The following real-life vignette portrays the dilemma of a CEO who must contend with the challenges of competency-related issues within a typical organization. Conclusions drawn from the vignette provide an overview of the competence needs of most organizations today and suggest approaches by which an HR department could address those needs. We then briefly explore six trends that affect organizations and explain their influence on the need for competency-based HR management applications. The chapter concludes with the presentation and discussion of the generic model for the conceptualizing and planning of customer-driven, competency-based HR management applications.
"Dr. Rothwell, I have a problem," began the CEO of a small high-tech company. "I'm calling you because my HR department is broken."
"Really?" said Rothwell. "Tell me more."
"It all began a few years ago. I hired an HR director from a multinational company. His former employer described him to me as someone who could ‘walk on water,’ in terms of HR. I invited him to join my explosive growth firm and head up our first HR department. After 12 years, we have 400 employees, and our business has been growing an average of 100% per year. It was time to establish a department to bring order out of the chaos of our HR activities."
"Yes, please give me more background," Rothwell said.
"Well, it's a simple thing. My director of HR has a written contract, which is due to be renegotiated, and I have to decide what to do. Our turnover is atrocious, and it seems to take entirely too long to fill positions. We have no salary system, no employee recognition and reward processes, and no new-hire orientation. Our workers want to unionize, and I'm hearing complaints from all departments that HR is not doing its job. Could you come in here and take a look?"
"Certainly," replied Rothwell, "but I'd like to see some documents before I arrive. Could you send me a copy of your job descriptions, company performance appraisal system, personnel policy manual, employee handbook, and strategic business plan?"
"I'd be happy to," responded the CEO, "if we had all of that. But we don't. In fact, we've never been able to agree on job descriptions, and when we tried to implement a performance appraisal system, it was a complete disaster."
Following this discussion, Rothwell visited the company and interviewed numerous managers and new hires. He learned that internal customers of the HR function were most unhappy with the quality of candidates recruited for vacant positions. Managers, in attempts to get the work out, selected the best from among the undesirable (in their opinion) applicants. The organization, Rothwell learned, was experiencing a crisis of competence in several departments. Further investigation revealed that the director of HR and his staff had not requested adequate information about the competencies required of workers who could successfully fill those positions. Consequently, competencies that could not be easily learned on the job were not considered during recruitment and selection. Interview questions lacked focus and instead covered such topics as an applicant's strengths and weaknesses or reasons for applying for a job. Accordingly, the persons selected and placed in strategic positions were not capable of producing the outputs or results needed for organizational success.
Many of the managers interviewed for the HR department audit insisted that they had repeatedly requested the HR department's assistance with competency development for their employees. The consultant discovered that the HR department largely ignored such requests because it did not know how to design, develop, deliver, and evaluate competency-based training.
Although several conclusions could be drawn from this real-life vignette, we can make two critical observations. First, the HR director failed to understand the importance of several key trends affecting the high-tech industry. And second, the explosive growth nature of the organization created an environment in which he was pressured to find somebody—anybody—to fill immediate vacancies. The HR director had worked with a multinational firm, but in that setting, he enjoyed the support and assistance of a large, competent HR staff.
Details of the vignette give the impression that the organization's managers wanted competency-based HR management. The HR director should have initiated the following steps:
It is quite clear that the CEO's concerns were largely about developing or acquiring the competencies needed for organizational success and the HR director's failure to do so. Virtually nothing can be achieved without human competence, even in an organization that has an impressive array of modern technology at its disposal.
Next, we examine key trends that affect businesses and organizations, including the one described in the vignette.
Many business publications today contain references to trends that are predicted to affect businesses or organizations in the future. Whatever factors affect a business, it is certain that they will ultimately affect its human resources and the HR function.
A study conducted by Rothwell (1996), and jointly sponsored by the Society for Human Resource Management (SHRM) and CCH, identified the most important trends that will affect organizations and their HR management over the next 10 years. The study specified six key trends, pinpointed their causes, listed their possible consequences, suggested organizational best practices to address them, and recommended essential leadership competencies that will help organizations anticipate the effects of the trends.
These trends were examined further by Rothwell, Prescott, and Taylor (1998), who prioritized them as follows:
In the following pages, we briefly explain each trend and its influence on the need for competency-based HR management.
