there is some way to align employee and organizational goals. When rewards are connected to performance, employees naturally pursue outcomes that are mutually beneficial to themselves and the organization. When this happens, some amazing things can result. For example, supervisors don't have to constantly watch to make sure that employees do the right thing. But in fact, employees go out of their way- above and beyond the call of duty, so to speak- to make certain that co-workers are getting the help they need, system and processes are functioning efficiently and customers are happy. Connecting rewards to organizational performance also ensures fairness and trends to focus employees on the organization. Equally important, performance based rewards ensure that employees share in the gains that results from any performance improvement.

The Principle of Egalitarianism

People want the sense that they are members and not just workers in an organization. Status and power difference tends to separate people and magnify whatever disparities exist between them. The "us versus them" battles that have traditionally raged between managers, employees and labor unions are increasingly being replaced by more cooperative approaches to managing work.

More egalitarian work environments eliminate status and power differences and in the process increase collaboration and teamwork. When this happens, productivity can improve if people who once worked in isolation from (or in opposition to) one another begin to work together.


Building a business case for change

To get initial commitment to HPWS, managers have to build a case that the changes are needed for the success of the organization. In a recent study on the implementation of the HPWS, it was found that a member of a top management typically played the role of sponsor and spent a substantial portion of his time in that role communicating with employees about the reasons and approaches to change. Major transformation should not be left to middle managers. Rather, the CEO and the senior management team need to establish the context for change and communicate the vision more broadly to the entire organization. One of the best ways to best ways to communicate business needs is to employees where the business is today, its capabilities and current performance. Then show them where the organization needs to be in the future. The gap between today and the future represents a starting point for discussion.

Establishing a Communications Plan

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The ASTD council on HPWS noted that providing an inadequate communication system is the most frequent mistake companies make during implementation. While we have emphasized the importance of executive commitment, top-down communication is not enough. Two-way communication not only can result in better decision, it may help to diminish the fear and concerns of employees.

Involving the Union

Building cooperation with Unions

Navigating the Transition to High Performance Work Systems

Building commitment to HPWS is ongoing activity. Perhaps, in fact it is never fully completed. And as in any change activity, performance frequently falters as implementation gets under way. One reason is that pieces of the system are change incrementally rather than as a total program. The other mistake organization often make is to focus on either top-down change driven by executives or bottom-up change cultivated by the employees. The top-down approach communicates manager support clarity, while the bottom-up approach ensures employee acceptance and commitment.

Building a Transition Structure

Implementation of HPWS proceeds in different ways for different organizations. In organizational startups, managers have the advantage of being able to put everything in place at once. However, when organizations have to be retrofitted\, the process may occur a bit more clumsily. When Honeywell switched to HPWS, employees attended training program and participated in the redesign of their jobs while the plant was shut down to be re-equipped with new technology. When the new plant was reopened, self managing teams were put in place and a new pay system was implemented for high performance workforce. Not every organization has the luxury of suspending operations while changes are put in place. Nevertheless, establishing an implementation structure keeps everyone on track and prevents the system from bogging down. The structure provides a time table and process for mapping key business processes, redesigning work and training employees.

Incorporating the HR Functions as a Variable Partner

One of the mistakes that organizations can make in implementing HPWS is allocating too few resources to the effort. This means money, of course, but it also time and expertise. Although line manager typically own the responsibility of implementation, HR managers can be invaluable partners in leading the charge for and managing the change. Because change is difficult, HR managers need to understand what employees in transition are going through and help them handle it. When the old ways of doing things are abandoned, many experienced employees begin to feel like beginners again on the job. This can be stressful and sometimes polarize employees.

Evaluating the success of the system

Once HPWS are in place, they need to be monitored and evaluated over time. Several aspects of the review process should be addressed. First, there should be a process audit to determine whether the system has been implemented as it was designed and whether the principles of HPWS are being reinforced.

