5 Steps to an Effective Competency-Based Performance Management System
Performance management is more than an annual review. It's an ongoing process that cultivates employee potential and drives organizational success.
Employees' expectations of performance reviews are changing. They look at it as an opportunity to grow.
Suman Rudra, HR with 20+ years of experience, says everybody wants to know how far they can go and what their future could be in an organization. That's where competencies come in. Competencies are futuristic. With competencies set for different roles in advance, employees have a clear path for long-term growth in their current and next roles.
Let's see how competencies can be coupled with performance management.
This article will:
- Explain the concept of competency-based performance management and how it differs from traditional performance management.
- Offer detailed steps for implementing a competency-based performance management system.
- Discuss major challenges companies face in adopting a competency-based performance management system and how to avoid them.
🌟 What is a competency-based performance management system?
A competency-based performance management system is an approach to evaluating and enhancing employee performance based on developing and demonstrating specific skills, knowledge, and behaviors, known as competencies. These competencies are linked to successfully completing job responsibilities and achieving business goals.
Rather than just focusing on the output or results, this performance management system emphasizes the processes and behaviors employees engage in to achieve those results. It enables a more holistic, balanced assessment of employee performance, incorporating both "what" employees accomplish and "how" they accomplish it.
A competency-based approach to performance management:
- Fosters continuous learning and improvement.
- Promotes professional growth.
- Aligns individual performance with organizational objectives.
🆚 Traditional vs. competency-based performance management
🪜 5 Step process to implement a competency-based performance management system
1. Competency mapping
The first step is to start with mapping competencies for every role. Create a list of all job roles in the organization and define the functional (technical or domain level) and core competencies for every role.
➡️ Why stare at a blank page? Download a free competency matrix template to get started.
🆘 Note: Don't treat the competency-mapping process as a one-time exercise.
Competencies for roles evolve with time.
Plus, new roles also get added with time as the company expands. These roles also need competency mapping and a job description that aligns with the mapping.
2. Create competency-based career paths
Competency-based career paths are a clear graph of competencies needed for current and future roles.
For instance, a junior developer will need communication skills at a basic level.
On the other hand, they need advanced time management competency to plan deliverables well to become a team lead.
3. Educate managers and employees
This step is crucial for the entire system to work. Educate employees and managers on:
- The basics of competency frameworks.
- How growth plans are designed based on competencies.
- How competency-based career paths work.
- How to assess based on competencies.
- How to shift the conversation from evaluating to coaching.
The HR team can own this initiative and conduct sessions to bring employees and managers on the same page. You can also conduct further training to develop the necessary skills in managers to coach employees.
4. Enable competency development
Before assessing employees, give them an opportunity to grow.
Employees can have one-on-one meetings with managers and define development plans for learning based on competencies.
Two major ways of learning are:
1. Hand-on projects: Managers can assign any additional tasks from regular deliverables or shadow assignments where employees can learn the competency
2. Training: The Learning and development team can also provide additional training and development programs (Online, offline) for competencies.
5. Initiate competency-based performance appraisal
Lastly, after all the base work you have done, you can initiate a competency-based appraisal.
The conversations are now more growth-focused and not necessarily top-down communication.
We highly recommend collecting 360 feedback (feedback from peers, juniors, and managers) for well-rounded feedback.
➡️ Are you in need of a shortcut for your first competency-based reviews? Check out our competency performance review template to get started.
😟 7 Challenges to be aware of when adopting a competency-based system & How to overcome them
Incomplete competency mapping
Defining competencies is not the easiest task.
Words like competency, skills, and behaviors are often used interchangeably.
The first step is to have an actionable definition of each competency associated with the role and how it can impact work.
Here is a sample definition and proficiency levels of a common competency: Time management.
Definition: The ability to prioritize tasks, meet deadlines, and use time effectively.
Proficiency levels:
- Basic: Can prioritize tasks and manage their time.
- Intermediate: Can prioritize tasks and manage the time of smaller teams.
