British Journal of Management, Vol.

10, 275290 (1999)

Competence and Competitive Advantage:

Towards a Dynamic Model1
William C. Bogner, Howard Thomas* and John McGee
College of Business Administration, Georgia State University, Atlanta, Georgia 30302-4014, USA,
*College of Commerce and Business Administration, University of Illinois, Champaign, Illinois 61820, USA and
Warwick Business School, University of Warwick, Coventry CV4 7AL, UK
Over the last ten years the concept of competence has emerged as a central concept
for competitive strategy. Several rich theoretical streams have contributed an extensive
array of frameworks, definitions and papers using the concept. There is now a need to
integrate these many contributions. Indeed, some of the frustration expressed recently
by academics may be due to the large volume of conversation and the low level of integration. A concept that is considered so useful that many writers have incorporated
it in their work will be of little value if it takes on different meanings for every use. If
competence is to be used to explain relationships among variables and to build richer
understandings of the roots of competitive advantage, then the field needs to engage in
a serious conversation that attempts to focus this concept. Competence needs to be understood in a way that is faithful to its theoretical roots, allows the multiple dimensions
that underpin competitive advantage to be meaningfully integrated and is specific
enough that meaningful differences can emerge when used as a variable in empirical
research. This paper seeks to begin a conversation toward that end by presenting a conceptualization that meets all of these requirements. The paper builds its conceptualization around satisfying the elements of a dynamic model of the relationship between
competence and competitive advantage.

Introduction
The competitive advantages that seem to endure
through both good and bad economic times
are the most prized assets of the firms that possess
them, and the most frustrating challenges for

A much earlier version of this paper was presented at

the Strategic Management Societys Workshop on
Core Competence, Brussels, Belgium, November 1992
and appeared in the proceedings of that conference as:
Bogner, W. and Thomas, H., Core Competence and
Competitive Advantage: A Model and Illustrative Evidence from the Pharmaceutical Industry. In: G. Hamel
and A. Heene (eds) (1994), Competence Based
Competition. John Wiley & Sons, Ltd, Chichester,
pp. 111144. Preparation of this paper was supported,
in part, by a research grant from the Georgia State
University Research Committee. The constructive comments of Joseph Mahoney and Denny Garvis are
acknowledged.
1999 British Academy of Management

competitors that do not. The source of these

advantages lie in a firms competences, which
exist within the firm and are important at the
product/market interface where firms typically
compete. Resurgent interest in the role that competence plays in creating sustainable competitive
advantage has led to several important articles in
journals (for example, Leonard-Barton, 1992;
Prahalad and Hamel, 1990; Teece, Pisano and
Schuen, 1997), conferences on the subject (e.g.
Strategic Management Societys International
Workshops on Competence Based Competition
in 1993 and 1995), and a refocusing on prescriptions from Andrews (1980), Penrose (1959) and
others. This attention to firm-level competence
accelerated in the late 1980s. It has been paralleled by a renewed emphasis on the resourcebased theory of the firm (Barney, 1991; Peteraf,
1993; Wernerfelt, 1984) and increased attention
to organizational learning (Cohen, 1991; Pisano,

276
1994) all of which have been added to an
increasingly large stream of literature.
Much of the literature just cited has successfully made a compelling argument for a stronger
focus on competence. The general argument that
over the long-term the most successful strategies
are built firmly on inimitable competence, as well
as on the identification of the specific processes
that build, sustain and erode those competences,
have all found broad acceptance. However, there
has not been a subsequent integration of these
many separate research contributions. Terms and
relationships have not been systematically combined into a parsimonious yet comprehensive
model. Indeed, recently it has been suggested that
the resulting ambiguity should lead to less concern being given to the precise use of the word
competence. Barney (1996) notes that the term
has become badly blurred in practice and concludes that whether a particular firm attribute is
a resource and capability or a competence
will not be of much value to managers or firms
(p. 144).2 While it is true that these terms have
become quite muddled (one of the reasons for
this paper), we strongly believe that practitioners
and academics can benefit from a clearer understanding of these terms (another reason for this
paper). The many different academic perspectives
that have found the term competence useful
in their own domain need to develop a common
language and a shared understanding of the term
so that a fruitful academic dialogue can ensue.
With this paper we hope to facilitate that process
by presenting an integrative and dynamic model
of competence that tightly links competence to
related concepts and theories.

The need for a dynamic model

The genesis for this paper was the result of many
conversations in Europe and North America on
2

Barney (1996) does suggest that these distinctions are

meaningful in theory, with which we agree, but he also
identifies competence as a term applied only in discussions of the conception or implementation of diversification strategies (p. 144), with which we disagree. Here
we argue that while competence may exist on a corporate level, i.e. not just in any one business unit, the
sharing of competences among business units in diversification so as to gain competitive advantage clearly
implies that the competence exists meaningfully on the
business-unit level.

W. C. Bogner, H. Thomas and J. McGee

competence. These discussions uncovered a major
need. While many different and well-developed
theoretical contributions to the topic of competence could be discussed, and individual relationships identified, a single, comprehensive, unified
and dynamic model with sharp distinctions among
the terms could not. At first colleagues assumed
that such a comprehensive view had been surely
developed; several process models of parts of
dynamic competence could be readily cited. But
no models that simultaneously incorporated the
concepts of resources, learning and environmental
change within a dynamic set of relationships
was identified beyond the base ideas presented
in Prahalad and Hamels (1990) well-known
practitioner-oriented article.
This situation is not surprising. Concepts
such as competence, that emerge and engage a
discipline, often bring forth a wellspring of terms,
definitions, models and frameworks. Each contribution is grounded in theory and experiences,
and each either adds a new element or perspective as it modifies and enriches what has already
been set out. However, such an expanding coverage of the many components does not set out the
integration of those components into a whole. As
the scope and volume of such insights increase,
there comes a time when meaningful contribution
comes not from further additions but from a systematic integration of what has come before. The
parsimony and precision derived from such an
exercise can clarify a situation some find badly
blurred in practice and set the stage for further
contributions. We think that the time has come for
such a digestion with the concept of competence.
In the case of competence this need for
precision may be particularly due to the concepts
developmental history. It would appear that the
most influential article was Prahalad and Hamels
(1990). However, as a practitioner-oriented article
it was largely devoid of taut theoretical development or modelling. Subsequent academic work
has used some conceptualization or another of
competence to address other points, often to support and develop larger theories such as the
resource-based view of the firm, or an aspect of
organizational learning. We suggest turning this
latter relationship around and seeing how the
resource-based view, learning and other theories
can contribute to a clearer model of competence.
A model constructed on that foundation could
then be useful in framing future empirical research.

