Shifting the Paradigm in Human Resource Management: from the Resource-based View to Complex Adaptive Systems

The resource-based view (RBV) has been welcomed by researchers as a sound basis upon which to develop theory in the field of HRM. However, we argue that the RBV is overly rationalistic, unitarist and internally focused compared with what we know about organizations from sociological and institutionalist perspectives. The more recent complex adaptive systems perspective constitutes a more promising basis upon which to advance our knowledge in this area. Scholars in the area of strategic human resource management (HRM) have increasingly drawn on the resource based view of the firm as a means of theorizing the interrelationship between HRM and firm performance: this theory provides a framework for viewing human resources as a pool of skills that can provide a resource to serve as a sustained competitive advantage (Wright and McMahan, 1992: 303). Indeed, resource based theory has been welcomed by some as providing a theoretical foundation for a subject previously lacking in one (Kamoche, 1996; Swiercz, 1995; Boxall, 1996). Emanating originally from economics, and then applied in the field of strategy before being extended to HRM, resource based theory is built on the dual assumptions of firm resource heterogeneity and firm resource immobility (Penrose, 1959; Nelson, 1991). The argument is that firms consist of bundles of unique resources and that, if these resources meet the four criteria of value, rarity, inimitability and non-substitutability, then they can constitute a source of sustained competitive advantage to the firm (Boxall, 1996). Human resources, it has been argued, can constitute a particularly strong source of sustained competitive advantage, provided the firm is organized to exploit them (Youndt, Snell, Dean and Lepak, 1996; Becker, Huselid, Pickus and Spratt, 1997; Becker and Gerhart, 1996). Although calls for the application of the resource based view (RBV) to HRM appear persuasive, our argument is that this approach fails to account fully for the particular nature of either individuals or human resource management and, therefore, that the resource based perspective may not constitute the most appropriate framework for advancing theory in the field of HRM. Our purpose is to bring together and extend reservations that have been expressed about the resource based view within the strategy literature, and to analyze how these apply in the field of HRM. We also present arguments developed from within the HRM and organizational behaviour literatures concerning the nature of organizations to indicate that the resource based view is founded on rationalistic and positivistic notions of organizational reality that neglect accepted ways of understanding both organizations and the way in which individuals within them are managed. As an alternative, we introduce another framework that has been developed within the strategy literature, based on theories in the natural sciences, complex adaptive systems (CAS) theory (Stacey, 1996), and contrast this with the resource based perspective. Based on this analysis, we argue that CAS theory is more closely aligned both with what we know about the unique nature of human resources and with paradigms of organizational analysis that underpin HRM and, therefore, might constitute a more fruitful basis for advancing theory in HRM. First, we discuss the fundamental assumptions of the RBV. Such analyses have been reasonably frequent in the strategy literature (see, for example, Barney, 1991; Wernerfelt, 1984; Conner, 1991), but have not often been explicitly articulated within the HRM literature (for some exceptions, see Kamoche, 1996; Boxall, 1996), although it is of the utmost importance that the precise meaning of the terminology of the RBV and its application to human resources is understood if theory is to be advanced in this field. We then analyze how the RBV has been applied within the field of HRM, and how it differs from alternative theoretical frameworks that have been proposed. The limitations of the RBV in terms of its application to HRM are contrasted with the more recent complex adaptive systems approach. THE RESOURCE BASED VIEW: FUNDAMENTAL ASSUMPTIONS Historical Antecedents The RBV has its roots in the organizational economics literature and the work of Ricardo (1817), Schumpeter (1934) and Penrose (1959). In common with other industrial organization economic theories, one of the fundamental assumptions of the resource based approach is that the ultimate purpose of the firm is to maximize rent (Conner, 1991; Barney, 1986; Wernerfelt, 1984; Foss, 1996). Whereas the industrial organization approach adopted in much of the traditional business strategy literature assumes that firms competing in the same industry are homogeneous (Porter, 1980; 1985), and that the firm s adaptation to the characteristics of its product market is the major determinant of firm performance (Hagan, 1996; Barney, 1995; Wright and McMahan, 1992), the RBV is founded on the notion that individual firms are unique and composed of distinct bundles of resources (Barney,1991). In the traditional strategy literature, relatively little attention is paid to internal firm resources, other than labor, capital and land, and extensive use is made of mathematical models to demonstrate the declining return of these