Why companies yearn for competency

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Attention to human resources

In the management and organisational literature, as well as in practice, increasing attention has recently been paid to the importance of human resources in organisations. There seems to be a growing consensus that in many organisations these are the most critical of all resources.

The purpose of this article is to focus on the primary type of human resources, competences carried by individual employees and work teams. Competences constitute critical resources for the firm’s capability to take advantage of opportunities and stay competitive.

Besides being a central resource in itself, productive utilisation of other resources requires relevant competence. Expressed differently, relevant competence is a necessary (and in some cases both necessary and sufficient) condition for strategic success. This perspective is different from traditional ways of viewing competence in the strategic management, organisational theory and marketing literature.

Although competences have been treated in applied parts of the strategic literature, this has predominantly been on a macro organisational level (Naugle and Davies, 1987, Prahalad and Hamel, 1990). There is hence a need also to include the micro level (employees and teams) when in organisations are analysed.

Competency defined

Competence (or competency) is the ability of an individual to perform a job properly. A competency is a set of defined behaviours that provide a structured guide enabling the identification, evaluation and development of the behaviours in individual employees.

As defined, the term “competence” first appeared in an article authored by Craig C. Lundberg in 1970 titled “Planning the Executive Development Program”. The term gained traction when in 1973, David McClelland, Ph.D. wrote a seminal paper entitled, “Testing for Competence Rather Than for Intelligence”.

It has since been popularised by one-time fellow McBer & Company (Currently the “Hay Group”) colleague Richard Boyatzis and many others. Its use varies widely, which leads to considerable misunderstanding.

Some scholars see “competence” as a combination of knowledge, skills and behaviour used to improve performance; or as the state or quality of being adequately or well qualified, having the ability to perform a specific role. For instance, management competency might include systems thinking and emotional intelligence, and skills in influence and negotiation.

Competency is also used as a more general description of the requirements of human beings in organisations and communities.

Competency is sometimes thought of as being shown in action in a situation and context that might be different the next time a person has to act. In emergencies, competent people may react to a situation following behaviours they have previously found to succeed.

To be competent a person would need to be able to interpret the situation in the context and to have a repertoire of possible actions to take and have trained in the possible actions in the repertoire, if this is relevant. Regardless of training, competency would grow through experience and the extent of an individual to learn and adapt.

First, the competencies concept is defined. Then the notion of competence portfolio is introduced and central properties of competences as resources in firms are outlined. This leads to a discussion of how firms can extend the competence portfolio thorough co-operation with external actors.

Thereafter, the relationship between the mobility of individual and collective competences on the one hand and competitive advantage on the other is discussed. Finally, a traditional perspective on the management of competences in firms is contrasted with an alternative, future-oriented perspective.


During the last few years, increasing attention has been paid to the significance of human resources in organisations in general and to competences in particular. Interestingly, this development has taken place within different fields of research in the organisational and management sciences.

One line of inquiry has concentrated on managerial competences and the nature, composition and application of such competences (Katz, 1974; Klemp, 1980; Boyatzis, 1982; Morgan, 1988; Yurkl, 1989; Bigelow, 1991; heller, 1993). Focus has predominantly been set on psychological aspects of competences and their implications for the execution of managerial tasks.

Another line of research has been preoccupied with the importance of competences for strategic management in business firms, illustrated by terms such as ‘core competences; ‘key competences’, ‘dominant competences’ and distinctive competences’ (cf Prahalad and Hamel, 1990; Hall, 1989; Itami, 1987; Naugle and Davies, 1987; Snow and Hrebiniak, 1980; Selznick, 1957).

One has been preoccupied with primarily with aggregate capabilities of firms as to their operations and competitiveness relative to other firms. A normative statement that has repeatedly been made by several authors is that firms have to protect and define their core competences (for an overview, see Bonora and Revang 1993). These are, so to speak, viewed as being the most precious asset in firm.

The most prominent expression of this is contained in the current renaissance and further development of the resource-based theory of the firm (Rumelt, 1974; Snow and Hrebiniak, 1980; Wernerfelt, 1984;, Hitt and Ireland, 1985; Winter, 1985; Teece, Pisano, and Shuen, 1990; Barney, 1991; Collis, 1991; Conner, 1991; Grant, 1991; Leonard – Barton, 1992; Gronhaug and Nordhaug, 1992; Hall 1992).