Competence and Competitive Advantage

The task of constructing any such model involves choices and compromises. On the one hand
we think that there is a need for more inclusion,
a bringing together of all of the key contributions
that have come into the conversation and an
integration of them into one model. Yet at the
same time we recognize that there is also a need
for exclusion, a pruning of the terms, concepts
and jargon that have aided development, but now
proliferate so much that they distract from the
sharper focus that needs to emerge. This latter
action can both include the sharpening of some
terms and the dropping of others. Such a process
does more than winnow out redundancy. It also
uncovers unresolved conflicts that need to be
addressed, and it forces a discussion of the tradeoff between precision and parsimony.
We of course are only presenting our own
resolutions to these challenges hopefully with
some persuasion and logic. The resolution is an
integrated model made up of logically comparable
contributions. The underlying ideas are not new.
Rather, it is the integration and the platform such
an integration provides for further conversation
that is the value added. We recognize that our
arguments are not the last word. Indeed, the limits
of a single paper only allow the conversation to
start. Thus, as a final goal, we hope that this
process can identify and stimulate debates about
those aspects of competence still not fully settled.
The intended beneficiaries of this process are
twofold. For academics, there is the hope that
by firming up the ground under the concept of
competence, future empirical research and theory
building will improve in both pace and precision.
For practitioners wishing to understand or emulate
industry leaders, as well as leaders wanting to maintain their competitive positions, we hope that a
clearer understanding of the processes that drive
and sustain competence, and how they relate to
competitive advantage in a dynamic marketplace,
will improve firm performance and management
efficiency (Henderson and Cockburn, 1994; Verdin
and Williamson, 1994).
We first briefly present the full model that we
see emerging from the various streams of research
on competence. We then identify the primary
theoretical foundations that contribute to a comprehensive view of competence: the resourcebased theory of the firm, organizational learning
theory and theories of discontinuous environmental change. In no sense are these theory

277
discussions comprehensive. What each does is to
highlight the important insights from the respective academic conversation that, when taken together, can underpin a parsimonious and dynamic
view of competence. From this foundation the
paper then discusses the key components that
these theoretical foundations support: the distinction of competence among resources, the role
of core products and the impact of ongoing learning processes. The final section looks at some of
the implications of this model for market competition, and suggests empirical research that will
be facilitated by the more tightly linked conceptualizations presented in this paper. Through all of
these discussions a sharper, integrated, dynamic
and more parsimonious view of the many contributions of the past several years emerges.

A model of competence
We first present a dynamic model of competence.
In essence this overview of the model captures the
collective relationships presented in subsequent
sections. It may seem out of logic-building order
to start with a complete model and then present
its elements. However, we believe that showing a
road map of where we are going, even if all of the
linkages are not yet drawn, is preferable to holding
the big picture until the end and then discussing the
links without the benefit of a clear reference point.
Figure 1, therefore, identifies the key elements
that are needed to link a concept of competence
that centres on the actions and cognitions of individual actors in firms with competitive advantage
in a market place. As the arrows indicate, this is
a dynamic model. Although we do not present
formal mathematical relationships, we suggest that
clear causal flows can be identified when terms
are clearly set out. Firm-driven learning processes
occurring both within the firm and in the marketplace cycle back to further improve competence.
The basis for the relationships among these elements will be theoretically developed in the next
section.

Theories underlying a dynamic model

of competence
In the discussions and writings on competence
three major streams in the strategic management

W. C. Bogner, H. Thomas and J. McGee

278
Competitive
advantage in
product
market 1

Competitive
advantage in
product
market 2

Competitive
advantage in
product
market 3

Core Products

Competence:
an action or cognitive process
Key:

Flows in value creation

with competence
Flows in the experimental
learning processes
Figure 1. A model of a competence

literature appear to have provided a large portion

of the insights: the resource-based view of the
firm, organization learning and the impact of environmental change. All three are critical in developing
a comprehensive yet parsimonious view of competence and its ability to drive competitive advantage over time. Similarly, no one of these theories
alone seems complete in addressing all of the
elements that a dynamic model needs to consider.
This is not surprising, as all three streams are
primarily focused on broader issues. Competence
is just one of many concepts on which they can
shed light. By looking at each and identifying the
insights they provide, a perspective that is particularly focused on competence emerges. We will
now focus on the contributions of each individually.
Contributions from the resource-based theory
of the firm
The resource-based theory of the firm (Barney,
1991; Penrose, 1959; Peteraf, 1993; Wernerfelt,
1984) presents a broad view of internal firm assets
as the key to strategy formation and choice (Carr,
1993), and to explaining above-average performance. As such it includes within its domain a firms
competences. In broad summary, this view suggests that a firms resource base includes all
resources that are available for use by the firms
managers in competition including both physical

and intangible assets (Amit and Schoemaker,

1993). Among firms, however, resource bases
available for competition differ due to the variation
in past resource accumulations (Dierickx and
Cool, 1989) and commitments (Ghemawat, 1991).
Hence, the pursuit of future environmental opportunities and future profitable extensions of those
resources will also vary among firms (Penrose,
1959; Rumelt, 1984). From this conceptualization
the resource-base literature has sought to explain
competitive heterogeneity in terms of an idiosyncratic bundle of firm-level resources, some of
which, alone or in combination with others (cospecialized assets), can be the basis for competitive advantage in an otherwise open market place.
(For complete review of the resource-based theory
of the firm see Mahoney and Pandian, 1992.)
The most important contribution from the
resource-based literature to a clearer understanding of competence has been the attempts by
different authors to identify those key critical
traits that provide meaningful distinctions among
a firms resources. Particularly important are
those insights that discuss those unique resources
that are linked to competitive advantage. For
example, both Barney (1991) and Peteraf (1993)
looked at this performance linkage, but they present different conceptualization of how resources
lead to persistent or sustainable advantage.
Barneys well-known terminology is characteristic
of a market view of resources, where they are
valuable, rare, imperfectly imitable, and nonsubstitutable (1991, pp. 105111). Here resource
distinction is explained in terms of inputs in a
market context; how these resources are deployed
and sustained is not developed. By contrast,
Peteraf defines heterogeneous resources in terms
of the end product competitive advantage that
they provide. She does this by additionally requiring that those resources be combined with
an environment that provides ex ante and ex post
limits on competition as well as imperfect mobility
(1993, pp. 180185).
Still other authors have sought to clarify the
link between competitive resources and advantage
by introducing additional terms. For example, Amit
and Schoemaker (1993) distinguish between resources as assets that managers deploy and capabilities, which are the skills and abilities captured
within a firm. In contrast to the two prior views
that focused on the traits of the resources, Amit
and Schoemaker set out a key role for managerial

