Competence-based management
Encyclopedia
Competence-based Strategic Management is a relatively new way of thinking about how organizations gain high performance for a significant period of time. Established as a theory in the early 1990s, competence-based strategic management
theory explains how organizations can develop sustainable competitive advantage
in a systematic and structural way.
The theory of competence-based strategic management is an integrative strategy
theory
that incorporates economic, organizational and behavioural concerns in a framework that is dynamic, systemic, cognitive and holistic (Sanchez and Heene, 2004). This theory defines competence as: the ability to sustain the coordinated deployment of resources in ways that helps an organization
achieve its goals
(creating and distributing value to customers and stakeholders).
Though simple, this definition embodies essential aspects of the ‘‘four cornerstones’’ of the theory of competence-based strategic management, which aspires to recognize and capture the dynamic, systemic, cognitive and holistic nature of organizational competences. Each of these four aspects of the nature of the competent organization deserves further comment.
The requirement of sustainability in the above definition of competence encompasses both forms of dynamics. To be sustainable, a competence must respond to the dynamics of the external environment by enabling an organization to maintain its ability to create value in the marketplace even as changes take place in market preferences and available technologies. Sustainability
also requires overcoming internal organizational dynamics that result in various forms of organizational entropy, such as a gradual loss of organizational focus, a narrowing and increasing rigidity in the patterns of activity the organization can or does perform, a progressive lowering of organizational expectations for performance and success, and the like. The notion of organizational entropy reflects the concept of entropy in the laws of thermodynamics. The essential feature of the law of entropy is that systems naturally tend to devolve to lower states of energy, which takes the form of a loss of structure and information content. Ongoing inputs of energy are required simply to maintain a system in its current state of structure and information. Further inputs of energy are then required to increase the structure and information content of a system
. Analogously, in organizations as systems, managers must provide continuous inputs of energy and attention to maintain or improve the order and structure in an organization’s value-creation processes.
Second, competence must include an ability to manage the systemic nature of organizations and of their interactions with other organizations.
The requirement of coordination of resources addresses this dimension of competence. In the first instance, competence requires an ability to coordinate an organization’s own organization-specific resources - i.e., the resources within the boundaries of the organization and thus under its direct control - in processes of creating value
through product creation and realization. In addition, competence involves accessing and coordinating important organization-addressable resources that lie beyond the boundaries of the organization. Providers of key organization-addressable resources include materials and components suppliers, distributors, consultants, financial institutions and customers.
Third, competence must include an ability to manage the cognitive processes of an organization.
The requirement of deployment of resources - directing organizational resources to specific value-creating activities - addresses this dimension of competence. Organization’s managers are ultimately responsible for deciding the ways in which an organization will try to create value in its targeted product markets. Thus, achieving organizational competence poses a twofold cognitive challenge to managers. Managers must be able to ascertain and assure that an organization’s operations meet at least the minimum efficiency
requirements needed to carry out the strategies of the organization, but they must also be able to define and select strategies that have the potential to create value in targeted markets when they are carried out efficiently. In other words, managers are responsible for both efficient and effective use of an organization’s resources.
Fourth, competence must include the ability to manage the holistic nature of an organization as an open system. The requirement of goal achievement addresses the multiplicity of individual and institutional interests that intermingle in and are served through any organization. To lead an organization in achieving goals requires that managers be able to define organizational goals that promise a satisfactory level of goal achievement for all individual and institutional providers of the essential resources the organization needs. Thus, the definition of organizational competence recognizes the existence of multiple stakeholders and the importance of meeting the expectations of all providers of essential resources in sustaining the value-creating processes of an organization.
is used in this discussion to refer to an important way in which the competence of an organization is expressed through specific kinds of activities and processes. Further, as the discussion below explains, each competence mode results from a distinctive kind of organizational flexibility to respond to changing and diverse environmental conditions, such as evolving market demands, technological change and competitive developments in an industry. Each kind of flexibility can in turn be described by the kind of portfolio of strategic options that each flexibility brings to an organization.
Competence mode I: cognitive flexibility to imagine alternative strategic logics.
Competence mode I derives from the cognitive flexibility of an organization to conceive of alternative ways of creating value in markets. The source of this mode of competence is, in essence, the collective corporate imagination of an organization’s managers in perceiving feasible market opportunities for the organization to create value. Competence mode I depends on an organization’s managers’ ability to perceive market needs and identify specific market preferences the organization might serve, to determine the characteristics of products and services that can satisfy those needs and preferences, to design supply chains and select appropriate distribution channels for realizing new products, and ultimately to define product
offers that will be perceived by markets as having attractive net delivered customer value.
