Journal of Business Research 57 (2004) 518 – 532

Understanding competence-based management

Identifying and managing five modes of competence
Ron Sanchez*
International Institute for Management Development, Chemin de Bellerive 23, CH-1000 Lausanne, Switzerland

Abstract

This paper develops a taxonomy of five modes of competences that an organization must develop and maintain in its various activities to
achieve overall competence. Each competence mode is distinguished by the specific forms of flexibility it brings to an organization to
respond to the changing opportunities and threats in its environment. Each form of flexibility is in turn distinguished by the kinds of strategic
options it creates for an organization. Key interrelationships among the five competence modes are identified, and important aspects of
managing each of the competence modes and their interrelationships are discussed.
D 2002 Elsevier Inc. All rights reserved.

Keywords: Competence-based management; Organisational competence; Flexibilities; Strategic options; Open systems

1. Introduction researchers and managers to define, analyze and manage

The competence perspective has brought both signific-
ant theoretical extensions and important practical benefits
to contemporary management thinking. While understand-
ing industry structures was perhaps the primary concern of
strategic management theory in the 1970s, for example,
and while characterizing firms as unique bundles of
resources became an important perspective in the 1980s,
conceptualizing and analyzing the competences of organ-
izations became a key focus of management thinking in
the 1990s. As Rumelt (1994) has noted, the concept of
competence ‘‘resonates’’ with the many managers and
researchers who have concluded that analyzing the struc-
tures of industries and the resource bases of firms will not
adequately explain—or point the way to—achievement of
competitive success.
Despite the broad interest in the competence perspect-
ive, both researchers working to develop competence
theory and managers interested in applying competence
concepts have often encountered difficulties in rigorously
defining competences conceptually and in identifying the
real competences of organizations. This discussion draws
on recent thinking about competences to identify five
aspects or ‘‘modes’’ of competence that can help
* Tel.: +41-21-618-0111; fax: +41-21-618-0707.
E-mail address: ron.sanchez@imd.ch (R. Sanchez).
organizational competences more successfully. The dis-
cussion also suggests how the five competence modes are
interrelated and how some key interrelationships between
competence modes affect the management of competen-
ces in an organization.
This discussion is organized in the following way.
Section 1 revisits some basic conceptualizations and
definitions of competence. The definition of competence
suggested by Sanchez et al. (1996) is elaborated in
Section 2 to identify some essential dynamic, systemic,
cognitive and holistic dimensions of organizational com-
petence. Recent research on identifying various elements
and characteristics of competences is summarized in
Section 3. Drawing on this research, Section 4 develops
a taxonomy of five competence modes that exist at
various levels of systemic activity within an organization.
The five competence modes are distinguished by the
distinctive sets of capabilities—or more precisely, the
distinctive flexibilities—they bring to an organization
functioning as an adaptive open system. Each of these
distinctive kinds of flexibility can be characterized in turn
by the types of strategic options that each form of
flexibility brings to an organization. Section 5 considers
some key interrelationships among the five competence
modes that must be managed to achieve organizational
coherence and competitive success in the use of the
organization’s competences.

0148-2963/$ – see front matter D 2002 Elsevier Inc. All rights reserved.
doi:10.1016/S0148-2963(02)00318-1
 R. Sanchez / Journal of Business Research 57 (2004) 518–532
2. Definitions of competence
Since the first concerted efforts to conceptualize the
competence of an organization began to emerge in the early
1990s, the many characterizations of competence proposed
by researchers have consistently referred to some key
constituent elements of competence, such as skills, capabil-
ities, knowledge, learning, coordination, organization and
relationships (see, e.g., Prahalad and Hamel, 1990; Schoe-
maker, 1999; Leonard-Barton, 1992; Dosi and Teece, 1993).
Nevertheless, taken together, the various conceptualizations
suggested by researchers have often resulted in some
confusion as to the essential aspects of an organization’s
competences and how those might be identified in a specific
firm or within an industry. Chiesa and Manzini (1997)
suggest three reasons for this confusion, observing that the
various definitions that have been put forward:
(i) often use different terminology for similar concepts;
(ii) appear to refer to inherently different levels of activities
within organizations;
(iii) generally adopt a static view of competences that does
not adequately consider how competences are built or
can be changed within an organization.
Given such conceptual inconsistencies and omissions—
which are not at all unusual in a still emerging perspective—
three essential steps in establishing a theoretically sound,
extendible and useful theory of competence-based manage-
ment are
(i) development and use of a consistent set of concepts and
vocabulary for describing competences;
(ii) classification of the different kinds and levels of
activities within organizations that collectively contrib-
ute to achieving organizational competence;
(iii) articulating the interactions of different kinds and levels
of organizational activities that are critical in processes
of competence building and leveraging.
Sections 3 and 4 below summarize the research progress
that has been made to date in each of these three steps.
Section 5 then draws on that research to develop a tax-
onomy of competence modes that identifies five distinct
modes of competence within an organization.
3. Defining competence in dynamic, systemic, cognitive
and holistic terms
The first effort to articulate a comprehensive vocabulary
for describing competences was undertaken by Sanchez et al.
(1996, pp. 7 –11) with the objective ‘‘to develop a vocabulary
that is conceptually adequate, internally consistent and cap-
able of serving as a language for discussing competence-
based competition.’’ This vocabulary and its underlying
519
concepts sought to recognize different levels of activities
within an organization and the interactions of those activities
in its processes of competence building and leveraging.
Consider, for example, the following definitions.
Assets: Anything tangible or intangible the firm can use
in its processes for creating, producing and offering its
products (goods or services) to a market.
Capabilities: Repeatable patterns of action in the use of
assets to create, produce and/or offer products to a market.
Because ‘‘capabilities are intangible assets that determine
the uses of tangible assets and other kinds of intangible
assets,’’ capabilities are considered to be ‘‘an important
special category of assets.’’ Capabilities arise from the
coordinated activities of groups of people who pool their
individual skills in using assets.
Skills: Special forms of capability, usually embedded in
individuals or teams, that are ‘‘useful in specialized situa-
tions or related to the use of a specialized asset.’’
These three definitions establish a hierarchy of inter-
related concepts: At the highest level of classification, assets
include all tangibles and intangibles useful to a firm,
including capabilities which are a special category of
intangible asset because they use or ‘‘operate on’’ other
tangible and intangible assets. Capabilities then consist of
repeatable patterns of action in the use of all other assets.
Repeating patterns of action in turn requires individual and
team skills in the use of assets to perform the specialized
tasks that collectively generate organizational action.
