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A perspective on knowledge,competence and strategy

Georg von Krogh and Johan RoosInstitute for International Management Development, Lausanne,

Switzerland

IntroductionThe firms competitive advantage represents its raison detre. Therefore, anunderstanding of the basis for competitive advantage is at the core of themanagement field. Although the idea that competences are underlyingsustainable competitive advantage is central, there has been no thoroughinvestigation into the very nature of competences in the management literature.This article applies theories of sociology of knowledge to enhance the resource-based perspective of the firm into a coherent perspective of competences. Theemergent competence-based perspective of the firm has importantimplications for strategic management in general and for personnelmanagement in particular.

In 1939, Chamberlin[1] had already introduced the concept of competitiveadvantage. Building on this, Hofer and Schendel[2] discussed competitiveadvantage in relation to the firms strategy defined as unique positions relativeto competitors. Discussing competitive advantage as the supreme objective of afirms strategy, Porter[3, pp. XV-XVI] suggested that: Competitive advantage isat the heart of a firms performance in competitive markets[it]growsfundamentally out of the value a firm is able to create for its buyers.

A firm is said to have a competitive advantage when it implements a strategywhich is not implemented simultaneously by other competing firms[3,4].Competitive advantage can be created in numerous ways, for instance, by size,location, access to resources[5] or even by plain luck[4]. However, becausesuccess will inspire competitors to respond with superior product features,lower prices, or both, ultimately time will render all advantages obsolete[6].

A firm sustains its competitive advantage if it resists erosion by competitorsand thereby keeps a unique position which allows it to outperform itscompetitors consistently[2,3,7]. As discussed by Reed and DeFillippi[8], the

The authors are listed in alphabetical order and have contributed equally. The authors gratefullyacknowledge helpful comments from Marlene Fiol, Richard Klimoski, Bente Lwendahl, ivindRevang, Peggy Simcic Brnn, Charles Stabell, Andrew Van de Ven, Thorvald Hrem and twoanonymous reviewers. An earlier version of the conceptual framework in this article wasdiscussed at a workshop at the INSEAD Conference on Strategic Process, 15-17 December 1992.This research was undertaken within the research programme on the competence-basedperspective of the firm at the Norwegian School of Management.

Personnel Review, Vol. 24 No. 3,1995, pp. 56-76. MCB UniversityPress, 0048-3486

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question of how long a sustainable competitive advantage lasts is firm-specific, but one thing is clear, it will not last for ever[9].

The main threat to the erosion of competitive advantage is imitation[8,9].Although the identification and development of latent resources, such ascompetence, are important in strategic management, the question is still openas to how competence-driven competitive advantage erodes through imitation.In this article we argue that the resource-based perspective of the firm does notshed sufficient light on the processes of imitation when it comes to competence-based competitive advantage.

By building on the resource-based perspective, this article develops a bettertheoretical understanding of how competences build firms competitiveadvantage. The point of departure is knowledge, implying that the relevant unitof analysis in a competence-based perspective is the individual. This is differentfrom the unit of analysis used both within the competitive strategy perspective(the industry) and the resource-based perspective (the firm). Here, knowledge isnot seen as a resource in a traditional meaning, such as in financial resources(cash flow, debt capacity, etc.), physical resources (plant, equipment, etc.),organizational resources (planning, control and total quality systems, culture),technology (high quality production, low cost plants, etc.), intangible resources(goodwill, brand name, etc.) and human resources (in terms of various types ofpersonnel). For a more extensive discussion of a different categorization ofresources, see[2,10-13]. Knowledge differs from these types of resources in manyways; it takes many forms and shapes at a given moment in time it may bedynamic, it is hard to grasp theoretically and, most important for this article, itis the underlying basis for forming competences.

From our analysis we find that the resource-based perspective is highlyappropriate for the traditional definition of resources and some types ofcompetences. We will demonstrate, however, that the resource-basedperspective is not sufficient for explaining how the most important of a firmscompetences can build sustainable competitive advantage. Becausecompetences form the most important building block in the development ofcompetitive advantage, we believe that human resource managers shouldengage actively in the strategizing processes of a firm. A sound competitivestrategy involves the discovery of potential sources of knowledge in theorganization, as well as a thematization of the competitively superiorknowledge that needs to be nurtured in the future time-frames.

