Human Resource Management in MPC Data: Creating Human Competitive Advantage
In recent years, the concept of sustainable competitive advantage (SCA) of a business organisation has become more and more popular (Medcof 2000). SCA is defined as the avoidance of erosion by competitor behaviour (Porter 1985). The concept of SCA has been particularly promoted by a strategic management perspective called resource-based view (RBV). The RBV framework had a major impact on Human Resource Management (HRM) studies, which promoted human resources as assets that can create sustainable competitive advantage. Combined with Human Capital theories, the RBV perspective of HRM emphasised the possibility of achieving Human Capital Advantage (HCA) in organisations. This essay focuses on a particular case study of MPC Data, to analyse the concept of HCA and its associated theories, and to identify whether MPC Data’s approaches support the creation of HCA.
- The Resource-Based View of the Firm and Human Capital Advantage
RBV emerged in the 1980s as a distinct perspective of strategic management. It developed upon the basic assumption that valuable returns can be obtained based on scarce resources in a non-perfect competition market (Fahy 2001). The initial RBV proposal by Wernerfelt (1984) was later taken up by Barney (1991), Grant (1991) Maijoor & van Witteloostuijn (1996), and other theorists.
The influential strategic view of RBV has had an impact on several adjacent management areas, particularly Human Resource Management. RBV theorists such as Barney (1991) or Dierickx and Cool (1989) believed that human resources were an important source of competitive advantage. Such an idea was adopted and developed by Boxall (1996, 1998), Hamel and Pralahad (1993), Delery (1998), Boxall and Purcell (2003) and other HR theorists. As Beardwell and Clayton (2007) put it, the RBV of HRM focuses on achieving sustainable competitive advantage through HR processes. In accordance with this view, human resources can achieve SCA by creating (a) value, (b) rarity, (c) inimitability and (d) organisation (Beardwell & Clayton 2007). As Allen and Wright (2006) point out, the RBV provides a legitimate foundation upon which HRM researchers can argue that the human resources of a firm may contribute to the company performance.
A chief aspect of the RBV/HRM view is the concept of Human Resource Advantage (HRA), as developed by Boxall (1996, 1998) and Boxall and Purcell (2003). This is defined as a series of policies, practices and processes that contribute to a company’s competitive advantage (Purcell et al 2008). HRA is comprised of Human Capital Advantage (HCA) and Organisational Process Advantage (OPA) (Boxall 1996). It generates a dual focus on practices and the human resource needed to apply them (Purcell et al 2008). HCA implies recruiting and retaining exceptional human talent, while OPA refers to informal processes employed in an organisation (Boxall 1996). In Boxall and Purcell (2003, p. 20)’s terms, HCA points to “excellent recruitment and selection, good training and development, appropriate performance management, effective job and team design that encourages learning and avoids boredom, and workable forms of involvement where skills and knowledge have an avenue for expression and growth”.
As the name suggests, HCA is based on the concept of “human capital” which originates from the 1960’s work of Schulz and Becker (Baron et al 2000). Today, human capital is part of standard economic theory and is defined by the OECD (1998, p. 9) as “the knowledge, skills, competences and other attributes embodied in individuals that are relevant to economic activity.” The concept has been developed in recent years by Human Capital theorists. Gratton (2004) affirms that human capital can be divided into (a) intellectual capital – stocks of knowledge which enable the exercise of choice, (b) emotional capital – that allows continual growth and fulfilment of ambition, and (c) social capital – the forging of relationships within a company. Human capital development implies the perception of employers that employees are not liabilities but assets and active investment into their growth (Mullins 2007).
Theorists of human capital advantage and human capital management emphasise the following methods of enhancing and conferring uniqueness to human capital:
- Internalisation, as opposed to outsourcing of valuable and rare human capital (e.g. Lepak & Snell 1999). Boxall (1998) proposes the division of human resources in ‘inner’ and ‘outer’ core personnel. Core employees are those that provide valuable innovation (Boxall 1998) and create sources of sustainable competitive advantage (Stewart 1997).
- Creation of commitment to the company: firms should invest in training, career development and mentoring programs to build idiosyncratic knowledge inside the organisation (Lepak & Snell 1999). Pay systems should reflect employee learning to encourage development of firm-specific competencies (Delany & Huselid 1996).
