A new approach to competence analysis
Paul Knott and Alan Pearson
Manchester Business School, Booth Street West, Manchester M15 6PB, UK.
Dr Rosalind Taylor
Scientific Generics Ltd, Harston Mill, Harston, Cambridge CB2 5NH, UK.
Abstract
Competences and core competences of organisations have been widely discussed in the
literature in recent years, particularly in relation to technology-based companies. However,
in contrast, the processes and interactions important to the functioning of competences have
not been investigated in depth, and are an important area for new research. The hierarchical
model of competences in an organisation is useful in classifying and displaying skills,
competences and core products, but is less useful in describing the functioning of
competences. This paper presents a new approach in which organisational factors, attributes
of individuals and value delivered, are considered as elements of an operating system. Early
research results show the importance of organisational factors within a competence. It is
anticipated that the new approach will become a valuable technique in competence analysis
and management.
Keywords:
strategy
competence analysis, technology management, organisational factors,
Reference to this paper should be made as follows: Knott, P., Pearson, A. and Taylor,R.
(1996) ‘A new approach to competence analysis’, Int. J. Technology Management, Special
Publication on Technology Management.
Biographical Notes
Paul Knott is in the second year of the Doctoral Programme at Manchester Business School.
He is working with the R&D Research Unit at the Business School and Scientific Generics
Ltd. His research is into the factors affecting the performance and evolution of competences
of organisations, concentrating on technology-based organisations. His background is in
engineering, and, before starting at Manchester Business School, he worked as a systems
engineer in the avionics industry.
Professor Alan Pearson is the Director of the R&D Research Unit at Manchester Business
School. His major area of interest is the Management of Research and Development and he
has published widely on the subject. In 1984 he was awarded the centennial medal of the
Institute of Electronic and Electrical Engineers for contributions to engineering management.
In 1992 he received, jointly with Professor Brockhoff, the Max Planck Research Award from
the Alexander von Humboldt Foundation. He is currently Chairman of the management
committee for the recently formed Manchester Federal School of Business and management.
1
Dr Rosalind Taylor is Major Accounts Manager for Scientific Generics Limited, part of The
Generics Group plc. Generics is an international business, technology and investment
consulting organisation focusing on interdisciplinary approaches to the creation of value from
science and technology through innovation. Key consulting activities are in the areas of
skills and competence management and the strategic management of innovation. Dr Taylor
specialises in strategic technology management issues and the development of novel
analytical methods.
1
Introduction
Competences are widely referred to in management literature as being properties of
organisations that are built through experience and have an important influence on
performance. Competences are often described as ‘capabilities’ and ‘working bundles of
skills and technologies’. Also the term ‘competence’ is used extensively in human resource
literature to describe an individual’s work-related knowledge, skills and abilities [1].
The concept of a distinctive or core competence has been developed, notably by Hamel and
Prahalad [2], to describe the competences that are the essence of the organisation as a whole,
and which are key to its competitive differentiation. However, processes and interactions
active in the development, maintenance and decline of the functioning of competences and
core competences are currently the least researched aspects of competence theory and
practice.
In recent years, interest in competence ideas has been heightened by the pressures of global
competition and rapid technological changes. Strategy dominated by analysis of markets and
competitors is becoming increasingly inadequate as product life cycles shorten, and skill life
cycles increase [3]. Hamel [4] proposes that ‘competition is as much a race for competence
mastery as for market position and power’. This suggests that the identification and
management of competences are becoming critical managerial tasks, and that the
development of effective methods for competence analysis is now urgent.
This paper reviews the status of approaches to competence analysis and challenges the
usefulness of a hierarchical competence model as the basis for competence analysis. It
introduces a new approach which emphasises the need to include, and understand the
interactions between organisational factors and the skills and attributes of individuals within
the body of a competence. It reports initial research which has found that this approach gives
a good working representation of the functioning and evolution of a specific competence in
an organisation.
2
Competence Literature - Theory
The concepts of competences and core competences of organisations have received
considerable attention in recent years from a number of viewpoints. They have been found
useful in developing thinking in the fields of corporate strategy and economics, and also in
the management of product development [5], innovation [6], organisational culture [7,8], and
human resources [9].