resources over time (Hagan, 1996). In the RBV, on the other hand, internal firm resources are regarded as the ultimate source of sustained competitive advantage (Barney, 1995; Hagan,1996; Conner, 1991; Lado, Boyd and Wright, 1992; Wernerfelt, 1984; Castanias and Helfat 1991). Strategy is, therefore, concerned with gaining the best degree of fit between the internal resources of the firm and external opportunities (Rumelt, 1974; Conner, 1991; Barnard, 1938; Selznick, 1957; Sloan, 1963; Chandler, 1962; 1977). According to the RBV, then, the firm is regarded as a bundle of both tangible and intangible resources and capabilities (Amit and Shoemaker, 1993; Barney, 1991; Conner, 1991; Grant, 1991; Mahoney and Pandian, 1992; Rumelt, 1984; Wernerfelt, 1984). Sustained competitive advantage accrues to the firm through optimal resource endowments and deployments when these firm-specific resources yield benefits that cannot be duplicated or substituted (Lado and Wilson, 1994; Barney, 1991; Conner, 1991; Grant, 1991; Amit and Shoemaker, 1993; Barney, 1991; Dierickx and Cool, 1989; Reed and deFillippi, 1990): Thus, in a resource-based view, the critical problem faced by the firm is how to maintain the distinctiveness of its product or, for identical products, its low cost position, while not investing so much in obtaining this difference as to destroy above-normal returns (Conner, 1991: 132). This implies that persistently high rents are possible, and that the firm is therefore a seeker of unique or inimitable inputs. The Criteria for Resources A critical factor in the RBV is how resources themselves are defined. Lado and Wilson (1994: 701) define resources as all the input factors, both tangible and intangible, that are owned or controlled by the firm . They regard these as distinct from firm capabilities, which are defined as the dynamic, non-finite mechanisms that enable the firm to acquire, develop and deploy its resources to achieve superior performance relative to other firms (Lado and Wilson, 1994: 701), which includes culture, learning and routines. Together, they term these resources and capabilities organizational competencies . Wernerfelt (1984: 172) on the other hand, defines resources as: those (tangible and intangible) assets which are tied semi-permanently to the firm . Barney (1991: 101) extends this definition to include all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc., controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness . This latter definition would appear to be the most all-encompassing, and suggests that a resource is any feature of a firm over which it has control. We will return to this question of control later. Three main types of resources have been identified: physical capital resources, including plant, technology, equipment; human capital resources, including individual knowledge, skills and abilities; and organizational capital resources, including the formal and informal relations among groups within and between firms, and the controlling and co-ordinating mechanisms within the firm (Wright, McMahan and McWilliams, 1994; Williamson, 1975; Barney, 1991; Barney, 1995; Barney and Wright, 1998). These definitions, either implicitly or explicitly, are based on the assumption that firm resources are not neutral attributes, rather, they are features that add a positive value to the firm. Indeed, within the resource based perspective, relevant resources are firm attributes that are a source of sustained competitive advantage (Barney, 1991; Conner, 1991). Other resources, therefore, are deemed not strategically relevant; some may actively prevent a firm from implementing valuable strategies, whilst others may simply have no impact (Barney, 1986b). In this context, competitive advantage is described as occurring: when a firm is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors (Barney, 1991: 102). Sustained competitive advantage is distinctive because: a competitive advantage is not considered sustained until all efforts by competitors to duplicate the advantage have ceased (Lippman and Rumelt, 1982: 303). Barney (1991) argues that firms cannot achieve sustained competitive advantage when strategic resources are evenly distributed across all competing firms or when resources are mobile. According to Barney (1991) firms can only find competitive advantages in the resources already contained within the firm, they cannot purchase them outside. Consequently, the resource based view is founded on the notion that resources are heterogeneous, or unevenly distributed, across firms in the same industry, and that resources are immobile (Barney, 1991; Scherer, 1980; Lado and Wilson, 1994; Wright and McMahan, 1992). In traditional strategic management models, resources are considered to be mobile; firms can therefore purchase or create resources held by competing firms, leading to firm resource homogeneity across an industry (Rumelt, 1991; Porter, 1980; 1985; Holmstrom and Tirole, 1989). Where this occurs, firms will all have the same amount and kinds of strategically relevant resources, and these could not constitute a source of sustained competitive advantage for any one of them (Barney et al., 1989; Barney, 1991). In order to constitute a potential source of sustained competitive advantage, according to the RBV, resources must meet four criteria; they must add positive value to the firm; they must be unique