Extending this hierarchical approach to ordering of the
essential elements of the competences of an organization,
Sanchez and Heene (1996, 1997) proposed an open systems
model of firms that further incorporates (i) the strategic
logic of an organization for creating value in markets, which
is held to be the essential activity through which an
organization may achieve its goals, and (ii) an organiza-
tion’s management processes for coordinating assets in the
activities it pursues in an effort to achieve its goals. This
systems model, which is shown in the left side of Fig. 1,
provides a hierarchical ordering of the fundamental, inter-
active elements of organizational competence. In essence,
the strategic logic of the organization for creating value is
enacted through management processes for deploying and
coordinating intangible and tangible assets in the organiza-
tion’s operations for bringing product offers to markets. This
‘‘open system’’ model of an organization further identifies
critical flows of decisions, policies, procedures and budgets
emanating from an organization’s management processes,
flows of resources between its own ‘‘firm-specific’’ resour-
ces and ‘‘firm-addressable’’ resources outside the firm, and
feedback flows of data and revenues from product markets
and from the organization’s monitoring of its assets and
operations. Thus, this systems view of an organization also
incorporates some essential interactions between an organ-
ization’s assets (including capabilities and skills), its man-
agement processes and its strategic logic for using assets in
pursuit of its goals.
 520
R. Sanchez / Journal of Business Research 57 (2004) 518–532
Fig. 1. Five modes of competence in competence-based management.
 R. Sanchez / Journal of Business Research 57 (2004) 518–532
Drawing on this hierarchical ordering of the systemic,
interactive elements of an organization, Sanchez et al.
(1996, p. 8) propose a working definition of competence.
Competence is the ability to sustain the coordinated
deployment of assets in ways that help a firm achieve
its goals.
Though simple, this definition embodies essential aspects
of the ‘‘four cornerstones’’ of competence theory, which
aspires to recognize and capture the dynamic, systemic,
cognitive and holistic nature of organizational competences.
Each of these four aspects of the nature of the competent
organization deserves further comment.
First, competence must include the ability to respond
to the dynamic nature of an organization’s external
environment and of its own internal processes. The
requirement of sustainability in the above definition of
competence encompasses both forms of dynamics. To be
sustainable, a competence must respond to the dynamics
of the external environment by enabling an organization
to maintain its ability to create value in the marketplace
even as changes take place in market preferences and
available technologies.
Sustainability also requires overcoming internal organ-
izational dynamics that result in various forms of organ-
izational entropy,1 such as a gradual loss of organizational
focus, a narrowing and increasing rigidity in the patterns
of activity the organization can or does perform, a
progressive lowering of organizational expectations for
performance and success, and the like. The notion of
organizational entropy reflects the concept of entropy in
the laws of thermodynamics. The essential feature of the
law of entropy is that systems naturally tend to devolve to
lower states of energy, which takes the form of a loss of
structure and information content. Ongoing inputs of
energy (negentropy) are required simply to maintain a
system in its current state of structure and information.
Further inputs of energy are then required to increase the
structure and information content of a system. Analo-
gously, in organizations as systems, managers must pro-
vide continuous inputs of energy and attention to maintain
or improve the order and structure in an organization’s
value-creation processes.
Second, competence must include an ability to manage the
systemic nature of organizations and of their interactions with
other organizations. The requirement of coordination of
assets addresses this dimension of competence. In the first
instance, competence requires an ability to coordinate an
organization’s own firm-specific assets—i.e., the assets
within the boundaries of the firm and thus under its direct
control—in processes of creating value through product
creation and realization. In addition, competence involves
accessing and coordinating important firm-addressable
assets that lie beyond the boundaries of the firm. Providers
of key firm-addressable assets include materials and compo-
nents suppliers, distributors, consultants, financial institu-
tions and customers.
521
Third, competence must include an ability to manage
the cognitive processes of an organization. The require-
ment of deployment of assets—directing organizational
assets to specific value-creating activities—addresses this
dimension of competence. A firm’s managers are ulti-
mately responsible for deciding the ways in which a firm
will try to create value in its targeted product markets.
Thus, achieving organizational competence poses a two-
fold cognitive challenge to managers. Managers must be
able to ascertain and assure that a firm’s operations meet
at least the minimum efficiency requirements needed to
carry out the strategies of the firm, but they must also be
able to define and select strategies that have the potential
to create value in targeted markets when they are carried
out efficiently. In other words, managers are responsible
for both efficient and effective use of an organization’s
assets.
Fourth, competence must include the ability to manage
the holistic nature of an organization as an open system. The
requirement of goal achievement addresses the multiplicity
of individual and institutional interests that intermingle in
and are served through any organization. To lead an organ-
ization in achieving goals requires that managers be able to
define organizational goals that promise a satisfactory level
of goal achievement for all individual and institutional
providers of the essential resources the organization needs.
Thus, the definition of organizational competence recog-
nizes the existence of multiple stakeholders and the import-
ance of meeting the expectations of all providers of essential
resources in sustaining the value-creating processes of an
organization.
We next consider some important theoretical antece-
dents in the development of competence perspective, as
well as the ways in which the concept of competence is
now being extended to improve the ability of researchers
and managers to identify specific aspects of organizational
competences.
4. Research into organizational competences
By setting a systemic, dynamic, cognitive and holistic
framework for building management theory, the competence
perspective has integrated and extended some key ideas
developed over the last several decades under various
banners—including resource base, dynamic capabilities
and core competences perspectives. We next briefly sum-
marize here these important antecedents and suggest how
each has contributed to the development of contemporary
competence theory. (For a more complete discussion of the
evolution of ideas relevant to contemporary competence
theory, see Sanchez, 2001.) We then consider more recent
research that has extended the competence perspective by
identifying a number of criteria that are useful in distin-
guishing and classifying important aspects of organizational
competences.