Competence mode II: cognitive flexibility to imagine alternative management processes.
Competence mode II results from a second form of cognitive flexibility of managers to conceive of alternative management processes for implementing strategic logics identified by competence mode I. The managerial abilities underlying competence mode II include the ability to identify the kinds of resources (assets, knowledge and capabilities) required to carry out a given strategic logic, to create effective organization designs (allocations of tasks, decision making and information flows) for the processes that will use the required resources and to define appropriate controls and incentives for monitoring and motivating the value-creating processes envisioned by a given strategic logic.
Competence mode III: coordination flexibility to identify, configure and deploy resources.
Competence mode III drives from the coordination flexibility of an organization to assemble chains of tangible and intangible resources needed to carry out the organization’s strategic logics for creating value through its product offers. Coordination flexibility depends on the ability of a firm’s managers—in this case, usually the midlevel managers of larger firms, but also top managers of smaller firms—to acquire or access, configure and deploy chains of resources for leveraging product offers capable of creating value in the markets targeted by the firm.
Competence mode IV: resource flexibility to be used in alternative operations.
While competence mode III derives from the ability of an organization to assemble resource chains in support of product offers, competence mode IV derives from the ability of the resources in an organization’s resource chains to be used in alternative ways. In essence, within the resource chains available to an organization, the intrinsic resource flexibility of the resources composing those chains will constrain the different ways in which the organization’s available resource chains can be used.
Competence mode V: operating flexibility in applying skills and capabilities to available resources.
While competence mode IV derives from the intrinsic flexibilities of the resources in a resource chain to be used in alternative processes, competence mode V derives from the ability of an organization to use the flexibilities of its firmspecific and firm-addressable resources effectively and efficiently over a range of operating conditions.
Strategic management
Strategic management is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments...
theory explains how organizations can develop sustainable competitive advantage
Sustainable competitive advantage
Competitive advantage is defined as the strategic advantage one business entity has over its rival entities within its competitive industry. Achieving competitive advantage strengthens and positions a business better within the business environment....
in a systematic and structural way.
The theory of competence-based strategic management is an integrative strategy
Strategy
Strategy, a word of military origin, refers to a plan of action designed to achieve a particular goal. In military usage strategy is distinct from tactics, which are concerned with the conduct of an engagement, while strategy is concerned with how different engagements are linked...
theory
Theory
The English word theory was derived from a technical term in Ancient Greek philosophy. The word theoria, , meant "a looking at, viewing, beholding", and referring to contemplation or speculation, as opposed to action...
that incorporates economic, organizational and behavioural concerns in a framework that is dynamic, systemic, cognitive and holistic (Sanchez and Heene, 2004). This theory defines competence as: the ability to sustain the coordinated deployment of resources in ways that helps an organization
Organization
An organization is a social group which distributes tasks for a collective goal. The word itself is derived from the Greek word organon, itself derived from the better-known word ergon - as we know `organ` - and it means a compartment for a particular job.There are a variety of legal types of...
achieve its goals
Goal
A goal is an objective, or a projected computation of affairs, that a person or a system plans or intends to achieve.Goal, GOAL or G.O.A.L may also refer to:Sport...
(creating and distributing value to customers and stakeholders).
Though simple, this definition embodies essential aspects of the ‘‘four cornerstones’’ of the theory of competence-based strategic management, which aspires to recognize and capture the dynamic, systemic, cognitive and holistic nature of organizational competences. Each of these four aspects of the nature of the competent organization deserves further comment.
Aspects of the competent organization
First, competence must include the ability to respond to the dynamic nature of an organization’s external environment and of its own internal processes.The requirement of sustainability in the above definition of competence encompasses both forms of dynamics. To be sustainable, a competence must respond to the dynamics of the external environment by enabling an organization to maintain its ability to create value in the marketplace even as changes take place in market preferences and available technologies. Sustainability
Sustainability
Sustainability is the capacity to endure. For humans, sustainability is the long-term maintenance of well being, which has environmental, economic, and social dimensions, and encompasses the concept of union, an interdependent relationship and mutual responsible position with all living and non...
also requires overcoming internal organizational dynamics that result in various forms of organizational entropy, such as a gradual loss of organizational focus, a narrowing and increasing rigidity in the patterns of activity the organization can or does perform, a progressive lowering of organizational expectations for performance and success, and the like. The notion of organizational entropy reflects the concept of entropy in the laws of thermodynamics. The essential feature of the law of entropy is that systems naturally tend to devolve to lower states of energy, which takes the form of a loss of structure and information content. Ongoing inputs of energy are required simply to maintain a system in its current state of structure and information. Further inputs of energy are then required to increase the structure and information content of a system
System
System is a set of interacting or interdependent components forming an integrated whole....