or rare among potential and current competitors; they must be imperfectly imitable; and they should not be substitutable with other resources by competing firms (Barney, 1991; 1995; Wright and McMahan, 1992; Wright et al., 1994; Priem and Butler, 2001). Value. A resource should add value to the firm by enabling it to exploit opportunities or neutralize threats in the environment (Barney, 1995; Lado and Wilson, 1994; Barney and Wright, 1998). Barney (1995) also notes that sources of value change over time. Rarity. A resource should be unique or rare among current and potential competitors; resources common among large numbers of firms can be a source of competitive parity (Barney, 1989a; Barney, 1991; Barney, 1995; Lado and Wilson, 1994; Barney and Wright, 1998). Inimitability. If a resource itself, or its benefits, can be imitated across firms, then it can only be a source of competitive parity, not competitive advantage (Barney and Wright, 1998). Inimitability arises through several factors, or isolation mechanisms (Barney, 1991; Lado and Wilson, 1994). The first is unique historical conditions; firms are regarded as social entities whose ability to acquire and exploit resources depends on their place in time and space. The second is causal ambiguity; exactly how firms generate competitive advantage from their resource endowments or deployments is unclear and, therefore difficult to imitate (Lippman and Rumelt, 1982; Lado and Wilson, 1994). The third is social complexity, which arises when it is beyond the ability of competing firms and, ultimately, the resource-endowed firm itself, to systematically manage and influence the resources, such as interpersonal relationships among managers, culture or reputation (Hambrick, 1987; Barney, 1986b; Klein, Crawford and Alchian, 1978; Klein and Leffler, 1981; Amit and Shoemaker, 1993; Reed and deFillippi, 1990; Nelson and Winter, 1982; Weigelt and Camerer, 1988). Non-Substitutability. It should not be possible for the same, or strategically equivalent, resources, to be deployed by other firms (Barney, 1991; Dierickx and Cool, 1989; Lado and Wilson, 1994). According to the definition of resources, all four criteria must be met for a resource to be considered a source of sustained competitive advantage (Barney and Wright, 1990). Resources are also viewed in a comparative context; they are only considered potential sources of sustained competitive advantage in comparison with those resources held and deployed by competing organizations (Collis, 1991). When resources meet these criteria, they are potential sources of sustained competitive advantage; whether or not they are realized depends on the extent to which the firm is organized to exploit them (Barney, 1995). Another factor which impacts on the rent-generating potential of resources is the degree of specificity of the asset to the firm; Conner (1991) argues that the greater the degree of specificity of an asset to a firm, the greater its potential for generating rent for that firm. According to Conner (1991), intangible resources that cannot be purchased on the market such as organizational culture are more likely to be firm-specific and therefore have greater potential to generate rent (Dierickx and Cool, 1989; Rumelt, 1974). These arguments are the basic underpinning of the resource based view as it is presented in the strategy literature. APPLICATION TO HUMAN RESOURCE MANAGEMENT During the 1990s, resource based theory became an increasing focus of interest for HRM scholars, in view of what was regarded as a relative paucity of rigorous theoretical frameworks in the field (Wright and McMahan, 1992; Scwiercz, 1995; Mueller, 1996; Boxall, 1996). In particular, it was embraced as a theoretical perspective that could enable a greater understanding of the link between HRM and organizational performance (Mueller, 1996; Huselid, 1995). Swiercz (1995) has described three alternative perspectives in the field of HRM, the first being the fit perspective, according to which organizations are regarded as analogous to organisms existing in a hostile and everchanging environment in which success depends on achieving a good match between internal organizational characteristics and environmental contingencies. Drawn originally from evolutionary biology, the fit perspective, or the matching model (Baird and Meshoulam, 1988; Boxall, 1992; Schuler, 1988) suggests that optimal HRM combines both vertical integration between HR and business strategy, and horizontal integration between individual HR policy areas (Truss and Gratton, 1994). Some of the limitations of this approach include its adherence to a rationalist, planning model of both strategy and HRM (Legge, 1995; Truss et al., 1997), and the implicit Taylorist separation of formulation and implementation (Swiercz, 1995). According to Swiercz (1995), the second perspective on HRM is the functional perspective , whereby HR is regarded as a staff function in an advisory and subordinate role, selling its services either implicitly or explicitly to other units and departments within the organization. Subsumed within this approach is Schuler and Jackson s (1987) needed role behaviors model, in which the primary role of the HR function is regarded as being to elicit appropriate behaviour from employees to underpin business strategic objectives (Schuler and Jackson, 1987; Schuler and MacMillan, 1984; Jackson, Schuler