Competence and Competitive Advantage

action in developing the resources value. In the
same vein, Teece, Pisano and Shuen (1997) have
recently attempted to specifically distinguish core
competence from dynamic capabilities by focusing directly on the managerial processes involved
in combining resources for advantage. These latter
authors create a new distinction between internal
and external competences and suggest a clear and
important intermediate role for managers between
the core resources and the market. In contrast to
Barney and Peteraf, neither of these views clearly
tie resource distinctiveness to the intermediate
concepts of competence development; indeed both
suggest that competences do not necessarily have
to be distinctive.
Taken together all of these papers from the
resource-based perspective provide some valuable
ideas for a focus on competence. Yet none of them
has focused precisely on whether a competence
is a resource that is distinctive from all other
resources, or on what basis for such a distinction
could logically be constructed. Competence distinctiveness, and its role in gaining competitive
advantage, is a critical element in examining the
pool of firm resources. Further, in the broader
resource-based literature it is not clear how, over
time, competences are created and retained in
their distinctive condition.
While we believe that definitional issues in the
competence literature can be resolved, it is less
clear that the resource-based view can deal with
the issue of how competence can be sustained over
time. This will probably require the incorporation
of concepts of organizational learning and the impacts of environmental change into the discussion
in order to address the dynamic aspects of competence enhancement and competitive advantage.
What is becoming clear is that a complete model
of competence needs to incorporate aspects drawn
from an externally oriented view of the firm as
well as the insights available from the internally
oriented resource-based view.
Contributions from the organizational
learning literature
A knowledge-based theory of the firm may not
yet be in hand (Grant, 1996), but the roles of
learning and knowledge in organizations have been
clearly presented as key elements in evolutionary
and dynamic conceptualizations of competence
development. J. C. Spender attempts to compare

279
what is emerging in the knowledge literature with
the resource-based writings and suggests that both
are attempts to, deconstruct the black box of the
production function into some more elemental
components and interactions, and until we identify these we can not be confident about what is
useful to observe over time (1996, p. 46). One of
the elemental components and interactions that
both the literatures of learning and knowledge
can help seek out is the role of competence and
its link with competitive advantage. This does
not require a perspective inconsistent with the
resource-based view. Knowledge is a resource and
Spender places it at the core of a more epistemological theory of the firm (1996, p. 46), as the
resource-based view would suggest. However,
Spenders larger theme goes beyond just the
outcome of knowledge. He suggests a focus on
learning, the creation of knowledge and the use of
knowledge in competition, as part of an integrated
system. We would argue here that this linkage in
the new-knowledge creation process is the way in
which competence and learning need to be
understood together.
New organization-specific knowledge is generated by organizational learning. Generally, organizational learning describes what happens to
firms and their competitive potential because
their members learn, and because those members
interact with each other as well as with their firms
strategy, structure, culture and systems (Fiol and
Lyles, 1985; Simon, 1969). (For a comprehensive
discussion of the dynamics of organizational learning, see Nonaka, 1994.) Adding these learning
processes requires our competence model to go
beyond just a description of a broad accumulation
of resources over time, and towards a focus on
the ongoing development of unique resources.
Particularly, competence needs to incorporate
those firm-specific learning processes that lead to
unique knowledge outcomes. The type of learning
that is key in producing the unique knowledge
capable of sustaining competitive advantage is
experimental learning (Huber, 1991).3 The
creation of new knowledge through experimental
3

Pisano (1994) discussed learning-by-doing and

learning-before-doing as other types of experimental
learning. Huber (1991) also mentions four other types
of processes by which organizations learn: search and
notice, congenital and vicarious learning, and grafting.
We distinguish those from experimental learning based
on the latters focus on unique knowledge.

280
learning implies that the firm, for a time, possesses
this distinctive knowledge as a unique asset (Helfat,
1994). This ongoing process of experimentation,
in turn, suggests Senges (1990) stronger role for
management in creating the new knowledge and
Nonakas (1994) idea of managers in learning
organizations proactively introducing their own
noise to stimulate learning.
A successful experimental learning outcome
may give a firm an advantage, but it also holds the
seeds of knowledge diffusion. The very success
that learning has produced will stimulate others
to attempt to copy the resulting knowledge, and
hence destroy its effectiveness as a distinctive
element in competition. The greater the advantage, the greater will be the efforts of rivals to copy
or leap-frog that advantage. Thus, firms that
wish to sustain competitive advantage over time
have to continually push out their knowledge envelope through ongoing learning in order to stay
ahead of imitating rivals.
Other contributions from the learning literature can further enrich our understanding of
the processes by which ongoing improvement in
competence takes place, as well as the conditions
where firms fail to sustain distinctiveness. An important distinction in understanding when learning
sustains competence is between lower-level and
higher-level learning. Lower-level learning will
most likely produce outcomes that rest within the
firms existing competitive frame of reference.
For example, it can occur within the execution of
existing routines and procedures (Cyert and March,
1963). By contrast, higher-level learning requires
changing the overall rules and norms rather than
specific activities and behaviors (Fiol and Lyles,
1985, p. 808). In each case the level of learning
that is required will be determined by the existing
learning traits internal to the firm. Thus, a changing environment that requires only lower-level
learning for one firm may require higher-level
learning for another.
Two other concepts from the learning literature
that contribute to understanding the relationship
between sustained competence and learning are
the absorptive capacity (Cohen and Leventhal,
1990) and transformative capacity (Garud and
Nayar, 1994) of a firm. These capacities to manage a firms current learning needs are resources
in and of themselves. Based on the level of learning
that is required, these capacities will determine
the effectiveness of a firms existing learning