- Advanced: Can prioritize tasks and manage the time of bigger teams.
- Proficient: Can optimize team's time.
- Expert: Can optimize organization's time.
Another mistake organizations make is defining only technical and ignoring core competencies like communication, time management, etc. Both are important for an individual to perform their best.
Having incomplete mapping creates a weak base for managing performance.
💡 Solution: Complete your mapping process using our step-by-step competency mapping guide. You get detailed steps right from making a list of roles and how to define competency for each role.
For a shortcut, grab our competency framework with role-based competencies for 10 different departments.
Tough to shift from traditional systems
Shifting from traditional systems to competency-based systems is time-taking.
Transforming the entire system needs changes in process, tools, and above all, mindset.
You may also see pushback from employees who are comfortable with existing systems and do not see this change as an opportunity to grow.
💡 Solution: Don't expect everything to get perfect in one iteration. Start with a working model in the first quarter and further enhance it based on the feedback. It takes time to perfect a process and for employees to get used to it.
Poor understanding of the system
Toshi Jain, an HR leader with over 17 years of experience, says the biggest implementation issue she observed was a lack of understanding of competency-based performance management in employees.
Managers and team members might be stuck in their way of doing things and do not understand why they must now chase this new thing, 'competency.'
💡 Solution: Have regular sessions on competency management and performance reviews.
Toshi Jain has made it a point to conduct at least one quarterly training session giving an overview of performance management systems in her current organization.
Not understanding the importance of competencies
Megan Leasher, an award-winning industrial and organizational psychologist, says HR leaders say organizations see resistance from employees as many don't understand what competency is and why it suddenly matters.
💡 Solution: Before speaking or educating on the performance management system, start with the basics. Talk about how competencies are important and how they tie to business goals and individual growth.
No active effort for developing competencies
Matthew Brown, Chief People & Culture Officer at Schoox, highlights the major reason for the disconnect employees face when adopting this new and improved performance management system: It is seeing competencies just once in a while at recruitment/reviews and then no learning and development programs for it. How can employees be reviewed on something they aren't working towards?
💡 Solution: Plan competency-based learning for employees. Support employees with development plans and training to master competencies associated with their role or the roles they aim for.
Shifting the conversation from rating to coaching
Managers' toughest challenge is shifting their mindset from rating performance to coaching employees and guiding them to improve.
Toshi further spoke on the topic, and she said the major issue she observed was performance management being tightly coupled with annual appraisals.
Firstly, it's tougher for employees to do honest self-reviews when they know it directly affects compensation.
And managers also get pushed to see reviews from the lens of evaluation alone and not coaching employees (which is important for competency-based performance management reviews to work).
The hard truth is that many parameters affect appraisals: market, company performance, and more.
💡 Solution: Decouple annual appraisals from performance reviews. Anyways, a year is quite far to leave employees without feedback. Conduct quarterly competency-based performance reviews and keep a loop of continuous feedback.
🅰️ Adobe has mastered the art of continuous feedback. Discover more in our case study of performance management at Adobe.
Tying competency mapping in the entire employee lifecycle
Organizations find it tough to tie competency mapping in the entire employee lifecycle: recruitment, training, and performance management.
💡Solution: You can take below three steps:
- Start with using the competency framework in hiring. Draft job descriptions for all roles based on competencies.
- Add competency-related training to your Learning Management System.
- Lastly, implement a competency-based performance management system when the legwork is done.
🏆 5 Advantages of competency-based performance management
Brings clarity
Competency-based performance management firstly brings clarity to employees on what's expected out of them. What's worse than finding you were doing it all wrong at the end of the year in performance reviews?
It further brings clarity to managers to set realistic expectations.
"Competency-based systems ensure you are not expecting a fish to climb a tree," Madiha Mouchtak, Founder and Managing Director of Answer Inside.
In traditional systems, there aren't any standards around setting goals, making it subjective.
But in competency-based systems, managers know what to assess and the employee goals.
