The knowledge needs of innovating organisations

The sustainable management of innovation is perhaps the single most vital element of executive work in today's business environment. This has driven knowledge management theorists to revitalise interest in the concept of 'competency'. However, this theoretical domain continues to be fragmented by definitional debate. At a micro-level of analysis, Human Resources Management theorists have embraced the idea of managerial competencies, resulting in the elaboration of frameworks and standards of performance for the targeted development of individual knowledge. By contrast, at the macrolevel the Strategic Management literature has focussed on developing new concepts of competition and cooperation that emphasise organisational knowledge as the driver of strategic change. In this context, competence-based competition implies that competitive advantage is bestowed by an organisation's unique combination of core competencies. This definitional debate is a major obstacle to the development of an integrated perspective on competency and the knowledge needs of innovating organisations. This conceptual article asserts that, since innovation involves a learning process, it is necessary to develop process-based theory rather than the static categorisations that currently dominate thinking in this area. Drawing on theories from the field of learning, the article proposes a three-dimensional framework of knowledge-based competencies that are interlinked and meaningful across levels of analysis

Building Micro-Foundations for the Routines, Capabilities, and Performance Links

Micro-foundations have become an important emerging theme in strategic management. This paper addresses micro-foundations in two related ways. First, we argue that the kind of macro (or “collectivist”) explanation that is utilized in the capabilities view in strategic management ? which implies a neglect of micro-foundations ? is incomplete. There are no mechanisms that work solely on the macro-level, directly connecting routines and capabilities to firm-level outcomes. While routines and capabilities are useful shorthand for complicated patterns of individual action and interaction, ultimately they are best understood at the micro-level. Second, we provide a formal model that shows precisely why macro explanation is incomplete and which exemplifies how explicit micro-foundations may be built for notions of routines and capabilities and for how these impact firm performance.Routines, capabilities, micro-foundations, production function

Agent-based modelling - A methodology for the analysis of qualitative development processes

The tremendous development of an easy access to computational power within the last 30 years has led to the widespread use of numerical approaches in almost all scientific disciplines. The first generation of simulation models was rather focused on stylized empirical phenomena. With agent-based modelling, however, the trade-off between simplicity in modelling and taking into account the complexity of the socio-economic reality has been enhanced to a large extent. This paper serves as a basic instruction on how to model qualitative change using an agent-based modelling procedure. The necessity to focus on qualitative change is discussed, agent-based modelling is explained and finally an example is given to show the basic simplicity in modelling.agent-based modelling, methodology, evolutionary economics, qualitative change

German Exchange Rate Exposure at DAX and Aggregate Level, International Trade, and the Role of Exchange Rate Adjustment Costs

This article analyses value changes of German stock market companies in response to movements of the US dollar. The approach followed in this work extends the standard means of measuring exchange rate exposure in several ways, e.g. by us-ing multi-factor modelling instead of augmented CAPM, application of moving window panel regressions, and orthogonalization of overall market risk vis-à-vis currency risk. A further innovation lies in testing theoretical implications of exchange rate adjustment costs (hedging costs) for firm values and economic exposure. Based on time series and panel data of German DAX companies, DM/ dollar rates and macroeconomic factors, we find a rather unstable, time-variant exposure of German stock market companies. Dollar sensitivity is positively affected by the ratio of exports/GDP and negatively af-fected by imports/GDP. Moreover, as expected from theoretical findings, firm values and exchange rate exposure are significantly reduced by adjustment costs depending on the distance of the exchange rate from the expected long-run meanexchange rate exposure, international trade, panel econometrics, adjustment costs

Empirical Validation of Agent Based Models: A Critical Survey

This paper addresses the problem of finding the appropriate method for conducting empirical validation in agent-based (AB) models, which is often regarded as the Achilles’ heel of the AB approach to economic modelling. The paper has two objectives. First, to identify key issues facing AB economists engaged in empirical validation. Second, to critically appraise the extent to which alternative approaches deal with these issues. We identify a first set of issues that are common to both AB and neoclassical modellers and a second set of issues which are specific to AB modellers. This second set of issues is captured in a novel taxonomy, which takes into consideration the nature of the object under study, the goal of the analysis, the nature of the modelling assumptions, and the methodology of the analysis. Having identified the nature and causes of heterogeneity in empirical validation, we examine three important approaches to validation that have been developed in AB economics: indirect calibration, the Werker-Brenner approach, and the history-friendly approach. We also discuss a set of open questions within empirical validation. These include the trade-off between empirical support and tractability of findings, the issue of over-parameterisation, unconditional objects, counterfactuals, and the non-neutrality of data.Empirical validation, agent-based models, calibration, history-friendly modelling