The article begins with a brief review of the competitive strategy approachand the resource-based perspectives of the firm. It should be noted that therealready exist several excellent reviews of these perspectives and the differencesbetween them[14,15]. The issue of imitation receives particular attention. In thesecond part of the article the foundation of a competence-based perspective islaid by constructing a concept of competence and what we call the competenceconfiguration. This concept is then used to discuss the evolution ofcompetences in a firm. The third part of the article develops three contexts for

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the imitation of competence. Finally, conclusions are made and implicationsdrawn.

The competitive strategy approachThe competitive strategy perspective[16-18] posits that competitive advantageis derived from the firms environment, more precisely from the industry inwhich it competes. In fact, the goal of competitive strategy for a company orbusiness unit is to

find a position in the industry where the company can best defend itself againstcompetitive forces (entry, threats of substitution, bargaining power of buyers, bargainingpower of suppliers, and rivalry among existing competitors) or can influence them in itsfavor[18, pp. 3-4].

Thus, the competitive strategy perspective can be seen as an outside-inapproach to understanding the basis of competitive advantage. This approachstresses that an effective competitive strategy calls for the firm to take offensiveor defensive action to create a defendable position against competitive forces.Thus, industry conditions determine the rules of the game when it comes to thenature of competition and the strategies available to firms.

As pointed out by Teece et al.[14], the problem for strategy researchers is thatthere is no conceptual framework or underlying analytic schema behind all thetaxonomies of this competitive strategy paradigm. Much of the competitivestrategy literature has focused on the product-market scope[18,19]. Theliterature specifies the particular (sub)industries or groups to which the firmconfines its product-market position, focusing the search on well-defined areasfor which common statistics and economic forecasts are generally available.Competitive advantage is derived by isolating characteristics of uniqueopportunities within the field as defined by the product-market scope.Particular properties of individual product-markets (cost leadership ordifferentiation) are identified which give the firm a strong competitive positionand even result in so-called sustainable competitive advantage.

A major assumption of this perspective is that all relevant, industry-specificresources are distributed homogeneously and are perfectly mobile[9]. That is,the basis for competition is not derived from the firm as such, but rather fromthe characteristics of the industry. Consequently, superior performance in anindustry or strategic group results from this environmentally-derivedcompetitive advantage.

A second assumption of the theory which is grounded in traditionalindustrial economics is that both demand and supply conditions are known,and, consequently, market conditions are relatively stable[9,17,20,21]. In a stabledemand environment, competition is viewed as a zero-sum market share rivalrybetween existing and potential firms. Also, because the demand side of themarket is known or predictable, competitive advantage stems from the supplyside[22].

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Consequently, selecting the competitive advantage that yields the highestlevels of economic performance requires intensive analysis of the industrystructure, of suppliers, buyers, new entrants, and threats from substitutes, asdiscussed in depth by Porter[18] and other authors within the industrialorganization paradigm. Ghemawat[5], for instance, found that sustainability ofa competitive advantage is determined by the source of the advantage, theindustry and the degree of competition. Thus, the essence of formulating acompetitive strategy is to relate a company to its environment, analogous to theopportunities and threats part of the classical SWOT-analysis[23]. The essenceof this approach was expressed by Porter[24]: Worship the environment notthe inside [of the firm].

The resource-based approachFrom the resource-based perspective, on the other hand, the firm is seen as aportfolio of resources. What a firm can do to create competitive advantage is notsimply a function of the opportunities in the environment (industry) but also ofwhat resources the firm can assemble[9,10,25]. Thus, the resource-basedperspective is an inside-out approach to understanding the basis ofcompetitive advantage.

The resource-based perspective has gone far beyond the basic neoclassicalassumptions of economic activity, that all parties have perfect and completeinformation, and that resources are completely mobile and divisible and,therefore, flow freely between companies. Rooted in evolutionary economicstheory, the resource-based approach has re-established the importance of theindividual firm, as opposed to the industry, as the relevant unit of analysis[26].This perspective focuses on the firms internal resources as the basis forcreating competitive advantage[9,10,25,27]. The core of this perspective wasformulated by Rummelt[28, p. 557]: a firms competitive position is definedby a bundle of unique resources and relationships.

