The Business Case for Competencies

Background

In 1996, the American Compensation Association (now WorldAtWork) sponsored a research study titled “Raising the Bar – Using Competencies to Enhance Employee Performance”.  It was authored by Michael Thompson of the Hay Group, Dr. Edward Gubman of Hewitt Associates, Sandra O’Neal of Towers Perrin (now Towers Watson), and Darrell Cira of William M. Mercer Inc. (now Mercer) The results were published in a 76-page booklet, which has been long out of print. I recently discovered and re-read a copy I had filed away. What is interesting is that most of the findings are still relevant and insightful today..

To get a sense of how business and human resources strategy might impact decisions about competency applications, the research team had asked participating companies to state their primary business strategy objectives, how their HR strategies support these objectives and the intended purpose of implementing competency-based applications.

An Overview of Findings

This comprehensive research project demonstrated the connection competencies make with business strategy, the techniques organizations use to build competency models, and the similarities and differences among competency-based human resources applications at responding organizations. Competency-based human resources applications were relatively new; many respondents said it was too early to judge whether competencies had fulfilled their potential as a means to improve employee performance and, ultimately, enhance business results. However, respondents’ attitudes toward competencies were largely positive, and a large majority of respondents wanted to expand the role of competencies within their organizations.

HR Strategies that Best Support Business Strategy

Keeping in mind the nature of the sample, which limited the ability to draw widespread conclusions about the workplace in general, it was still possible to identify important conclusions based on the data. Following are the key findings of this research effort:

  • Competencies are used to “raise the bar” on employee performance. Respondents said “raising the bar” is a key objective of competencies, as opposed to using competencies to establish a baseline for performance. Also, respondents tailored their HR applications to focus on individual performance. Competencies are defined thoroughly (often using high performers and functional experts as a primary source of input), and they often are supported with scaled levels to illustrate in­creasing levels of proficiency. This provides individuals with detailed road maps for increasing their capabilities incrementally.
    For staffing applications, competencies are used to hire, place and promote people with the right capabili­ties to help the organization gain competitive advantage. For training and development, competencies are used to identify gaps in each participating employee’s capa­bilities so these gaps can be remedied. For performance management, competencies and results are assessed side by side, reminding employees that how they do things is as important as what they do. For compensation, both competencies and results impact base pay decisions to reward performance and competency development.
  • Competencies are used to focus on an organization’s culture and values. Many respondents indicate they use competency-based applications to communicate values to the work force and to build the proper culture for success. While these issues may ap­pear somewhat removed from the bottom line, it appears that many organizations recognize the importance of culture in achieving competitive advantage.
  • Business strategies inform competencies. Competency information comes from multiple sources, and strategy plays a key role in development. The most frequent source of information is senior management and strategic plans. The next most common sources of information are high performers and functional experts. These sources of information often are used in com­bination.
  • Competencies focus on how performance re­sults are achieved. Competencies are behavioral mod­els that are built upon skills, knowledge and personal attributes. Furthermore, all attributes of competencies should be observable and measurable, and they must contribute to enhanced employee performance and, in turn, organizational success.
  • Today’s competency applications are evolu­tionary, not revolutionary. This finding is supported by several observations. First, it appears that competency based approaches are treated as add-ons and they are not leading to radical adjustments in HR processes. Sec­ond, with regard to specific HR applications, managers continue to make the lion’s share of performance man­agement and compensation decisions. Furthermore, with the exception of the use of behaviorally anchored rating scales, base salary adjustments under competency based systems are largely made in a traditional fashion. Finally, for staffing purposes, competencies are rarely used when checking references or as the sole basis for rejecting candidates.
  • Competencies provide a framework for integrating HR applications. Integrating HR applications is a desired outcome for many organizations. Many respondents had more than one competency-based HR application. (See Figure 1.) Those who have applications in place for more than a year desire to expand compe­tencies into additional HR areas. Lessons learned in one area of competency-based HR should be applied to other competency applications
  • Compensation is the least common and new­est application. Compensation is the least cited appli­cation in this sample, performance management is the most cited application, and staffing and training and de­velopment are in between. Staffing applications tend to be oldest, followed by performance management, train­ing and development, and compensation applications. (See Figure 2.) This may imply that staffing applications represent starting points for many organizations that are interested in competencies. Compensation is seen as an application that can be added once other applications are in place. One reason for why staffing applications are older may be historical; recall that McClelland’s early work with competencies was to examine them for selec­tion purposes.

ovierview-fig2

These findings should not be interpreted as a prescrip­tion for the order in which to install competencies. The researchers have observed many organizations that started competencies in different areas of HR and then gradually worked their way to other areas. In fact, many organizations also work on more than one application at once. The key is not the order in which areas are ap­proached but how these applications ultimately are in­tegrated and linked to business strategy.