Aggregate economy risk and company failure: An examination of UK quoted firms in the early 1990s

Considerable attention has been directed in the recent finance and economics literature to issues concerning the effects on company failure risk of changes in the macroeconomic environment. This paper examines the accounting ratio-based and macroeconomic determinants of insolvency exit of UK large industrials during the early 1990s with a view to improve understanding of company failure risk. Failure determinants are revealed from estimates based on a cross-section of 369 quoted firms, which is followed by an assessment of predictive performance based on a series of time-to-failure-specific logit functions, as is typical in the literature. Within the traditional for cross-sectional data studies framework, a more complete model of failure risk is developed by adding to a set of traditional financial statement-based inputs, the two variables capturing aggregate economy risk - one-year lagged, unanticipated changes in the nominal interest rate and in the real exchange rate. Alternative estimates of prediction error are obtained, first, by analytically adjusting the apparent error rate for the downward bias and, second, by generating holdout predictions. More complete, augmented with the two macroeconomic variables models demonstrate improved out-ofestimation- sample classificatory accuracy at risk horizons ranging from one to four years prior to failure, with the results being quite robust across a wide range of cutoff probability values, for both failing and nonfailed firms. Although in terms of the individual ratio significance and overall predictive accuracy, the findings of the present study may not be directly comparable with the evidence from prior research due to differing data sets and model specifications, the results are intuitively appealing. First, the results affirm the important explanatory role of liquidity, gearing, and profitability in the company failure process. Second, the findings for the failure probability appear to demonstrate that shocks from unanticipated changes in interest and exchange rates may matter as much as the underlying changes in firm-specific characteristics of liquidity, gearing, and profitability. Obtained empirical determinants suggest that during the 1990s recession, shifts in the real exchange rate and rises in the nominal interest rate, were associated with a higher propensity of industrial company to exit via insolvency, thus indicating links to a loss in competitiveness and to the effects of high gearing. The results provide policy implications for reducing the company sector vulnerability to financial distress and failure while highlighting that changes in macroeconomic conditions should be an important ingredient of possible extensions of company failure prediction models

Aggregate economy risk and company failure: An examination of UK quoted firms

Considerable attention has been directed in the recent finance and economics literature to issues concerning the effects on company failure risk of changes in the macroeconomic environment. This paper examines the accounting ratio-based and macroeconomic determinants of insolvency exit of UK large industrials during the early 1990s with a view to improve understanding of company failure risk. Failure determinants are revealed from estimates based on a cross-section of 369 quoted firms, which is followed by an assessment of predictive performance based on a series of time-to-failure-specific logit functions, as is typical in the literature. Within the traditional for cross-sectional data studies framework, a more complete model of failure risk is developed by adding to a set of traditional financial statement-based inputs, the two variables capturing aggregate economy risk - one-year lagged, unanticipated changes in the nominal interest rate and in the real exchange rate. Alternative estimates of prediction error are obtained, first, by analytically adjusting the apparent error rate for the downward bias and, second, by generating holdout predictions. More complete, augmented with the two macroeconomic variables models demonstrate improved out-ofestimation- sample classificatory accuracy at risk horizons ranging from one to four years prior to failure, with the results being quite robust across a wide range of cut-off probability values, for both failing and non-failed firms. Although in terms of the individual ratio significance and overall predictive accuracy, the findings of the present study may not be directly comparable with the evidence from prior research due to differing data sets and model specifications, the results are intuitively appealing. First, the results affirm the important explanatory role of liquidity, gearing, and profitability in the company failure process. Second, the findings for the failure probability appear to demonstrate that shocks from unanticipated changes in interest and exchange rates may matter as much as the underlying changes in firm-specific characteristics of liquidity, gearing, and profitability. Obtained empirical determinants suggest that during the 1990s recession, shifts in the real exchange rate and rises in the nominal interest rate, were associated with a higher propensity of industrial company to exit via insolvency, thus indicating links to a loss in competitiveness and to the effects of high gearing. The results provide policy implications for reducing the company sector vulnerability to financial distress and failure while highlighting that changes in macroeconomic conditions should be an important ingredient of possible extensions of company failure prediction models