Technology is more than gizmos. The word technology refers to any tools that are essential to achieving work results. It also includes the human know-how needed to make the tools work. As such, technology affects the skills that workers must have in order to perform.
More new technology has been unveiled since the dawn of the 20th century than in all the centuries before it, and technological change continues to occur at an accelerating pace. The HR function is just at the beginning of a learning curve in that respect. As noted by Ulrich (1997), "Managers and HR professionals responsible for redefining work at their firms need to figure out how to make technology a viable and productive part of the work setting. They need to be ahead of the information curve and learn to leverage information for business results" (p. 13).
There are six categories of technology that represent important components of this trend. The first five are information technology, communications technology, industry and product technology, process technology, and revolutionary or evolutionary technology (Rothwell et al., 1998). The sixth category is "human know-how, which links human creativity, knowledge, and ability to the other five technologies" (pp. 43–44).
Technology confers a competitive advantage only when human beings are capable of using it. Hence, organizational decision makers should structur their thinking around the competencies that enable individuals to make the best use of both existing and emerging technologies. Competency-based HR management, unlike traditional work-or job-related approaches, helps to identify exemplary performers and can be used to develop and select others to match the exemplary performer's ability to achieve results.
Globalization refers to commerce without borders. The emergence of a worldwide marketplace was perhaps the single most important development of the 1990s (Rothwell, Prescott, & Taylor, 1999). In addressing this trend, managers and HR practitioners must collaborate across national cultures as they seek solutions to international management problems. Some HR experts have noted that this trend will likely require more attention to diversity, open thinking, constant willingness to embrace change, use of different distribution channels, and more robust global labor organizations (Rothwell et al., 1998).
Ulrich (1997) described the impact of globalization as follows:
Globalization dominates the competitive horizon. The concept is not new, but the intensity of the challenge to get on with it is. Globalization entails new markets, new products, new mindsets, new competencies, and new ways of thinking about business. In the future, HR will need to create models and processes for attaining global agility, effectiveness, and competitiveness. (p. 2)
Kerr and Von Glinow (1997) suggested that as the impact of globalization intensifies, HR will be called upon to help prepare people for international assignments and the numerous aspects of doing business away from home.
Globalization will lead to increasingly fierce competition on a worldwide scale. Nations where labor is cheap will enjoy a comparative advantage over economically developed nations where labor costs are much higher. Economically developed nations that intend to remain competitive must tap the creative talent of their workforces. Competency-based HR management can help by identifying exemplary performers and pinpointing their capabilities. And, indeed, there is keen interest globally in competencies and their value for remaining competitive through superior talent management.
Cost containment means making products or delivering services at the lowest possible cost. HR experts cited the following consequences of an organization's attempts to contain costs: more emphasis on establishing strategic relationships; use of outsourcing, which allows the organization to focus on its key business strengths; and demand for new technology that can reduce costs (Rothwell et al., 1998). To those ends, organizations must manage their people-related expenses and their talent needs more effectively. That will mean, in one sense, that decision makers must do a better job of fitting work to the people rather than fitting people to the work, a goal with which competency-based HR management is well suited to assist.
Speed in market change means that customer expectations are changing more quickly than ever and that customers expect their needs and desires to be instantly gratified. Organizations that intend to thrive in this environment must respond more rapidly to consumers' wishes. Markets in many sectors are unstable, and the first company to get there with the desired products or services will be in the best position to capture market share. Customers have come to expect a faster cycle of new products or services, and they tend not to tolerate quality or quantities that do not meet their expectations.
What can be done to adapt to this trend? Organizations should prepare for new markets before they emerge and use their market data before the information becomes outdated. They should establish strategic partnerships. Those that are leading the market must be able to recognize their position and capitalize on it. Organizations should also stay in touch with their customers, monitor the performance of their products or services, and take action when correction is needed. It is also important to understand that work stress will increase along with the need for reduced cycle time to create more new products and services (Rothwell et al., 1998).
Under these conditions, decision makers will be pressured to respond to customer expectations faster and with higher quality goods and services. To that end, they must unleash the creative power of workers. Competency-based HR management can be helpful in that respect, since it develops the strengths of individual workers in anticipation of future need.