Finally, HPWS should be periodically evaluated in terms of new organizational priorities and initiatives. Because HPWS are building on key business processes that deliver value to the customers, as these processes and customer relationships change so too should the work system. The advantage of HPWS is that they are flexible and therefore more easily adopted. When change occurs, it should be guided by a clear understanding of the business needs and exibhit a close vertical fit to strategy.


Relationship to Prior Conceptual Literature

The prior conceptual literature speaks both of the mechanism through which the HR management system might affect firm performance as well as necessary conditions for these systems have a strategic impact. The behavioral perspective (Jackson, Schuler, & Rivero, 1987) suggests that an effective HR management system will acquire, develop and motivate the behaviors necessary to enhance firm performance (Bailey, 1993; Jackson et al., 1987; Pfeffer, 1994; Schuler & MacMilian, 1984). Complementary work argues that HR management systems provide additional value when they are purposively designed to be internally consistent and are thereafter linked with firm competitive strategy (Butler, Ferris, & Napier, 1991; Cappelli & Singh, 1992; Jackson & Schuler, 1995; Milgrom & Roberts, 1995; Ulrich & Lale, 1990; Wright & MacMahan, 19992). In essence, prior theoretical work in this area concludes that competitive advantage is in part of product of HR management systems that elicit employee behaviors consistent with the firm's broader strategic and environmental contingencies (Jackson & Schuler, 1995).

Promoting desirable employee behaviors is not sufficient to create a strategic impact. Following the resource-based view of the firm (Barney, 1991) it is clear that if HR management system systems are to in fact create sustained competitive advantage, they must be difficult to imitate. HPWS are characterized by at least two features that are associated with inimitability: path dependency and causal ambiguity (Collis and Montgomery, 199). Path dependency describes organizational practices that are developed over time and cannot be simply purchased in the market by competitors. A competitor can understand that a practice is valuable and would like to do the same thing, but is precluded from in policies that are easily understood in concept, but in practice require numerous and subtle interrelationships that are not readily observed by those outside the firm. An example is the challenge of aligning HR, management practices with the firm's strategy and their larger "embeddedness" in management practice (Lengnick-Hall & Lengnick-Hall, 1998; Lado & Wilson, 1994).

The behavioral perspective describes how the HR management system creates new firm capabilities, while resource-based theory emphasizes the attributes required for these capabilities to generate competitive advantage. These complementary dimensions are consistent with recent theoretical work in the field of strategic management (Amit and Shoemaker, 1993) that develops the concept of strategic assets as "the set of difficult to trade and imitate, scare, appropriate and specialized resources and capabilities that bestow the firm's competitive advantage". Our view is that the HR strategies that successfully develop and implement a coordinated HPWS create "invisible assets" (Itami, 1987) that both create value and are difficult to imitate. These assets values are maximized with the HPWS is so embedded in the operational system of the organization that it enhances a firm's capabilities. Therefore, unlike more traditional "personnel" activities, organizational HPWS has a strategic impact at the level of the firm. This interpretation is also consistent with the recent emphasis on "core competencies" developed by Hamel and Prahalad (1994) who argue that conventional measure of economic rents such as the difference between market and book value of assets (i.e.,Tobin's q) reflect "core competence, people embodied skills".

Relationship to Prior Empirical Work

Prior empirical research on HRM practices and organizational performance can be divided into four categories that vary along two dimensions: the breadth of HR practices under consideration and level of organizational performance. Most work examines one or a few types of HR policies or intermediate levels of organizational performance. A much smaller no. use a broad measure of the HR management system and intermediate measures of performance or a narrow set of HRM practices and firm level performance of organizational performance. The best of these (Arthur, 1994; Cutcher-Gershenfed, 1991; Delaney, in press; lchniowski, Shaw & Prennushi, 1994, MacDuffie, 1995) suggest that "progressive" or "innovative" HRM practices have economically significant effects on intermediate measures of organizational success, primarily in certain manufacturing industries. Not only do such studies provide a greater opportunity to fully specify the HRM system, but by design they are able to eliminate alternative explanations that might be associated with industry differences across firms. These studies provide important insights into what otherwise is a "black box" between the HRM system and firm performance. While they do not establish an HRM system-firm performance relationship, such studies suggest that if such a relationship were observed, it would be consistent with the necessary organizational precursors.

