The general concept of the competitive advantage is a reasonably straightforward. Each business tries to gain the advantage that helps to increase the market share, margins or profits. No firm exists to make employees lucky. They exist to fund lives of shareholders. No one can complain about the organization building the sustainable internal environment that brings immediate and long-term benefits compared to competitors on the market. Human Resources in no exception; it is a strategic business function. It has the HR Strategy, and it can build a significant competitive advantage for the company.
A comprehensive HR Strategy makes a difference. A smart organization recognizes that competitive and different people management techniques can make the business attractive. Such an organization attracts the best talents, and they want to use their creative minds in the favor of the enterprise. They just develop products and services attractive to customers and profitable for the organization. They can create a successful business that is widely recognized by competitors.
An efficient management of the capital always brings an advantage. The organization does not lose resources in ineffective investments. It keeps a tight control over the budgeting process. This applies to the management of human capital, as well. The right allocation of available resources allows the business to speed up the development of new products, introduce innovations and focus on small market wars with competitors.
Human Resources has to develop such an HR Strategy that meets the requirement of the efficient management. It does not mean the costs have to be lower. The organization just need to gain a better competitive advantage over its competitors.
There are several models how to build the competitive advantage:
- Cost Leadership;
- Innovation Leadership;
- Differentiation Leadership;
- Operational Effectiveness Strategy.
The most common is the cost leadership strategy. However, it usually brings worst results for all competitors. Most organization decrease profit margins and cut profits. It is often followed by several cost cutting exercises, and the leadership team loses its face in front of employees. The innovative business has to avoid this strategy.
Innovations can build a very strong basis for the sustainable development of the competitive advantage. However, such an organization needs to change its processes, procedures, policies and practices significantly. This strategy is the most demanding. It requires Human Resources to change the way it works.
A Differentiation strategy is based on a strategic mix of products and services that is not offered by competitors. The organization connects services and products to create the unique experience for the customer or client. This is another approach that can be used in Human Resources. However, it is very difficult to bring a different experience in Human Resources.
Last, the organization can choose the Operational Effectiveness Strategy. The firm does not focus externally; it streamlines processes and procedures to be quicker and agiler than competitors. This strategy brings results but it is very difficult to implement. The leadership team has to cross many obstacles and employees are required to change their behavior.
Human Resources has the same options. It just has to align the approach with the general corporate strategy. HR cannot choose a different approach from the rest of the organization. It would just result in unmanageable conflicts.
The HR Strategy is not a standalone strategy. It should be the natural part of the business plan, and the HR Team should be clear which approach to choose to build a competitive advantage in Human Resources.
HR Strategy and Competitive Advantage
Today, it is simple to copy and slightly improve products or services. The organization has to be aware of all competitors on the market, and it has to predict their behavior. It has to plan all next steps to make sure that the competitor cannot take over the market share. They just cannot copy the outstanding corporate culture, values, and decision-making processes. They cannot be transferred across businesses without adapting them. That is the fundamental reason Human Resources are the primary source of the sustainable competitive advantage today. The advanced HR Strategy is an advantage that’s hard to beat.
Most competitive advantages come from employees these days. The right and efficient management of human capital brings stunning results. The company with the competitive and fair HR Strategy has an advantage over its competitors. Employees like to work for the enterprise, and they feel engaged and empowered. However, how should Human Resources decide which areas will be the source of the competitive advantage?
First, Human Resources has to respect the corporate strategy but it can still choose to deviate slightly from the general organization’s approach. Even a low-cost company can pay higher salaries than competitors because it manages employees better. It can decrease costs by the increased productivity and performance. Even in the severe cost management environment the compensation policy can offer the wider range of reward opportunities to managers just because they can be asked to deliver more in return. It is just about the smart approach of Human Resources. It has to make sure that employees produce a higher value added to ensure that the company operates with lower costs than competitors.
The HR Leader has to make sure that the leadership team supports the general approach of the HR Strategy. They have to trust that the successful implementation will bring benefits. They have to accept to change themselves, as well.
Second, the HR Leader or the HR Strategist has to decompose the business strategy. They have to identify the right spots for Human Resources to kick in. They have to prepare the plan that will lead to the development of the sustainable, attractive corporate culture. The people do not like processes; they love emotions. They have to like the company. They must be proud of the brand name. Human Resources has to help the leader of the business to shape a vision of the company and its mission statement. This will always set the burning platform for the HR Team. They will like to design, implement and cultivate the environment that acts as the primary source of the Competitive HR advantage.