W. C. Bogner, H. Thomas and J. McGee

processes in sustaining competence. Learning
levels and capacities help explain the quantity and
quality of learning that can occur within a firm,
and hence, the extent to which competence can be
sustained in a changing environment.
The organizational learning literature, in essence,
emphasizes managements role in directing experimental learning and developing competences
over time. However, a changing external environment suggests that success in learning may not be
determined solely by the firms internal experimental learning activity. The scope of external
change may impact the learning results required if
a firms competences are to continue to provide
competitive advantage. The comparative extent
of these exogenous changes relative to a firms
existing learning capabilities is, therefore, critical
in understanding the effectiveness of a firm in sustaining competences and competitive advantage.
Contributions from the environmental change
literature
The extent of a firms opportunities to both improve competences through learning and to better
exploit existing competences is impacted by the
scope of the environmental change that it is experiencing. On the one hand there is the persistent,
gradual change that is called, among other things,
competence enhancing change (Tushman and
Anderson, 1986), Darwinian gradualism (Gersick,
1991), and adaption and evolution (Meyer,
Brooks and Goes, 1990). On the other hand there
exist more dramatic change periods that present a
higher level of turbulence. Gersick (1991) sees
these as revolutionary periods where the incremental, adaptive processes are overwhelmed,
where the deep structure on which competitive
strategies have been built is destroyed, and where
environmental selection takes over from management. Tushman and Anderson (1986) describe
these events as competence destroying change.
Competence enhancing change (Tushman and
Anderson, 1986) produces an environment
consistent with the existing trajectory of the
competences that the leading firms have been
developing relative to their bases. Such change
gives these firms further opportunities to improve
what they do best through lower-level learning,
and to extend their competitive advantages as a
result. Indeed, the more an environment presents
such opportunities, the more a proactive leader

Competence and Competitive Advantage

will be able to use learning to improve competences and outpace followers attempting to catch
up (Prahalad and Hamel, 1990). Importantly,
these conceptualizations assume that internal learning processes and competence improvements will
keep pace with (or even lead) the change that is
occurring in the external environment.
In contrast, competence destroying change
suggests that the nature of the exogenous events
is of such significance that existing competences
actually lose their effectiveness, and with it the
firms competitive advantage. Importantly, such
results are due as much to the inability of the
firms internal learning processes to respond as
they are to the nature of the external shock. This
could be due to limitations in absorptive capacity
or the extent of the higher-level learning needed.
Regardless, the learning process that links competences to the changing market place is not
capable of nurturing and expanding those competences sufficiently to sustain advantage.
Drawing on these three streams, a parsimonious
yet dynamic model of competence and competitive
advantage can be proposed.

The components of dynamic

competence
Some specific and integrated statements can be
made about the dynamic relationships depicted in
the model outlined in Figure 1 based on the three
streams of research just highlighted. They are
presented not just for the purpose of sharpening
the concept of competence, but also for tightening
its links to the market through core products and
with learning processes. As a contextual note,
we assume that the market where competence is
sought and valuable is one in which multiple
buyers compete for multiple sellers, where the
parties have a high degree of product and price
information and the buyers are relatively free of
switching and other costs in selecting from among
the goods and services on offer. That is, we
assume the presence of the open and competitive
markets that are becoming increasingly common
in the global market place.
Competences and competitive advantage
The first relationship to be discussed is the link of
competence to the competitive market place. Here

281
we argue for a precise and distinctive concept of
competence. Specifically, we posit that no skill or
cognitive trait, no matter how refined, should be
described as a competence if it does not lead a
firm, directly or indirectly, to a persistent competitive advantage by satisfying a customer need
better than competitors, or at lower costs than
competitors or by producing an advantageous
combination of both (Porter, 1985).4 Such advantage is indicated by a firm constantly earning
above-average returns (Rumelt, 1984) for a
meaningful period of time.5 It is this competitionbased outcome that validates the competence as
distinctive (Andrews, 1980). In addition to being
faithful to the concepts roots, we feel that by
focusing on this requirement of a resulting sustained competitive advantage we can sharpen some
of the blur that Barney (1996) feels exists with the
concept in general, and create more meaningful
links with the components in Figure 1.
While Prahalad and Hamel (1990) view competence as the root of competitiveness, we see it
as the root of competitive advantage, i.e. the basis
of persistent above-average returns, not just the
ability to compete well. Competitive advantage
requires an element of uniqueness. Logically if an
offering does not contain distinctive attributes
(real or perceived) or lower unit costs, then it cannot command above-average returns in otherwise
open competition. The unique market trait of an
offering comes from a firms competence which
must, itself, be unique. Thus, the requirement of
uniqueness for a skill or cognition simply links this
4
Competitive advantage here refers to realized advantage. While it should not be confused with comparative
advantage, a base concept of international business,
comparative advantage does indicate how firms may
leave absolute advantages unrealized in one product
market in order to pursue greater advantages in another (Ricardo, 1817). In contemporary markets, limits
on available capital or managerial expertise could force
the same choice.
5
In this paper we use the term above-average returns
rather than economic profit to describe the persistent
performance level of firms with competence. We
note that over time an industry may exhibit periods
of growth when many firms, including those without
competence, can generate profits above the level that
their undertaken risk should suggest. Similarly, during
shakeout periods no firms may be earning any profits
at all, but firms with effective competences will suffer
smaller losses for a shorter period of time. Thus, in all
situations firms with competences will out-perform
firms without them.