Although resources may be subdivided, depending on the situation athand[10], it is difficult to imagine an industry where firms possess exactly thesame resources, one of the basic assumptions of the competitive strategyperspective. This means that firms would have the same relevant physicalcapital resources[29], organizational capital resources[30] and human capitalresources[31]. If this were the case, the strategies pursued by one of the firms inthe industry could, by definition, be conceived and subsequently implementedby other firms in the same industry. It would simply be a matter of time beforeother firms created the same competitive advantage as the first one, thusquickly eroding the originators position. The only possible competitiveadvantage would come from moving first[9].

The assumption that all firms within an industry are homogeneous alsocontradicts the notion of creating sustainable competitive advantage. Barriersto entry[16,32] only exist when competing firms are heterogeneous from aresource perspective. Such barriers only become sources of sustainablecompetitive advantage if the competing firms resources are heterogeneous and

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imperfectly mobile[9]. In fact, valuable and rare organizational resourcescan only be a source of sustained competitive advantage if firms that do notpossess these resources cannot obtain them[9, p. 107].

By assuming that the firms resources may be distributed heterogeneouslythroughout the industry, that these resources may be immobile between firms,and that demand conditions are more dynamic than the static environments ofthe competitive strategy model, a different picture of the basis for competitiveadvantage emerges[4,9,22]. The critical task of a firm thus becomes one ofmaintaining the uniqueness of its products and services, or, in the case ofsimilar products, the firms low cost position. The challenge lies in balancingthe costs of obtaining this difference with performance[4].

Unique capabilities or otherwise costly-to-copy inputs[20] are particulartypes of resources. In the literature, such resources are discussed under avariety of names, e.g. distinctive competences[2,19,23]; invisible assets[33];core competences[34]; core capabilities[35]; internal capabilities[4]; skill and capability accumulation[14]; embedded knowledge[36];absorptive capacity[37]; underlying capabilities[5]; unique combinations ofbusiness experience[38,39]; corporate culture[40]; valuable heuristics andprocesses[41]; and unique managerial talent[10].

The resource-based perspective focuses on exploiting these types of firm-specific resources and/or capabilities as well as the strategies for acquiring anddeveloping new ones[10,25,27,42,43]. Such a skill-acquisition and learningorientation is what Teece et al.[14] labelled the dynamic capabilities approach.The problem is that firms often lack the organizational capacity to developthese resources (capabilities) quickly[27]. Some resources, like know-how andgoodwill, are not even tradable[27,42]. Again, this shows the variety of conceptsin the literature[44-46].

In the resource-based perspective, creating a sustainable competitiveadvantage implies that a firms resource must have four characteristics:

(1) they must be valuable;(2) there cannot be strategically equivalent substitutes;(3) they must be imperfectly imitable; and(4) they must be rare among competitors[9].

This points to the strategic value of resources for the firm and to their potentialstrategic value for competing firms. Thus, the resource-based perspective leadsinevitably to a focus on imitability of non-purchasable, intangible, firm-specific,and embedded types of resources[8].

The unclear process of imitationSeveral authors have tried to penetrate the imitability challenge. Even thosewho have tried to understand imitability have never arrived at models whichlend themselves to empirical studies. Nor do the findings conceptually developthe strategic management field. Reed and DeFillippi[8, p. 97], for instance,

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argued that low ambiguity allows competitors to observe and understandthe source of competitive advantage. It is hard to see how this finding can helpus to understand the imitability process better. Similarly, little help is providedby Conner[20, p. 144], who underscored that in a resource-based view of thefirm, team-specific assets within the firm will be more specific to other teamsinside the firm than to teams outside the firm, and hence more productive.

Because valuable and unique resources, according to the resource-basedperspective, are often imperfectly imitable and not substitutable, thesustainability of competitive advantage is a function of various barriers toimitation. These can be seen as isolating mechanisms[47], or evenorganizational routines[48] and are comparable to the notion of entrybarriers as discussed in the competitive strategy literature[17,32,49]. They arealso analogous to what Teece[50] labels complementary assets andappropriability regime, resources which allow a firm to capture profits froman innovation.

Although some barriers to imitation are higher than others, Porter[3] arguedthat these barriers are never insurmountable. In fact, both he and Ghemawat[5]found that the potential for competitive advantage is greatest in industrieswhere firms need large investments in specialized activities, skills and assets a form of organizational commitment.

