Calypso Consulting

(A version of this article originally appeared in Chinese in CHO Magazine in September 2006.  The contents are based on work developed when the author was the leader of a Watson Wyatt task force on competencies.)
            
            So many people are interested in developing a competency model in their firm.  Either their headquarters has a model that they want to apply here in China or they want to develop one from scratch.  One of the biggest problems with competency models is that they come “off-the-shelf” and are not tailored to a company’s needs.  In this article, I will identify the components of a competency model and provide a list of questions to consider when tailoring a model to your company.
 
History
            The term “competency,” as it relates to business, has been attributed to David McClelland in the US in the 1960s.  In his organizational research, he was searching for a way to measure the potential success of an employee in a company.  Until then, a typical assessment tool was an IQ test which, as we now know very well, is in no way correlated with business success.
 
            For many years, companies measured work by looking at the job.  Common job evaluation systems looked at things like knowledge, managerial breadth, the need to solve problems and the level of responsibility or accountability a job had.  In other words, the focus would be on the job, not the person.  The idea was that we should begin with the job and its requirements and then find a person who can fill those requirements.
 
            In the 1980s and 90s, the shape of companies began to change.  No longer were companies shaped like traditional hierarchies.  In those cases, a job evaluation system worked well because you could assume that the higher you were on the hierarchy, the bigger the job.  But as organizations went through various rounds of “down-sizing” and “right-sizing,” the management structure became much flatter than it was before under a typical hierarchical structure.  As this was happening, employees were asked to take on broader spans of control than before.  No longer was one engineer the same as another engineer on the same place in the hierarchy.  Rather, different people with the same job titles were beginning to take on very different roles in the company.  It was this movement from “job” to “role” that spurred the popularity of competencies as a way to measure work.  That is, while job evaluation measured the job, competencies measured the person.
 
            It is important to understand this distinction between job and role before you introduce a competency model into your firm.  If you still see yourself as a traditional company with a hierarchical structure, then it might be a huge waste of time, money and energy to introduce a system that does not support a hierarchy.  On the other hand, if you feel that your firm has significantly “flattened” its structure, and people are viewed more for the roles they can personally fill rather than how well they fit a job description, then competencies might be for you.
 
Definition of a Competency
            There are countless definitions of the term competency.  The one I am most comfortable with comes from McBer and Company and I will use it here: a combination of observable, applied knowledge, skills, behaviors and, in certain circumstances, personal attributes that create competitive advantage for an organization.  The key words here are “observable” and “create competitive advantage.”  By “knowledge” I mean that one has a deep understanding of a complex area that is typically obtained through formal education and professional training.  An example can be accounting or engineering.  By “skill” I refer to a proficiency or ability to perform a particular physical or mental task such as driving a forklift or delivering a presentation.  “Behaviors” are actions and expressions that can be observed.  Examples are “focus on customers”, “empathy”, and “team work.”  Finally, I refer to “personal attributes.”  The meaning here are characteristics or traits that cause certain things to occur.  These kinds of things, like integrity, self-confidence and adaptability, are difficult to measure and nearly impossible to scale.  As such, the measure of such a trait tends to be based on the frequency of observation rather than on a degree of competence, as is the case with knowledge, skills and behaviors.
 
Developing a Competency Model
            The way I view competency model development indicates that there are six distinct steps.  These are: (1) clarify the business strategy; (2) select the design factors for the model; (3) identify competencies, their levels and their behavioral descriptions; (4) validate the model; (5) link the competencies to an HR application; and (6) communicate and educate.  Each of these steps has sub-steps.  The following paragraphs describe each step in detail.
 
            Clarify the business strategy.  No HR system should ever be taken “off-the-shelf” and applied to a new company.  Rather, every HR program, certainly including a competency model, must be based on the company’s business strategy and be a reflection of its culture.  As for strategy, the assessment is no different from any other strategic assessment.  You learn about the strategy by interviews with senior executives, reviewing organizational data and analyzing industry reports.  In this step, you also want to discern the primary reason for using competencies in the company.  Is there a specific business issue that competencies might help to drive?  For example, competencies can be of value when an organization is attempting to create awareness and understanding of the need for business change.  Or, you may be interested in trying to improve a particular skill or behavior such as improving teamwork or cooperation.  On the grand scale you may want to reinforce newly introduced corporate values or strategy.  All of these are valid reasons for introducing competencies. 
 