282
conceptualization of competence to the market
advantage ideas of Porter (1985) and others. Porters
(1985) firm-level value chain arrows provided a
framework for isolating the many ways that the
bundling of unique internal activities can lead to
larger profit margins. Focusing on the internal
processes that produce these unique elements
does, however, cause us to reject any usage of the
term where competence is seen as any component
that is bundled into a market offering that is successful, or when describing a skill or ability held
by more than one firm. As will be developed in
the next section, such usage also undermines
the link between competences and the market,
namely the concept of core products.
Competitive advantage based on competence
must be differentiated from advantages based on
luck or other unique resources. In particular, we
think that there is value to distinguishing competences from the outcomes of competences. For
example, a firms competitive advantage resulting
from a patent can only be said to be undergirded
by a competence when the skill exists within the
firm to consistently produce more patentable
products. In the absence of such an underlying
competence, the existing patents expiration will
end the firms ability to earn above-average returns.
Similarly, a location advantage as an outcome of a
competence trait may produce competitive advantage and above-average returns. Both the patent
and the location are unique resources, but they are
outcomes of competences not the competences
themselves. The competences are the ability to
repeatedly produce new patentable research outcomes or to select additional optimal sites for its
business activities.
The distinction between competences and the
outcomes of competences appears to be one that
many have difficulty making. One reason may
be that academics, students, consultants and managers use the terms competence and unique
resources interchangeably. We argue that the
distinctions made in the preceding paragraph
are important for managers. The activities and
attention that managers give to nurturing an
R&D process are different from those involved in
protecting the resulting patents. The skill-based
resources that are competences constitute a distinct
subset of the larger set of unique resources of the
firm. Barneys (1991) four asset requirements
of Peterafs (1993) requirement of asset heterogeneity are too broad as they both fail to make

W. C. Bogner, H. Thomas and J. McGee

the distinction between processes and outcomes.
The nature of all of these resource distinctions
can be represented in a Venn-like diagram that
depicts the relative relationships of the asset sets.
Figure 2 presents a rather straightforward
series of subsets within the firms resource set.
The largest set includes all of the resources that
are available for a firm to use. These resources
may be tangible or intangible elements, as long as
they have potential value in competition. Clearly
most firms choose not to employ some of the set
of potential resources that is available to them.
Those resources that are used by the firm are
included in the total resource-base of the firm,
which is represented as the largest circle in Figure
2. Many of these firm resources are also available
to at least one rival firm and, consistent with
the logic developed here, cannot be the basis in
and of themselves for sustainable advantage in a
competitive market. The remaining resources
constitute the firms unique resource base, and it
is at this level that most research on the resourcebased view of the firm has focused. These unique
resources are captured by the middle circle, a subset of all firm resources. We have just made the
argument, however, that there is a clear managerial need to go further and to distinguish
unique skills and cognitions from the outcomes
of the same, and from those unique resources that
are acquired by luck, government preference, or
other non-competence based sources. This key

The universe of
potential
resources

Firm resources

Unique resources

Core
competence

Figure 2. Relative relationships of asset sets

Competence and Competitive Advantage

subset of unique resources is captured by the
smallest circle.
In terms of Figure 2, the larger pool of unique
resources that gives a firm competitive advantage
is sustained over time by the firms competences.
Should the firm lose a competence (through the
death of a key researcher or a funding cut in
the real-estate department, see p. 282) the unique
resources that were the prior outcomes of the lost
competence would remain and would continue to
earn above average profits. What is most likely to
be lost, however, is the ability to add new unique
resources of the same kind to that pool and hence
the ability to sustain whatever competitive
advantages are being gained with that resource
beyond the life of the current resource stock.
Indeed, by the time a firms performance actually
starts to flag due to waning distinctiveness of the
outcomes, the underlying competences that
produced those outcomes will generally be long
gone.
Some will note that we do not break out a
separate subset of capabilities in Figure 2. As
used in the literature, capabilities may indeed be
competences (Amit and Schoemaker, 1993; Teece,
Pisano and Shuen, 1997), but for parsimony we
need to only distinguish skills as either being
competences or not. While the additional conceptualization of capability may be quite useful
elsewhere, it does not add to clarity in distinguishing competence or its role in competitive advantage. Indeed, the use of capabilities often adds
confusion rather than clarity. For example, the
idea of capabilities has been presented in some
textbooks (e.g. Hitt, Ireland and Hoskisson, 1996,
p. 97) as capturing an aggregate concept, something that results from the bundling of more basic
elements of skill and cognition with other resources. In such a view if these capabilities lead to
advantage then they are competences, otherwise
they just remain capabilities. Such a view does
create a distinguishing term for the integration of
resources that do not lead to advantage. But the
use of capabilities is not confined to that subset
because capabilities also describes the larger
set of both competence and non-competence integrations of resources. More importantly, such
views suggest that competence only emerges
through integration. While integrating processes
can be creators of distinct value, what is integrated is often unique too. In this view the term
competences is used as a post-integration concept,

283
not the root source of unique resources. This
only begs the question: where did those unique
resources come from? Capabilities may have a
valuable role in further enriching our understanding of value creation. But the term needs to
be used in conjunction with a clear concept of
competence. At present the interchanging and
imprecise use of competence and capability is
a major contributor to the badly blurred state of
affairs that Barney described. This weakness does
not help develop a clear focus on the root, or core,
value creation activity in the firm.
There still remains a need, however, to describe
those intermediate integrations or combinations
of unique and non-unique resources. Capabilities
may describe those that do not hold the prospect
of distinctiveness for competitive advantage (Hitt
et al., 1996), but Prahalad and Hamel (1990) have
set out a term for those intermediate products
that captures the distinctive competitiveness that
competences provide: core products. When it
comes to understanding how a competence can be
leveraged by management in corporate strategy,
this distinction is critical. With clear conceptualizations the relationships among competences,
core products, competitive advantage and learning become tightly linked. Conversely, blurred,
ambiguous and varying conceptualizations of
these terms assure that the relationships that
can be drawn among the concepts will be equally
muddled.
Competences and core products
The model presented in Figure 1 shows that core
competence may or may not lead directly to
a competitive advantage. In understanding the
intermediate linkages between competence and a
firms end product Prahalad and Hamels (1990)
idea of a core product is important.6 Core
products have not received much discussion in
the literature. Discussions have focused on the
6

Our description of competence thus far may lead

some to suggest that a more correct term would be core
activity because of the emphasis on combinative activities, not outcomes. Core activities suggests more
of this supply-side focus than core products does.
However, core products is the term that Prahalad and
Hamel developed, and it is one of the few that seems
to have retained clarity thus far. Consistent with our
desire to simplify concepts surrounding competence so
that it can be more useful, we will retain their term.