The more vigorous the barriers of imitation the slower competitors imitatethe competitive advantage. Thus, it is obvious that understanding imitability isperhaps the most critical issue, not only in the resource-based perspective, butwithin the whole strategic management dialogue. Still, to a large extent, thequestion of how various resources, skills and competences are imitated remainsunanswered. It seems that many authors have focused on the requirement forimitation not to take place rather than understanding the processes involved insuccessful imitation. The imitation process is clearly an extremely complexprocess which is not understood completely. Williams[6] and Dietrickx andCool[27] may provide examples of the lack of suitable explanations thus far. The former outlined a model of distinct and predictable resource-imitationforces[6, p. 32] consisting of existing concepts. The latter claimed that:Sustainability of a firms competitive advantage hinges on how easy it is toreplicatethe imitability of a resource (asset) is related to the characteristics ofthe process by which it may be accumulated (emphasis added)[27, p. 1507].Again, it is hard to see how these claims/findings provide us with a betterunderstanding of the imitation process.

In their attempt to discuss the conditions under which imitation may or maynot occur, Reed and DeFillippi[8] introduced the concept of causal ambiguityto explain the imitability-sustainability process better. Causal ambiguity wassuggested as the main determinant of imitation and was defined in terms of thetacitness, complexity and specificity of a firms skills and resources,where

tacitness refers to the implicit and noncodifiable accumulation of skills that results fromlearning by doing (p. 89)[it] is embodied within the skill[emphasis added] component of

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competences (p. 91)Complexity results from having a large number of interdependent skillsand assets. Specificity refers to the transaction-specific skills and assets that are utilized in theproduction processes and provisions of services for particular customers (p. 89).

Still, according to the authors, tacitness remains an unobservable andnoncodifiable concept[8, p. 100]. Because it is possible to interpret the aboveconcepts relatively freely, it is difficult to see how they can be studiedempirically and provide conceptual development in the field.

An important conclusion can be drawn from these attempts, namely thatpurchasable resources can never be sources of sustainable competitiveadvantage, because they can be traded in the market. A better understanding ofthe very nature of such resources should make it possible to extend further theemerging resource-based theory of the firm.

In this article we have chosen to focus on one particular type of resourceand/or capability, namely competences, and its processes of imitation. To helpus enter into the obviously ambiguous and, in strategic management, relativelyunexplored world of competences we have combined theories of strategicmanagement with the sociology of knowledge.

A concept of competenceThe term competence has been used by several authors to denote the abilityof the firm to act[34,51-54]. Because of its strong action focus, the termcompetence is often used similarly to the way it is used in our daily speech; tocode a broad range of our experiences related to craftsmanship, specialization,intelligence, and problem solving. As such, competence remains anexperience-near concept[55] which needs further conceptual clarification if it isto serve the purpose of theory building[56,57].

Webster[58, p. 63] defines competence as, The quality or state of beingfunctionally adequate or of having sufficient knowledge, judgment, skill orstrength for a particular duty. This definition of competence presupposes aparticular knowledge and a particular task. The term competence is derivedfrom competentia (Latin) which literally means agreement. Only where thereexists an agreement or fit between knowledge (or subject) and task may wespeak of competence. Thus, it is only meaningful to discuss competence in aspecific knowledge-task context or, put another way, competence is bothknowledge specific and task specific[59]. In the following we build up a conceptof competence by investigating further its two main components knowledgeand tasks.

The knowledge system of the firmHistorically, knowledge has been studied on different levels[60]. Inanthropological, socio-psychological, and sociological works[61-64], knowledgeis seen as a social product what members of the social system need tounderstand in order to function in that system. Works in cognitive psychology,emphasizing perceptual and representational knowledge and thoughtprocesses[65,66], focus on the individual decision makers knowledge. Since the

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unit of analysis in developing a concept of competence is mainly the firm, itsresources and social processes, a micro-level concept of knowledge (individuals)needs to be merged with a macro level concept of knowledge (firms). Accordingto Berger and Luckman[67] and Schutz and Luckman[68,69], the sociology ofknowledge, based on the phenomenology of Schutz[70], accomplishes preciselythis merger.

