COMPETENCIES, CAPABILITIES AND TIME

1. COMPETENCIES, CAPABILITIES AND TIME TOWARDS A DYNAMIC KNOWLEDGE-BASED THEORY OF VALUE DIME Network, Pisa 9 November 2010 Nick von Tunzelmann

2. Evolutionary perspective via Capabilities • Throughout this presentation I shall be taking what to my way of thinking is an evolutionary perspective on the production and distribution of knowledge • Start with statics before building up to dynamics – time is an issue I have variously discussed at the (1) short-term level of ‘real time’; (2) long-term level of secular change, based around education and learning; (3) medium-term level of leads and lags in the system – long waves, business cycles, etc. • I shall be doing so through the concepts of ‘capabilities and competencies’, often deemed to be synonymous, but I regard as quite different • Just think of the antonyms, incompetent and incapable – evidently dissimilar N

3. Capabilities in speech; competencies in (other) languages • I regard myself as incompetent at speaking Italian, but not incapable of doing so; given learning opportunities etc. and suitable attendant circumstances I could pick it up. On the other hand I am becoming incapable of speaking any language, even my native tongue (English) • “Speech and swallowing disturbances [associated with PD] • Hypophonia: soft speech. Speech quality tends to be soft, hoarse, and monotonous. Some people with Parkinson's disease claim that their tongue is "heavy" or have cluttered speech.Monotonic speech.Festinating speech: excessively rapid, soft, poorly-intelligible speech.Drooling: most likely caused by a weak, infrequent swallow and stooped posture.Dysphagia: impaired ability to swallow. Can lead to aspiration pneumonia.” (Wikipedia) Nick von Tunzelmann, SPRU, University of Sussex

4. Statics and Dynamics – weasel-words? • Building from theory of ‘dynamic capabilities’, but both can be regarded as what Fritz Machlup classified as ‘weasel-words’ • “Weasel words is an informal termfor words and phrases aimed at creating an impression that something specific and meaningful has been said, when in fact only a vague or ambiguous claim has been communicated. ” - Wikipedia • OED gives as of US origin, first ref in 1900 • Weasels = unsavoury small animals which allegedly smell bad and dig their way backwards out of their hide Nick von Tunzelmann, SPRU, University of Sussex

5. Statics and dynamics • “For more than 20 years, I have been telling my students that one of the widespread uses of ‘statics’ and ‘dynamics’ was to distinguish a writer’s own work from that of his opponents ... Typically, ‘statics’ was what those benighted opponents have been writing; ‘dynamics’ was one’s own, vastly superior theory.” (Machlup 1959) Nick von Tunzelmann, SPRU, University of Sussex

6. Summary of (static) capabilities I • All agents can be thought of as transforming inputs (of different types) into outputs • All agents deploy resource inputs with certain characteristics and depend on their competenciesand capabilities to generate utility/profitability – AK Sen’s work on consumer capabilities etc. • Capacities = competencies + capabilities • Agents as organizations exist in order to carry out these transformations using their specific capacities – the role of the firm is to transform technologies into products (etc.) – taking and recombining knowledge Nick von Tunzelmann, SPRU, University of Sussex

7. 1. Functional dimension, firm viewpoint Nick von Tunzelmann, SPRU, University of Sussex

8. 2. Resource dimension, firm viewpoint Nick von Tunzelmann, SPRU, University of Sussex

9. Summary of (static) capabilities II • Each agent acts variously as producer, consumer and supplier (actors) • Capabilities are highly heterogeneous as between agents of similar kinds (firms, consumers, etc.) – depends on theircircumstances and their abilities • A key issue for heterogeneous firms is that of amalgamating resource inflows in different ways (alignment) – the role of management vs. the role of entrepreneurship (changing the constraints) Nick von Tunzelmann, SPRU, University of Sussex

10. Technology suppliers Producers Consumers Level 1: Characteristics R&D possibilities re techniques Production possibilities re processes Consumption possibilities re products Level 2: Capabilities Supplier heterogeneity Producer heterogeneity Consumer heterogeneity Level 3: Profitabilities / Rewards Technological utility/profitability Producer profitability Consumer utility Schema for actors and capabilities Nick von Tunzelmann, SPRU, University of Sussex

11. Summary of Dynamic Capabilities • These are driven by the business ‘processes’ installed by the firm (etc.) • Dynamic capabilities are a compound of accumulating strengths (the Resource-Based View of management) and good foresight (the Strategic Management view) – a key issue is how to improve the latter – vision and leadership – transformational rather than just transactional (JM Burns) Nick von Tunzelmann, SPRU, University of Sussex

12. Schema for Interactive capabilities Nick von Tunzelmann, SPRU, University of Sussex

13. Summary of Dynamic Capabilities • These complex resource and capability systems may be thought of as determining the 'position' occupied by the producer firm (Teece et al., 1997), or the 'segment' where individual consumers are located • Schumpeterian context of ‘dynamic competition’ means the environment (landscape) may be constantly changing –‘paths’ • Formally, firms’ dynamic interactive capabilities represent the extent to which the change in their capabilities vector influences or is influenced by the change in the capabilities vectors of consumers and/or suppliers, in real time – thus an interactiveelement and atime-constrained one Nick von Tunzelmann, SPRU, University of Sussex