If a firm's HRM practices are to represent a strategic lever for the development and implementation of competitive strategy, then the appropriate unit of analysis for this relationship is the comprehensive system of practices and policies in place throughout the organization. Examinations of individual policies and their effects on individual or intermediate levels of organizational effectiveness are useful, but they bear only indirectly on HR-firm performance relationship. However, as nascent empirical literature, researched based on broad measures of the HRM system should precede at both the intermediate and strategic level of firm performance. The empirical challenge is to trace the effects of HPWS through a variety of micro and intermediate organizational outcomes, and ultimately link those outcomes to corporate financial performance. Incorporating each of those elements in one study would require in-depth data on the HRM system, individual performance, unit level productivity and financial performance, as well as firm level financial performance for a large sample of firms.

Theoretical foundation

While the strategic HRM literature in its broadest form might have several motivating themes, the most fundamental question is our judgment is whether a firm's HRM system can provide a long-lived source of competitive advantage, or whether it represents an organizational attribute that can easily be replicated by competitors. The question in the field of competitive strategy is generally "what is the source of competitive advantage in the firm?.. (and) how is advantage created, and how is it sustained?" (Schendel, 1996) if a firm's system for human capital management is a partial answer to those questions, then in fact it has a strategic role to play an can potentially provide a source of economic rents.

Conceptually, one can develop a plausible prediction that the HRM system can indeed be a strategic asset, capable of generating above normal economic rents. Driven by market imperatives to develop more efficient organizational structures and practices, there is an increasing emphasis among both academics and practitioners on behavioral competitive strategies that reply on core competencies and capabilities among employees, not only because they provide the most effective response to market demands, but also because they are not easily copied by competitors (Hamel & Prahalad, 1994; Stalk, Evans, & Shulman, 1992). While as much emphasis on the effective implementation of corporate strategies as their content, organizational policies and infrastructure are increasingly considered a potential source of sustainable competitive advantage. Within that context what is sometimes called a HPWS plays a strategic role; first as a resource to support the development of core competencies and second as an essential ingredient for effective strategy implementation (Dyer, 1993; Levine, 1995; Pfeffer, 1994)

The conceptual literature focuses on two questions: By what mechanism does a HPWS affects firm performance? How can these systems represent a source of sustained value chain, rather than simply focus on cost control? The behavioral perspective (Jackson, Schuler & River, 1989) answers the first question very simply. Firms that rely on human capital as a source of competitive advantage, ultimately require the productive behaviors necessary to implement their strategies. A fundamental source of those productive behaviors, both in terms of initial acquisition and subsequent development and motivation, is the firm's HRM system (Bailey, 1993; Jackson et al., 1989; Pfeffer, 1994; Schuler & MacMillain, 1984). The influence of the HRM system over valued employees' behaviors is not sufficient to generate a strategic impact.


HYPOTHESIS 1: There is existence of High Performance Work System in a firm.

HYPOTHESIS 2: There is no existence of High Performance Work System in a firm.

HYPOTHESIS 3: There is impact of High Performance Work System on organizational performance.

HYPOTHESIS 4: There is no impact of High Performance Work System on organizational performance.


Objective of the study - The main objective of the study is

To find existence of High Performance Work System in BEL, Kotdwara.

To describe the impact of High Performance Work System on Organizational Performance of BEL, Kotdwara.

Rationale of the study -

Public-sector defence undertaking, Bharat Electronics Ltd. (BEL) has given its HR policies a makeover. The move aimed at attracting talents from engineering disciplines. The company, facing severe competition from the private sector to attract and retain talent, has HR practices followed by these companies.

