Research and development departments in industrial firms may not take it for granted anymore that they are the only preferred supplier of research and development to the company of which they are a part. The growing need to be innovative and the increasing availability of innovative competencies on the market result in a pressure on these departments to become more business–like and to reconsider their sources of competitive advantage over other (potential) suppliers of research and development. Traditionally, scientific and technological knowledge and skills concerning the product were the prime source. Nowadays, managerial competencies and the ability to work for and with your clients and suppliers are becoming more important. To become a competitive business in a business, research and development departments should create the competencies that enable them to create value for their clients. This calls for good competence management, comprising management of human resources, information technology, and internal and external interfaces. In this paper we explore what it means and what it takes for research and development departments to implement competence management, elaborating it theoretically and describing a case of competence management in the research and development department of a European car company. Blackwell Publishers Ltd 2001.