. Analogously, in organizations as systems, managers must provide continuous inputs of energy and attention to maintain or improve the order and structure in an organization’s value-creation processes.
Second, competence must include an ability to manage the systemic nature of organizations and of their interactions with other organizations.
The requirement of coordination of resources addresses this dimension of competence. In the first instance, competence requires an ability to coordinate an organization’s own organization-specific resources - i.e., the resources within the boundaries of the organization and thus under its direct control - in processes of creating value
Value (economics)
An economic value is the worth of a good or service as determined by the market.The economic value of a good or service has puzzled economists since the beginning of the discipline. First, economists tried to estimate the value of a good to an individual alone, and extend that definition to goods...
through product creation and realization. In addition, competence involves accessing and coordinating important organization-addressable resources that lie beyond the boundaries of the organization. Providers of key organization-addressable resources include materials and components suppliers, distributors, consultants, financial institutions and customers.
Third, competence must include an ability to manage the cognitive processes of an organization.
The requirement of deployment of resources - directing organizational resources to specific value-creating activities - addresses this dimension of competence. Organization’s managers are ultimately responsible for deciding the ways in which an organization will try to create value in its targeted product markets. Thus, achieving organizational competence poses a twofold cognitive challenge to managers. Managers must be able to ascertain and assure that an organization’s operations meet at least the minimum efficiency
Efficiency
Efficiency in general describes the extent to which time or effort is well used for the intended task or purpose. It is often used with the specific purpose of relaying the capability of a specific application of effort to produce a specific outcome effectively with a minimum amount or quantity of...
requirements needed to carry out the strategies of the organization, but they must also be able to define and select strategies that have the potential to create value in targeted markets when they are carried out efficiently. In other words, managers are responsible for both efficient and effective use of an organization’s resources.
Fourth, competence must include the ability to manage the holistic nature of an organization as an open system. The requirement of goal achievement addresses the multiplicity of individual and institutional interests that intermingle in and are served through any organization. To lead an organization in achieving goals requires that managers be able to define organizational goals that promise a satisfactory level of goal achievement for all individual and institutional providers of the essential resources the organization needs. Thus, the definition of organizational competence recognizes the existence of multiple stakeholders and the importance of meeting the expectations of all providers of essential resources in sustaining the value-creating processes of an organization.
Five modes of competence
Each competence mode arises from a specific level of activity with an organization as an open system. The term mode of competenceCore competency
A core competency is a concept in management theory originally advocated by CK Prahalad, and Gary Hamel, two business book writers. In their view a core competency is a specific factor that a business sees as being central to the way it, or its employees, works...
is used in this discussion to refer to an important way in which the competence of an organization is expressed through specific kinds of activities and processes. Further, as the discussion below explains, each competence mode results from a distinctive kind of organizational flexibility to respond to changing and diverse environmental conditions, such as evolving market demands, technological change and competitive developments in an industry. Each kind of flexibility can in turn be described by the kind of portfolio of strategic options that each flexibility brings to an organization.
Competence mode I: cognitive flexibility to imagine alternative strategic logics.
Competence mode I derives from the cognitive flexibility of an organization to conceive of alternative ways of creating value in markets. The source of this mode of competence is, in essence, the collective corporate imagination of an organization’s managers in perceiving feasible market opportunities for the organization to create value. Competence mode I depends on an organization’s managers’ ability to perceive market needs and identify specific market preferences the organization might serve, to determine the characteristics of products and services that can satisfy those needs and preferences, to design supply chains and select appropriate distribution channels for realizing new products, and ultimately to define product
Product (business)
In general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...
offers that will be perceived by markets as having attractive net delivered customer value.
Competence mode II: cognitive flexibility to imagine alternative management processes.
Competence mode II results from a second form of cognitive flexibility of managers to conceive of alternative management processes for implementing strategic logics identified by competence mode I. The managerial abilities underlying competence mode II include the ability to identify the kinds of resources (assets, knowledge and capabilities) required to carry out a given strategic logic, to create effective organization designs (allocations of tasks, decision making and information flows) for the processes that will use the required resources and to define appropriate controls and incentives for monitoring and motivating the value-creating processes envisioned by a given strategic logic.