- Combination of human resources and HR policies to create competitive advantage. Boxall (1996, 1998), Boxall and Purcell (2003), Redman and Wilkinson (2006) emphasise the importance on having both human resources and policies to achieve high performance.
- Developing tacit and context-dependent knowledge which results in an emphasis not on written HR policies, but on dynamic internal processes.
- HR strategy that focuses on selection of highly qualified candidates, development of human capital, social capital increase and performance management (Kinnie et al 2003).
- Analysis of MPC Data’s Human Capital Policies
MPC Data is a software development company from the Southwest of England that focuses on bespoke software for different organisations such as Hitachi Microsystems, Sony and Remote Metering Systems. In line with Boxall (1998), MPC Data’s staff can be divided into ‘inner core’ software engineers and an ‘outer core’ of support employees. The focus of the company is the attraction and retention of the inner core staff, which is a key source of the company’s competitive advantage.
According to the brief, the company’s managing director subscribes to the Human Capital theory mainstay that people are not costs but assets, maintaining that ‘We don’t have products, only people’.
The human capital policy in MPC Data can be analysed by considering:
- Recruitment and selection approach
- Work Organisation
- Performance management systems
- Recruitment and Selection
Recruitment techniques are particularly important to MPC Data, as their focus on highly technical projects come in contradiction with the commercially-oriented approach of most universities. Therefore, it becomes paramount for the company to be able to attract the brightest candidates and to specialise them in specific applications.
Due to this requirement, MPC Data’s main approach of recruiting employees is through external networking with universities. The practice of university placement allows MPC Data to access the best and brightest graduates in the software field. According to Cook and Seely-Brown (1999), university placement enables mutually beneficial exchanges between graduates and company employees.
- Work Organisation
In accordance with the brief, MPC Data’s development of human resources focuses on the creation of knowledge within the organisation. This is mainly achieved through the dual ‘mentoring’ and ‘project’ structures.
The projects follow the contract requirements with the client, with each assignment lasting anywhere between two months and ten years. The project framework is described as dynamic and fluid, being led either by a director, senior software engineer or software engineer. The project enables the ‘flattening’ of the organisation by allowing the most competent person – rather than the most senior one – to run the assignment. In connection to human capital growth, the project is perceived as an important learning tool that enables the specialisation of engineers in particular technical fields. On the downside, this in-depth accumulation of technical skill runs the risk of engineers becoming isolated within their project and not integrating within the organisational culture. Such isolation could ultimately become problematic for employee retention, as engineers might fail to see themselves as part of an organisation and pursue the next assignment in another company. The departure of highly qualified engineers would be a disaster for a company dependent on the skills and knowledge of its staff. Even if the company managed to retain its project staff, the system would prevent the sharing of knowledge with other company engineers. Indeed, if not properly integrated in company culture, projects can end up ‘fragmenting’ an organisational culture. To avoid staff turnover and knowledge immobility, MPC Data’s senior management devised two methods of enabling project members to integrate within the larger organisation: (1) circulating staff across projects and (2) creating a mentoring system.
The circulation of staff amongst projects (1) serves both the interests of the engineers and of the company. On one hand, the engineers are always given something to do to avoid disengaging downtime; they are also kept interested by being provided newer challenges. This system enables an employee’s accumulation of skills, which is a key aspect in human capital development. On the other hand, the organisation benefits from this circulation of staff by allowing engineers to form company-wide social relationships and fostering the transfer of knowledge across project boundaries. The ‘extraction’ and circulation of project knowledge creates a firm-wide pool that can become a major source of competitive advantage.
The mentoring system (2) enables the coaching of staff by senior software engineers outside of the project framework. The system complements the practical experience given by the project with a pure learning and performance management dimension. It allows the project staff to avoid feeling isolated within their projects, integrating them in the wider company culture. Such level of communication and integration across projects enables the build up of social capital – informal relationships within a company – which in turn increases the human capital advantage.