Ensures clear growth plans
With competency models, employees know what to do to grow in their current role and how to move to the next level.
To quote Madiha again: "What's worse than discussing goals with the manager in a performance review, working on it year round and coming back next year only to find now they expect something new."
Competency models empower employees to create specific and actionable growth plans.
For instance, a senior marketer aiming to become head of marketing will know they must develop analytical skills to deal with all the data they get from different marketing channels and learn to make strategic decisions.
Facilitates succession planning
Only 1 in 5 companies do succession planning the way it should be done. When asked about the challenges, the top challenges highlighted were:
- Lacking a standardized process.
- Lacking knowledge.
- Getting buy-in from employees and leaders.
A competency framework supports succession planning by better strategizing for key roles and developing competencies in advance for those roles in the workforce.
Enables better reviews
Managers dread one-on-one, often more than employees.
Stuart Hearn, an HR Tech entrepreneur, says a competency map becomes a good tool for conducting one-on-one performance review meetings. It sets a base for discussion, and managers have a cheat sheet to return to and discuss the goals.
Creates a high-performance organization
Skills set for jobs are changing. They are expected to change by 50% by 2027.
Regular competency mapping for jobs and measuring performance based on competencies ensure you build employee skills to help you keep up with changing demands and avoid skills gaps.
➡️ Enable competency-based performance management with Zavvy
Zavvy taps into the biggest challenge of performance management: tying competencies into the entire employee lifecycle.
With Zavvy, you can:
- 🤖 Easily define competencies across levels and roles with Zavvy AI.
- 🗺️ Create competency-driven career paths for employees to have full transparency of what is expected of them.
- 🌱 Develop growth plans for each competency.
- 💪 Assign courses to ace each competency.
- 🔄 Conduct competency-based performance reviews to support employees regularly.
📅 Book a free call. One of your experts will guide you through the whole process.
❓ FAQs
How do competencies link to performance management?
Competencies are skills and behaviors an individual needs to do their job well. For example, a Quality Assurance engineer needs a solid understanding of software testing, communication, and teamwork competencies. Aiming to improve the company and job-specific competencies positively impacts individual performance and eventually builds high-performance teams.
What is the difference between performance and competency?
Competencies are skills and behaviors an individual needs to do their job well. On the other hand, performance is reviewing how one did their job. Simply put, competency is the expected goal, and performance is the actual result.
Are competencies and KPIs the same?
Simply put: competencies and KPIs are not the same. Key Performance Indicators(KPIs) are often linked to departments or the company as a whole.
For example, revenue or profit per employee, utilization rate, and average task completion rate are common KPIs. You could set KPIs for improving competencies: e.g., improve negotiation skills, as showcased by the closed rate of your sales reps.
What is the role of competency in performance development?
Competency mapping identifies which skills or behavior an individual needs to succeed in their role. Once competency mapping is done, it becomes the base for employee development. What to train them on and what to review.
What are 5 key steps in the competency mapping process?
The five keys steps to the competency mapping process are:
1. Make a list of roles in the organization.
2. Find core competencies for every role.
3. Determine functional competencies for every role.
4. Create an ideal competency profile with a list of expected core and functional for each role.
5. Assign competencies to all employees. Assess where they are currently at and what to aim for.
What are 6 core competencies of management?
The top core competencies for managers are:
1. Time management: The ability to prioritize tasks and manage their and the team's time.
2. Communication: The ability to effectively share ideas and convey information to the team.
3. Embracing change: The ability to cope with changing demands, manage anxiety, and lead the team through the changes.
4. Leadership: The ability to support individuals' growth and achieve team goals.
5. Realistic goal setting: The ability to set attainable goals for the team that aligns with business demands.
6. Persuasiveness: The ability to effectively present their opinions to team members and influence their decisions in the business's best interest.
What is an example of competency-based performance management?
One of the top technology corporations, IBM, has used the competency model for years. The tech giant maps out competencies for different roles. The top performance goal for IBMers is to excel in these competencies.