  • It is too early to tell how effective competen­cies are. The newness of many competency-based ap­plications in this sample means that the ultimate suc­cess or failure of these applications -and their integra­tion -remains to be seen. Among those respondents who felt comfortable passing judgment, reaction to the effec­tiveness of competencies was largely positive.”

Questions for discussion: 

Which findings are still valid? What has changed since this study was published? What has not changed? What do you envision for the future? Challenges and opportunities?

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Google’s approach to competency-based talent management

imagesOver the years, there has been much ink spilled over the recruiting practices at Google. The company is now very well known for having successfully implemented a talent management strategy that permeates all levels of the organization — from top executives to entry-level employees – and attracts the very best talent on the market.

Even in its early stages, the company understood the importance of engagement and motivation as performance drivers and competitive advantages. But building engagement and retaining top talent is no easy feat. Many organizations continue to believe that compensation and benefits are key to achieving these goals; yet, there is a new generation on the marketplace and while affording a certain lifestyle is certainly important to them, it is far from being the main criteria for selecting an employer, much less exhibiting superior performance in their job.

A Forbes article explains how, decades ago, Google decided to give every employee 10-15% free time to work on pet projects. Not financial incentives, but the opportunity to show their skills and work on projects of interest of them. This ties in nicely with McClelland’s need theory, which claims that humans possess three main needs, or motives – Achievement, Affiliation and Power – each of which dictate specific behaviors in the workplace.

Capitalizing on the achievement motive as a primary driver, employees used this free time to come up with new business ideas and projects, thereby supporting the organization’s growth, innovative competitiveness and overall success.

This talent-focused culture for which Google is now known is, of course, funded today by a budget that very few companies have the privilege to manipulate. Yet, Google’s success (with respect to talent management) isn’t entirely the result of large HR investments.

Let’s take a closer look.

A culture of competency

Google has long understood that it needs skilled, driven and innovative bar-raisers to outperform its competition and to that end, has managed to change the way its employees work in order to build a culture that attracts and retains the very best.

Forbes’ mini case study reveals that to support this new culture, Google goes through a process of identifying critical positions in the organization – those very job roles where performance can differentiate them from their competitors – and emphasizing the search for top performers in these roles. Not for every job function in the organization, but for positions that make a difference in Google’s environment.

But finding top performers, even if only for a handful of roles, is easier said than done. After all, there is really no way of knowing if a person is “right” for the job unless they get a fair chance at proving it. At the very best, an employee may have demonstrated certain skills in a given role, under a specific scope of constraints and responsibilities, but a true top performer is developed with the idea that motivation is key to raising the bar.

For Google, this meant allowing employees to work, one day a week, on projects of interest to them, a strategy that not only motivated employees to prove their skills and demonstrate the extent of their contributions to Google’s success, but also allowed the company to remain on the cutting edge of the competition as a result.

Of course, we are not implying that this “pet project” solution can work for any organization, particularly if your company is struggling with an inadequate workforce-to-workload ratio. What we are saying however is that you need to identify the key roles in your organization, along with the competencies (skills, behaviors, knowledge, interests, motives, etc.) required to perform in these jobs, and then provide your employees the latitude and flexibility they need to outperform.

For optimal results, think clarity and transparency

Defining competencies is key to executing your company’s strategy and reaching your long-range goals. But the essential first step consists in establishing clear directions, and ensuring that your strategic directions are communicated to your workforce. Transparency is the only way to gain the support of your employees, and build a coherent team that works toward achieving the same objectives.

Top performers who seek to put their skills to use for your company’s success can only show you what they can accomplish if you allow them to understand your goals and participate in the process of getting there. Getting your bar-raisers to the table is a critical part of creating a truly high-performing and motivating culture because without transparency, even your best employee will resolve to only doing what is required of them. That is exactly what Google managed to avoid by granting employees the chance to actively participate in idea generation and process creation activities.

The result of this effort is an integrated workforce and human resource systems that promote and reward talent and outperformance, not to mention enhanced accountability and innovation. And while the bottom-line benefits include increased productivity and higher profits, the true value of a competency-based approach to talent management is a lot more powerful.

Implementing a transparent, competency-based approach will renew your company, uncovering startling energy and synergies that can give you the responsive, competitive edge you need. But you first need to know which competencies are needed to take you to this next level. And that’s what competency modeling aims to accomplish.

The following white paper presents all the benefits of this system, along with the steps to move forward.

We also invite you to browse our blog for many more articles on applying a competency-based talent management system to various HR applications within your organization.

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