The basic logic of the resources-based perspective is that the firm’s unique capabilities in terms of technical know-how and managerial ability are important sources of heterogeneity that may create sustained competitive advantage and, moreover, that distinctive competences and superior organisational routines in one or more of the firm’s value-chain functions may enable the firm to generate rents from a resource advantage (Mahoney and Pandian, 1992:365; cf. also Hitt and Ireland, 1985).

Furthermore, it is important to note that it is not only the quality and composition of resources per se that matter, but also the way in which they are being utilised. As noted by Penrose (1959:54), firms may achieve rents not because they possess better resources, but because their distinctive competences allow them to make better use of their resources (Penrose, 1959:54; Mahoney and Pandian, 1992).

The concept of competence has been given highly different meanings and still remains among the most diffuse terms in the organisational literature. In a recent review, Collin (1989:20) states that, given the central role of competences in work life, surprisingly little attention has so far been paid to its definition (cf also Fagan, 1984). The term originates from the Latin Verb competere which means to be suitable.

Having been developed within psychology as a concept characterising individuals’ ability to respond to respond to demands placed on them by their environment (White, 1959), it has in more recent, work related versions been applied to describe an underlying characteristic of a person which results in efficient work performance (Klemp, 1980; Boyatzis,1982; Heller,1993; see also Davies, 1973; Fagan, 1984; Mc Clelland, 1973; Pottinger and Goldsmith, 1979; Training Commission, 1988; SCANS,1991).

However, it can be argued that this definition is too limited because it does not encompass competence which, for some reason or another, is currently not being utilised. In many organisations a considerable challenge is precisely posed by the need to combine and employ existing knowledge which has not yet been put to use.

Individual competence may be gained through education and experience in the work place. Competence obtained through education is general in the sense that it is applicable in more than one firm and often within a variety of jobs.

Competence gained through experience is more or less specialised by being linked to the idiosyncrasy of the firm in which it has been acquired, hence, it will have value only within the organisation where it was developed (Becker, 1983). Such firm-specific competence may be easy or difficult to obtain.

In some instances, little training is required to develop the firm- specific competence necessary to perform the tasks in a satisfactory manner. It has, for example, been asserted that entry-level employees in a particular, standardised fast food chain are considered more or less fully trained after the completion of a two-hour training programme.

In other situations it will take tasks adequately. This is particularly the case when the knowledge underlying a skill is complex or cannot be articulated, i.e. tacit knowledge (Polanyi, 1962; Nelson and Winter, 1982).

It is furthermore fruitful to distinguish between actual competence, i.e. competence needed to perform a certain task, and formal competence, i.e. knowledge and skills as evaluated through examinations and various types of certification arrangements.

Formal competence is in certain situations legally required through authorisation regulations, as is the case for doctors, lawyers, plumbers, electricians and even chauffeurs. Formal competence is frequently viewed as proxy evidence that an individual masters certain skills which are considered indispensable or at least desirable in order to perform work tasks.

It is used both to indicate the level of competence and as a foundation for recruitment. Such use of formal competence measures also makes it possible to hire personnel without a through and cumbersome testing of their skills.

As a result, the transaction costs (cf. Williamson, 1981), in this case the firm’s recruitment and selection costs will be lower than they would otherwise have been it the candidates’ competence had to be tested by the firm itself. In the sociology of education, this has been called the filtering or screening function of education (arrow, 1973; Collings, 1976; see also Nordhaug, 1991a).

Formal competence is also frequently applied as a criterion for screening recruits to different formal training programmes financed by the firm. This may either be a way of rationing a scarce good in high demand or may reflect the fact that a minimum level of competence is necessary for participants to be able to follow the programme.

 The competence portfolio

The firm embraces individual with different competences, and consequently, one challenge is to co- ordinate and utilise a range of dissimilar competences that are spread among a large number of employees. It is reasonable to assert that the way in which this is accomplished strongly affects the performance of the firm.