            Select the design factors for the model.  In this step we need to learn a few things specific to the model.  All of these are best answered after you have considered the primarily reason for the model identified above.  First, we need to learn what the primary intended use for the model is.  Is it for selection, performance management, culture management, training and development, succession planning, leadership development, etc?  In my experience, when a company is new to competencies, the best applications to begin with are selection and performance management.    Secondly, we need to know which organizational level the model will be applied to.  Are the competencies to be used in the entire organization, management only, function only or, as is sometimes the case, for specific jobs.  If this is the first time you are using competencies in your company, my advice is to begin with four or five competencies that are relevant to the entire company.  These are called “core competencies.”  Then, you can evolve to either management level or functional competencies.  I rarely recommend developing a model for specific jobs because the process is extremely tedious and costly and rarely pays back the company for the time and money it has expended to design them.  You are better served in this case to simply modify the job descriptions to include desired behaviors rather than just skills and accountabilities.  This is much more expedient than trying to develop job-based competencies.  A third design factor is time state.  Are these competencies being designed for the current environment or for the future?  The time state is obviously influenced by the strategic objectives and the primary use of the model.  You need to answer the question:  Do we need to get better at what we are trying to do now, or do we need to dramatically change the way we do business now?  If the first case you would develop a “current” competency model.  In the second case, you design a “future” competency model.  The final design factor is the performance level.  Are we looking to develop a baseline of performance when we are just getting started and we need to make sure that everyone meets minimum standards?  Or, are we looking to distinguish baseline performance from superior performance in order to raise the overall level of performance among employees?
 
            Identify competencies, their levels and behavioral descriptions.  In order to identify which competencies are appropriate for your company, you first need to select information sources.  These can be focus groups, expert panels, key management interviews, employee interviews, external interviews, other (external) competency models and behavioral event interviews (BEIs).  Each of these sources has advantages and disadvantages.  Likewise, they vary in terms of validity, efficiency and employee buy-in.  Before you select your source, you need to be clear about your budget, your timing, your need for scientific validity and your desire to have employees buy-in to the model.  In the most comprehensive models, each competency is defined by level with an appropriate behavioral description for each level.  These levels should progress from “0” which means that there is no observance of the competency, up to “5,” “6” or “7.”  The higher the number the higher the competency level.  Once you get beyond “7” there tends to be too much overlap and the user has a tough time distinguishing between levels.  In my experience, five is the optimum number of levels.  For each of these levels, there should be a behavioral description that is tailored to the company.  While you can borrow some of this descriptive language from many of the available competency dictionaries, it is always preferred to modify the language to fit your own company.
 
            Validate the model.  Statisticians distinguish between face validity and constructive validity.  For our purposes, the need is to be sure that the competency model does for the company what it was intended to do.  That is, if you wish to improve the level of teamwork in your firm, then you must be sure that the behavioral descriptions of teamwork by level are clear to employees and managers so they know how to distinguish different levels of teamwork performance.  You also need to be sure that the model is reliable.  That means that multiple raters of the same employee’s behaviors should come up with nearly identical ratings of the person’s competency level.  The more similar the ratings, the more reliable the model.
 
            Link to HR applications.  Here is where you begin to implement the model by applying it to one or more HR programs.  As I mentioned earlier, I often recommend that new competency models be used for selection of staff and/or performance management.  I believe the other HR applications require a sophisticated and pervasive understanding of competencies in the work place and are most effective when the company has had a competency model in place for at least two or three years.  In addition to this point on sequencing is the need to assure that whatever you do is integrated and aligned with overall business purposes.  For example, if your business strategy is to be extremely efficient and low cost, but you are searching for employees who are very customer focused, there may be a disconnect between your strategic purpose and the workforce.  In this case, a competency model would more appropriately include such competencies as “striving for efficiency,” and “analytical thinking.”
 
            Communication and Education.  In this final step, we need to make sure that everyone who administers the program as well as all of the employees covered by the model are comfortable with how it works and what it is intended to do in the firm.  This step really begins in the beginning of the project and continues throughout in the form of a phased communication and education strategy.  You need to identify a sponsor early on.  The higher up in the organization chain the better.  Nothing correlates with competency model success more than something like a video from the CEO telling everyone why you are embarking on this effort and what he or she can expect from the project.  When you roll out training on the model, it is best to begin with the managers who need to implement the model and then move on to the employees.  In this way, if employees have questions about the model, their managers can answer them without having to go back to HR. This is typically done with a combination of workshops, web site details and written communication.