strategy

Organizing accumulation of competences within enterprises

Context:
One concept of a firm which is receiving increased prominence is that the firm as a collection of core "competences". Core competences are those abilities which give the firm a competitive advantage and facilitate the realization of value. The condition of being competent is thus equated with that of being competitive. The corporate strategy or policy priority of managers is to identify the firm's core competences and to develop them in order to improve competitiveness. However, the proponents of the "competences" concept stress that core competences cannot be acquired quickly or easily or at lower cost or transferred to others - it is precisely this feature that makes them a source of competitiveness. A firm is able to earn an economic rent from those competences which are in short supply and cannot be readily and inexpensively emulated by would-be competitors.

This concept has important implications for the conceptualization of corporate strategy, since a firm is constrained in what it can do by its competences and the limitations it faces in acquiring and accumulating them. In contrast to "voluntarism", which gives the impression that the key to success lies in managers developing an appropriate strategy, the "competence approach" suggests that although, strategy is constrained by competence, good strategy is based on identifying and enhancing distinctive competence. The strategic imperative for management is therefore to identify the firm's distinctive competences and the markets in which these competences can be used to earn satisfactory economic rents.

Most work relating to how competences emerge, accumulate or yield value - how they are organized and what factors need to be taken into account in their organization - relates to some notion of "bounded rationality". This refers to the constraints that limit the individual's ability to process information, implying logically that individuals make decisions on the basis of the information they have processed, rather than on the total amount of relevant information in existence. However, while bounded rationality is an important consideration in organizing competences, there are many other factors that need to be explored in a more systematic way in order to understand better and therefore design the forms of organization that are appropriate for the development and exploitation of competences.

One question is whether a firm needs the pressure of a competitive environment in order to develop competitive core competences and, if so, what kind of "competition" is necessary. It is important here to distinguish between competitive "pressures" and competitive "incentives" because of their different effects - while competitive incentives imply that the firm and some or all of its members will be better off, competitive pressures carry the threat of being worse off. When greater weight is attached to being worse off, competitive pressures will have a greater impact on a firm than competitive incentives.

Most work has dealt with firms operating in developed-country markets which, under international trading practices, are usually relatively open. Under these circumstances competitive pressure may, in both factor and product markets, come from other firms producing domestically or from imports. In this context, the very concept of core competence implies the existence of significant competitive pressures. The situation in many developing countries, with smaller markets and often significant trade barriers, is very different.

The importance of competitive pressure for the accumulation of core competences makes it clear that in order to understand the processes within a firm - such as the development of competences - one needs to understand the environment within which the firm exists. That is to say, an analysis of the interior of the firm requires simultaneously an analysis of its exterior or "selection environment" - the sum total of factors which influence a firm's growth.

Implementation:
Although the superior performance of newly industrialized countries was originally attributed to their introduction in the 1960s of a trade regime that approximated to free trade, it has more recently been pointed out that both Japan, in earlier periods, and the NICs eluded many of the precepts of neo-classical thinking. Much recent study has focused on how manufacturing-based and export-oriented trade policy was used by these countries to create the incentives necessary to accumulate competences while fostering the competitive pressures needed to ensure that these competences are "competitiveness compatible".
Subjects:
Expertise
Business enterprises
Type Classification:
F: Exceptional strategies