The firm’s competence assets at a given time may be described as a portfolio of competences (cf. Nordhauh, 1991b). A central point is that this portfolio may be more or less well understood by the firm’s management and employees. Few companies possess a complete understanding of their actual competence potential but may approach such a comprehension if the available competence resources are carefully tabulated and assessed.

We will argue that the firm’s competence portfolio can be fruitfully described in terms of its relevance for task performance, degree of uniqueness, visibility and domain specificity. The relevance of employee competences in regard to the performance, of work tasks is of course central. If the competences in place are not sufficiently relevant for the execution of the work tasks emanating from the particular competitive situation at the time, chances of achieving a satisfactory work performance are very slim.

The notion of competence visibility regards the degrees to which they are manifest or latent, i.e. whether they are being used or remain hidden and no immediate value to the company. Still, once detected, competences which are applicable in present or future work constitute a potential for the firm.

When key competences in the firm are unique compared to those of the competitors, when they are time-consuming to develop and when they are efficiently protected, they can generate impotent and sustained competitive advantages for the company.

An illustrative example is the competence of Swiss watchmakers, which for a long time, until the industry was revolutionised by the quartz technology, provided the Swiss watch industry with extraordinary competitive advantages. In this case, the competence was closely linked to the mastering of advanced techniques of precision mechanics, which, despite many attempts at imitation, proved difficult for others to acquire.

Yet another important factor relates to how general or non-specific the competences are. A competence’s degree of specificity may vary from being relevant only to one single task in one company to being applicable to tasks in many companies or an entire industry (cf.Nordhaug, 1993:ch.3).

A common assumption is that managerial skills are of a general nature. However, the following quote illustrates that is not the whole truth: ‘It has often been asserted that someone who is a good manager at home, also will be a good leader abroad. This is not necessarily true. Our experience has been that even though a manager may function well in one environment, he or she does not always function well in another environment’ (Heiberg and Odegard, 1983).

Whereas standard text books and most management development programmes predominantly aim at transmitting general competence, the quote underscores the fact that, to function well as a manager, the person I question must also have specific competence pertaining to the firm’s domain of operation.

This is also supported by the literature on experts versus novices. Both groups usually have basic, rule based knowledge. However, in contrast to novices experts possess detailed domain-specific knowledge (for an overview, see Ashcraft, 1989).In those cases where domain-specific competences are difficult to acquire, or take substantial time to develop, possessing them may represent an important competitive advantage.

An example is the advantages of truly knowing and understanding the customers. This can lead to close and lasting relationships which the competitors cannot sever. We may, moreover, observe the advantages power possible through domain-specific competence in biographies of business and political leaders, which often demonstrate how persons possessing and influence outcomes. Another point is that the competence applied and the manner in which it is utilised determines organisational performance, i.e. how the company’s competence manifests itself in the firm’s value activities. This has important implications.

(The writer is the Managing Director and CEO, McQuire Rens Group of Companies. He has held regional responsibilities of two multinational companies of which one was a Fortune 500 company. He carries out consultancy assignments and management training in Dubai, India, Maldives, Singapore, Malaysia and Indonesia. He is a much sought-after business consultant and corporate management trainer in Sri Lanka.)

First, the company’s configuration of competences, which reflects how these are chosen and combined, is crucial for the company’s competence s can create synergies such that: R (k1+k2)> R (k1) +R (k2), indicating that the result (R) of utilising sum of both competences k1 and k2 combined is greater than the added results generated by utilising each of the two of them separately.

Third, the utilisation of the firm’s competence has a social dimension. The way in which people interact can contribute to producing new, collective competences. This is clearly demonstrated in firmed with positive cultures, where the teamwork is effective and goal directed.

There are examples of firms which outdo their competitors not because their competence base is better or different, but because their co-ordination of the competences is considerably better. A well-know example is the tightly co-ordinate and collaborating football team that lacks star players, yet plays well enough to beat star-studded teams.

We may apply the concept of ‘social capital’ to denote the fact that co-operation can produce added values (Coleman, 1988). Individual competence may thus increase in value as it is used in co-operation with others. When competences are well co-ordinate, the social capital to be found in the firm’s internal network is substantial. (The fact that its competences base also may be augmented through the utilisation of external networks will be discussed later.)

