Rare and Inimitable: Creating Human Capital Advantage

Companies should focus on their internal talent to create real strategic advantage over competitors. But to do that, they need to create a sophisticated comparison and evaluation system that drives decision making.

It is no secret that businesses are under increasing pressure to find, leverage and sustain competitive advantages. Traditionally, strategic competitive advantages had been built on external economic factors, such as barriers to entry, scale efficiencies and sophisticated product and marketing differentiations.

The transition from a manufacturing-based economy to a service- and information-based economy has weakened many external advantages. Strategic planners now have increased incentives to develop internal resources, particularly human resources, as the basis for true competitive advantages. Economist Edith Penrose predicted this movement in her seminal book The Theory of the Growth of the Firm.

Human capital — talent — is the only company resource that supplies the organization with the ability to create ideas, relationships, knowledge and models. Every other financial, physical and cultural resource depends on the active mental, social and psychological talent necessary to fulfill it. Organizations should create a systematic and flexible model that links human capital and knowledge to strategic planning and goal setting. Ideally, such a model would be present in an easily adaptable process that integrates selected talent through a planned process that guides the recruitment, selection, reinforcement, application, measurement and implementation of teams designed to achieve specific strategic goals.

In this fashion, a results-based comparison and evaluation can take place between the achievement levels of the same or similar strategic goals that occur in normal operational processes.

Developing a Decision-Science Perspective

In their book Investing in People: Financial Impact of Human Resource Initiatives, Wayne Cascio of the University of Colorado, Denver, and John Boudreau of the University of Southern California encapsulate the idea of “talentship.” In this model, HR managers are encouraged to learn and develop a decision-science perspective of their organizational function that goes beyond the traditional roles of compliance and administration. In doing so, HR adds value to the organization by using analytical measures that relate talent applications to financial outcomes.