and Rivero, 1989; Mueller, 1996; Kamoche, 1996; Wright and McMahan, 1992; Youndt et al., 1996; Swiercz, 1995). The third perspective identified is the typological perspective, whereby typologies of approaches to HRM are proposed. One example is the work of Dyer and Holder (1988) who present three ideal types of HR strategy, inducement, investment and involvement as a menu from which senior managers can choose when determining how best to manage human resources. One criticism that has been made of all of these alternative approaches to the RBV is that they are overly unitarist; differences both between various segments of the workforce and between managerial and non-managerial staff are rarely addressed (Boxall, 1992; Snape, Redman and Wilkinson, 1993; Swiercz, 1995; Osterman, 1987; Purcell, 1987). Furthermore, they can more appropriately be regarded as frameworks for understanding HRM rather than rigorous theories of HRM. (For further discussion of alternative HRM frameworks see Wright and McMahan, 1992; Jackson and Schuler, 1995; Truss, 2001). For these reasons, proponents have asserted that the resource-based perspective provides a new, theoretically-grounded, foundation for HRM, preferable to other paradigms that have been developed (Mueller, 1996; Kamoche, 1996; Boxall, 1996). However, an analysis of the literature reveals a number of inconsistencies and tensions in the application of the RBV to HRM which have yet to be resolved (Kamoche, 1996). Not least of these is the uncertainty over the level of analysis. One question is of particular importance; is it the people themselves, or the HR system of the organization (or, perhaps, both) which constitutes the resource? If the former, then which aspect of people should we focus on, their individual knowledge, skills and abilities, their behavior, or their collective mindset, manifest in such artefacts as organizational culture or climate? If the latter, then are we concerned with individual HR interventions, bundles of HR practices (Huselid, 1995) or with the whole HR system? Different commentators provide different answers to these questions, revealing a lack of unified focus within the framework of the RBV. This lack of unity is exacerbated by the specific responses provided within the RBV literature to the questions raised above. Our argument is constructed around two key areas. Firstly, we explore the fundamental assumptions about the nature of organizations that are implicit in the RBV, and use theories derived from HRM and organizational behavior, such as institutional theory and open systems theory, as well as traditional strategy theories, to highlight the problematic nature of these assumptions. Secondly, we explore the implications of the dualism between human capital advantage and human process advantage (Boxall, 1996). We analyze the assumptions underlying both of these approaches, and argue that the RBV implies a far more narrow and one-dimensional perspective on both of these elements than the HRM and organizational behavior literatures would suggest is the case. Finally, we introduce the alternative theoretical framework provided by the complex adaptive systems literature as offering greater potential as a theoretical paradigm for HRM. The Resource Based View and the Nature of Organizations The most fundamental assumption of the RBV is that the ultimate goal of the organization is creating sustained competitive advantage (Conner, 1991; Barney, 1991). The firm is therefore regarded as a seeker of unique inputs, or resources, that will enable it to generate above-average rents (Lado and Wilson,1994; Grant, 1991). Factors only become resources when they contribute to generating sustained competitive advantage (Amit and Schoemaker, 1993). However, the notion that all organizations are seeking sustained competitive advantage is highly problematic from the perspective of HRM. Firstly, it limits the applicability of the RBV; as has been pointed out, there are four types of organization, mutual benefit associations, business concerns, service organizations and commonweal associations (Blau and Scott, 1964). Only one of these is strictly concerned with generating rents. The management of people does not only occur in rent-generating organizations, but across the full spectrum. Building a theory of HRM on the fundamental assumption that its primary concern is the generation of sustained competitive advantage limits the generalizability of any propositions made (Priem and Butler, 2001). Regarding organizations as goal-seeking entities appears to be a reversion to the early twentieth-century mechanistic view of the potential link between formal organizational structures and organizational performance, typified by the scientific management movement (Burns, 1967). Scientific management was, ultimately, concerned with efficiency as its central problem, and proposed solutions focused on interventions into the formal organizational structure and the optimal utilization of human and mechanical resources. Regarding organizations as seekers of particular kinds of resources implies an economic, as opposed to a behavioral view of what an organization is. It is a view that fails to take account of the, often conflicting, attitudes, motivations and goals of the individuals who make up the organization (Silverman, 1970). As Etzioni (1960; 1961a; 1961b) has suggested, organizations