CHAPTER 6

Competence

Contrasting Theories

Up until the 1980s, concepts associated with optimizing organizational performance were usually based on the premise that (a) marketing strategy formulation required developing ways of exploiting the opportunities available within the external environment and (b) marketing tactics are determined by the nature and structure of the industry of which the organization is a part. This emphasis on environmental orientation is exemplified by Porter’s (1980) “contending forces” model. Critics of environmentalism have expressed concern that excessive emphasis on the external market can be detrimental to organizational performance. This is because reliance on a purely market-orientated strategy without regard to the internal competences necessary to support delivery of products or service performance may lead to an organization being overtaken by competitors who have developed more advanced internal competences, thereby becoming able to offer a superior benefit proposition.

The proposed alternative strategic philosophy that has become known as the “‘resource-based view” (RBV) of the firm is based on the idea that, in increasingly competitive markets where all firms understand customer needs, differentiation can only be achieved by organizations focusing on and exploiting some form of superior internal capabilities (or “competences”). The core premise of the RBV theory is achievement of a competitive advantage is reliant upon an organization’s ability to organize resources to produce goods and services superior to that of other market participants.

Competence can be considered as an ability to co-ordinate the deployment of available assets to permit an organization to achieve specified strategic goals. Kellermanns et al. (2016) opined that, for any aspect of internal operational activity to be recognized as a competence, it should meet the three conditions of ownership, intention, and goal attainment. Competence building involves any process that leads to changes in existing assets and capabilities or the emergence of new capabilities that support improvement in organizational performance. Ownership of a specific competence does not guarantee attainment of a sustainable competitive advantage. This is because two types of internal resources are necessary to establish a competitive advantage, namely assets and competences. Assets are a firm’s accumulated resources such as the existence of certain specialist equipment or manufacturing facilities that are necessary to undertake production processes. In contrast, competences are the accumulated knowledge and skills that enable staff to undertake activities that lead to the most advantageous utilization of the organization’s assets.

Hamal and Pralahad (1994) posited that an organization can utilize a core competence to support the development of new and or improved products and/or enter new market sectors (e.g., Apple’s move from computing into electronic communication with the iPod, iPhone, and iPad). Alternatively, organizational focus may be directed toward developing superior operational technologies that permit the organization to compete on the basis of superior performance or price (e.g., the U.S. retailer Walmart that exploited superior cost-saving capabilities in the areas of procurement and logistics as the basis for outcompeting other supermarket chains by offering much lower prices to consumers).

Coyne, Hall, and Clifford (1997) defined a core competence as “a combination of complementary skills and knowledge bases embedded in a group or team that results in the ability to execute one or more critical processes to a world-class standard.” They proposed that competences can be of two types, namely insight/foresight and frontline competences. These authors proposed that frontline competences tend to be more important in service industries where the quality of an end product or service can vary appreciably depending on the activities of frontline personnel. In their view, insight/foresight enables a company to recognize opportunities to develop an entrepreneurial first-mover advantage.

Savory (2006) concluded that the increasing complexity of markets and technology-based organizational processes demand that new or revised competences must deliver “higher-level capabilities.” Achievement will involve the organization concurrently analyzing both core competence and market positioning. During implementation of a response, it will frequently be the case that resources will need to be transferred from one area to another within the organization. In relation to matching competences to market circumstances, Kay (2004) proposed there are five major sources of strength available to an organization, namely reputation, innovation competence, internal capabilities, organizational assets, and external relationships. He noted that these strengths will vary from industry to industry and from organization to organization operating in the same industrial sector.

Dynamic Competence

The combined influence of changing markets, technology, or organizational behavior often results in an existing competence rendered less capable of supporting ongoing financial performance. Teece, Pisano, and Shuen (1997) emphasized the key role of managers is that of leading actions that result in adapting, integrating, and reshaping organizational skills, resources, and competences. The authors use the term “dynamic capabilities” to describe this managerial capability. A dynamic orientation requires the capacity to learn and adapt when confronted with new situations or market conditions. O’Driscoll, Carson, and Gilmore (2001) proposed that a failure to reconcile existing competences and acquire new competences may eventually lead a firm into to a “competence trap.” This occurs because the organization has failed to recognize that changes in market conditions, technology, or behavior of competition have occurred. As a consequence, the organization remains fixated upon exploiting competences that no longer provide the basis for sustaining competitive advantage. O’Driscoll, Carson, and Gilmore posited avoidance of the competence trap involves engaging in new knowledge acquisition. This permits recognition of new entrepreneurial opportunities and an assessment of whether exploitation of new ideas will require utilization of existing or totally new competences.

Kuratko, Montagno, and Hornsby (1990) concluded that senior management’s willingness to facilitate, promote, champion, and support entrepreneurial behavior with the allocation of adequate resources to support innovation is critical. They opined that senior management’s vision must ensure all employees understand and accept that innovation is the organization’s fundamental long-term strategy for optimizing future performance. This perspective can be expanded to include senior managers’ willingness to provide entrepreneurial staff with autonomy, delegated authority to make decisions, freedom from excessive supervision, and removal of restrictive controls over access to needed resources.

Birkinshaw and Gibson (2004) noted that differences can arise between existing and new entrepreneurial strategies. They proposed that firms’ internal environment must be “ambidextrous.” This is necessary to enable a firm to switch between explorative and exploitative learning to enable the firm to handle contradictions that exist between current mainstream activities and future more entrepreneurial actions. To ensure the success of organizational ambidexterity, senior managers must present entrepreneurship as the “dominant logic” within the organization.