522 R. Sanchez / Journal of Business Research 57 (2004) 518–532
4.1. Resources, dynamic capabilities and core competences
Economist Penrose (1959) characterized a firm as a
collection of productive resources and developed a theory
of the growth of firms in which the availability of slack
physical and human resources within a firm stimulates a
search by managers for opportunities to expand a firm’s
activities. Building on this focus on resource endowments
of organizations, Wernerfelt (1984) argued that resources
‘‘are tied semipermanently to the firm’’ and further that firms
will usually face resource position barriers when they
acquire a new resource because they will face higher costs
compared to firms that were first movers in creating and using
a given resource. Barney (1986, 1991) further proposed that a
firm’s resources can be sources of sustained competitive
advantage when resources that are imperfectly mobile and
inimitable enable a firm to implement strategies that improve
efficiency and effectiveness. Dierickx and Cool (1989) sub-
sequently added an important dynamic dimension to the
discussion of resources by investigating ways in which the
‘‘rent-earning potential’’ of a firm’s resources depend on the
properties of a firm’s asset stocks and flows. Dierickx and
Cool argued that four properties affecting the accumulation of
asset stocks—time-compression diseconomies, asset mass
efficiencies, asset stock interconnectedness and casal ambi-
guity—prevent other firms from imitating a firm’s endow-
ment of strategic resources:
Paralleling the work on resources in the 1980s was
growing interest in firms’ abilities to use current resources,
to create new resources and to devise new ways of using
current or new resources. Nelson and Winter (1982) proposed
that a firm’s skills are embedded in organizational routines,
which are the repetitive activities a firm develops in its use of
specific resources. Teece et al. (1990, 1997) proposed a
notion of dynamic capabilities as a firm’s ability to ‘‘integ-
rate, build and reconfigure’’ internal and external routines in
the use of firm-specific resources. They argued that a firm’s
organizational and managerial processes combined with its
current resource positions create path dependencies that
constrain a firm’s ability to develop new kinds of routines
and resources. Amit and Schoemaker (1993) further argued
that the resources (or ‘‘strategic industry factors’’) that can be
sources of competitive advantage ‘‘cannot be predicted with
certainty ex ante,’’ leading to uncertainty, complexity and
social conflict in managerial processes for changing a firm’s
set of strategic assets and introducing important cognitive and
social dimensions to resource accumulation processes.
In the early 1990s, a broad research initiative into organ-
izational competences was stimulated by a series of articles
on core competences by Hamel (1989, 1991, 1994) and
Prahalad and Hamel (1990, 1993). In summarizing the ideas
put forward by Hamel and Prahalad, Rumelt (1994) proposed
that ‘‘core competences’’ are distinguished by ‘‘spanning’’
across products or businesses, by changing more slowly than
the products they make possible, by embodying the ‘‘collect-
ive learning’’ of the firm, and by embracing competition to
acquire the best skills and capabilities. Hamel and Heene
(1994) then identified several goals for a more integrative
theory of strategic management that would be founded on
new notions of organizational competence and that would
illuminate the characteristics of a firm’s ‘‘strategic architec-
ture’’ and the ‘‘concepts, tools, techniques and models’’ a
firm uses in combining resources and capabilities to build and
leverage organizational competences. Sanchez et al. (1996)
subsequently proposed concepts, definitions and vocabulary
for describing competences and competence-based compet-
itive phenomena. They then argued (1996, p. 9) that ‘‘the
capabilities and competences of firms as organizations arise
from a ‘macrolevel’ organizational knowledge about how to
coordinate and deploy assets and capabilities.’’
4.2. Recent research in the competence perspective
More recent research by both competence theorists and
practitioners has proposed a number of criteria for classify-
ing and distinguishing key aspects of organizational com-
petences. We next consider how these criteria help to deepen
our understanding and improve our ability to identify
organizational competences.
4.2.1. The level within the organization at which com-
petences exist
Different forms of competence arise from different levels
of activity within an organization. Some organizational
competences seem to arise largely from the capabilities of a
firm to create and produce specific kinds of products. Other
competences seem to derive primarily from the abilities of
some firms to organize and coordinate assets in innovative
and effective ways. Yet other competences seem to depend
mostly on top management’s ability to imagine new strategies
for creating value in markets (Chiesa and Manzini, 1997).
4.2.2. The time horizon over which a competence is likely to
apply
Competences differ in the time required to create a
competence, as well as in the time a competence may
endure as a basis for competitive success. Some kinds of
competences are likely to endure longer than others, to
require modification less frequently than others or to com-
mit a firm’s capabilities to actions with longer planning
horizons than others (Mosakowski and McKelvey, 1997).
4.2.3. The knowledge base on which a competence depends
Competences may be derived from different kinds of
knowledge within an organization. Some competences
appear to depend on know-how—practical, hands-on forms
of knowledge gained through incremental improvements to
products and processes. Other competences depend on
know-why—theoretical forms of understanding that enable
 R. Sanchez / Journal of Business Research 57 (2004) 518–532
the creation of new kinds of products and processes. Other
forms of competence seem to come from a firm’s know-
what—a strategic form of understanding about the value-
creating purposes to which available know-how and know-
why forms of knowledge may be applied (Sanchez, 1996,
1997a).
4.2.4. The simplicity versus the complexity of the processes
underlying the competence
Some firms have competences that seem to arise from
managing a complex web of interrelationships and coordi-
nating a large number of interdependent processes, while
other firms appear to have created competences by simpli-
fying their processes and focusing on a small number of key
value-adding activities (Baden-Fuller and Volberda, 1997).
4.2.5. The scope of applicability of the competence
Some aspects of an organization’s competence appear to
consist of assets and capabilities that apply broadly to an
industry context. Other aspects of competence seem to apply
more narrowly to an organization’s specific product market.
Other aspects of competence appear to be unique means of
differentiating a firm’s product offers within its targeted
market segments (Rispoli, 1996).
4.2.6. The locus of the key assets used
Some organizations’ competences appear to be derived in
large measure from use of their own firm-specific assets,
while the competences of other organizations seem to be
derived largely from their ability to access and coordinate
firm-addressable assets beyond their own organizational
boundaries (Durand, 1997; Stein, 1997).
4.2.7. The nature of the ‘‘fit’’ between a competence and the
demands of the firm’s competitive environment
Competences often appear to be contingent—i.e., to be
capable of creating value in certain kinds of competitive
contexts, but not necessarily in others (Winterscheid and
McNabb, 1996; Volberda, 1996).
4.2.8. The impact of competence on dynamic versus static
efficiency
Some competences seem to arise from the static effi-
ciency of a firm—its ability to use current assets in cost-
effective ways. Other competences appear to derive largely
from a firm’s dynamic efficiency—its ability to incur low
costs when changing the assets it uses or when changing the
uses to which its assets are applied. Moreover, some com-
petences seem to depend on an organization’s specific
combinations of static and dynamic efficiencies (Black
and Boal, 1997).