are more appropriately viewed as social systems, only one of whose needs is goal-attainment. The organizational behavior literature tells us that the goals of all types of organizations are contested (Silverman, 1970; Burns, 1967). As Silverman (1970:18) points out, there are five possible ways of determining who the prime beneficiary of an organization is: who is perceived by members of the organization to benefit most; who they think should legitimately benefit; who is perceived by the general public as benefiting or deserving to benefit; and who may be said by an observer to benefit most. Rationalistic approaches such as the RBV, constructed upon the fundamental belief that the correct focus for organizational activities is the generation of sustained competitive advantage fly in the face of social conceptualizations of organization. There is a long history tracing the inherently pluralistic nature of the interests of organizational members, for example, Fox (1974). This argument is extended by Kamoche (1996: 222), who argues that: a strict concern with bottom line analysis in SHRM falters on epistemological grounds because the intangible nature of the value of human resources and human resource outcomes does not easily lend itself to quantitative analysis . The suggestion is, therefore, that trying to establish a link between HRM in some form and bottom line performance metrics may be a hopeless task because of the very nature of the human resources themselves and the HR management system. This is a point that will be explored further below in the context of human capital and human process advantage. In addition to the focus of the analysis in the RBV, we can also question the positivistic stance adopted in the RBV by focusing on organizational performance and individuals behavior as the unit of analysis, without seeking to understand the meanings attached to this behavior by individuals. In this sense, the RBV is based on a purely rationalistic, and economic, view of human nature. The first fundamental issue we have then identified as problematic within the resource based view from the HRM perspective is the underlying assumption about the nature of organizations upon which it is based. Human Capital Advantage or Human Process Advantage? Within the HRM literature, a distinction has been made between human capital advantage, according to which the firm s resource is the people it employs, and human process advantage, whereby it is the HRM system that constitutes the source of advantage (Boxall, 1996). Some have argued that firm resources in both areas are required in order to give rise to human resource advantage for the firm (Kamoche, 1996). Human Capital Advantage. There are a number of assumptions upon which the RBV draws in order to argue that human capital can be a source of sustained competitive advantage to the firm. The first is that both the supply and the demand for human resources are heterogeneous, rather than homogeneous across firms, and that human resources are not freely mobile (Lado and Wilson, 1994; Wright and McMahan, 1992; Steffy and Maurer, 1988; Wright et al., 1994; Kamoche, 1996; Barney, 1991). In other words, firms have jobs that require differing kinds of skills, and people vary in the skill levels they have. The assumption is that skills are normally distributed in the workforce and, therefore, those with high-level skills are, by definition, rare, and those organizations with high levels of ability, most specifically cognitive skills, possess more valuable human resources than their competitors (Wright and Snell, 1991; Wright, McMahan and McWilliams, 1994; Wright and McMahan, 1992; Hunter and Hunter, 1984; Schmidt, Hunter and Pearlman, 1979; Kamoche, 1996). According to the RBV, if the labor market were purely competitive, and human resources were freely mobile across firms, then a market-determined wage rate would be sufficient to attract, retain or replace human resources and, therefore, investment in firm-specific human capital would not necessarily be worthwhile (Joll, McKenna, McNabb and Shorey, 1983; Steffy and Maurer, 1988). Similarly, firms would all have the same amount and kinds of strategically relevant resources, and any strategy could be duplicated across organizations, meaning that human resources could not constitute a source of sustained competitive advantage for any individual firm (Barney et al., 1989; Barney, 1991). However, it is argued that, because people have varying levels of skills, investment in firm-specific human capital is valuable because it potentially enhances the productive capacity of human resources (Becker, 1975; Parnes, 1984). Firm-specific human capital is not widely available in the labour market and it cannot be readily substituted by other resources without having to incur heavy replacement costs (Becker, 1975; Parnes, 1984; Dierickx and Cool, 1989; Doeringer and Piore, 1971). In this way, human resources themselves, or human capital, are said to constitute a source of sustained competitive advantage (Castanias and Helfat, 1991). General skills that are available to all firms are, it is argued, a potential source of competitive parity, whereas firm-specific skills, such as knowledge of particular systems or culture, are more likely to constitute a resource (Flamholtz and Lacey, 1981; Barney and Wright, 1998). One important feature of this argument is the assumption