An analytical framework based on AHP and activity-based costing to assess the value of competencies in production processes

In this paper we present a model based on activity based costing and analytic hierarchy process to assess the impact of individual competencies on value creation and its application to a case study of a small manufacturing firm. Namely, our model is designed to support managers to deal with the following concrete situation: suppose that a company has decided to acquire a new type of equipment/technology to improve a process and deliver a superior performance to its customers, and suppose that this change requires in turn the acquisition of one or more individual competencies. Our model will support managers to answer to these questions: what is the cost of acquiring the new competence compared with the value generated by the improved process? Is it preferable to develop the competence internally or to acquire it on the market? In general, we argue that the proposed method can support managers to lay out a systematic description of the problematic link between individual competencies, organisational capabilities and critical market performances. Through the development and application of an analytical tool, this work intends to contribute to bridge the literature on the evaluation of individual competencies with the strategic interpretation of production competencies as organisational distinctive assets for value creation and as sources of sustained competitive advantage.