To an increasing degree, organizations must pay close attention to their knowledge capital. To effectively manage intellectual capital, an organization must create or acquire the critical knowledge and then organize, analyze, disseminate, and apply it toward producing the desired results. Intellectual capital is frequently associated with a core capability. (For further information, see Green, 1999, or Greene, 2000a, 2000b.)
Rothwell et al. (1998) defined knowledge capital as the "collective economic value of an organization's workforce" (p. 180), which comprises institutional memory, the talent pool, and creativity. Institutional memory refers to the preserved collective experience of the organization. It is composed of everything that people remember about the organization's past actions and includes lessons learned from that experience. The talent pool, or competency pool, as it is often called in this book, is the know-how that is currently available in an organization. Creativity means the ability of the workforce to produce innovative solutions and breakthrough ideas.
HR experts noted that the growing significance of knowledge capital created additional needs for organizations. These include a need to distinguish between the technical and management competency, an evergrowing business and worker mobility, and a rising need for training.
It is also important to develop ways of measuring intellectual capital. Ulrich (1997) suggested that measurement methods change with the process of securing intellectual capital.
Traditional measures of success, focused on economic capital (for example, profitability or financial performance), must now be coupled with measures of intellectual capital. Seeking, finding, and using such measures will be among the primary challenges facing the HR professionals of the future. (p. 14)
Competency-based HR management is an especially appropriate response to the growing importance of knowledge capital. After all, the competency-based approach strives to achieve the greatest competitive advantage by identifying and developing exemplary performers and bringing fully successful performers closer to exemplary performance.
From a business perspective, change is challenging because it means many things to those who experience it. Employees of organizations that have been part of a regulated business environment or otherwise stable industry often react in a chaotic manner when faced with change. By functioning with expertise in the significant area of change management, HR practitioners can be of great value in facilitating organizational change.
Yeung, Woolcock, and Sullivan (1996) reported on a research study based on interviews with 10 senior HR executives. The study was commissioned by The California Strategic Human Resource Partnership, a consortium of senior-level HR leaders from 31 leading California companies. The interviewees identified the capacity to facilitate and implement change as a key competency for senior HR generalists at both corporate and business levels.
Unmanaged change can have negative effects, including reduced productivity, burnout, loss of quality in products and services, damaged customer relations, and lower employee morale (Bennett, 2001). "Resistance to change also contributes to longer-term resistance to future change, making it more difficult to smoothly implement the next restructuring, be it a technology update, a merger or acquisition, or a leadership transition" (p. 3). The findings of a 1997 research study of more than 2,000 senior executives from 23 countries, including 455 from the United States, indicate that organizational culture is the greatest barrier to promoting desired change (Competing in a Global Economy, 1997).
Researchers Bernthal, Percuric, and Wellins (1998) explored workforce development practices in a 1998 survey that included responses from 171 organizations of Development Dimensions International's HR Benchmark Group. The respondents, primarily HR directors or vice presidents (67%), were asked to name two skill areas that were most in need of development. The results suggested that the greatest need for skill development is focused on skills for effectively approaching the challenges that accompany a work environment experiencing rapid change.
SHRM sponsored a research project that analyzed data from multiple sources and provided thematic analysis of the interviews and feedback from focus groups in order to identify functional challenges and develop definitions for the critical roles in human resources as well as for competencies and behaviors that support each of the roles. Results indicated that one of the significant functional challenges for the human resources community is managing rapidly evolving change. Issues involved with this challenge include "early detection of and response to key competitive issues, identification and initiation of change/innovations required for preempting competition, leadership in process improvement and re-engineering initiatives, and facilitation of continuous change initiatives (to overcome team process barriers and accelerate the pace of change)" (Schoonover, 1998, p. 17).
Lawler and Mohrman (2000) noted that change results from a number of key trends, such as the rapid deployment of information technology, globalization of the economy, and the increasingly competitive, dynamic business environments in which corporations operate. Beer (1997) explained that the transformation of HR management is due primarily to competition, globalization, and continuous change in markets and technology. He suggested that because of these forces, organizations are undergoing a revolution in organizing and managing people that will last well into the 21st century.