523
5. Five modes of competence
We now develop a taxonomical approach to identifying
competences that is derived from the open systems view of
firms shown in the left side of Fig. 1. This approach
incorporates various criteria suggested above for distinguish-
ing different aspects of organizational competence. As
shown in the central portion of Fig. 1, this taxonomical
approach leads to the identification of five modes of com-
petences, each of which arises from a specific level of
activity with an organization as an open system. The term
mode of competence is used in this discussion to refer to an
important way in which the competence of an organization is
expressed through specific kinds of activities and processes.
Further, as the discussion below explains, each compet-
ence mode results from a distinctive kind of organizational
flexibility to respond to changing and diverse environmental
conditions, such as evolving market demands, technological
change and competitive developments in an industry. Each
kind of flexibility can in turn be described by the kind of
portfolio of strategic options that each flexibility brings to
an organization (Sanchez, 1993, 1995), as summarized in
the right side of Fig. 1. (The emphasis here on creating
organizational flexibility and strategic options should be
seen not as a contradiction of the traditional strategy
emphasis on commitment, e.g., Ghemawat (1991), but
rather as a needed conceptual complement. In the first
instance, creating capabilities gives a firm certain flexibility
to pursue one or more strategic options for action. Sub-
sequently, as events unfold, a firm’s managers will choose to
‘‘exercise’’ one or more of the firm’s available strategic
options by committing to the specific courses of action
associated with each option they exercise. In effect, com-
petence building creates a firm’s strategic options for action,
while competence leveraging involves committing to certain
options for action, while deferring or abandoning others.)
5.1. Competence mode I: cognitive flexibility to imagine
alternative strategic logics
Competence mode I derives from the cognitive flexibility
of an organization to conceive of alternative ways of
creating value in markets. The source of this mode of
competence is, in essence, the collective corporate ima-
gination of an organization’s managers in perceiving feas-
ible market opportunities for the organization to create
value. Competence mode I depends on an organization’s
managers’ ability to perceive market needs and identify
specific market preferences the organization might serve, to
determine the characteristics of products and services that
can satisfy those needs and preferences, to design supply
chains and select appropriate distribution channels for
realizing new products, and ultimately to define product
offers that will be perceived by markets as having attractive
net delivered customer value. (Net delivered customer value
is the net of the perceived value provided by the product,
524 R. Sanchez / Journal of Business Research 57 (2004) 518–532
service, image and personal interaction components of a
product offer, less the perceived financial, time, energy and
psychic costs associated with the product offer.)
To determine which of the product offers it can imagine
are also feasible for the organization to develop requires an
ability to identify the essential capabilities required to create
and realize each imagined product offer. In the terminology
of the competence perspective, competence mode I is the
ability of an organization to define alternative strategic
logics for using resources in processes for creating value
in markets and thereby achieving the organization’s goals
(cf. Schoemaker, 1992; Mahoney and Sanchez, 1997).
Although ideas for new kinds of product offers may
originate from many sources within an organization, com-
petence mode I resides primarily with the strategic managers
of an organization, because strategic managers must normally
launch or at least support longer-term strategic initiatives like
creating new kinds of product offers. In this regard, strategic
managers may act as visionary leaders that broaden the
horizons of the organization by launching new market ini-
tiatives, or they may act as ‘‘bottlenecks’’ that constrain the
growth of the organization by withholding support for new
products or new marketing approaches proposed within the
organization or suggested by potential strategic partners.
Most managements, of course, lie somewhere between the
two extremes, and the position that top managers occupy on
the continuum between visionary leadership and risk-averse
naysaying determines the extent to which competence mode I
is realized in their organization.
Competence mode I is fundamentally based on know-what
forms of knowledge—an understanding by top managers of
the feasible strategic uses to which know-why and know-how
forms of knowledge available to the firm can be applied
(Sanchez 1996, 1997a). In this regard, the know-what know-
ledge base of strategic managers must enable them to recog-
nize the essential forms of know-why and know-how
knowledge required to compete successfully in an industry,
in a product market within the industry and in any niche
markets for differentiated products a firm may enter. The
know-what knowledge of managers must also enable them to
recognize the contextual limits of a strategic logic for using
know-how and know-why knowledge—i.e., the character-
istics of competitive environments in which a given strategic
logic for value creation will or will not be effective.
The processes through which strategic managers define
and select strategic logics can vary widely across firms. In
some organizations, decisions to develop new kinds of
product offers may be a ‘‘top-down’’ process largely ini-
tiated by top management. In other organizations, top
management may encourage a ‘‘bottom-up’’ approach that
invites the broad participation of all employees, or they may
use a ‘‘middle-top-down’’ approach in which middle man-
agers are the primary originators and champions of new
strategic logics for value creation.
Firms also differ in the complexity or simplicity of the
processes by which they define and select strategic logics for
value creation. Some companies, for example, conduct
extensive marketing research and detailed analyses in an
effort to discover unserved market needs and evolving market
preferences that suggest possibilities for new kinds of product
offers. Other companies may rely more on the ‘‘informed
inspiration’’ of key managers and other employees to define
new product concepts and market opportunities. In identify-
ing new market initiatives, for example, Sony has often
drawn on new product ideas generated internally by its own
product designers and development managers.
Managers’ attitudes towards the risks of testing new
product concepts, the know-what knowledge base that
shapes their assessments of possibilities for value creation,
and the marketing processes they follow in identifying and
selecting new product offers all determine the cognitive
flexibility of an organization to define alternative strategic
logics. Competence mode I thus depends importantly on the
cognitive flexibility of an organization’s top managers that
enables them to define a portfolio of strategic options
consisting of perceived market opportunities to create value
that the organization may feasibly pursue.
5.2. Competence mode II: cognitive flexibility to imagine
alternative management processes
Competence mode II results from a second form of
cognitive flexibility of managers to conceive of alternative
management processes for implementing strategic logics
identified by competence mode I. The managerial abilities
underlying competence mode II include the ability to identify
the kinds of resources (assets, knowledge and capabilities)
required to carry out a given strategic logic, to create effective
organization designs (allocations of tasks, decision making
and information flows) for the processes that will use the
required resources and to define appropriate controls and
incentives for monitoring and motivating the value-creating
processes envisioned by a given strategic logic.
Like ideas for new product offers, ideas about how to
manage the various activities undertaken by an organization
may originate from many sources within or external to an
organization. Nevertheless, competence mode II derives
primarily from the top managers of an organization, who
normally have ultimate responsibility for designing and
instituting an organization’s management processes. In this
capacity as in competence mode I, top managers may act as
innovative leaders willing to experiment with new govern-
ance processes, or as reactionary guardians of existing
management structures and prerogatives. Again, the behav-
ior of most managers is likely to lie somewhere between
these two extremes, and the position that a top management
team occupies on the continuum between leadership in
organizational innovation and reactionary organizational
rigidity will determine the way in which and the extent to
which competence mode II is realized in an organization.
