What’s the Business Case for Competencies?

Posted July 15 2013
By Jim Graber, PhD

Let’s consider a bit of an underwhelming statement: Top performers produce more than their peers. That is probably not news to anyone.

However, it isn’t always apparent how much more they produce. Workers at the 80th percentile, on average, are twice as productive as their peers at the 20th percentile, according to a rough rule of thumb used by organizational psychologists, based on an analytical approach called “utility analysis.” Of course, workers at the 90th percentile provide an even greater advantage. That ratio can vary by job.
Fifth entry in a seventeen part introductory series on competency management:
  1. Why does the world need a competency toolkit?
  2. What’s a competency? How do they differ from KSA’s? 
  3. What are the main types of competencies?
  4. What is integrated talent management, and how do competencies relate?
  5. What’s the business case for competencies?
  6. Why are behavioral indicators so important?
  7. How are behavioral indicators created?
  8. What’s competency modeling?
  9. How does a competency model fit within a job description or job profile?
  10. Different approaches to competency modeling
  11. Principles of competency modeling
  12. Job role competency modeling
  13. Job family competency modeling
  14. Decisions to be made before a competency modeling project
  15. Organization core competency model
  16. Preparations for a Competency Modeling Project
  17. 20 Competency Modeling Best Practices

In more skilled jobs, such as a software developer, the top developers may be more than 50 times as productive. I personally worked for years with one extremely productive software developer (TT) and his 4 associates and they developed a large software application rivaling that of companies that were literally hundreds of times larger. TT showed me that our staff was producing high quality code at a rate of 10 times the industry average.

Let’s consider a second underwhelming statement: Top performers bring more than technical skills to the table. Most of us know that just because we hire an engineer from a top university with “straight A” grades, and even if the engineer has an impressive resume or CV of experiences, it doesn’t necessarily mean that s/he will be effective in our organization. And yet, many organizations continue to promote individuals based solely on technical skills, particularly into supervisory positions.

Competencies and competency models provide a formula for success, e.g. how to perform at the 80th percentile or higher. Good competency models include those all-important technical skills, but they don’t stop there: They also consider the so-called soft skills and personal traits such as drive, attention to detail, and customer focus.

Numerous studies have substantiated the impact of competencies. For example, Watson Wyatt studied 168 publically traded companies and identified clearly defined competencies as one of the top three initiatives key to future success. An Aberdeen study shows that profit, customer satisfaction, and customer retention were positively correlated with the % of jobs for which competency models had been defined. Bersin has published numerous studies on the impact of competencies and integrated talent management, and they have suggested significant ROI, such as 26% higher revenue per employee, 40% lower turnover among high performers, and 87% greater ability to “hire the best people.”

These results are very impressive, and yet not terribly surprising. Compared with the selection and development approaches in many organizations today, competency-based integrated talent management practices are simply a far more effective way to manage the organization’s talent. These practices can create significant value.
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