14. Competencies versus Capabilities • Many scholars, even those claiming to be part of the evolutionary school, do not distinguish between ‘competencies’ and ‘capabilities’ – I do, though my definitions are not generally accepted • ‘Competencies’ in my approach are learnt information (often certificated) – what one is taught, whereas ‘capabilities’ involve learning processesoriented to (varieties of) application • Here I take ‘competencies’ to be enhanced resources, ‘capabilities’ to be enhanced services (applications) • Competencies are initiated mainly outside the firm (etc.), capabilities within it • Competencies aim to be appropriate, capabilities to be appropriable • Competencies reflect ‘potential’, capabilities are ‘realised’ • Capabilities tend to be relatedly complex (i.e. in breadth) but cognitively simple (in depth), while the reverse applies to competencies • But the distinctions can blur, and the two are interlinked over time, and in these leads and lags often lie the ingredients of commercial success or failure Nick von Tunzelmann, SPRU, University of Sussex

15. Dynamic appropriation • IPRs and open innovation • Excess capacity – slack (Penrose, Brusoni et al.) • Dynamic scale and scope economies • Imperfect competition and agglomeration economies Nick von Tunzelmann, SPRU, University of Sussex

16. Supplier Producer Consumer Character-istics Basic R&D; Specialist process equipment Very demanding processing – continual process innovation; Very high costs of physical capital, human capital Miniaturization generates speed, low power and functionality; Standard products embody modularity or redundancy Capabilities Product design architectures; Process set-up Miniaturization drives cost efficiency, subject to yield – Moore’s Law Redundancy caters for different needs; Availability of partially customized products Rewards Design IPRs; Equipment monopolies Efficiency does not guarantee profitability – role of other functions Ever-widening range of applications; Gain from miniaturization despite redundancy Role of suppliers, producers and consumers in the IC industry Nick von Tunzelmann, SPRU, University of Sussex

17. Food-processing industry –changing consumer landscape 1) globalisation of tastes - rapid diffusion of hamburgers, soft drinks; 2) rising incomes and mobility - increasing consumption of ethnic and exotic foods; 3) rising female employment - spread of readymade meals and once-weekly shopping and hence storable foods; 4) increased stress - resort to ‘grazing’ and consumption of fast foods; 5) older agedistributions - rising consumption of health and functional foods; 6) growing environmental concerns about packaging and pesticides - increasing consumption of organic goods, etc. Nick von Tunzelmann, SPRU, University of Sussex

18. Food-processing industry –changing technology landscape • These changes in consumer capabilities require changes in producer capabilities for ‘dynamic capabilities’ • Rising complexity of technology inputs • Full range of new technologies - pharmaceuticals, biotechnology, advanced instrumentation, IT, smart materials • Production processes now aim at scale economies in real time Nick von Tunzelmann, SPRU, University of Sussex

19. Food-processing industry –changing technology landscape • Shift to product innovation in the industry • Role of supermarket chains (large retailers) in focusing consumer wants – safety, quality and variety • Competitive advantage comes from demand differentiation (upgrading) and leverage, dynamic advantage from harnessing new technologies and reputation Nick von Tunzelmann, SPRU, University of Sussex

20. Coupling technologies and products - ‘alignment’ • By implication, new technologies for such industries (including services) are usually generated externally, in the high-tech fields • The issue becomes not just how to maximise interactive learning (through network development) but how to orient it in the ‘right’ directions, between laboratories, firms and markets • The problem is exacerbated as one moves upstream to the creation of human capital and science – getting universities etc. to provide the ‘right’ research and teaching

21. Coupling technologies and products - ‘alignment’ • Disconnects are highly likely – the key policy concern then becomes overcoming ’network failure’ • ‘Alignment of networks’ likely to require involvement by ‘joined-up government’– entrepreneurial government capabilities to formulate and implement appropriate alignment policies Nick von Tunzelmann, SPRU, University of Sussex

22. Role of government in alignment • Need to operate through demand as well as supply factors, including macroeconomic policy • an ‘evolutionary macroeconomics’? • Need to promote interactivity of knowledge, and in ‘real time’ • regional systems of innovation rather than static clusters • Need to have policy capabilities to make connections, through ‘policy learning’ (internal and external) • Need to show ‘vision’ as a beacon to industrial entrepreneurs – but consensual • the E-M-U vision in East Asia (electronics, mobile, ubiquity) Nick von Tunzelmann, SPRU, University of Sussex

23. Revolutions in technology and governance – coevolution Nick von Tunzelmann, SPRU, University of Sussex

24. Towards a new knowledge-based theory of value • 1) Measurement problems • 2) Cambridge-Cambridge issues • Is it worth it? Nick von Tunzelmann, SPRU, University of Sussex