that human resources are imperfectly mobile because of the transaction costs associated with moving from one employer to another (Abelson and Baysinger, 1984). Human resources are also regarded as non-substitutable and unlikely to become obsolete; whilst other resources may be substituted in the short term, Wright et al (1994) argue that it is unlikely such substitution could result in sustained competitive advantage. Human resources are also regarded as meeting the criterion of inimitability, because they are socially complex, causally ambiguous and depend on unique historical conditions (Dierickx and Cool, 1989; Reed and de Fillippi, 1990). Thus, the link between a firm s competitive advantage and its human resources is only imperfectly understood by both competitors and the organization itself due to their complexity, rendering them very hard to imitate. However, it is not clear which aspects of human resources constitute the competence. Wright, McMahan and McWilliams (1994) argue that individual knowledge, skills and abilities are necessary but not sufficient, and that employee behaviour needs to be in line with firm goals as well. Others have argued that inherent ability, dexterity, ability to learn or cognition may be the most significant (Boudreau, 1983; Kamoche, 1996). However, the argument has also been put forward that it is the nature of the top management pool that is the critical aspect (Gerstein and Reisman, 1983; Gupta, 1984; Kerr, 1982, Olian and Rynes, 1984). Others have argued that the total human capital pool is the determinant of competitive advantage because the top management team is highly visible and, therefore, potentially imitable and mobile, being able to command higher salaries and also consuming rents that would otherwise accrue to the firm (Wright et al., 1994; 1995). This lack of agreement over which what does, or at least could potentially, constitute a human resource is quite significant. Almost all organizations have a highly heterogeneous workforce comprising both higher and lower skilled workers. Should one group be counted as a source of sustained competitive advantage, whilst another is excluded? How can the resource based view account for the complexity of interactions and interdependencies between individuals and groups within the firm? One example would be secretarial workers, who are commonly regarded as part of the clerical workforce and, by definition, of a lower skill level than the executives they support. Yet, research has shown that secretaries often perform highly complex and skilled tasks, and possess a high degree of tacit knowledge about the operation of their organizations that is of great value, yet remains hidden from the formal organization (Truss, 1993; Truss, Goffee and Jones, 1995). Within the branch of the RBV literature that regards individuals firmspecific competencies as the resource , or which holds that the whole workforce is the source of value, then this tacit organizational knowledge held by secretaries would mark them out as a resource for the firm. By those scholars who regard high levels of cognitive skills, or just the senior management team as the resource , then secretaries would probably be excluded. If the RBV cannot provide a clear answer, then it would appear to be unhelpful both at a theoretical and an empirical level in understanding and interpreting organizational phenomena. Barney and Wright (1998) go so far as to argue that those aspects of human resources that do not provide value to the firm should be discarded. Yet, how can we discard that part of a human resource that may not be considered valuable to the firm, whilst retaining, say, that individual s valuable cognitive skills? How can we evaluate every individual s unique place within the social architecture of the firm and predict what effect their removal would have? In any event, human resources are not expendable assets to be freely traded in and out of the firm at will. One important element of this argument is that the more firm-specific human resource competencies are, the greater their potential to generate rents (Barney, 1991; Kamoche, 1996). This argument lies at the heart of the RBV s stance on human resources, but its implications have not been fully explored within the literature. The essence of the argument is that general skills are of less importance in terms of value-added than firm-specific skills. Some examples of firm-specific skills include knowledge of internal processes and systems, people, habitual ways of working, culture, norms and values. In order to remain within the framework of analysis of the RBV, which holds that any commodity generally available to all firms in the same product market cannot be a resource because they do not meet the criteria of inimitability and rarity, it is only skills such as these that are regarded as resources . The problem with this is that highly significant, generic skills that may be contained within the firm are discounted. Without these generic skills, for instance, general cognitive abilities, ICT or leadership skills, firms will be unable to gain value from more narrowly-based, firm-specific skills. Further issues arise when we consider the nature of the movement of people between organizations. It is argued within the RBV that resources are factors that are held within the organization, they cannot be purchased in the open