Berger and Luckmans constructivist theories of knowledge development arein sharp contrast to the more objectivist perspective. The point of disagreementis whether knowledge is dependent on the knowing subject, a person, a groupor a firm[45,46,67,71], or independent of it[72,73]. The theory of constructedknowledge assumes that knowledge within a group, a firm or an individual isdependent on the knowing subject transmitting knowledge through social orcognitive processes. Knowledge about true reality is always questionableacross different firms and groups[40,62,74,75]. According to Berger andLuckman[67] it is not meaningful to distinguish between a constructed realityand constructed knowledge. The two are intertwined and difficult todistinguish in empirical analysis. Therefore, to apply a theory of constructedknowledge in a formal analysis of firms one must address the question ofsubjects and levels of analysis, in short who knows what. The objectivistdirection describes the case of a subject (person or group) whose knowledgeabout a true reality, unbiased by personal interpretations, can be transferredto others through, for instance, written texts or speech[76].

A stock of knowledge on the subjective level is tied to individuals[67] andallows the individual to observe, understand, and act in everyday life.Subjective knowledge may be bound to time and circumstances[77,78] since theindividual continuously acquires new experiences through facing new events.Yet, an individual also has a more or less fixed subjective knowledge, whatSchutz and Luckman[68] term habitual knowledge. A particular kind ofhabitual knowledge, skill, is the habitual functioning of bodily movement[68,p. 107]. Skill is central to a concept of competence because the resolution of atask involves various forms of bodily movement (e.g. writing). A person mayhave acquired a good theoretical understanding of carpentry, but the buildingof a house requires yet another knowledge, namely the skill of moving ahammer.

The individuals stock of knowledge contains both a subjective and a socialcomponent. In order to keep subjective knowledge clearly distinguished fromsocial knowledge, Habermas[79] suggests that subjective knowledge is notshared by other individuals. For a stock of knowledge to evolve at the sociallevel, however, the individual must share subjective knowledge with others.Schutz and Luckman[68] called this process objectivation[67,80].Objectivation is a complex and continuously ongoing process in whichindividuals account for the experiences of the other members of a group or firm(interpretation) and share their own experiences with others.

The objectivation process covers more than just communication. In firms, itgenerally makes use of at least three channels; language and signs, tools, and

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marks[68]. First, individuals convey their subjective knowledge by talking,writing; using language. However, part of an individuals stock of knowledge ismore or less tacit. Polanyi[81,82] suggests that an individuals knowledge maybe impossible to convey linguistically. Individuals may not be aware of theirknowledge, nor possess an appropriate repertoire of words to express theirknowledge and feelings[83,84]. However, lacking a language, or to complementlinguistic expressions, the individual may convey knowledge by other signs:gesturing, playing, evoking facial expressions, drawing, etc.

Second, individuals may also convey subjective knowledge to others throughcreating and applying tools to solve tasks. As individuals struggle to resolvea particular task they may attempt many different solutions using differenttools at hand. The successful resolution of a task may be obtained by one tool inparticular, with all other tools discarded in favour of the successful tool. In theprocess of completing the task, as well as on task completion, the tool hashelped to objectivate subjective knowledge (tools that work or do not work) to apossible observer.

Third, marks are the results of acts established by the one acting in order tohold onto a definite element of knowledge and to remind one of this[68, p. 274].As such, marks, akin to ribbons marking a path through a forest, may alsoobjectivate subjective knowledge, as in knowledge acquired of the particularforest.

By speaking, acting, writing, playing, producing and using tools and marks,individuals continuously participate in the creation of the social knowledge of afirm. This knowledge allows people to observe and make a shared sense oforganizational events as well as to act in a co-ordinated manner[62,85-93]. As inthe case of an individuals stock of knowledge, social knowledge may be of ahabitual kind as well as being dependent on the time and circumstances ofindividuals conveyance of subjective knowledge. Also, skills may besocialized[68], and they may be transferred to others without presupposing alinguistic knowledge acquisition.

