A Competence-Based Theory of the Firm

By Freiling, Jorg | Management Revue, January 1, 2004 | Go to article overview

A Competence-Based Theory of the Firm


Freiling, Jorg, Management Revue


A Competence-based Theory of the Firm**

The research question of the article is: Does the competence-based view, representing a theory of sustaining competitive advantage, offer simultaneously a comprehensive theory of the firm? In order to develop an answer, it appears to be necessary to elaborate the theoretical basis of the competence-based view by delimitating this perspective from the resource-based one. The scrutiny suggests that the competencebased view represents a theory of the firm with other answers than current theories of the firm in use. Moreover, not all the answers of the competence-based view as to the theory of the firm are convincing. Therefore, fundamental weaknesses and shortcomings, which can be dispelled, are pointed out.

Key words: Competence-based view, resource-based view, theory of the firm, isolating mechanisms, open system view

1. Introduction

The competence movement, developed among others by Hamel/Prahalad (1994), Sanchez et al. (1996), Teece et al. (1997), offers undoubtedly a promising theory of sustaining competitive advantage and a quite dominant framework in strategic management (i.e. Bresser et al. 2000; Barney 2002). Moreover the competence discussion, addressed by the competence-based view, became a theoretical perspective independent from the resource-based view, although the latter can be regarded as the origin of the former. While offering management theory a framework of high relevance in order to explain the roots of corporate success, the contributions to organization theory are still to be analyzed the comprehensive way. In particular answers are required how far the competence-based view offers a comprehensive theory of the firm. In this respect there are already a few publications (Conner 1991; Kogut/Zander 1992 & 1996; Conner/Prahalad 1996; Madhok 1996; Barney 1996; Foss 1996a & 1996b; Grant 1996; Langlois/Foss 1999; Osterloh et al. 1999; Dosi/Marengo 2000; Foss 2001; Madhok 2002). They deal with some particular aspects of the theory of the firm which refer either to the resource- or the competence- respectively knowledge-based view. The competence-based view can offer a real alternative to other theories in use, such as the more static transaction cost approach which focuses on contractual issues in order to explain the nature of the firm. However, a comprehensive competence-based assessment is still missing which addresses the following questions of a theory of the firm (Coase 1937, Holmstrom/Tirole 1989: 65, Foss 1993, Langlois/Robertson 1995: 7, Foss 1996a: 470):

Why do firms exist?

How do firms emerge and change over time?

Why do firms collapse and what are the driving forces?

What are the drivers explaining the run of the boundaries of the firm?

How is it possible to explain the internal organization of companies which are made up of more than one person?

The main purpose of this paper is to outline the explanatory power of the competence-based view regarding the respective questions and, accordingly, to deliver an assessment how far the approach is able to represent an alternate theory of the firm. As no comprehensive publications on this topic exist, the paper intends to fill this gap. In order to do so, it is necessary to combine available findings with some new proposals. Frame-giving in this respect is the impression that the explanatory power of the cause/effect structures of the competence-based view is not fully exploited, yet. Making some progress by addressing these causal elements, is therefore another element to add value to the subject.

The scrutiny is organized as follows: As there are different approaches regarding the constitutive elements of a "competence-based perspective", it is necessary to prepare a brief "common ground" of this view in the follow-up chapter of this paper. This step includes a statement how far the competence movement is independent from the resource-based view. …

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