Competence mode III: coordination flexibility to identify, configure and deploy resources.
Competence mode III drives from the coordination flexibility of an organization to assemble chains of tangible and intangible resources needed to carry out the organization’s strategic logics for creating value through its product offers. Coordination flexibility depends on the ability of a firm’s managers—in this case, usually the midlevel managers of larger firms, but also top managers of smaller firms—to acquire or access, configure and deploy chains of resources for leveraging product offers capable of creating value in the markets targeted by the firm.
Competence mode IV: resource flexibility to be used in alternative operations.
While competence mode III derives from the ability of an organization to assemble resource chains in support of product offers, competence mode IV derives from the ability of the resources in an organization’s resource chains to be used in alternative ways. In essence, within the resource chains available to an organization, the intrinsic resource flexibility of the resources composing those chains will constrain the different ways in which the organization’s available resource chains can be used.
Competence mode V: operating flexibility in applying skills and capabilities to available resources.
While competence mode IV derives from the intrinsic flexibilities of the resources in a resource chain to be used in alternative processes, competence mode V derives from the ability of an organization to use the flexibilities of its firmspecific and firm-addressable resources effectively and efficiently over a range of operating conditions.
Publications
- Vernhout, A. (2009), Management uitdagingen in strategisch competentiedenken, Management Executive, Kluwer.
- Sanchez, R., editor (2008), A Focused Issues on Fundamental Issues in Competence Theory Development, Volume 4 in Research in Competence Based Management, JAI Press.
- Sanchez, R., Heene, A. Martens, R., editors (2008), Competence Perspectives on Learning and Dynamic Capabilities, Volume 10 in Advances in Applied Business Strategy, JAI Press.
- Sanchez, R., Heene, A. Martens, R., editors (2008), Competence Building and Leveraging in Interorganizational Relations, Volume 11 in Advances in Applied Business Strategy, JAI Press.
- Vernhout, A. (2007), Management challenges in the competence-based organization, www.competentiedenken.nl
- Vernhout, A. (2007), Competence-based Strategic Management, www.competentiedenken.nl
- Sanchez, R., Heene, A., editors (2006), Competence Perspectives on Resources, Stakeholders and Renewal, Volume 9 in Advances in Applied Business Strategy, Elsevier Science.
- Sanchez, R., Heene, A., editors (2006), Managing Knowledge Assets and Organizational Learning, Volume 2 in Research in Competence-Based Management, Elsevier Science.
- Sanchez, R., Heene, A., editors (2006), Understanding Growth: Entrepreneurship, Innovation, and Diversification, Volume 3 in Research in Competence-Based Management, Elsevier Science.
- Sanchez, R., Freiling, J., editors (2005), The Marketing Process in Organizational Competence, Volume 1 in Research in Competence-Based Management, Elsevier Science.
- Sanchez, R., Heene, A., editors (2005), Competence Perspectives on Managing Internal Processes, Volume 7 in Advances in Applied Business Strategy, Elsevier Science.
- Sanchez, R., Heene, A., editors (2005), Competence Perspectives on Managing Interfirm Interactions, Volume 8 in Advances in Applied Business Strategy, Elsevier Science.
- Vernhout, A. (2004), Strategisch werken met competenties: de theorie en praktijk van het competentiedenken, Nelissen.
- Sanchez, R. (2004), Understanding competence-based management: Identifying and managing five modes of competence, Journal of Business Research, Volume 57, pp. 518– 532
- Sanchez, R., Heene, A. (2004), The New Strategic Management: Organizations, Competition and Competence, John Wiley & Sons.
- Sanchez, R., Heene, A., editors (2000), Theory Development for Competence-Based Management, Volume 6A in Advances in Applied Business Strategy, JAI Press.
- Sanchez, R., Heene, A., editors (2000), Research in Competence-Based Management, Volume 6B in Advances in Applied Business Strategy, JAI Press.
- Sanchez, R., Heene, A., editors (2000), Implementing Competence-Based Strategies, Volume 6C in Advances in Applied Business Strategy, JAI Press.
- Vermeylen, S., Heene, A. (1999), De stille kracht van de onderneming: Competentiedenken in strategisch management, Lannoo.
- Sanchez, R., Heene, A., editors (1997), Competence-Based Strategic Management, published in the Strategic Management Society series by John Wiley & Sons.
- Sanchez, R., Heene, A., editors (1997), Strategic Learning and Knowledge Management, published in the Strategic Management Society series by John Wiley & Sons.