The fourth implication is that the role of management is critical in regard to the interpretation, planning and employment of the firm’s applied and potential competence. This in turn involves giving priority to the development of the competence portfolio and searching for co-operative partners who possess valuable complementary competences.

Distinctive competences

Understanding what distinguishes the firm from other firms is critical to its strategic development. The concept of core competences has been needed to depict what the firm is able to perform with excellence compared to its competitors. It is therefore essential for firms to analyse their competences in order to identify core competences, so measures can be taken to further protect and develop them.

Examples of competences include Apple Computer’s ability to develop and market user-friendly software and personal computers. Sony Corporation’s skills in manufacturing and miniaturising components, Honda ability to develop and produce light-weight, fuel-efficient engines, and Bang & Olufsen’s competence in development and designing high quality, user-friendly high fidelity equipment.

There is today tendency for many firms to concentrate more strongly on strengthening their core competence by outsourcing many of the activities needed to make the end product that can be performed with higher quality or more efficiently by other firms, which are then made suppliers and subcontractors. Hence, products are to lesser degree made by one firm only and to an increasing extent by contractual networks of separate firms (cf. Carnevele, 1991).

As already mentioned, the relevance of the competence is also crucial. If the degrees of uniqueness and relevance are high, a potential for competitive advantage is present. A third factor relates to how efficiently the competence base is protected.

If a person with a unique and relevant skill is the cornerstone of the base, the firm is extremely vulnerable to the degree this person is inclined is inclined to shift to another company.

An example is the company employing an outstanding scientist who is key is carrying the unique R&D work. If this employee quits, the function of the firm’s distinctive competence may erode. Such developments have been observed at many universities. For example a making science department at a US university was ‘wiped off the map’ when prominent more or less simultaneously left for positions at competing universities.

In case where the distinctive competence is linked to collaboration between individuals, it is often far better protected. First, the competence depends on a combination of several, which may make it more stable and less vulnerable. Second, the fact that the distinctive competence of the firm embraces supra-individual elements through the existence of team skills will make it difficult for competitors to observe, decompose and duplicate. Scandinavian Airlines System’s (SAS) successful transformation during the 1980s has, for example, been partially attributed to its ability to develop and utilise the employee’ collective competence through inculcating in to the corporate culture a shared mindset emphasising excellent customer service paired with generation of crucial competences. Despite the public openness of the top management and the many easily duplicable ‘smile-to-the customer courses’, few other airlines seemed to succeed in imitating SAS’s distinctive competence at the time.

Competency based interview

A competency interview (also referred to as a situational, behavioural or competency based interview) is a style of interviewing often used to evaluate a candidate’s competence, particularly when it is hard to select on the basis of technical merit: for example, for a particular graduate scheme or graduate job where relevant experience is less important or not required.

However, increasingly, companies are using competency based interviews as part of the selection process for experienced recruitment, as it can give valuable insights into an individual’s preferred style of working and help predict behaviours in future situations.

Conventional job interviews may focus on questions relating to an applicant’s past or previous industry experience, but this is an ineffective tool for graduate level candidates who are not expected to have any former experience in the industry they wish to work in.

Questions about industry experience will not be part of a competency interview. Instead interviewers will ask questions that require candidates to demonstrate that they have a particular skill or a “key competency” the firm is looking for. Candidates will be asked to do this using situational examples from their life experiences, to illustrate their personality, skill set and individual competencies to the interviewer.

Competency interviews may also feature questions that probe candidates on their knowledge of the company and industry they have applied to. This type of interview question tests candidates on their motivation and commitment to career.

A typical competency based interview will last for one hour. At most major firms, competency interviews will also be standardised. Consequently all applicants can expect to be asked identical questions. Employers typically use some of the following as their key competencies:

  • nTeamwork
  • nResponsibility
  • nCommitment to career
  • nCommercial awareness
  • nCareer motivation
  • nDecision making
  • nCommunication
  • nLeadership
  • nTrustworthiness and ethics
  • nResults orientation
  • nProblem solving
  • nOrganisation

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