Yet, the objectivation of an individuals knowledge may be affected by theprocess of legitimation[64,67,94-96]. Drawing on Berger and Luckmans[67]work we propose that subjective knowledge must be made legitimate on at leastfour levels in order to contribute to the creation of new social knowledge. First,subjective knowledge must be conveyed by using language and signs, marksand tools that are commonly acceptable to a group[68,97]. The means used maynot necessarily be commonly known, however, as when introducing new wordsand concepts to facilitate a frame-breaking process[69]. Second, subjectiveknowledge can be made legitimate by referring to or evoking organizationalstories, myths, proverbs, or maxims. Third, firms have a set of standardoperating procedures and other more or less formally espoused theories, likeforecasting techniques, accounting principles, quality control statistics, etc.Individual knowledge may be made legitimate by making a reference to thesetheories or made concrete by them using or supporting. Fourth, firms, like allinstitutions, also have some continuity of paradigms which give meaning to

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everyday activity and experience[98-100]. Such paradigms put everything inits right place[67, p. 116]. For example, they function as industry-specificrecipes for acceptable firm behaviour[101], or they put the firm in a context ofneoclassical economy where intra-firm competition is acceptable[102-103].

The process of legitimation is needed in order for the firm to prevent anindividuals stock of knowledge from disturbing the continuity and regularityof its operation, and provide a context in which to convey knowledge[67]. As such, legitimation becomes a restrictive factor on the development of newsocial knowledge. For example, Brown and Duguid[104], building on Orr[105],describe how service technicians maintaining a complex machine areconstrained by corporate maintenance procedures in their search for newinformation. According to the management, their (legitimate) knowledgeshould be captured in corporate documents (third legitimation level) andexperimental behaviour may be perceived as counterproductive.

Firm members seldom have access through organizational memory[106] tothe historical grounds for legitimation[67]. Thus, the four levels of legitimationmay very seldom be questioned. For example, the service technicians may findit impossible to ask why the current maintenance procedures were installed inthe first place.

The task system of the firmThe task system of the firm is composed of all value creating tasks and theirrelationships. When analysing a task system it is the nature of the task ratherthan the roles and division of labour that is in focus.

Campbell[107], in support, of among others, March and Simon[108], proposesthat tasks vary in degree of complexity. Tasks are bearers of information and assuch they are subject to four sources of complexity. First, there may be multipleresolution paths leading to the desired end. Second, a task may have multipledesired end states. Third, there may be conflicting interdependencies betweenthese end states. Fourth, there may be uncertainty of probabilistic linkagesbetween the resolution process and the desired end state[107,109]. Thesesources of complexity shape each single task as well as the task system thatconfronts the individual, group or firm.

When addressing the task system of the firm in the view of the fourcomplexity sources, we may think of the principles of bureaucracy and rationaladministration of Max Weber. Weber[110] proposed that the effectivebureaucracy is typically characterized by a stable temporal horizon: continuityand regularity in task resolution, a hierarchy, and files of information andcommunication between members of the firm. From the criticism of thisview[111,112], an emerging conclusion is that some firms cannot functioneffectively as bureaucracies due to the number of exceptions in their tasksystem[113,114]. A conception of the task system should thus be complementedby a temporal dimension in order to capture the various degrees of dynamism.

In a longitudinal perspective, tasks differ in their variability. Task variabilitycharacterizes a string of tasks which face an individual, a group, or a firm. It is

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defined as the number of exceptions encountered in the characteristic of thework[115, p. 160]. Complex tasks may or may not endure over time. If theyendure, repetitive attempts to resolve the task are allowed for, and theincreasing information from these repetitive attempts may reduce taskcomplexity. Information is gained on the various end states and the linkbetween various resolution paths and end states. This may gradually allow forrecognition of the possible and desired task resolution paths and end states, aswell as the evolution of principles for resolving conflicts betweeninterdependent end states[116]. If task variability is high, however, by definitiontask complexity will not be reduced in the course of time.

Competence configurationThe firm can be understood as a portfolio of competences. Taking as a startingpoint the two dimensions of competence, knowledge (including skills) and tasks,a matrix can be constructed as in Figure 1. We call this the competenceconfiguration of a firm.

The firm has a set of tasks with varying degrees of complexity. These tasksare attended to by individual members of the firm or by various co-operativearrangements where tasks are given to a group, department, or division. Inmany instances, firm tasks are so complex that such co-operative arrangementsare necessary for their satisfactory solution[117].

Competence on the subjective level requires that a task is identified, observed,perhaps analysed and understood by using subjective knowledge; and that theindividual uses certain skills to resolve it. On the social level a task is attended toby using social knowledge, shared on a group, departmental or firm level, or itmay be public. The task can be resolved physically using skills commonlyavailable throughout a group, firm, or community of firms.