The concept of competence has its origins in the strategy literature of the 1950s, in which the
internal analysis of organisations is an important element. Probably the first to use the term
‘distinctive competence’ was Selznick [10], referring to institutional norms that play a large
2
part in determining their special capabilities. Ansoff [11] dealt with the analysis of strengths
and weaknesses, or audit of tangible and intangible resources. Andrews [12] further
developed the idea of a company’s distinctive competence, described as a competence or
ability that will attract customers away from competitors. He emphasised that it is not only
the skills and resources that are important, but also the way in which an organisation can
combine them effectively to produce useful output.
In the 1980s, strategy models were dominated by external analysis as suggested by Porter’s
model of competitive forces, industry structure, emergence, maturity and decline [13]. Peters
[14] pointed this out and lamented the forgotten ‘distinctive competence’. Porter’s second
book [15] dealt more with internal issues, notably the ‘value chain’, showing how value
generation depends on complete sequences of processes in the organisation.
It was Prahalad and Hamel [16], however, who created renewed interest in the issue of
distinctive competences.
They presented the case for corporate-level distinctive
competences, citing examples mainly from technology-based companies.
In the field of economics, ideas close to those of organisational competence were proposed
by Penrose [17], in relation to the theory of growth of firms. Amongst these were the
importance of the ‘services’ resources rendered as inputs to the production process, rather
than simply of the resources themselves. Further, she argued that the unique character of a
firm derives from the variety of productive services available from its resources. The
importance of accumulated knowledge was recognised in making these productive services
available. The ‘special productive opportunity’ of a firm was said to arise from the
combination of this knowledge and the firm’s resources.
Nelson and Winter [18], arguing for an evolutionary theory of economics, saw the ‘routines’
of an organisation as analogous to genes. They argued that firms have a distinctive and
relatively narrow set of capabilities, and that these are resident in routines, experience, and
tacit knowledge.
Wernerfelt [19] also argued that economic theory should extend to the resource position
aspect of strategy as well as the product-market aspect. This argument has been developed
since, to the resource-based theory of the firm that suggests firms’ resources can be the basis
for sustainable competitive advantage, provided certain conditions are satisfied. These are
that firms within an industry may be heterogeneous with respect to strategic resources and
that resources are not perfectly mobile across firms [20]. Competences can satisfy these
conditions.
This body of literature has consolidated the idea of persistent and distinctive competences in
organisations, and that these can significantly influence competitive performance. However,
these works have not attempted to describe how competences are best analysed or managed
in practice, and this has been the challenge for past and current practitioners.
3
Competence Literature - Practice
The practical application of competence ideas became more generally known after a series of
articles by Prahalad and Hamel [21]. In these, a hierarchical tree-diagram was used to
illustrate competences in an organisation, linking competences to core products, then through
strategic business units to end products. This representation is now a widely used model in
competence analysis, and shares similarities with the earlier ‘Japanese bonsai’ model given
by Giget [22].
3
A number of further interpretations have been made of this framework. Ross [23] suggests a
structure for integrating core competences in a firm with multiple business units. This
structure involves core competence groups, core product groups and end product groups, and
implies that core competences can be managed as explicit departments. Kesler, Kolstad and
Clarke [24] emphasise the need for constant reorientation of competence analysis as
technology develops. They suggest techniques for identifying key technologies, based on
breaking down processes into constituent technologies and relating R&D strategy targets to
the technologies they require. Klein and Hiscocks [25] outline the converse bottom-up
approach, of mapping skills then relating skill-sets to opportunities.
In addition, there are alternative representations of competence which can be considered to be
complementary. Two examples are: Black and Boal [26] propose a network model for
competences; Bowonder and Miyake [27] list models of the Japanese innovation process, of
which the Giget-Prahalad and Hamel model is one.
Chester [28] looked at how companies have used competence ideas, finding that in most
cases this has been confined to what are called technical competences but are often simply
‘key technologies’. This is not consistent with the original concept of competence of
Prahalad and Hamel [29], that a technology core competence is an integration of technologies
that delivers customer benefits.
