Outside Out and Inside In Theories

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Outside Theory

Outside in theory which is also referred to as Best Fit Model is a theory which is based on a proposition that advocates for different types of strategies in human resource in order to suit different types of conditions in businesses. This theory of management is against the one size fits all approach of management. This is argued in the sense that regardless of there being a link between competitive advantage and human resource strategy, the most appropriate strategy must be dependent on the specific circumstance which a business finds itself in. The outside in theory has different types of models which include the matching model; which does a match between the human resource strategy and different business strategies, the business life cycle model which looks at the different stages of the business and the structural configuration where the strategy used is based on different strategic configurations (Wright et al.,2001).

Inside Theory

Inside out theory on the other hand refers to  the type of human resource management that focuses on what is possessed internally by the organization in terms of human resources, capital among other things. In other words, the inside out theory looks inside the organization and makes an analysis of both strengths and weaknesses (Barney, 1991).

Having noted what outside in and inside out theories consist of, it is clear that these theories of management differ in one way or the other. The outside in theories uses the porters five forces model while doing its analysis. This theory argues that it is futile to search for a perfect model for management since it does not exist in the first place. However, it advocates for the organization to match different types of strategies (Wright et al.,2001).

The inside out theory on the other hand focuses on what the organization is capable of doing by looking at its staff and the conditions in the organization. This theory believes that the ability to access and efficiently use the assets in an organization including the human resources is what will give the organization a competitive advantage.

Another difference between the inside out and outside in theories of management is that while outside in theory focuses on the external factors like consumer preference, suppliers and competition as shown by the porters five forces model, the inside out theory not only focuses inside the organization but also seeks to develop its human resource or staff in order to achieve its objectives.  In the inside out theory, we see the focus being more on the knowledge and skills of the human resources, access to labour as well as the attitude of those representing the organization.

Link with Human resources

Having observed that the outside in and the inside out theories differ in their way of doing things in management, the fact that these theories can be used to develop effective human resource strategies cannot be disputed. It is important to note that most organizations apply both aspects of inside out and outside in theories. They carefully consider the gaps and strengths of both theories and tailor them in a way that suits their organizational needs(Wright et al.,2001).

One of the ways in which these theories can be used to creating strategies that are effective is by ensuring that the human resource which includes the managers and other staff employees are developed. This will enable the organization to draw the most out of highly skilled and knowledgeable staff whose attitude is refined to suit the organizational needs. This will in turn assist in ensuring that the employees are competent in their work.

The other way in which the two theories can be used to develop effective strategies in human resource is that management can draw lessons from the two theories and work towards the recruitment of the key resources that will assist in meeting the goals and objectives of the organization in question (Wright et al.,2001).

According to Farnham (216), it is important to carry out a utility analysis which enables the organization to calculate the value provided by human capital. In this case, the preference is more on the effective approach of measuring performance as opposed to efficacy. Efficiency puts into consideration the real conditions while efficacy looks at measuring effect based on the availability of ideal conditions which is impossible.


Barney, J. B.1991. Firm resources and sustained competitive advantage // Journal of Management,Vol. 17, No. 1, p. 99–120.

F.A.J. van den BoschA.P. De Man.1997.Perspectives on Strategy: Contributions of Michael E. Porter Springer.

Farnham D. 2010. Human Resource management in context. Chartered Institute of Personnel and Development.

Value based management. Five Competitive  forces model Porter. Retrieved from http://www.valuebasedmanagement.net/methods_porter_five_forces.html

Wright et al. 2001.Human resources and the resource based view of the firm. Journal of Management. 27: 701.

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