The competence configuration provides a snapshot of a firm in that it showsthe various forms of knowledge and skills employed in task resolution and wherethey are located. But the matrix also has another and more important purpose.It gives a basis for discussing the creation and evolution of competences in a firmand how the firm sustains or shares these with other firms. Before attending to

Figure 1.Competenceconfiguration

Tasks Subjectiveknowledge

Social knowledge

Group Department Firm Public

Highcomplexity

Lowcomplexity

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the strategic issues related to competence, we would first like to draw attentionto the evolution of competences as illustrated in Figure 2.

Competence evolves through an interplay between task execution andknowledge acquisition. As they engage in task resolution, individuals maygradually acquire knowledge about the task (belonging to the individual, group,etc.). If the task is repetitive, knowledge acquisition may gradually reduce taskcomplexity for the task performer. Further, an individuals knowledge of thetask and how to solve it can be conveyed to other firm members. The knowledgecan be conveyed through various means of objectivation and, following theprevious discussion, it has to be legitimate in the firm context. Knowledge madesocial enters into the stock of knowledge of other individuals and maycontribute to their own (or the groups) task resolution process. In the case ofrepetitive tasks (e.g. the same tasks given to several individuals), the emergingsocial knowledge may reduce task complexity for the task performers.

At this point, a new question emerges. Does the kind of interactional or socialcontext play a role for the evolution of a firms competences into a particularconfiguration? We believe it does. Consider the following example:

Harold Geneen, the former head of ITT, discovered that his response to the Europeansubsidiaries of ITT was different if they made their request by teltype to him in New Yorkversus talking face to face with him in Europe. In New York, I might read a request and sayno. But in Europe, I could see that the answer to the same question might be yes[118].

Geneens knowledge clearly changed when knowledge was conveyed to him inpersonal interaction versus an information system. In order to capture the roleof social context, we propose that there are at least three generic contexts ofcompetence evolution:

(1) the co-evolutionary context (we could also term this to learn fromlearners);

(2) the differentiated context; and(3) the detached context.

In the co-evolutionary context, a firm member, A, observes the task resolutionprocess of another, B, including trials and errors. B may convey immediate

Figure 2.Competence evolution

Tasks Subjectiveknowledge

Social knowledge

Group Department Firm Public

Highcomplexity

Lowcomplexity Task variability

Knowledge objectivationKnowledge legitimation

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experiences, more stable knowledge and skills, through speech, bodymovement, or by using and producing tools and marks. In the differentiatedcontext, knowledge is still conveyed from one firm member to another througha process of personal interaction, but via a temporal differentiation. A no longerobserves the task and the task resolution process (including trials and errors) ofB. Finally, in the detached context, the firm members are temporally andspatially differentiated in the competence evolution. Knowledge is conveyed inbooks, drawings, photographs, telefaxes, tools, marks, recorded tapes, etc. andin their subsequent use they are detached spatially and temporally from theirsource of origin.

ImplicationsThe obvious implications from this article for personnel management researchstem from the theoretical development of the concept of a firms competencesand how they evolve, as well as the process by which they can be imitated. First,competence is critical to a firms performance and survival because it providesperhaps the best basis for developing competitive advantage; it is difficult toimitate. The strategic management literature discusses firm performance interms of the firms ability to cope with its strategic issues, including threats,opportunities, and stakeholder demands[119-120]. In this sense, competence,synthesizing the strategic issue (task) and the managerial skills and other partsof managerial stock of knowledge, can have a particular strategic value.Inspired by the competence-based perspective, subsequent studies would havethe potential of uncovering:

(1) the role of subjective versus social knowledge in resolving strategicissues;

(2) the type of legitimation that would constrain sharing managerialexperiences valuable to the strategic process; and

(3) the most effective and/or most frequent means of conveying managerialexperiences (in particular the role of face-to-face conversations onstrategy) in creating social knowledge[121-124].

Furthermore, Barney[9] discusses emergent strategy and formal planningsystems as corporate resources. The competence-based perspective wouldsupport that emergent strategy[125], in the sense of being a stream in a patternof actions[126], may be a response to threats and opportunities at the grassroots level of the firm. Emergent strategy may indicate a local competence inthe conveyance of some subjective knowledge, e.g. a worker developing andsharing a commercially viable innovation in the production process. The furtherdissemination of knowledge and thus, the evolution of an emergent strategy,must be analysed in terms of the legitimation processes of the firm. In hisnormative efforts, Mintzberg[127] suggests that management should allow foremergent strategies to evolve. The competence-based perspective wouldcomplement this by suggesting that management should assess, and if

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necessary attempt to change legitimation on the four levels discussed in thisarticle.

