Article by Bhumika Ahuja on May 08, 2023
Unlocking Employee Value: Longevity and Sustainability in Resource-Based View and Value Creation Analysis
Exploring the intricate dynamics of how companies harness and retain value from their workforce. Delving into the lasting impact and sustainability of employee contributions within Resource-Based View (RBV) and Value Creation Analysis (VCAP) frameworks. Discovering how employees shape the foundation for organizational success and growth strategies.
An employee’s value is closely tied to the company’s unique value proposition and business model. Some companies are majorly dependent upon their employees whereas other companies are very much process or tangible asset dependent. Looking from the lens of RBV model, where employees, that are the intangible assets, may or may not be the valuable resource for a company. Every company builds its own unique balance between intangible (employee and governance) and tangible assets depending upon what makes it rare and inimitable. I shall elaborate on scenarios where companies have captured varied degrees of value from their employees depending upon what made them unique.
The first example is of McDonald which is a process-dependent company and employees are very much replaceable. The company places a strong emphasis on standardizing its operations and procedures, which has allowed it to expand quickly and efficiently through its supply chain and franchise model. One of the key advantages of this process-dependent approach is that it has enabled McDonald's to maintain a high level of consistency and quality across all of its locations. By standardizing its operations, the company can ensure that customers have a similar experience no matter where they go, which has been a key factor in building its global brand. From an Employee Resource Value (ERV) point of view, McDonald does not require very skilled employees in their stores. The company's training programs are designed to quickly teach new employees the basic skills required to work at a McDonald's location, rather than to develop their skills over time. This approach means that McDonald's employees are often seen as replaceable, and turnover rates at the company are high. According to the 2022 statistics, it’s estimated that 1 in 8 Americans in the workforce have worked at McDonald’s at some point and annual turnover rate of over 130%. In this scenario of McDonald, employee value is not long lived and sustainable.
On the other hand, consultancy firms are very much ERV dependent giving them competitive advantage over others. In this context, employees' knowledge, skills, and experience can provide a competitive edge that is difficult for competitors to replicate. For instance, the consulting firm McKinsey & Company is known for its highly skilled and knowledgeable consultants, which sets it apart from other consulting firms. The company's success is due, in part, to its ability to attract and retain top talent. One way that McKinsey & Company captures value from its employees by offering numerous opportunities for professional development and growth. The company invests heavily in employee training and development, offering a range of programs that help employees acquire skills. Also, the company also captures employee value by offering competitive salaries and benefits, including health insurance, retirement plans, and bonuses. These benefits can help to attract and retain top talent and can contribute to employee satisfaction and loyalty. Employee loyalty and satisfaction are critical factors for companies to create long-term and sustainable value from their employees.
There are also companies who are very much dependent on highly skilled and niche expertise of employees for building innovative tangible assets and capabilities for the company that are rare and inimitable. Such companies strike a balance between tangible and intangible assets. In other words, striking a balance between ERV, ARV and GV which creates competitive advantage. These companies capture value from employees by providing them with intense training and development opportunities. By investing in their employees' skills, companies are able to improve their productivity, reduce costs, and increase efficiency.
Microsoft is highly dependent on its employees (intangible assets) to generate value and for continuous innovation with respect to creating cutting edge technology (tangible asset) that it offers to its customers. The company provides various opportunities for its employees to develop their skills and knowledge through training programs, workshops, and career development initiatives. By doing so, Microsoft can ensure that its employees stay up-to-date with the latest industry trends and technologies, which is essential for the company to remain competitive. In addition to investing in employee development, Microsoft also fosters a culture of innovation and collaboration. This approach has led to the creation of some of the company's most successful products, such as the Windows operating system and the Xbox gaming platform. Another way that companies capture value from employees is by providing them with a positive work environment. When employees feel valued, they are more likely to be motivated and engaged, which leads to increased productivity and better performance. The employee value at Microsoft is long lived and sustainable which is very much evident from its low employee turnover. According to 2022 data, Microsoft's employee turnover rate is around 5%, which is lower than the industry average of around 13%.
In summary, the value that companies capture from their employees varies depending on their overall value proposition. And the value proposition of a company depends on multiple internal and external factors such as industry, business model, leadership, and economic conditions. There are companies that are very tangible asset and process driven and for such companies employees are not contributing in bringing sustainable competitive advantage. Whereas on the contrary, for few companies employees definitely create value which provides a competitive advantage. These companies invest in employee development, provide a supportive work environment, and offer competitive compensation and benefits packages that can capture significant and sustainable value from their employees.
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References:
https://www.zippia.com/advice/mcdonalds-statistics
https://www.law365.co/blog/microsoft-research/employee2022#great-resig