Despite differences in interpretation of the Prahalad and Hamel model, their hierarchical tree
model still remains the basis of most current thinking in competence analysis. However there
is still the fundamental issue of whether this model can be used to describe competences in
sufficient depth to support effective competence management, given the lack of published
empirical data concerning its practical use. The research reported in section 4 was
undertaken to gather empirical data and gain practical experience in the use of this model to
investigate this issue.
4
Research based on an hierarchical competence model
This research focused on analysing skills and competences in a technology-based product and
service company managed as a single business unit, with a near-flat hierarchy and little
formal structure. The research model used is taken from Prahalad and Hamel [30] but with
the implied skill level added, as shown in Figure 1. It was felt that this form of organisation
would provide a stiff challenge to this hierarchical competence model — which was
originally described with respect to large multi-business firms.
Using interviews with managers in the organisation, in combination with documentary and
database information, it was possible to identify and map the company’s skills, competences,
core products and end products using the model, and to establish the linkages between these
elements by which products were delivered. The model was found useful as a simple
classification structure for the data gathered.
4
End Products
Businesses (SBUs)
Core Products
Competences
Skills
Figure 1
Hierarchical model of competence based on Prahalad and Hamel (1990)
However, beyond this usefulness for classification, there were several limitations in the use
of the model. Firstly, the relationships between elements did not conform consistently to the
hierarchy. It was found that some service-based competences could be directly delivered to
customers. Not only were there no core products involved, but also the ‘product’ delivered
was the expertise and experience embodied in the competence itself. End products were also
often found to draw directly on individual skills, that were not part of a focused competence
and were not channelled through intermediate core products.
Secondly, the representation of skills as part of the hierarchy was found to be problematic
because of blurring between skills and competences. Competences could often not be
represented as lists of skills; conversely some skills did not appear to map to any established
competences. This finding suggests that competences cannot be explained solely by
combinations of the skills of individuals.
Thirdly, it was found necessary to broaden the definition of core products to include ‘core
technologies’. These are developed technologies with a number of applications, in which the
company owns the intellectual property rights. They are therefore similar to core products
except that they do not involve physical production. The same adaptation of the core product
idea was made by Bailetti and Callahan [31].
Finally, the study highlighted two critical limitations of this approach which prompted the
development of the new, alternative approach to competence analysis presented in this paper.
The hierarchical representation (Figure 1) displays competences without linking them with
the factors on which their operation depends. It suggests that competences are isolated units
with definite boundaries. This leads to the interpretation that competences are independent of
other competences and of the organisation, which is contrary to the dependencies on
organisation-related factors, both internal and external, that are discussed in the literature.
In addition, the approach yields a representation of the organisation with no emphasis, or
clarification of important areas and linkages. Thus it is unlikely that this approach would be
sufficient to support the key competence management processes of identification, selection,
5
development, deployment and protection. Also it represented the organisation as the sum of a
number of discrete parts, not considering attributes of the organisation as a whole which are
common across many of its activities, thus restricting the understanding of competence.
These limitations of the model, that is of conformance, definition, scope, dependence, and
managerial use, led us to develop the alternative representation of competence within an
organisation which is introduced in section 5.
5
A new approach to competence analysis
This new approach to competence analysis focuses on value delivered by the competence and
the factors constraining or enabling this delivery. Hence it is based on a representation of
competences as functioning systems within the organisation. It follows the system
perspective suggested by Herbert [32], and the approach of Leonard-Barton [33] which
represents the knowledge set of a ‘core capability’ in the four interlocking dimensions: skills
and knowledge base, technical systems, managerial systems, and values and norms.
The model for the new approach is illustrated in Figure 2. It shows competence as an
attribute of the organisation, influenced by the external environment, organisational factors,
and individuals, that delivers output of value. That is, the competence is not a subset of the
organisation, but a holistic, common property of it.
This representation reinforces the definition of competence, as being able to deliver business
value. It provides a framework for considering the influences on competence, namely the
external environment, formal systems and procedures of the company, social and cultural
aspects of the organisation, and both explicit and tacit features of individuals. By this means,
the model reflects more closely the way academics and practitioners describe competence,
and it is expected to be the basis of a valuable tool in the management of competence.