284
concepts of competence and the end-market
advantage with little in between. More recently
the literature on learning (e.g. Nonaka, 1994) has
highlighted the intermediate processes within a
firm that are critical to expanding and exploiting
a firms unique skills. The concept of core products retains its important role for capturing the
intermediate embodiment of the underlying competences, the margin-producing components that
firms work to incorporate and exploit throughout
their product offerings. Core products have to
also be understood as a critical part of the larger
systems of learning and technology transfer that
spread underlying competences throughout a
corporation of multiple businesses (Itami and
Numagami, 1992). We note that a competence
may be brought directly to the market without the
benefit of core-product bundling, and this possibility is indicated on the left side of Figure 1. It is,
however, far more likely that competences will
find their way to the market through core products.
Core products within a firm need to be distinguished from intermediate products in a value
chain. The final product or service for which the
firm collects its above-average returns may be an
intermediate or an end product in the larger value
chain of the economy.7 What are important in
the creation of core products are the intermediate
bundlings of competences with other firm resources, unique and non-unique, that can take
place up to the final sale.8 Just as a single core product can lead to one or more end products for
the firm, so too can one or more competences be
applied in producing core products. Other cospecialized asset traits are combined with these
core products to create the final product.9 Prahalad
7

When the firms end product is sold to another firm

as an intermediate product in the larger value chain of
the economy, the competence trait should be retained
when the final product is sold. Still, absent any market
power of the buyer, the holder of a competence should
be able to capture any excess revenue that the competence produces through its component price.
8
When assessing a firms unique skill base it must be
remembered that some firms can develop and nurture
combinative competences. These are skills in bundling
resources in unique ways that others can not copy. The
resulting core products are unique as much by the process of creation as by its components.
9
It is assumed here that these other co-specialized
asset traits in the final product bundle are able to clear
a minimum threshold of acceptability, even though
they are not distinctive. If they do not, then they may

W. C. Bogner, H. Thomas and J. McGee

and Hamel (1990, p. 84) describe a large tree
with a competence as the root system. From
such a metaphor the role of competences and core
products can be seen as the source of both motivation and direction for a firms expansion and
diversification (Penrose, 1959; Porter, 1987).
The relationships among competences in core
products can be seen as the basis for understanding successful related diversification. In many
views core products have become the de facto
basis for identifying relatedness among business
units in a corporate portfolio, and for explaining
how this type of relatedness increases corporate
performance (Rumelt, 1984; Stopford and BadenFuller, 1994; Wernerfelt and Montgomery, 1988).
Using the concepts developed here, relatedness
can be identified by the increased profitability
that core products enable because of their ability
to spread distinctiveness among business units.
Whether these alternative product markets lie
in different segments of the same industry or in
different industries is less important than the
opportunities that core products give firms to
compete distinctly and to earn above-average
returns in multiple competitive arenas through a
single set of skills (Porter, 1987; Stalk, Evans and
Shulman, 1992).10
The learning processes within the firm become
critical in both the maintenance of competence distinctiveness and the spreading of competence outcomes throughout the firm. Thus,
the process by which this sharing takes place
is more interactive than the hierarchal tree presented by Prahalad and Hamel (1990). In this
more interactive set of relationships the different
core products can be the outcomes of different
combinations of competences with other resources,
and final products are, in turn, mixes of those
various core products. Such combinations require
end products to access many roots. Rather than
the inverted pyramid of Prahalad and Hamels
tree, a lattice-work of interactions that gather
detract from or offset the value added by the competence, thereby destroying some or all of the competitive
advantage that the competences seek to create (Bogner
and Thomas, 1996).
10
We note that Porter (1987) identifies two other types
of relatedness (scale and scope economies) that will
produce above-average returns consistent with the
resource-based theory, although his writings clearly
emphasize the sharing of internal skills (Porter, 1985;
1991).

Competence and Competitive Advantage

and disperse competences is built throughout the
organization. We represent this gathering and dispersing of competences through core products in
Figure 3.11
Figure 3 thus expands on Prahalad and Hamels
(1990) model by adding the diagonal arrows. It
suggests that competences can feed multiple core
products and that multiple core products can be
incorporated into end products. This further increases the number of possible products and
markets that competences can support. Our argument also suggests that without competences
bundled in core products the firm cannot engage
in effective related diversification. Bundling only
non-unique resources in non-distinctive ways
will not create an inimitable advantage. Thus, if
a product-based related diversification strategy
results in above-average long-term profitability,
even after the added corporate costs of the related
diversification (Porter, 1987), then core products
containing distinctive competences must be at work.
The use of core products as a base concept
for understanding related diversification success
also indicates why we insisted on the narrow conceptualization of competence earlier. Had a
looser concept that included non-distinctive or
non-sustainable skills and cognitions been used,
then the distinctiveness of resulting core products
would have been questionable. In turn, the use of
core products as the basis for gaining competitive
11
Externally acquired components of final products
also have to be considered when analysing the way in
which the bundling of resources leads to competitive
advantage. Resource-based economies has argued that
the acquisition of assets in factor markets can produce
above-average profits for the acquiring firm if: (a)
the seller has some level of market ignorance or (b) if
the buyer can bundle the acquired input with other
assets so as to produce higher returns than the second
highest bidder in the factor market (Barney, 1986;
Conner, 1991). Here the focus is on the internal competences that would enable a firm to sustain either advantage over time. For the firm with superior knowledge
of future market value it is the underlying information
processing and learning skills that sustain their more
sophisticated view and allow them to persistently outbid
sophomoric competitors in the factor markets. So too,
the ability to create distinctive value through bundling
with co-specialized assets is the competence that sustains the ability of a firm to bid higher and still gain
above-average profits in factor-market acquisitions. In
both cases the resulting competitive advantage from
outsourcing is dependent on sustaining these internal
skills, i.e. competences.