The mentoring system acts as a de-facto line management, complementary to the project structure and hierarchy. It serves as a bridge between the project ‘islands’ and focuses on providing guidance and career development to the staff. It is not very clear whether the mentors actually assess their assigned staff or they simply gather information from the projects. Nevertheless, the mentoring system allows the type of company integration of staff that otherwise would be missing in a completely project-based organisation. It gives project engineers a sense of ‘belonging’ into an organisation and enables them to feel that they have a future within the same company. The mentoring system also fosters two-way communication between the coach and the protégé, enabling the mentored person to establish a relationship with his/her mentor. The personalised relationship thus allows the protégé to share his/her concerns and to provide feedback to management about their policies.
General Management Systems
The management systems in MPC Data are flat, with three levels of director, senior software engineers and software engineers. This enables horizontal integration and facilitates informal communication within the organisation. Secondly, as mentioned above, the flatness inherent in such a system is enhanced by the project structure, which can actually ‘invert’ the hierarchy. In other words, a director, superior to an engineer in line management term, can find himself or herself as hierarchically inferior within a project. Such a concept effectively de-layers the organisation’s structure to emphasise results and learning rather than formality. Cumulated with the mentoring system, such an approach helps to ‘blur’ the hierarchical lines in the organisation, while providing a structure that avoids chaos in the company. The focus thus is on informal interactions, permanent bilateral communication and creation of tacit networks within the framework of the organisation. This type of approach enables the staff to become profoundly integrated and immersed within the company. It thus fosters the creation of social complexity, which has long been recognised to be inducers of sustainable competitive advantage (e.g. Dierickx and Cool 1989).
- Performance Management
Another important aspect of MPC Data’s organisation is the performance management system undertaken through the mentoring programme. According to this procedure, the mentors are the ones that establish the development needs of their protégés; they are also there to recommend remuneration adjustments and company-wide recognition. Kinnie et al (2003) has observed that, for knowledge-intensive firms such as MPC Data, recognition and skill enhancement are much more important to employees than financial remuneration. In such a case, the mentor’s ability to incentivise the protégé depends on his / her ability to identify the needs of the protégé for expert recognition and for enhanced knowledge.
- Can MPC Data Establish Human Competitive Advantage?
MPC Data is an unusual organisation by the classical HR standards. While it does have some HR policies, it puts the weight of its approach on informal HR processes. For instance, it does not have a formal training policy, but it fosters on-the-job training by assigning people into projects. Its human capital development focuses on the exchange between mentor and protégé and their performance management decisions.
Most Human Capital theorists argue, in line with the philosophy of RBV, that formalised policies are not a source of sustainable competitive advantage (e.g. Lepak and Snell 1999). Such established policies can easily be copied across organisations and are a general baseline for the functioning of a company. For instance, the newly established induction programme or the remuneration systems may not be a source of advantage for MPC Data, since their formalised manner invites imitation by other organisations. Some may argue that the mentoring programme itself, being rather formalised, may hinder SCA. However, the practice of MPC regards the mentoring system as a framework, rather than a firm policy, upon which the dialogue between the mentor and the protégé is established. Such dialogue is informal and loose, allowing the creation of personalised relationships within the organisation.
Indeed, tacit organisational processes such as the mentoring programme or the informal networks enable the creation of sustainable competitive advantage. These HR processes cannot be understood without the human personnel that often internalise them. In fact, at MPC Data one can argue that the HR processes depend on the existing human capital. The engineers create intangible, ambiguous relationships that cannot be copied outside the organisation. This becomes an important source of Human Capital Advantage.
In light of our analysis, MPC Data has an excellent potential of achieving HCA. This is due to the following conducive elements: (a) highly qualified staff obtained through networking, (b) human capital development policies aimed at job satisfaction, motivation and skill accumulation, (c) creation of social capital through the promotion of personal relationships in the company, and (d) informal processes that create social complexity.
Our analysis of the HCA theoretical basis has pointed out to the fact that the creation of HR sustainable advantage involves a company-wide attitude that treats human resources as ‘assets’ not ‘liabilities’. Such assets would then require the organisation to pay particular attention to the employees’ personal development and motivation. Furthermore, these human assets need to be integrated within an informal process system that would enable the creation and maintenance of strong social capital. In this light, our review of the MPC Data brief revealed that the company took important steps to enhance the quality of life amongst its staff, to enable their growth and retention and to embed them within a semi-formal organisational structure. Obviously, it did this by instituting some formalised policies and approaches, but these were intended to foster the creation of informal relationships, unstructured communication and learning networks.
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