Environment
External
Internal
Organisation
Individuals
Skills
Knowledge base
Tacit knowledge
Working habits
Customers
Competence
Suppliers
Value
Contacts
Figure 2
Formal system
Social system
Technical systems
Management systems
Physical environment
Procedures
Informal Networks
Organisational Learning
Values and Norms
Organisational Culture
New model of a competence within an organisation
6
Market
Competitors
6
Research based on the new approach
Early research using the new approach has been carried out to test and further develop the
approach and the model. The key objective has been to achieve a better understanding of the
way influential factors interact with skills to achieve competence in practice.
The research investigated a strategic business unit operating in a multi-business operating
division within a corporate structure. The unit delivers high-value product ranges into mature
markets. The research focused on analysing the development of new service-oriented,
competitively superior products, which have resulted in a successful range of patented,
premium-priced products in a commodity market, thus giving the organisation strategic
strength through proprietary technology and new customer relationships.
Initial interviews indicated that the commercial success of the range had come about through
a combination of developments in different parts of the company, rather than through
technical or marketing innovation alone. Further interviews were therefore carried out with
individuals from research, product development, manufacturing, marketing, and commercial
areas who had been actively involved with the products under study. The objective of these
interviews was to establish an understanding of the competences behind the success,
concentrating particularly on the organisational and external influences on these
competences.
It was concluded that the key competences that led to the market success were the ‘research
capability’, ‘marketing innovation’ and ‘new product development’. These together
constitute a still-emerging competence, which may over time be established as a core
competence, called ‘market-focused product innovation’. This analysis is illustrated in
Figure 3, together with the key factors governing the performance of each competence.
Environment
External
Organisation
Internal
Market-focused Product Innovation
"Black art" experience
Research Capability
Space for
creativity
Research-based
values
Strong Individuals
Customers
Marketing Innovation
Branded
service concept
Low-cost
Competitors
Improved
Customer
Profitability
Industry-focused
values
Product Development
Project Management
Results-oriented
management
values
system
Figure 3
Key competences supporting new product range
7
The advantage of this representation is that it shows the factors that enable the competences
to function. The ‘research capability’ depends on having ‘research-based values’, where the
science is all-important, and on having sufficient flexibility in its objectives to be able to
explore creative opportunities, that is, ‘space for creativity’. The ‘marketing innovation’
competence depends on strong individuals who conceived a ‘branded service concept’ and
have begun to embed ‘industry-focused values’ in the organisation. The ‘new product
development’ competence includes an influential ‘project management system’ supported by
strong ‘results-orientated values’.
The overall ‘market-focused product innovation’ competence is driven by pressure from lowcost competitors, and has been strengthened by establishing close relationships with
customers.
With the use of several related diagrams, it becomes possible to represent the evolution of the
competences over time and hence to anticipate their status in the future. The evolutionary
perspective is useful to illustrate how some competences can become compromised as others
become embedded. In this study there is tension between the project-managed, resultsoriented approach and the culture in which creative research can flourish. Currently the
science culture remains effective, whilst the product development competence has yielded
effective results. However, the current trends point to research innovativeness being eroded
as the project-focused culture becomes dominant.
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Conclusions
We have experienced that the hierarchical model of competences has significant limitations
as a tool for competence management. We have tested a more holistic representation of
competence which integrates the individual and organisational perspectives in an operational
system model.
The new approach successfully surmounts the limitations of the hierarchical model. It
introduces flexibility in the combination of individual and organisation-related factors, thus
avoiding conformance problems. It introduces organisational factors which augment skills to
enable the functioning of competence; these factors were missing in the earlier hierarchical
model. It introduces competence as a system, integrating the formal and social systems of the
organisation with the individual’s system. This has provided sufficient conceptual scope to
achieve a satisfactory description of competence.
Finally the new approach focuses on analysis of the means by which value is delivered, and
hence contributes significant insight into core competence which is pivotal to effective
strategic management of competence.
8
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