If HR practitioners are to help organizations react to, and even anticipate, change, they must be able to assemble a team of individuals capable of dealing with the challenges posed by the external environment. For that reason, they must become more adept at establishing and maintaining competency inventories that link individual capabilities to the rapid and robust solution of organizational problems and strategic issues. Competency-based HR management consequently becomes a competitive necessity, since it offers the only means of converting the traditional focus on work activities into an approach based on individual competencies.
The word talent is derived from the Latin talenta (units of weight or money). Fittingly enough, talent is an important source for creating value in organizations today (Michaels, Handfield-Jones, & Axelrod, 2001).
The implications of the six trends just described can be summarized in just a few words. HR practitioners must assume responsibility for leading the way in their organizations to add value. The use of competency-based HR management techniques provides the single most useful approach to position the HR function in a leadership position so they can provide this value.
After a decision has been made to initiate one or more competency-based HR management applications, HR professionals must develop a conceptual plan to implement the application. The success of a competency project depends somewhat on its project plan. "An action plan is the primary tool to manage the workload, review and appraise project progress, and communicate with project team members and key stake-holders about the work to be done" (Lucia & Lepsinger, 1999, p. 56). It will also be a useful tool for identifying resource requirements—people, time, money, and technological tools—needed to complete the project (p. 57).
Figure 2 depicts a useful model for achieving that purpose. The steps are not intended to be rigid. Practitioners should use this model to plan at the macro level, rather than the micro level, regarding which competency-based HR management applications they will create later. We provide detailed implementation plans for each competency-based HR management application in other chapters.
Figure 3: A Model to Guide the Implementation of Strategic HR Management
Step 1: Identify organizational business objectives and HR customer needs
Begin the process of implementing strategic HR leadership by determining the organization's business objectives and ensuring that they are communicated clearly to the customers of the HR function.
A good place to start is to ask HR customers, such as line managers, to identify their goals for a competency-based HR management application—for example, improved employee retention, succession planning or management, or improved individual development. These goals should relate to the application results, and the results must be in line with business objectives.
The customer may need to complete an operational analysis in order to pinpoint focal areas. An operational analysis is an assessment of the organization's environment, strategies, and resources. A set of written guidelines along with a brief example of the application in use are generally enough, but if the customer needs assistance, a collaborative effort works well. This first level of analysis must be completed before proceeding to meet a customer's need.
Steps 2 and 3: Conduct environmental scanning and identify sectors of chief concern to the HR customer
Environmental scanning is the process of identifying and assessing trends or issues in the organization's external environment that might suggest that the HR customer could possibly benefit from using a competency-based HR management approach. Environmental scanning, which focuses on the future, has numerous benefits. Assessing trends that affect the future of the customer's application can help decision makers to avoid costly investments in competency-based applications that are of limited use. The trends and issues discussed in chapters 1 and 2 are the primary references for environmental scanning work. Other valuable resources include information published by trade, professional, labor, or other organizations or available at Internet sites.
Benchmarking, which addresses recent past and present approaches to solving or managing problems, contributes to identifying innovative, competency-based solutions with long-term value to the HR customer and the organization. It can also identify useful practices and the success factors that affect them.
Both environmental scanning and benchmarking help HR practitioners and their customers to determine which sectors will benefit from competency-based applications. It often is not necessary to focus on every sector. HR practitioners and their line management customers therefore should not hesitate to commit appropriate resources to the completion of Steps 2 and 3.
Step 4: Align organizational business objectives with HR customer needs and define project objectives
Aligning an organization's business objectives or strategies with HR customer needs might appear to be a complex or abstract process, but it is not.
Competencies provide a means of characterizing an organization's human capital. Effectively selecting and rewarding the needed competencies in employees should have an impact on organizational success (Orr, 1998). Linking competency applications to strategic requirements is an important step in the model.
Use a straightforward approach to establishing alignment between the organization's business objectives and the HR customer's project objectives. The process includes researching and verifying answers to several questions and then triangulating the answers to clarify how much and what kind of alignment is necessary.