Competence mode II depends largely on managers’
know-why understanding of both the resources that must
 R. Sanchez / Journal of Business Research 57 (2004) 518–532
be deployed to effectively implement a strategic logic and
the behaviors of people who will responsible for carrying
out the functions of the organization. To identify the kinds
of resources needed to support a strategic logic, managers
must understand clearly why implementing a given strategic
logic would create value for targeted customers—and from
this understanding to determine what contribution each
resource must make to each of the organization’s value-
creating processes. Insights into why people behave as they
do in organizations are essential in imagining alternative
organization designs that can be more effective in assuring
that people will be motivated and committed to carrying out
a given strategic logic. Managers’ know-why knowledge
must also enable them to recognize the contextual limits of a
given management process—i.e., the environmental and
organizational conditions in which a given management
process will or will not effectively support a given strategic
logic for value creation.
In developing competence mode II, managers must be able
to ascertain the relative abilities of different management
processes to achieve dynamic versus static efficiencies in
value-creation processes. Dynamic efficiency is achieved
when organizational processes can be redirected efficiently
from one value-creating activity to another as the competitive
environment of the firm changes. Static efficiency results
from minimizing costs in utilizing resources in a given value-
creating activity carried out in a stable environmental context.
To contribute to competence mode II, managers must be able
to assess the dimensions and degree of change versus stability
in their organization’s environment and to adopt management
processes with appropriately aligned forms and levels of
dynamic versus static efficiencies in the value creating
processes the organization undertakes.
The management processes that strategic managers can
imagine and are willing to adopt may vary widely in their
organizational complexity or simplicity. Some managers
prefer to control organizational processes through highly
articulated authority hierarchies, while other managers pre-
fer to devolve substantial decision-making and resource-
allocating power to organizational units that are largely
self-managing. A preference for control through authority
hierarchies typically results in complex multilayered man-
agement processes, while the creation of self-managing
organizational units may lead to much simpler management
processes carried out through relatively flat organizational
structures. Recent research suggests that simpler manage-
ment processes and organizational structures based on self-
managing work groups may be more capable of responding
successfully to a broader scope and greater intensity of
environmental change than control-oriented management
processes operating through complex authority hierarchies.2
(The potential for system designs of organizations based on
self-managing work groups to reduce the complexity of
management processes is discussed in Sanchez, 1997b.)
Strategic managers’ attitudes towards trying new gov-
ernance models, their know-why understanding of the
525
functional requirements of organizations and the behaviors
of people within organizations, their understanding of the
dynamic versus static efficiencies of various kinds of
management processes, and their preferences for complex
versus simple management processes collectively determine
the cognitive flexibility of an organization to define altern-
ative management processes for carrying out its strategic
logic. An organization’s competence mode II therefore
determines the organization’s portfolio of strategic options
to define and adopt alternative approaches to managing its
value creation processes.
5.3. Competence mode III: coordination flexibility to
identify, configure and deploy resources
Competence modes III, IV and V relate to three abilities
of an organization to enact strategic logics identified
through its competence mode I and management processes
defined by its competence mode II. The boundaries within
which competence modes III, IV and V can develop and
operate in an organization are therefore determined by the
limits of the cognitive flexibilities of its top managers in
competence modes I and II.
Competence mode III drives from the coordination
flexibility of an organization to assemble chains of tangible
and intangible resources needed to carry out the organiza-
tion’s strategic logics for creating value through its product
offers (Sanchez, 1995). Coordination flexibility depends on
the ability of a firm’s managers—in this case, usually the
midlevel managers of larger firms, but also top managers of
smaller firms—to acquire or access, configure and deploy
chains of resources for leveraging product offers capable of
creating value in the markets targeted by the firm.
To acquire or access the resources needed to compose a
resource chain for realizing a given product offer, managers
must first be able to ‘‘translate’’ the eight dimensions of the
product offer that determine its net delivered customer value
(see Section 5.1) into specific product creation and realiza-
tion processes and the specific resources required to enact
those processes. Managers must then be able to define
incentives (i.e., ways of distributing the value created by
the organization) that are capable of attracting the cooper-
ation of the best available providers of such resources.
These resources may include both firm-specific resources
that are acquired and become internalized by a firm and
firm-addressable resources that the firm can access but that
remain external to the firm.
To configure a chain of resources for leveraging a
product offer, managers must be able to define activities
that will be effective in using the identified resources and to
design the specific ways those activities will interact in
processes for creating and realizing the product offer. To
deploy a resource chain, managers must be able to focus the
activities of a resource chain on a defined market oppor-
tunity within the firm’s portfolio of perceived market
opportunities (identified through competence mode I). Man-
526 R. Sanchez / Journal of Business Research 57 (2004) 518–532
agers must also be able to coordinate the activities of the
resource chain through an appropriate management process
that is within the portfolio of management processes accept-
able to the strategic managers of the organization (deter-
mined by competence mode II).
The kind and degree of coordination flexibility an
organization needs and the specific form that the flexibility
should take will of course depend on the competitive
environment the organization faces. In an environment in
which market preferences are evolving rapidly, the flexibil-
ity to redeploy an existing resource chain from one product
offer to a new or modified product offer will be of
paramount importance in sustaining value creation. In
environments in which market preferences are more or less
stable but technologies are changing, the flexibility to define
and assemble new resource chains based on newly available
technological resources or to integrate new technologies into
existing resource chains will be critical. In environments
with stable market preferences and technologies, the flex-
ibility to continuously lower costs, to improve product
quality by improving the skills and capabilities of existing
resources, and to ‘‘fine tune’’ the interactions of resources
within an existing resource chain is likely to be the key to
sustaining value creation. In efficiency terms, the coordina-
tion flexibility to redeploy or reconfigure resource chains
increases the dynamic efficiency of a firm, while the flex-
ibility to incrementally improve existing resources and
processes enhances the static efficiency of the firm.
The coordination flexibility of an organization results in
a portfolio of strategic options to assemble alternative
resource chains for creating and realizing product offers.
Each of the strategic options generated by an organization’s
coordination flexibility can be characterized by the range of
product offers that can be created and realized by the
resource chains an organization can assemble, by the time
that it takes an organization to assemble an effective new
resource chain and by the costs the organization incurs to
assemble a new resource chain (Sanchez, 1995). Firms
differ greatly, of course, in their coordination flexibilities.
