Competitive advantage: Looking in the wrong place

Being an HR executive is never easy. Just when you are about to applaud the cultural compatibility of a proposed merger, someone starts talking about “upstream synergies in the value chain”. Or you unveil an innovative executive training programme and boardroom colleagues question its net present value and ask how long it will take to pay dividends. Or there is a crisis and the company needs to cut costs, so your desk is their first stop, since surely training, recruitment and work-life balance programmes are easily expendable? Such attitudes are common, but they are also evidence of startling business naivety. A company’s real, sustainable competitive advantage is almost always based on the softer, intangible parts that HR executives care about – and very seldom on the hard stuff that’s easier to capture in numbers, such as production capacity, cash reserves or even brand recognition.The hard stuff is often also the easiest to imitate. Production capacity, stock and sales points are things money can buy. A skilled and motivated workforce, a company culture that draws commitment and loyalty, and effective informal networks and processes are much harder to emulate, no matter how much money you have. In fact, the world of business is full of habits and beliefs that are taken for granted and rarely questioned. As an academic, I like to examine the research evidence about what actually happens in the real world of business – rather than what executives and consultants think should happen. Much of the evidence shows that HR practices do indeed have bottom line value. Here are a few of my favourite examples.Downsizing (almost) never works. But good HR practices will be one of the success factorsFirms engage in downsizing to boost their profitability. But does it work? It has obvious advantages – waving the hatchet lowers headcount quite effectively and leaves you with lower staff costs. But there are some risky potential disadvantages, such as lower commitment and loyalty among the survivors. Academic studies indicate unwelcome rises in voluntary turnover rates after downsizing, often leaving a company leaner (and lamer) than intended.