Here are some recommended questions:
Objectives for the competency-based HR management application are defined as soon as both the customer and the HR practitioner see clearly that alignment exists. Outcomes for the application should be expressed in observable and measurable terms, as shown in the following example:
Without clearly stated objectives for the projects, and without the understanding and agreement of all parties involved, difficulties can—and most probably will—arise.
Steps 5 and 6: Ensure HR customer endorsement of the project objectives and decide on the next steps
If the HR practitioner has been actively involved with his or her customer up to this point, obtaining customer endorsement should proceed smoothly for both parties.
There are times, however, when the HR function, the customer, or both are unable to deliver all the envisioned results. Possible reasons include legal restrictions, limited time and resources, and constraints imposed by organizational or external environmental factors. In cases such as these, the HR practitioner must keep the customer informed and seek ways (sometimes with customer support) to remove the constraints when possible.
After addressing the obstacles, the HR practitioner and the customer will have enough information to decide whether to complete the project as it was envisioned or to adopt a modified form of it. We refer to this as making a "go" or "no go" decision. Allowing major projects to remain in limbo for too long compromises the possibility of successful completion.
It is very important that the HR practitioner avoid committing to completion of a competency-based HR management project under the following conditions: the decision-making time frame is extended excessively and without credible explanation; the customer is reluctant to accept project terms that are known to lead to success; the customer does not allocate the resources defined as necessary for use in implementing the project; the expertise within the HR function and within the customer's control is not sufficient to complete the project successfully; or the organization is in a state of turmoil that can be predicted to affect achievement of the project objectives. Other circumstances could be mentioned, but these are the primary ones that practitioners frequently encounter. Timely action by HR practitioners is an important factor in the success of all competency-based HR management projects.
Step 7: Develop a project management plan to guide long-term implementation
A project management plan is an essential requirement for a successful competency project. Several software tools that support the development and maintenance of project management plans are currently available. The choice of which tool to use is a matter of personal or organizational preference.
In our experience, the following elements are a necessary part of every competency project management plan:
Additional information may be required for successful use of certain software packages. Regardless of the software and its requirements, however, a less than perfect plan is better than no plan at all.
Step 8: Implement the project management plan
After a project management plan has been developed and endorsed by HR and the HR customer and adequate resources have been committed to the project, implementation can begin.
We offer the following suggestions to increase the likelihood of successful implementation:
Step 9: Conduct formative and summative evaluations
Astute managers know that evaluation of any project begins in the planning stage. Evaluations of competency-based HR management project inputs, processes, materials, and interim outputs are called formative evaluations and are made from the inception of the project—usually through testing out the project through a small-scale pilot project. Every step, product, and process in a project should be subjected to rigorous evaluation. For example, learning about inappropriate data collection procedures early in the initial stages of a project provides the opportunity to correct deficiencies before they become problems. The effective use of formative evaluation is key to successful project development and implementation.
Assuming the project underwent adequate formative evaluations and the changes made had a positive effect on outcomes, it is time for an evaluator to conduct a summative project evaluation. A summative evaluation assesses the overall results of a project after it is completed. The evaluator explores many fundamental issues. Did the project achieve its expected objectives? Were the objectives fully or only partially achieved? For what reasons? What were the effects of the results or outputs on the organization? Were these effects the desired ones? How did the outputs or results affect achievement of the organization's business objectives and business strategies? Were there unintended effects? Were they beneficial or detrimental? What could have been done differently during various project phases to improve the likelihood of successful results or inputs beyond the project objectives?
Both formative and summative evaluations are essential for the long-term success of competency-based HR management projects. A formative evaluation is particularly useful in decision making, and a summative evaluation is helpful in assessing the overall results of a project and maintaining accountability.
For information on tools for completing competency projects, see Dubois and Rothwell (2000).
For more detailed discussions of formative and summative evaluations and their role in competency-based HR management projects, see Dubois (1993).
This chapter opened with a vignette that portrayed the dilemma of the CEO of a typical organization and highlighted the organization's competency challenges. In drawing conclusions from the vignette, we developed an overview of the competence needs of most organizations today and the HR function's response to those needs. Six trends affecting organizations and their need for competency-based HR management were presented and discussed. We concluded by presenting and briefly explaining a nine-step model for planning and implementing a customer-driven competency-based HR management project.