The competence-based perspective also suggests that the formal planningsystems of a firm are important in the evolution of competences. Moreover,these systems may be a source of sustainable competitive advantage if theydisseminate social knowledge thoroughly to where it is needed; for example,channelling knowledge about changes in industry from corporate planners toheads of divisions. Research shows that many firms engage in strategicplanning exercises[128,129] which are commonly available and that resembleeach other[9,130]. An implication from the perspective presented here is thatsuch systems can be difficult to imitate in local use. The strategic planningsystem can provide legitimation and means of objectivation dependent on thecompetences of the firm, and it is associated with particular skills of carryingout planning.

Following the competence-based perspective, personnel management theoryand research should also be supplemented with a more precise outline of thecontext of imitation. For example, in the studies of strategic intra-firm co-operation, such as franchising, joint ventures, equity agreements, co-operativeventures, alliances[131] and acquisitions, an emerging issue is whether or not itis possible to lose proprietary competences to a partner[36,54]. The competence-based perspective implies that intra-firm co-operation and competition must bestudied in three contexts of imitation (see the section on the imitation process),each having its own significance when it comes to certain opportunities andthreats surrounding the protection of proprietary competences. Future workshould identify firms modes of co-operating and/or competing in these threecontexts, and then proceed to investigate how competence co-evolves or evolvesat different paces in the dyad of the two firms. The legitimation processes ofeach firm, mutual access to task resolution processes, personal interactionamong firm members, the available means of conveying knowledge, and taskcomplexity and variability should all play an important role in theseinvestigations. The emergence of an increasingly robust theory of dyadicintra-firm co-operation and competition must pay attention to these contextualfactors.

Space allows for only a short treatment of empirical research tactics. It issufficient to note that an empirical research programme with the ambition ofverifying or improving the propositions of this work should first of all study thepractices of some selected firms[132,133], on the constant comparative method.Starting from the recognition that social knowledge, even public, has its roots inindividual thinking and actions[134], such studies may allow for longitudinalmapping of individually and socially-based competences, includingdeliberating and inhibiting factors on competence evolution. A major researchoutput may be a list of indicators of latent constructs, such as objectivation,legitimation, task variability, and social context for the evolution and imitationof competences. Based on such indicators, then, the research programme shouldproceed to verify the relative importance of such latent constructs empirically.

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Appropriate methodologies for studying relationships between latent variablesare some of the second generation multivariate statistics methods[135-138],for instance, maximum likelihood or partial least squares estimation of latentvariables. See Fornell et al.[139] for an example of the use of PLS estimation inthe context of strategic management.

Finally, it should also be noted that an in-depth empirical examination of theconcepts of this article, due to the volatility and the latency of subjective andpossible social knowledge and possible differences in task conceptions,introduces measurement problems not easily handled by the above describedmethods[8,40,140]. A methodology which takes seriously the challenge ofstudying the process of social knowledge construction and, thus, thephenomenon of drifting competences, is the interpretive interactionistapproach[141-143]. This approach attempts to join traditional symbolicinteractionist thought with participant observation, naturalistic studies,creative interviewing, and the case study method. In combining severalresearch perspectives it gives the advantage of studying (and interpreting) therole of personal interaction and forms of expression in competence evolutionand the interpretation processes of those observed, as well as the structures tocompetence development given by legitimation.

As we argue in this article, competence development and competitiveadvantage are closely related, personnel managers need to be actively involvedin the strategy formation. Above all, issues of expertise development,management training, staffing, internal job markets, job rotation and careerdevelopment should be seen in a strategic perspective. Perhaps the knowledgebase of a firm should give premisses for the development of the competitivestrategy, rather than let human resource management follow simply thestrategic decree.

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is nothing wrong with borrowing a common sense concept for the purpose of (theorybuilding). The point at which the use of common sense concepts becomes a transgressionis where such concepts are expected to do the analytical work for theoretical concepts (p. 70). To avoid using tools for analysis which lead to flawed explanations, we feel that itis necessary to let concepts like competence and knowledge be subject to some furthertheoretical inquiry.

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