Finance, Business & Investing Articles

Measuring Competence – By Samuel Phineas Upham

By Samuel Phineas Upham

In their paper “Measuring Competence” Rebecca Henderson and Iain Cockburn are trying to measure and compare competence and have selected the pharmaceutical R&D sector to accomplish their goal. They selected this area because they can measure a wide range of available proxies — such as patent awards and drug tests — and because pharmaceutical companies keep large and accurate records. The authors believe that other researchers have not been as accurate enough to measure, test, and compare competence in this field, and they are frustrated by this. Since they have selected an industry that should be relatively easy to measure, they have set out to conduct an extremely careful and thorough experiment. Because of this they spend a great deal of the essay on explaining their methods and research.

Henderson and Cockburn begin the essay by laying out several hypothetical developments. According to the authors, competence must be “heterogeneously distributed within an industry; it must be impossible to buy or sell in the available factor markets at less than its true marginal value; it must be difficult or costly to replicate.” (64) They also differentiate between component competence and architectural competence. Henderson and Cockburn define component competence as the problem solving skills developed by companies, and architectural competence as the ability to pool and utilize resources to create new skills. The authors attempt to discover the resultant fall-outs under each type of competence based on their understanding and literature. The authors are supposing that competence can not only be measured, but also defined as a part of one metric of success.

Although this is a fair hypothesis, I wonder if competencies can play a part in determining the type of success one achieves rather than the actual amount. In this case, each company would have the opportunity to pursue different roads and therefore produce results that do not overlap with other companies. This route would be more valuable compared to the one in which every firm pursues the same path with homogenous capabilities.

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