The Navaratna company has forged alliances with several management institutes across the country such as Management Development Institute (MDI), Gurgaon, International Management Institute (IMI), Delhi and HR consultancy firm, TVR Learning Systems, Ahmedabad, to train its its mid-level and senior executives in management principles.

The study is to find out the High Performance Work System of BEL and its effect on organizational performance of BEL.

Scope of the study - Bharat Electronics Limited (BEL) is a state-owned electronics company with about nine factories and few regional offices in India. The study is done on the factory of BEL, Kotdwara (Uttarakhand). The study was conducted from December 1, 2010 to April 5, 2011.

Type of research -

Research design - Descriptive Research

Data type - Primary and Secondary

Sources of data -

Questionnaire filled by the employees of BEL

Books and journals on HRM


Limitation -

Senior managers were hard to approach so cannot get feedback from them.

Curriculum study of this kind is not given preference.

Attitude of employees in government institutes is not positive for filling questionnaire.


Bharat Electronics Limited (BEL) was established at Bangalore, India, by the Government of India under the Ministry of Defence in 1954 to meet the specialized electronic needs of the Indian Defence services. Over the years, it has grown into a multi-product, multi-technology, multi-unit company serving the needs of customers in diverse fields in India and aboard.

BEL offers products and services in a wide spectrum of technology like Radrs, Military Communications, Naval System, Electronic Warfare Systems, Telecommunications, Sound and Vision Broadcasting, Opto-Electronics, Tank Electronics, Solar Photovoltaic Systems, Embedded Software and Electronic Components. With its expertise developed over the years, the company also provides turnkey system solutions.

Defence continues to be BEL's prime focus but the company also diversified into civilian ares. Some of the successful civilian products include the Electronic Voting Machines, Solar Powered LED-Based Traffic Signal Lights, Simputers and Set Top Boxes.

BEL offers contracts -manufacturing services for both domestic and international customers. It has automated assembly, inspection and testing facilities as also precision machining capabilities. It adheres to strict process and manufacturing standards, producing world class products.

BEL has its corporate office at Bangalore and manufacturing units at 9 locations in India . a network of marketing and customer support centers across India completes the vertically integrated company profile. Two offices, one in New York and the other in Singapore mark the company's international presence.

The 2000 saw the Bangalore unit, which has grown very large, being reorganized into Strategic Business Units (SBUs). There are 7 SBUs in Bangalore Unit. The same year, BEL shares were listed in the National Stock Exchange.

In 2002, BEL became the first defence PSU to operational Mini Ratna Category Is status. In june 2007, BEL was conferred the Prestigious Navratna status based on its consistent.



- To be a world-class enterprise in professional electronics.


- To be a customer focused globally competitive company in defence electronics and in other chosen areas of professional electronics, through quality, technology and innovation.


Putting customers first.

Working with transparency, honesty & integrity.

Trusting and respecting individuals.

Fostering team work.

Striving to achieve high employee satisfaction.

Encouraging flexibility & innovation.

Endeavouring to fulfill social responsibilities.

Proud of being a part of the organization.


To be a customer focused company providing state-of-the-art products & solutions at competitive prices, meeting the demands of quality, delivery & service.

To generate internal resource for profitable growth.

To attain technological leadership in defence electronics in-house R&D, partnership with defence/research laboratories & academic institutions.

To give thrust to exports.

To create a facilitating environment for people to realize their full potential through continuous learning and team work.

To give value for money to customers & create wealth for share holders.

To constantly benchmark company's performance with best-in-class internationally.

To raise marketing abilities to global standards.

To strive for self-reliance through indigenization.

Research & Development

Research and Development is a key focus activity at BEL. R&D started in 1963 at BEL and has been contributing steadily to the growth of BEL's business and self-reliance in the fied of defence electronics and other chosen areas of professional electronics.

BEL's R&D Policy is to enhance the company's pre-eminence in defence electronics and other chosen fields and products through R&D. Major R&D objectives of BEL is development of new products built with cutting-edge technology modules to meet customer requirement ensuring that the developed products are state-of-art, competitive and of the highest quality.