Second-order competence: The ability to order the right thing in the right way
Brief
Second-order competence is the ability to formulate, evaluate, implement, and follow up on an order so that the intended business goal is achieved. The term is often used in procurement, purchasing, project management, IT development, construction, consulting services, and the public sector, but is relevant in all situations where one party hires another to deliver a product, service, or change. It is easy to believe that second-order competence primarily involves writing requirements specifications or negotiating contracts. In practice, these are only visible expressions of something much deeper: the ability to understand what needs to be achieved, which quality requirements actually matter, and which uncertainties lie behind the supplier’s offer. Second-order competence is therefore not just a process or a role. It should rather be considered a personal and organizational ability, what within strategic management is often called a capability. An organization can have advanced purchasing processes and extensive governance documents but still lack real second-order competence if it does not understand the area where the ordering takes place.
The core of the client’s expertise is domain knowledge. By domain knowledge, we mean a deep understanding of the area where the delivery is to take place, including:
- technical prerequisites,
- industry standards,
- established working methods,
- legal requirements,
- economic drivers,
- cultural norms,
- as well as tacit knowledge (tacit knowledge).
Tacit knowledge is the experience-based knowledge that is often difficult to document but is crucial for success. Those who have performed the work themselves often know which elements are trivial and which are in practice very complex. The lack of such understanding can create a form of Dunning-Kruger effect, where the client overestimates their ability to understand and assess what is to be ordered. The result is often that the supplier’s description of the problem is accepted uncritically, which in practice means that the supplier defines both the need and the solution. Therefore, client competence is not only about describing what is to be delivered. It is about understanding the difference between a delivery that technically meets a requirement and a delivery that actually creates the value requested. This article addresses second-order competence as a field of knowledge and highlights its historical development, practical application, relationship to other disciplines, and the risks that arise when second-order competence is lacking.
History
Historically, client competence has been closely linked to craft professions and construction projects. The client and contractor often had similar knowledge of the work to be performed. The difference lay primarily in resources and responsibilities. During industrialization, specialization increased. The client became, in many contexts, organizationally and knowledge-wise separated from the contractors. This created an information gap between the buyer and the supplier. In the 20th century, professional purchasing functions, procurement methods, and contract forms evolved. The focus was long on price, contracts, and delivery control. In recent decades, knowledge-intensive areas such as IT, cybersecurity, advanced technology, and management consulting have shown that contracts and processes are not enough. A client must understand enough about the field to be able to assess alternatives, risks, and quality. This has therefore evolved into a view where client competence is considered a strategic organizational resource.
Application
Authoritative expertise exists in many areas:
- Construction and installation – The client must understand the difference between meeting technical minimum requirements and long-term quality.
- IT and digitalization – Organizations often buy solutions they do not fully understand. The supplier then has an information advantage and risks influencing both the problem formulation and the solution.
- Consulting services– In practice, the consultant sells his knowledge. If the client lacks their own understanding, it becomes difficult to assess:
- scope,
- quality,
- reasonable time commitment,
- expected result.
- Public sector
Laws and regulations often require competitive bidding while complex business needs must be defined in an objective manner. The higher the complexity, the more important the contracting authority’s competence becomes.
What is central and important?
Domain knowledge is the basic prerequisite
The most central principle is that one must understand the area the order concerns. This does not mean that the ordering party has to be the foremost expert, but that they must understand:
- what is difficult,
- what is simple,
- what is expensive,
- what drives risk,
- What drives quality.
People who have previously performed the work themselves often possess an important advantage because they are aware of the tacit knowledge that rarely appears in tenders and contracts.
Quality must be defined
A common mistake is to define activities instead of results. For example:
”The wall needs to be painted over.”
This describes an activity but not the quality of the final result. A technically correct delivery can be:
- one coat of paint on an existing surface.
A high-quality delivery, however, may require:
- cleaning,
- scraping,
- spackling,
- grinding,
- base painting,
- several layers of finished paint.
The latter solution may cost ten times more than the first.
From a contract perspective, both interpretations can fulfill the phrase ”the wall needs to be repainted.” The client’s task is therefore to define the desired result rather than simply the activity.
The provider is not neutral
An important insight is that the supplier normally optimizes its operations based on its own goals. That does not mean that the supplier is dishonest, but it does have:
- own financial incentives,
- own risk assessments,
- own resource limitations.
- In public procurement, it must be assumed that the evaluation was carried out according to the principle of the lowest value, i.e., the cheapest solution for the supplier still met the written-agreement-specified requirements.
The client must therefore be able to make independent assessments.
Understanding information asymmetry
Procurement expertise largely involves managing information asymmetry. Information asymmetry arises when one party knows significantly more than the other. The greater the knowledge gap between the buyer and the supplier, the greater the risk of:
- inaccurate claims,
- wrong priorities,
- cost increases,
- quality problems.
Ecosystem
The client’s competence is influenced by several related areas; here are a few examples:
- Procurement – How suppliers are selected and evaluated.
- Contract law – How responsibility, risk and quality are regulated legally.
- Project management – How deliveries are planned, monitored and accepted.
- Quality management – How quality is defined and measured.
- Risk management – How uncertainties are identified before a contract is signed.
- Business development – How the order is linked to business goals and business benefits.
Practical examples
Example 1: Repainting of a wall
The order: ”The wall needs to be painted over.”
Option A:
- a layer of paint is applied.
Results:
- the wall is painted.
Option B:
- the wall is cleaned,
- unevenness is patched up,
- the surface is sanded,
- painted base coat,
- two layers of final printing are applied.
Results:
- The wall achieves high visual and technical quality.
The cost difference can be several hundred percent, even though both deliveries can formally be considered repainting.
Example 2: IT systems
The order: ”We need a new case management system.” An inexperienced orderer focuses on functionality. An experienced orderer also analyzes:
- integrations,
- information security,
- usability,
- administration,
- life-cycle cost,
- change management.
The result is often a more expensive implementation but a lower total cost over the life of the system.
Summary
Client competence is essentially the ability to understand what should be achieved, how quality is defined, and the consequences of different solutions. It is based on a combination of experience, domain knowledge, judgment, and organizational learning. Those lacking client competence risk buying what is easy to describe rather than what is actually needed. This often leads to increased costs, conflicts, and lower quality.
Advantages
- Higher probability of achieving business goals.
- Better cost control.
- Fewer misunderstandings between the customer and the supplier.
- Improved quality control.
- Lower long-term risk.
Disadvantages, risks and limitations
- It takes a long time to build up.
- Requires investment in experience and expertise.
- It cannot be fully replaced by processes or checklists.
- Risk of becoming addicted to the substance.
- Domain knowledge can become outdated as technology and markets change.
Five readiness questions
- Do we ourselves understand the work that needs to be performed well enough to be able to question the supplier’s solution proposal?
- Have we defined what business value the delivery will create?
- Have we clearly described what level of quality is considered acceptable?
- Do we have access to the tacit knowledge required to assess reasonable time, cost, and quality?
- Have we identified which areas where the supplier has an information advantage and how this should be handled?
Recommendation
Organizations should view procurement expertise as a strategic core capability rather than an administrative function. It arises through experience, domain knowledge, and systematic learning. The more knowledge-intensive the delivery is, the more important it becomes for the buyer to understand both the problem and the quality criteria before a solution is procured.
A useful rule of thumb is: The less one could perform the work themselves, the greater the need to invest in contracting expertise before ordering it.