Firms that prefer to use only internalized resources to create
and realize products, for example, are likely to have a
narrower range of feasible product offers that they can bring
to market, may take longer to assemble resource chains and
may incur higher fixed costs (and thus risks) to assemble
resource chains than firms that are willing and able to draw
on firm-addressable resources accessible through market
transactions, strategic alliances and other interfirm interac-
tions (Sanchez, 1993; Sanchez and Mahoney, 1996).
5.4. Competence mode IV: resource flexibility to be used in
alternative operations
While competence mode III derives from the ability of an
organization to assemble resource chains in support of
product offers, competence mode IV derives from the ability
of the resources in an organization’s resource chains to be
used in alternative ways. In essence, within the resource
chains available to an organization, the intrinsic resource
flexibility of the resources composing those chains will
constrain the different ways in which the organization’s
available resource chains can be used (Sanchez, 1995).
Competence mode IV is therefore determined by the
intrinsic flexibilities of the firm-specific and firm-address-
able resources in an organization’s resource chains to be
used in different ways in the various operations the firm
may undertake. The flexibility of a resource can be
described by the range of uses that the resources can be
applied to, by the time that it takes an organization to change
the use of a resource and by the costs the organization incurs
to change the use of a resource.
The degree of competence mode IV that a firm can
develop directly depends on the flexibilities of the resources
that the firm can acquire or access in configuring its
resource chains. In selecting production resources, for
example, until recent years managers were often presented
with rather stark choices between highly inflexible produc-
tion machines that achieved high volumes and low unit
costs in performing a single operation, on the one hand, or
flexible ‘‘general purpose’’ machines with lower output
rates and higher unit costs in performing a range of possible
operations, on the other. Thanks to the incorporation of
information technology in a growing array of ‘‘intelligent’’
programmable production resources, however, firms now
face an increasingly attractive set of production equipment
choices that often include machines that are fast, highly cost
efficient and capable of performing a range of operations. In
many production activities in which flexible automation has
not yet become an affordable reality, the use of less cost
efficient but more flexible human resources still offers a
viable alternative to more cost efficient but inflexible
specialized production systems.
The various resources a firm may select for marketing,
distributing and servicing its products will also have differ-
ent intrinsic flexibilities to handle different ranges and
mixes of product offers. Traditional retail channels, for
example, generally have limited flexibility to handle a
rapidly changing mix of new products. Recognizing this
limited flexibility, firms like Nike and Sony have opened
company-owned shops in which they can test market a
changing array of new product ideas and variations and
undertake detailed observations of consumer reactions to
new product ideas—a process of ‘‘real-time market
research’’ (Sanchez and Sudharshan, 1993). Similarly,
mail-order and internet-based marketing channels may have
the flexibility to offer a large assortment of products with
which consumers are already familiar, but they may not be
as effective as conventional retail stores in introducing new
kinds of products that require significant consumer edu-
cation before purchase decisions can be made.
Resources also differ in their flexibilities to be incremen-
tally improved as an organization ‘‘learns by doing.’’
Machines differ, for example, in their flexibilities to be
 R. Sanchez / Journal of Business Research 57 (2004) 518–532
adjusted or modified for alternative uses (dynamic effi-
ciency) or to increase output rates or improve conformance
to quality standards (static efficiency). Machines equipped
with electronic controls increasingly offer a number of key
resource flexibilities, like upgradeability of performance
levels (for example, by substituting a faster microprocessor
in a personal computer), scalability to increase capacity
(adding more memory to a personal computer) and extend-
ibility to add new functionalities (adding a fax card to the
personal computer). Software has the potential to be a
highly flexible resource when it can be adapted in a variety
of ways to a number of operations. (Object-oriented soft-
ware programs, for example, are designed in an explicitly
modular way to improve the configurability and custom-
izability of the programs in different applications.) Human
resources remain a resource of almost inexhaustible task
flexibility, although the flexibilities of human resources (like
any other resources) may be underutilized when those
resources are deployed within unchanging strategic logics
and rigid management processes.
The intrinsic flexibilities of the resources an organization
acquires or accesses therefore creates a portfolio of strategic
options to use those resources in alternative processes for
creating and realizing the organization’s product offers.
5.5. Competence mode V: operating flexibility in applying
skills and capabilities to available resources
While competence mode IV derives from the intrinsic
flexibilities of the resources in a resource chain to be used in
alternative processes, competence mode V derives from the
ability of an organization to use the flexibilities of its firm-
specific and firm-addressable resources effectively and
efficiently over a range of operating conditions. This oper-
ating flexibility depends fundamentally on the skills and
capabilities an organization can apply at the working level in
using its available resources. Competence mode V is there-
fore expressed by the operating flexibilities that result from
the collective capabilities of a firm’s human resources—in
this case, primarily its front-line managers and employees—
to sustain efficient use of available resources when facing a
range of variations in inputs, in required outputs and in the
environmental conditions affecting the operations of the
firm. In effect, competence mode V determines the robust-
ness of a firm’s operations over a range of operating
conditions (cf. Leonard-Barton et al., 1994).
Control and adaptability are two polar approaches a firm
may undertake to achieve operating flexibility. The control
approach seeks to insulate the most critical operations of the
firm from variations in inputs, outputs or environmental
conditions by ‘‘containing’’ and managing the impacts of
those variations in upstream or downstream operations.
Rather than trying to adjust its main production line to
variations in input materials, for example, a firm may create
an upstream material inspection and reprocessing operation
to assure a supply of standard inputs to the main production
527
line. Similarly, products may be designed so that product
variations destined for different market segments may be
created at a ‘‘late point’’ in downstream assembly or
distribution operations, so that upstream production of ‘‘core
components’’ used in all or many product variations remains
constant (Sanchez, 1995, 1996, 1999). Alternatively, a firm
may base the design of its main production process on
machines and processes that are broadly adaptable to
variations in inputs, outputs and environmental conditions.
Although the process design decisions to use control or
adaptability approaches to managing variability result from
exercise of competence modes III and IV, the flexibility of
an organization to operate effectively within a given process
design—i.e., to manage the impacts of variability as they
occur—derives from competence mode V and determines its
operating flexibility at the working level of the organization.
The operating flexibilities of an organization in using its
available resources determine the reliability and efficiency
with which a firm can sustain production and delivery of its
product offers to its targeted markets. Since the competitive
success of a product offer will depend on achieving accept-
able levels of reliability and efficiency in realizing the
product offer, the operating flexibility of an organization
is an important final step in the chain of competence modes
required to conceive, create and realize successful product
offers. Thus, the operating flexibility of an organization
determines its portfolio of operationally feasible ways the
organization can bring its product offers to targeted markets.