285
advantage in a variety of markets through diversification would also be open to question. Prahalad
and Hamel had, in effect, illustrated this set of
relationships in 1990 when they discussed how
Honda had captured and bundled a continuouslyimproving underlying engine-development competence and persistently spread its outcomes
across the corporation.
As a final note, the conceptualization of core
products in Figure 3 can be viewed as an expansion of Figure 1. Figure 1 represented the path of
one competence to the market. Figure 3 now brings
several competences into the picture simultaneously, making core products a bit more complex,
but also giving them the ability to be even more
distinctive through the bundling of more than one
distinctive skill outcome. Both figures also highlight the dynamic nature of sustaining and using
competence. As alluded to several times, learning
is the key process that occurs within the firm to
sustain competence. It will now be the third focus
of our discussion.
Competences and learning
Prahalad and Hamel wrote that core competences
are the collective learning in the organization
(1990, p. 82). We now modify this only slightly, but
hopefully with a sharper focus. Organizational
learning processes play a key role in the creation,
maintenance and exploitation of competences. As
implied by the linkages on the right side of Figure
1 and our discussions of competitive dynamics,
firms must have a learning process in order to
sustain competences and, hence, competitive advantage over the long term. Both individual and
organizational learning processes must be managed in order to keep existing competences
distinctive and to allow for the formation of new
competences. In his discussion of dynamic knowledge creation Nonaka (1994) focuses on both of
these processes, which are critical to the creation
of new unique knowledge. At the individual level
new knowledge is created through individual
intention and autonomy. In some settings, such as
the R&D laboratory, the exchange and sharing of
ideas is part of daily activity and fosters joint
organizational learning.
Creating such exchanges is one of the key
considerations in designing competence-based
organizations. However, when managers are
dispersed to distant customer markets and across

W. C. Bogner, H. Thomas and J. McGee

286

End product

End product

End product

Core product

Core product

Core product

Competence

Competence

Competence

Competence

Competence

Competence

Figure 3. The gathering and dispersing of core competencies through core products

various product categories the process of bringing

people together is a major challenge. Even if individuals are developing valuable insights in their
respective positions, the initiation of the learning
processes by which that knowledge can be shared,
further developed and finally exploited may be
difficult. Still, if all of the firms many product
markets rely on core products and sustained competences for their ongoing advantage, then the
more effectively these internal knowledge-creating
processes are managed, the better those competences will be maintained.
The type of individual learning that is important here is experimental learning (Huber,
1991). Although these experimental learning activities may involve groups of people, say in R&D
laboratories or marketing teams, all insights are
initially individual, i.e. while they may be quickly
shared among team members, all subsequent
knowledge-sharing and integration is a modification of individual insights within the business unit.
Bringing those insights to the core product level
and/or to the competence level requires a second
process of learning beyond that of initial discovery. Management has to bring individuals together in learning processes that translate the
tacit knowledge of their experiences into expressible terms. For any diversification strategy based
on changing and improving both competences
and core products, these multiple insights need to

be shared throughout the organization. This process, including its individual and group activities,
perpetuates new knowledge creation and is a
foundation for sustaining distinctiveness in competences (Helleloid and Simonin, 1994).
In the end these processes have two goals.
First, to continue the advancement along existing
knowledge trajectories, ahead of learning competitors. This point was developed earlier as a
basic part of competitive advantage based on competence. Second, to enable the firm to engage in
truly intra-preneurial efforts (Zahra, Nielson and
Bogner, 1999). Through the insights developed
by experimentation and nurtured through the
integration process, significant new products or
services can emerge that are distinct from firms
existing product lines. This type of initial competence creation starts the learning process along
a new trajectory, which will also have to be later
served by incremental development of new knowledge so as to continually push out its new-found
advantage.
Again in moving from Figure 1 to Figure 3
we suggest that it is the learning process that
allows for knowledge to be transferred horizontally
through core products within the organization
that also drives related diversification. That is,
core products and competences become linked
across the corporation because learning processes
have developed meaningful ways for disparate

Competence and Competitive Advantage

managers to find, translate and exploit unique
and valuable knowledge developed in different
parts of the firm. Thus, Figure 3s crossing arrows
not only capture the flows of core products and
competences, they are artefacts of successful past
learning patterns. Organizational modifications
such as multi-functional teams that speed firm
responses to insights are, at their core, successful
because they are operating as more effective
structural tools for this integration and dissemination of knowledge.
Continuous learning sustains competence,
by enabling it to evolve through iterations of
observing, learning and doing. Based on the preceding we can see Prahalad and Hamels (1990,
p. 82) statement that competences are the collective learning in the organization is an outcome view. That is, it is a snapshot in time of the
relationship between competence and learning.
At any instance, existing competences are, indeed,
the outcomes of the whole learning process
described here. Insights not yet integrated, much
less those yet to be observed in an experimental
learning process, would clearly not be existing
competences. Hence, they are not part of such a
fixed-time perspective. Here we are suggesting a
dynamic view of the relationship between learning and competence. When we think of firms developing new, or building existing, competences
we think that our model more accurately
describes what Mintzberg and Waters (1982)
identified when they observed Steinberg Inc. of
Canada shifting from a traditional grocery to a
self-service operator, or what the late Sam Walton
went through during his organizations two
decades of both experimental and search and
notice learning about discount retailing prior to
the explosive growth of the Wal-Mart chain
(Walton, 1992).
We can also suggest that Tushman and
Andersons (1986) competence destroying change
destroys competence precisely because it overwhelms the ability of a firm to learn and respond
so as to maintain its skill leadership. This level of
change, therefore, is more correctly measured as a
firm-level impact, although it can clearly have
industry-wide ramifications. At some level even
the most proactive learning system can be overwhelmed by significant enough change. Learning
systems with high absorptive and transformative
capacities can decrease, but not eliminate, the likelihood of competence destroying change occurring.

287
It could be suggested that because of the scope of
change with which a firm is confronted, competence is being overwhelmed by change. But a
firm with poor response-through-learning capability may have their competence destroyed by
sustained lower-level turbulence as well (Barr,
Stimpert and Huff, 1992). Therefore, learning
level, learning ability and the scope of environmental change all must be combined in determining whether change destroys competence.

