Dynamic Competences and Firm Performance

Leiponen, A. (1997). Dynamic Competences and Firm Performance. IIASA Interim Report. IIASA, Laxenburg, Austria: IR-97-006

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Abstract

This empirical study investigates the impact of competencies and knowledge capital on economic performance of firms. According to the dynamic capability approach, the profitability of firm is determined by its position in strategic capabilities. The accumulation of capabilities is proxied here by levels and fields of education, which are assumed to correlate with the rate of learning. On the other hand, successful innovation is an indirect manifestation of dynamic technological capabilities. The effects of these capability measures on profitability are estimated with a panel data-set of 209 Finnish manufacturing firms. Of special interest are the complementarities between knowledge assets, accounted for with interactions between variables. Finally, the differences in the determinants of profitability between innovating and non-innovating firms are examined, because profiting from innovation is expected to be associated with different set of skills and competencies than 'normal' business.

The main findings include that educational indicators of competence are significantly associated with profitability. Interactions between different levels and fields of education turn out to have the most important effects. For example, the positive effect of post-graduate level employees is conditioned by a sufficient amount of employees with general skills acquired in higher education. This suggest there indeed exist complementarities between different types of capabilities: research skill contribute to profitability only if there are enough general competencies, which facilitate applying and commercializing the results of R&D. Interactions are also detected between innovativeness and competencies. Profitability of innovating firms seems to differ from that of non-innovating ones. In particular, educational competencies are more important for innovators. A successful 'knowledge strategy' of the firm involves simultaneous choices of investment in R&D and capabilities in different functions of the firm.

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