6. Managing the interrelationships of the five
competence modes
Understanding the five modes of competence discussed
above is essential to identifying the various kinds and
sources of organizational competences and to effectively
managing their interrelationships. As Chiesa and Manzini
(1997, p. 198) have noted, ‘‘the identification of different
levels of competence is central in clarifying the link between
the competence view of the firm and strategic decisions,
operational management [and] end products and services.’’
In this section, we consider the nature of the interrelation-
ships between the five competence modes. We propose
some requirements for managing those interrelationships
in different competitive contexts to create ‘‘synergistic
dynamics’’ by achieving coherence among the ‘‘dynamic
complementarities between activities’’ that compose the
competence modes of the firm (Christensen and Foss
1997, p. 289). As suggested in Fig. 1, the five competence
modes parallel the five levels of system elements in the
model of the firm as an open system proposed by Sanchez
and Heene (1996), with competence mode I determining the
strategic logics a firm may adopt, competence mode II
determining the management processes it can adopt and so
on. We therefore consider some key ‘‘vertical’’ interdepend-
encies among the competence modes, the dynamic prop-
528 R. Sanchez / Journal of Business Research 57 (2004) 518–532
erties of these interdependencies and the causal ambiguities
that may affect each kind of competence mode. Finally, we
consider how the relative importance of the five competence
modes and their interactions may vary across stable, evol-
ving and dynamic competitive environments.
6.1. Interdependencies of competence modes
To summarize, we have characterized competence mode
I as establishing boundaries on the kinds of strategic logics
for creating value (and thus the kinds of product offers) an
organization’s managers can imagine, competence mode II
as determining the kinds of management processes an
organization’s managers are willing and able to use in
implementing strategic logics, competence mode II as
determining the chains of resources the firm can assemble,
competence mode IV as representing the flexibilities of the
resources the organization selects for its resource chains,
and competence mode V as determining the ability of the
firm to use the flexibilities of its resources effectively in its
operations. Because the capacity of an organization to
successfully create value by defining and implementing a
strategic logic depends on having adequate strength in each
of these complementary competence modes, each compet-
ence mode can act as a potential ‘‘bottleneck’’ that limits the
overall competence of the organization.
The ‘‘competence profiles’’ shown in Fig. 2(a) and (b)
illustrate this multiple bottleneck effect. Potential product
offers can only be created and realized when they can be
supported by adequate flexibilities in all five competence
modes. Fig. 2(a) shows the competence profile of an organ-
ization with high cognitive flexibility of top managers to
imagine many kinds of new product offers and many ways of
managing value creation processes, with moderate flexibility
of middle managers to assemble chains of moderately flexible
resources, but with limited operating flexibility to use avail-
able resources effectively in the organization’s operations.
Although this firm may be able to imagine many new product
offers, its limited operating flexibility will constrain the kinds
of product offers it can successfully bring to market. In effect,
the operating inflexibility of the working level of the organ-
ization in competence mode V acts as a ‘‘bottleneck’’ that
limits the organization’s ability to benefit from its upstream
competences.
Fig. 2(b), on the other hand, shows the competence
profile of a firm with substantial operating flexibility,
moderate flexibility to assemble resource chains, but limited
cognitive flexibility of strategic managers to support new
kinds of product offers or to try new management processes
for bringing product offers to market. An organization with
this competence profile may be successful in extracting
profits from a limited range of product offers, but it will
often fail to perceive opportunities to create new product
offers that it is actually capable of creating and marketing, or
to adopt new management process that would improve the
effectiveness or efficiency of its value-creating activities. In
this instance, the cognitive inflexibility of top managers in
competence modes I and II act as a bottleneck that con-
strains the firm’s overall potential for creating value.
From an adaptive systems perspective, in the long run
one may expect the five competence modes of an organiza-
tion to ‘‘equilibrate’’—i.e., to come into relative balance in
their respective flexibilities—since any competence mode
whose flexibility is not actually used is likely to diminish
over time to a level that is consistent with the least
flexible—i.e., the bottleneck—competence mode of the
firm. Thus, a fundamental task of competence-based man-
agement is (i) determining the competence mode or modes
that are likely to be the bottlenecks in an organization’s
current ability to respond to its competitive environment and
(ii) assuring creation of an adequate level of flexibility in
each competence mode to prevent any mode from becoming
a bottleneck in the firm’s value creating processes.
6.2. Dynamic interactions among competence types
Sanchez and Heene (1996) have proposed that the
hierarchy of system elements in the firm as an open system
(shown in the left side of Fig. 1) is subject to increasing
dynamic response times as one moves upward in the
hierarchy. In effect, this means that firms can more readily
change their current product mix (within the limits of their
operating flexibilities) than they can their operations, can
more readily change the uses of their operations (within the
limits of the flexibilities of the firm’s resources and resource
chains) than they can acquire and configure new resources
and so on to the highest level of system elements (strategic
logics and management processes). In effect, Sanchez and
Heene (1996) propose that firms can more readily change
the things they use (resource chains) than the ideas they use
(concepts for product offers and for management processes
in using resource chains).
An analogous argument can be made here with respect to
the competence modes associated with each of the system
elements in the model of the firm as an open system: As one
moves ‘‘upwards’’ from competence mode V to competence
mode I in Fig. 1, it generally takes longer for an organization
to change its ‘‘higher-level’’ competence modes and their
derived flexibilities. Given the interdependency of compet-
ence modes discussed above, the increasing dynamic
response times required to change higher level competence
modes have an important consequence for competence-based
management.
Because each of an organization’s competence modes
will tend to equilibrate with the least flexible competence
mode of the organization, making long-term changes in
lower-level competence modes will generally require mak-
ing complementary changes in higher-level competence
modes. Because higher-level competence modes take longer
to change, however, the rate of change achievable in an
organization’s lower level competence modes will often be
constrained to be compatible with the maximum rate of
 R. Sanchez / Journal of Business Research 57 (2004) 518–532
Fig. 2. (a) Competence profile with ‘‘bottleneck’’ in competence mode V. (b) Competence profile with ‘‘bottleneck’’ in competences modes I and II.

529
530 R. Sanchez / Journal of Business Research 57 (2004) 518–532
change achievable in its higher-level competence modes. As
a consequence, it is an organization’s higher-level compet-
ence modes and their associated cognitive (in)flexibilities
that dynamically constrain the ability of an organization to
change its overall competence profile. In this regard, Sanchez
and Heene (1996, p. 61) have noted that both leveraging
current competences and building new competences impose
on strategic managers ‘‘the never-ending challenge of con-
tinuously learning how to better manage their own cogni-
tions’’ in the ongoing ‘‘contest among managerial
cognitions’’ that is central to competence-based competition.