Implications of the model in competition

The focus of this paper has been on a single firm
and the fit of the concept of competence within
it. In this section we will draw two sets of interpretations based on that description. First, implications about how competences play out in
competition with other firms are presented. Here
we extend the concepts developed in Figures 1
and 3 for a single firm and apply them to a multifirm competitive context. Using the taut conceptualizations developed here, we are able to
suggest some added clarity for some of these
more complex relationships. Second, we use the
developed concepts to suggest empirical research
approaches that may uncover evidence of competence as presented here, and its relationship to
competitive advantage. Looking at both the business unit and the corporate level of competition,
and at both products and processes, we consider
how such research can be approached. Again, the
implications we bring out are only possible in the
light of the concepts developed here.
Implications for competitive rivalry
The model presented here identifies the various
elements of competence and their interactions. Its
dynamics indicate that the competitive advantage
that any one firm attains through processes of
learning and competence building is, in fact, a
moving target. Competence is defined in part
by the role it plays in the process of competitive
dynamics among multiple firms. Given the conceptualization of competence developed here a
firms competences do not exist in isolation, they
only exist relative to rivals skills. Other firms are
simultaneously pursuing their own competences,
which they hope will give them an advantage in
the same competitive market where competition

288
is played out. A market of firms suggests a collection of figures like Figures 1 and 3 with one for
each firm, all pointed toward the market.
Second, we noted earlier in our discussion of
core products that whether a skill truly is a competence in the market place is seldom determined
directly. However, Figure 3 implies that in the
market, where most products have multiple traits,
it is very unlikely that one trait alone will guarantee competitive advantage. From the demand
side it is only the total bundle that is relevant
(Murray, 1988). When end products are composed of several product traits, multiple firms are
given opportunities to excel at producing or acquiring products that can provide one or more of these
traits. The way in which competitive advantage
plays out in the market, therefore, becomes more
complex than simply being superior on one trait
in the final product. Instead, the firm must be
both superior on a mix of all traits, and be minimally sufficient on each trait, where each trait is
supported by its own set of skills and knowledge.
This interaction among traits, and the ability of
firms to exploit skills, are areas for future conceptual development (Bogner and Thomas, 1996).
The role of learning, occurring as a separate
process in each rival firm, suggest a richer way to
understand how external changes impact relative
industry leadership among firms. This model
suggests that both the leaders and the followers
learning processes determine whether environmental change will be competence destroying
and whether new industry leadership will result.
Importantly, the leading firms past investment in
assets to sustain prior competences in and of itself
does not create the rigidities that handicap a firm
responding to a wholly new competitive environment. Instead, the leading firm will only be put at
an initial disadvantage vis--vis trailing competitors
when the trailing competitors have previously
made investments in the skills or knowledge that
are now favoured by the change, ex ante investments that the leading firm has neither made nor
can efficiently acquire in strategic factor markets.
Note that what puts the former leader at a
disadvantage following the change is the trailing
firms investments in alternative assets in the time
before the change, not the leading firms investments in the old technology at the same time. In
the absence of any such a priori investments by
the trailing firm (and any of the other limitations
on response mentioned), a wide open learning

W. C. Bogner, H. Thomas and J. McGee

race to develop new competences among all firms
is on. Thus, whether a change destroys a competence (and the resulting competitive advantage) is
an ex post evaluation that describes several firms
ability to cope and learn (or not do so), as
much as it addresses the degree of change in the
environment.
Empirical tests for competences
The process of undertaking an empirical examination of competence and its interactions
presents a challenge because of the tacit and
intangible nature that the concept presented here
captures. However, some competences should
produce clear patterns of artefacts. It is such artefacts that Prahalad and Hamel were observing
when they described the ability of firms such
as Honda and NEC to develop and spread core
products through their firms. In empirical research
such observations would have to be systematized.
One such measure that has seen limited yet
promising use is the use of patents (Henderson
and Cockburn, 1994). As we mentioned earlier,
patents are outcomes of competences; they are
artefacts of unique knowledge creation. Over
time firms that regularly produce patents, such as
pharmaceutical firms, leave trails of these outcomes behind. Analysing patterns of patents,
therefore, provides a means to assess a firms
ability to regularly and systematically produce
the new outcomes that are evidence of wellmaintained competence. Individual patents can
represent large and small knowledge gains, but
with a large enough sample size reliable and
comparable firm-level measures should emerge.
In looking for the impact of competence at the
corporate level we have to examine beyond core
products to the large number of end products
the firm sells. Again if we infer that outcomes
such as patents indicate underlying competences,
then a process of tracking the use of a patented
component across a corporate portfolio of businesses would indicate the breadth of such knowledge transfer. We would expect that firms that do
a better job in spreading the fruits of competence,
as depicted in Figure 3, would outperform those
that do not. The spread of patent-protected knowledge to a wide range of products would tend to
indicate this pattern. Such knowledge transfer
need not be confined to physical products. The intellectual property rights captured by trademarks,

Competence and Competitive Advantage

copyrights and similar registered marks can also
be followed here. Tracking such outcomes of competences through core products should produce a
measure of both the depth of a firms competences and the breadth of the firms ability to
exploit those outcomes.
Competences in developing and improving
processes and delivering services may not be
measured as easily through quantitative measures.
Counting patents is much easier to do accurately
than assessing the efficiency of an improved
distribution system. Internal cost data may make
such constant improvements measurable over
time and, if comparable data were available from
rival firms, comparisons of advantage could be
made. Given that such data is not likely to be
forthcoming, researchers must analyse other
artefacts. The competence concept described here
suggests that two sets of behaviour should be
observed over time when a leader firm has a competence that produces meaningful process improvements. First, we should be able to observe
over time a set of follower firms mimicking the
activities of the performance leader. If the leader
sets out an improved distribution system at time
1, then we would expect to see rivals attempting
to install replications of the system at time 2.
Second, we would expect to see the leader with
yet further improvements in the initial system at
time 2. Longitudinal case analysis of both of these
patterns, like the large sample size analysis of
patents and copyrights discussed above, should be
able to provide evidence that underlying dynamic
competence drives the performance leaders sustained success.

Conclusions
Competence will continue to be a major focus of
competitive strategy research only if a clear and
useful conceptualization of it and its associated
concepts can be developed. The model and conceptualizations presented here attempt to facilitate
this process by systematically setting out the dynamic properties of competence, based on theory,
and then linking them inextricably to the competitive market place. Without such a clear conceptualization of competence its theoretical usefulness
in explaining competitive advantage in an otherwise open and competitive market may remain
badly blurred. However, through the integrated

289
and precise presentation of the concept of competence and its relationship to other related concepts
such as learning, we expect that academics, business executives and consultants will be able to
further develop normative and theoretical propositions that will enrich our understanding of competence and dynamic competitive advantage.

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