market. This raises the question, in relation to human resources, of what happens when people leave, which they inevitably do, taking their human capital with them, and are replaced by other individuals. According to the RBV, this would diminish the firm s overall human capital advantage. What if the new recruits were more qualified, had higher levels of cognitive abilities than those who left? Surely, they would potentially bring with them greater human capital? The RBV does not appear to be able to account for this. Priem and Butler (2001) have also queried the emphasis placed within the RBV on the importance of tacit knowledge , or unconscious experiential understanding, as a key resource. They argue that it is impossible for practitioners to knowingly manipulate a factor that is, by its nature, unknowable and that, consequently, the RBV can tell us little about issues of the process of managing resources. Why do some resources generate value, whereas others do not? The overly inclusive nature of the definition of resources makes it difficult to draw boundaries, and causality remains unclear. We also need to consider the nature of the contract between firm and individual. If it is true that resources only occur within organizations, how are subcontractors, temporary workers, part-time workers, secondees, and consultants to be accounted for? Such individuals may bring with them vital skills for the organization and yet not be a part of it in the same way as fulltime, permanent employees (Truss, 2001). The RBV does not appear to be able to account for them either. Other potential differences between individuals within the workforce also remain unaccounted for under the RBV, which tends to treat employees as a homogeneous cohort (Truss, 1999). Little or no allowance is made for the differential impact of HR policies and practices on employees on the basis of, for instance, gender, age, ethnic origin, status or job. Finally, we need to consider the special nature of human resources. People come into organizations as full personalities, and are embedded in broader social systems than just their employing organizations, such as their family, community, informal networks, and ethnic and national groups. Whilst some aspects of these individuals, such as their cognitive abilities, may be a resource for the organization, it is certain that no one individual will be able to function optimally all the time. Physical resources, such as machinery, do not come to work with a hangover. They do not suffer bereavements, physical or mental illness or ask to move to another section because they do not like their section leader. They do not have to combine work with caring responsibilities at home. As Coff (1997: 374) has argued: like human assets, an oil field may be a strategic asset. However, once acquired, an oil field: cannot quit and move to a competing firm; cannot demand higher or more equitable wages; cannot reject the firm s authority or be unmotivated; need not be satisfied with supervision, co-workers or advancement opportunities . Ultimately, it should also not be forgotten that people, unlike other resources, can choose whether or not to allow the firm to benefit from their labor; at best, an organization can have only partial or limited control over its human resources (Kamoche, 1996; Coff, 1997; Cascio, 1991; Chiang and Chiang, 1990; Steffy and Maurer, 1988; Wright et al., 1994). The RBV, in adopting an essentially unitarist perspective on the employment relationship by assuming that people will choose to behave in a way that makes economic sense for their employing firm, denies alternative, pluralist views of the nature of the contract between individuals and organizations (Fox, 1974). Some more specific issues are raised when we consider the assumptions within the RBV surrounding labour market heterogeneity and firm resource immobility. It has been argued that the RBV simplifies the nature of labor markets (Priem and Butler, 2001). Bennett et al. (1988) have shown that labor markets can be characterized either by munificence or scarcity. Consequently, not all skill levels are normally distributed across all labour markets. There have been examples of firms setting up greenfield sites, only to discover that their required skills were not present in the local labour market. Human Process Advantage. In addition to the arguments surrounding human capital advantage, the HRM literature also draws on the notion of human process advantage to argue that the potential of human capital can only be realized through effective human resource management systems (Boxall, 1996; Kamoche, 1996; Amit and Schoemaker, 1993; Coff, 1997). Some go so far as to argue that it is not the people employed by the organization, but the HRM system itself that fulfils the criteria to constitute a resource (Cappelli and Singh, 1992; Lado and Wilson, 1994). HRM systems have been defined as: a set of distinct but interrelated activities, functions and processes that are directed at attracting, developing and maintaining (or disposing of) a firm s human resources (Lado and Wilson, 1994: 701). Firstly, it has been argued that an HR system can be a source of value through facilitating the development of competencies that are firmspecific, produce complex social relationships, are embedded in a firm s history and culture, and generate tacit, organizational knowledge (Lado and