Business Strategy

Topics: Strategic management, Management, Core competency Pages: 9 (2518 words) Published: February 19, 2013
Threshold Competency and Resource Within the Resource Based View of the Firm| |

Word count - 1840

1.0 Introduction
The idea of the strategic capability of a firm has been deliberated by academics and theorists for years, and has culminated in the widely accepted resource based view of the firm. Within business strategies there are numerous levels of competence and resource that dictate the future strategy of the organisation. The ability for a business to understand its strategic capability, and where it sits currently is vital for the firm to implement an achievable and realistic strategic plan. This essay will look at one level of strategic capability within its competencies and resources, the ‘threshold levels’, and the current literature on the subject. Wernerfelt (2012) defines and describes resources as; “… those tangible and intangible assets which are tied semi-permanently to the firm.”, and this is how a resource will be perceived for the purpose of this paper. A competence in this paper is considered to be a “… nexus or bundle of specialised resources, that are deployed to create a privileged market position” (Lado et al 1992). In both areas the threshold level of competence or resource refers to the minimum level the organisation needs to achieve to exist in a market. Without reaching this level, the organization may face market failures (Amit, Schoemaker 1994). This essay will identify these thresholds more clearly and their implications for the firm, before examining the relationship between them in constructing a business strategy.

2.1 Difference between a core and threshold competency and resource Jubb and Robotham (1996) argue there is a need for more than one definition of a strategic competency as, having a single meaning would assume that it is absolute and measurable. Competencies cannot be easily measured due to their ever changing and personal nature. They go on to define a threshold competency simply as “the minimum performance requirements.” Similarly, Banerjee (2003) calls a threshold competency a ‘”simple competency” and is the firms “…capability to use resources.” He uses the analogy of a person’s ability to construct a simple sentence as a simple competency. A core competency, what he calls a “second-order competency”, as the ability of the person to apprehend grammar working behind and controlling the construction of sentences and dialogues. Banerjee, along with Leonard-Barton (2000), argues that the simple acquisition of resources from the supplier for transformation into a final product cannot be the basis for strategic differentiation, or competitive advantage. Figure 1. shows how Banerjee believes a simple competency (threshold) and second-order competency (core) work in the strategic chain. In Banerjee’s view, a firm cannot achieve an upward motion in the strategic chain without achieving each level before progressing up. This would mean a firm will need first reach the threshold competence, before moving up the chain to threshold competence. To reach the core competency level where competitive advantage can be achieved, a clear strategy to reach each level is needed. Figure. 1. Structure of competencies

Banerjee (2003)

Figure. 1. Structure of competencies
Banerjee (2003)

Unlike a core competency, which can be possessed but not used, a threshold competency is required for the company to even exist within the market as this is the minimum requirements of the end user. In contrast, a core resource or competence only adds value rather than being a necessity. Gemünden and Ritter (2004) discuss the idea of competence being a two way construct as it is important for the firm to not only possess the competence or resource, but also have the ability to use them efficiently and reliably. This is an important factor to consider when building a corporate strategy as only retaining the competence or resource will not allow the business to...

References: Amit, R. Schoemaker, P. 1993. Strategic Assets and Organizational Rent. Strategic Management Journal. 14 (1) 1993. Available from: [Accessed 29/11/2012]
April, K., 2002
Banerjee, P., 2003. Resource Dependence and Core Competence: Insights From Indian Software Firms. Technovation. 23 (3) 251-263. Available from: [Accessed 24 November 2012]
Black, J., Boal, K
Day, G., 1994. The Capabilities of Market-Driven Organisations. Journal of Marketing. 58 (4) 37-52. Available from: [Accessed 26 November 2012]
Freund, Y
Klein, D., 1998. The Strategic Management of Intellectual Competence. United States. Butterworth Heinman.
Leonard- Barton, D., 1992
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