Articles on Investing, Business & Finance

Measuring Competence – By Samuel Phineas Upham

By Samuel Phineas Upham

Is it possible to accurately measure and compare competence within a firm? In the paper “Measuring Competence” Rebecca Henderson and Iain Cockburn set out to do just that by using the pharmaceutical R&D area for their primary research. This sector was selected by the authors because it has great proxies to measure and because the industry is meticulous about its record-keeping habits. The main reason they wrote this essay is because Henderson and Cockburn were unsatisfied by the way others have measured, tested, and compared competence in the field of resource based view of strategy. Since they have selected a field that should be quantifiable, they believe that if they can’t measure competence within this field that it can’t be measured anywhere. So the authors have set out to create an example for the industry by conducting a very careful and thorough study based on quality evidence.

Due to this reason they have included in their paper the details of their research and information. Henderson and Cockburn have carefully examined the data to produce a large number of records. They create an econometric model of the input-output of the industry with their thoughts and explanations of their reasoning along the way. However, although the model is carefully constructed, it’s obvious that it’s based on numerous assumptions. Thus, it’s apparent that these types of models are largely dependent judgment instead of data.

The authors conclude that competence is a vital variable in success. They come to this conclusion from researching differential success based on company heterogeny. The findings reveal the need for a better analysis of competence and to better define the various types of competence. The paper revealed just how hard this type of research can be. The paper lacks theory and focused a little too much on methodology. For these reasons it was less engaging to read than some other essays. However, it came through by revealing the big issue with firm level capability research and by making a great attempt to fix it.

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