6.3. Causal ambiguities associated with competence modes
Perhaps the basic reason why higher-level competence
modes take longer to change in an organization is the higher
degree of causal ambiguity encountered in higher compet-
ence modes. In essence, clear, predictable cause-and-effect
relationships become increasingly difficult to discern and
confirm as one progresses ‘‘upward’’ from competence
mode V to competence mode I. For example, it is usually
much more straightforward to determine whether current
operations are performing efficiently (and why or why not)
than to determine whether a resource chain has the most
appropriate organization design or whether the firm is
effectively pursuing its best possible set of value-creating
opportunities.
It is often observed that we tend to ‘‘manage what we can
measure.’’ Sanchez and Heene (1996) proposed that the
increasing causal ambiguity of cause-and-effect relation-
ships in higher-level system elements generally makes the
measurement and assessment of processes involving higher-
level system elements—i.e., higher-level competence
modes—problematic in most organizations. As a result,
many managers tend to focus on measuring and managing
lower-level system elements and competence modes, which
involve entities that are easier to define, measure and
interrelate causally. The tendency to manage through
lower-order control loops, however, may create cognitive
‘‘blind spots’’ (van der Vorst, 1997) with respect to the
current state of an organization’s higher-level system ele-
ments and competence modes.
As an antidote to the tendency to ‘‘micro-manage’’
through lower-order control loops, managers must institute
higher-order control loops that focus on defining and
assessing the higher-level system elements and competence
modes of a firm. Thus, in competitive environments that
demand high levels of cognitive flexibility in competence
modes I and II, managers must establish ongoing processes
for assessing the adequacy of their higher-level competence
modes in meeting the requirements of their competitive
environments. Critical and reflective processes that probe
the (often implicit) assumptions underlying current strategic
logics and management processes are essential in helping
strategic managers to better manage their own cognitive
processes.
6.4. Competitive environments and critical competence
modes
We now consider the extent to which each of the five
competence modes may play a more or less critical role in a
firm’s ability to create value in stable, evolving and dynamic
competitive environments, defined by the following charac-
teristics (Sanchez, 1996):
Stable: No significant changes in market preferences or
available technologies.
Evolving: Progressive and identifiable changes in market
preferences and available technologies.
Dynamic: Frequent and uncertain changes in market
preferences and available technologies.
As suggested in Fig. 3, the ability of a firm facing a
stable competitive environment to create value is likely to
depend greatly on its competence mode V—its operating
flexibility to maintain and incrementally improve the effi-
ciency and quality levels attainable through its existing
resource chains. Although there is always a possibility that
an organization may introduce a new product concept or a
new way of organizing that ‘‘changes the rules of the
game,’’ the focus of competence management during peri-
ods of environmental stability should normally be on
improving the competence mode V operating capabilities
of the firm. In this context, process improvement techniques
like statistical process control (SPC), quality circles and
kaizen become important means for improving competence
mode V and sustaining successful value creation.
The ability of a firm to sustain value creation in an
evolving competitive environment is likely to depend most
critically on its flexibilities derived from competence modes
III and IV. The central concern of competence-based man-
agement is likely to be (i) defining and configuring new
resource chains to provide new products to serve evolving
market preferences and (ii) incorporating new technologies
in resource chains as they become available. Of course, the
support of top management may be required to assemble
and configure the new resource chains needed to create new
products proposed by middle managers. The ability of
middle managers’ to use the flexibilities of an organization’s
Fig. 3. Critical competence modes in three competitive environment.
 R. Sanchez / Journal of Business Research 57 (2004) 518–532
competence modes III and IV may therefore require com-
plementary cognitive flexibilities by the organization’s stra-
tegic managers in competence modes I and II. The
parenthetical listing of competence modes I and II in Fig.
3 reflects this possibility.
In dynamic competitive environments, the central chal-
lenge in competence-based management is likely to be
maintaining adequate cognitive flexibilities of strategic
managers in competence modes I and II. When changes in
market preferences and available technologies are frequent
but uncertain, strategic managers must have the cognitive
flexibility to quickly recognize emerging possibilities for
defining new kinds of product offers and to imagine the new
strategic logics needed to create and realize new kinds of
product offers. Moreover, to take advantage of the brief
windows of opportunity that are characteristic of dynamic
markets, strategic managers must also be cognitively flex-
ible in imagining, experimenting with, and quickly adopting
new ways of organizing and managing processes for cre-
ating and realizing new kinds of product offers. To enact the
strategic logics and management processes that the compet-
ence modes I and II enable top managers of an organization
to imagine, however, is likely to require a systemic flexibility
of the entire organization. Thus, new complementary coor-
dination and resource flexibilities may have to be created by
middle managers acting in competence modes III and IV.
Further, assuring that an organization will ‘‘have the right
product at the right time’’ may also require significant new
operating flexibilities in competence mode V. The key
support roles of competence modes III, IV and V in dynamic
markets are therefore noted parenthetically in Fig. 3.
7. Conclusion
This discussion has sought to assist both researchers
interested in improving the clarity and precision of the
concept of organizational competence and managers inter-
ested in more effectively identifying and managing the
competences of their organizations. To contribute to
improved clarity and precision of the competence concept,
this discussion has considered various characteristics of
competences, proposed a taxonomy of five competence
modes, examined some basic interactions of competence
modes within an organization and proposed the importance
of achieving both an appropriate balance within an organ-
ization’s competence modes and a strategic ‘‘fit’’ between
the organization’s competence modes and its competitive
environment.
For managers working to identify and manage organiza-
tional competences, this discussion suggests that improving
organizational competence depends only partially on
improving the ‘‘resource-base’’ of an organization—for
example, improving the skill profiles of individuals and
the capabilities of work groups and teams. Improving
organizational competence also requires increasing manag-
531
ers’ own cognitive flexibilities to imagine new strategic
logics for creating and realizing new kinds of value-creating
product offers and new ways of managing processes for
creating and realizing new and existing product offers.
Most fundamentally, this discussion suggests that organ-
izational competence does not depend simply on achieving
excellence in one or two key success factors, but rather on
developing an interrelated and balanced set of success
factors (Bove et al., 2000) that in turn depend on achieving
proper balance and alignment among five distinct modes of
organizational competence.
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