Competence Enhancement

Innovation can range from incremental improvements through to radical change of an entrepreneurial nature leading to fundamental market change or the creation of totally new markets. The complex nature of many radical innovations means that many firms lack the resources and competences to effectively manage all aspects of the required entrepreneurial activities. As a consequence, there is often the need for organizations to engage in interorganizational collaboration and to become members of innovation networks (Pyka 2002).

Colarelli, O’Connor, and DeMartino (2006) identified three competences that capture the requirements for success in radical innovation. These are discovery, incubation, and acceleration. Discovery includes all activities that create, recognize, elaborate, and articulate opportunities. Key skills for this competency are in exploration and conceptualization in the areas of technical discovery and market evaluation to identify opportunities. Incubation involves radical opportunities to evolve into viable business propositions. Acceleration includes those activities that permit the developed idea to evolve into a revenue-generating proposition. However, it is increasingly unlikely that organizations own all of the necessary competences to engage in radical innovation. Hence, in today’s technologically complex business environments, entrepreneurial success will often be critically influenced by the way firms collaborate with other organizations and participate in networks to access the competences that are lacking inside their own operation.

Collaboration can also be important in the acquisition of new knowledge, which can enhance innovation and entrepreneurial activities. In most industries, the key source of this new knowledge is through interaction with other supply chain members. Whether this new knowledge has any impact on existing competences will be determined by whether the firm has cutting-edge capabilities in relation to innovation management. Firms with a high knowledge reception capability are able to gain more information on products, technical issues, the market, and customer needs. Companies with high knowledge reception, therefore, are more able to convert knowledge into understanding that can enhance their entrepreneurial innovation capabilities (Lin, Wang, and Kung 2015).

Creativity

Entrepreneurship can be considered as a process involving the identification and exploitation of opportunities that have not been previously considered. The activity of being entrepreneurial will involve individuals perceiving a potential opportunity on the basis of their information, knowledge, and experience.

As summarized in Table 6.1, three styles of decision making have been identified in the entrepreneurship literature (Cunhae 2007). The rational perspective involves consideration of factors such as risk-taking propensity, available information, and available options. The alternative approach of intuition may possibly be a distinguishing characteristic of many successful entrepreneurs. Improvisation may play an important role in the venture-creation process because due to the unstructured nature of opportunities, entrepreneurs need to deal with problems as they emerge and craft solutions on the spur of the moment. In such situations, they cannot make use of detailed and elaborated plans. On the contrary, they have to make decisions in real time, making do with whatever resources are currently available. In terms of the most appropriate decision-making style likely to result in the most successful outcomes, it is possibly best to assume that a contingency situation exists, which means entrepreneurs may utilize different styles depending on the situation that they are currently facing.

Table 6.1 Three modes of entrepreneurial decision making*

Source: * Modified from Mintzberg and Westley 2001.

Companies seeking to engage in entrepreneurship are reliant on individual employee capabilities, not just in relation to their technological competence, but also in regard to creativity. The early stages of entrepreneurial activity have been identified as phases of opportunity identification, planning, and marshalling of resources (McGee et al. 2009). Given that uncertainty plays an important role in innovation entrepreneurial new product development processes, individuals and organizations are often required to rely on creativity to deal with the existence of uncertainty.

Blauth, Mauer, and Brettel (2014) proposed that employees engaged in being creative face a series of challenges. First, employees have to overcome uncertainty in perceiving opportunities that they decide to transform into real business. Second, they have to overcome uncertainty in knowing how to go about their project. Third, uncertainty arises from their corporate environment in which they decide to leverage an opportunity, but may a face a potential mismatch between required and available resources. These factors infer that entrepreneurial decision making will often rely on effectuation. Sarasvathy (2001) considered that this process is heavily reliant on creativity because opportunities are created, rather than based on detailed available information.

Effectuation consists of four dimensions that are contrasted with causation-based decision making. These are (i) the starting point for venturing, (ii) the attitude toward risk, (iii) the approach toward stakeholders, and (iv) the association with contingencies. Effectuators start with available means instead of using a goal orientation, invest what they can afford to lose instead of trying to predict expected returns, rely on partnerships rather than execute competitive analysis, and embrace rather than avoid unexpected events.

Individuals engaged in causation-based decision making deal with uncertainty through believing they “know better.” Although this is a valid decision logic in situations of low to moderate uncertainty, it becomes a futile endeavor in unknowable contexts. Hence, Blauth, Mauer, and Brettel (2014) posited that in relation to creativity, it can be expected that the time invested in “knowing better” comes at the cost of practiced creativity. This can be contrasted with effectuation, which is more about implementing actions, despite the level of uncertainty.

In the case of incremental new product development, the standard approach is to define a goal and plan the steps in accordance with using predefined strategies and market-driven objectives. In contrast, the effectual approach usually starts with an assessment of available means, which are the resources that are available in the current situation. These resources include personal knowledge, experience, and resources provided by the company, such as financial support or the support of senior management. The way available resources are perceived and how to exploit them is crucial as individuals seek alternative, efficient ways of exploiting these existing resources. Furthermore, the scale of creativity may result from combining together what others might perceive as unrelated resources (Sternberg and Lubart 1997).