The Role of Competencies in Driving Financial Performance

8/6/2019 The Role of Competencies in Driving Financial Performance

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Josh Bersin

Principal Analyst

January 2007

BERSIN & ASS OCIATES

RESEARCH REPORT

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v.1.0

The Role o Competencies inDriving Financial Perormance


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The Role o Competencies in Driving Financial Perormance

Bersin&

Associates

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Licensed Material

TABLE OF CONTENTS

Executive Summary 3

Introduction: The Growth in Automated

Perormance Management 4Case in Point: An Example 5

The Growing Role o Competencies inPerormance Management 6

WhatWorks in the Use o Competenciesor Perormance Management? 9

Values-Based Competencies (Core) 9

Leadership Competencies 10

Functional Competencies 10

Competency Development Is Dicult and Oten Ignored 11

Which Competencies Matter? Our Research 13

Our Methodology 13

Findings: High-Growth Versus Low-Growth Companies 15

Financial Services 16

High Technology 17

Industrial Manuacturing 19

Retail 19

Findings: High-Proft Versus Low-Proft Companies 0

Financial Services 21

High Technology 21

Industrial Manuacturing 22

Retail 23

Summary o Findings 3Appendix I: Table o Figures 6

About Us 7

About This Research 8


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The Role o Competencies in Driving Financial Perormance 3

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Executive Summary

How do high-perorming organizations manage their talent? This

research studies the growing and important role that corporate

competencies1 play in perormance management. As more and more

organizations standardize and automate employee perormance

management, the use o standard competencies is also increasing.

How do organizations use competencies and, more interestingly, which

competencies drive higher business results? Do they make a dierence at

all? These are important questions or executives, line managers and

HR practitioners.

Through an agreement with SuccessFactors, the astest-growing provider

o perormance and talent management systems, we analyzed the use o

competencies in high-prot and high-growth companies inour industries:

Financial Services;

High Technology;

Industrial Manuacturing; and,

Retail.

We ound that competency-based perormance management varies

widely by industry, market maturity and phase o growth. Growth-

oriented organizations ocus on strategic competencies to drive

leadership behavior, while organizations in lower-growth markets ocus

on general management behaviors. High-perormance organizations

value competencies that build organizational capabilities, while lower-

perorming organizations ocus on competencies that build

individual capabilities.

Organizations that are automating, revamping or revising their

perormance management processes should consider this research

careully. A ocus on the right competencies or your particular

organization will impact business perormance, retention, employee

engagement, resilience and protability.

1 A competency is a measurable characteristic o a person that is related to success at

work. It may be a behavioral skill, a technical skill, an attribute (such as intelligence) or an

attitude (such as optimism). The Leadership Machine: Architecture to Develop Leaders

or Any Future, Michael M. Lombardo, Ed.D. and Robert W. Eichinger, Ph.D., Lominger

Limited, Inc., 2001.

High-perormance

organizations value

competencies that

build organizational

capabilities while

lower-perorming

organizations ocus on

competencies that build


ANALYSIS


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Introduction: The Growth in AutomatedPerormance Management

Perormance management has become one o the most important

areas o ocus in HR organizations today. Our 2006 research ound that

more than 45 percent o HR managers rate improvement o their

perormance management processes as one o their top two areas

o ocus.

Perormance management the process o managing, coaching,

developing and evaluating employees is one o the most pivotal

processes in a successul organization. I done well, it creates alignment,

engagement and ocus on results. I done poorly, organizations may

suer rom high turnover, lack o engagement and a

misaligned workorce.

The concepts and principles o perormance management are not

new. For more than two decades, organizations have understood the

importance o:

Giving people clear objectives;

Measuring their achievements;

Delivering honest and unbiased eedback;

Rating and ranking employees against standards; and,

Tying compensation to perormance reviews.

What is new, however, is the tremendous growth in the adoption o tools

to automate, streamline and standardize the perormance management

process. While most managers use some process to manage and assess

their employees, today only one-third o organizations have a consistent

enterprisewide process or perormance management and nearly 40

percent have no ormal standards at all.

2 For more inormation, Perormance Management 2006 Comprehensive Industry Study:

Market Analysis, Trends, Best Practices, and Vendors Profles, Bersin & Associates / Josh

Bersin, June 2006. Available to research members at www.elearningresearch.com or or

purchase at www.bersin.com/permgt.

More than 45 percent

o HR managers rate

improvement o

their perormance

management

processes as one o their

top two areas o ocus.

K E Y P O I N T

One-third o

organizations have a

consistent enterprisewide

process or perormance

management and nearly

40 percent have no ormal

standards at all.

K E Y P O I N T
http://www.elearningresearch.com/http://www.bersin.com/perfmgthttp://www.bersin.com/perfmgthttp://www.elearningresearch.com/


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Figure 1: Adoption Rate o Perormance Management Processes

Even organizations that already have enterprisewide processes are

now revamping them. Our research nds that almost 60 percent o

organizations use a paper-based approach consisting usually o an

annual perormance appraisal, which is lled in and sent to HR or ling.

We recently met with the senior vice president o HR or one o the

worlds largest oil companies. The CEO believed that they had been

using the same worldwide process or the last ve years.

When this senior vice president o HR surveyed the organization,

however, he ound at least six completely dierent ways in which

parts o the organization were managing, assessing, developing

and compensating people. Once he understood this, he embarked

on an 18-month eort to develop a standard process and

automate it.e

Case in Point: An Example

Figure 1: Adoption Rate of Performance Management Processes

Source: Bersin & Associates, 2006.3

Enterprisewide,Somewhat Adopted

No Guidelines or Standards

Enterprisewide,Adopted Widely

Some Standards, Various

Guidelines, No Standards

32%

20%

28%

13%7%

553 Responses HR Managers

Worldwide, May 2005



Bersin, June 2006.


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Figure : Penetration o Sotware-Based Perormance Management Sys-

Only 11 percent o organizations have a vendor-provided solution or

automation and 24 percent have a home-grown system. Today, with

the advent o highly automated tools or perormance management,

most organizations are looking to replace these ad-hoc systems with an

enterprise-class sotware solution.

The Growing Role o Competencies inPerormance Management

As more and more organizations work to streamline and automate this

process, they nd several important changes take place.

First, they realize that the tool itsel orces the organization to create well-

understood rules about how perormance ratings will be computed. For

example, most organizations agree that a perormance rating (typically a

one-to-ve scale or similar) is made up o two components:

Perormance: The employees attainment5 o certain previouslyassigned goals. One could consider this the what what did this

employee accomplish?

Figure 2: Penetration of Software-Based Performance Management Systems


Vendor-Provided Software

In-House Developed Software

Paper-Based

No System

24% 7%

11%

58%

553 Responses HR ManagersWorldwide, May 2005



Bersin, June 2006.

5 Attainment reers to the measurement o how well the employee has completed

specic job goals, e.g., nalized a project, achieved a sales revenue objective, etc.

Almost 60 percent o

organizations use a paper-

based approach to annual

perormance reviews,

which are lled in and

then sent to HR or ling.

K E Y P O I N T


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Capabilities: The employees level o competency with various

values and skills that enables the achievement o these goals. These

capabilities are considered the how how did the employee

accomplish these goals?

The rst component, perormance, is airly easy to dene and measure.Goals are dened once per year; they oten have specic clearly defned

measures (e.g., sell $1,000 o product A or complete the design o the

new website by June 30); and, their attainment is easy to measure. One

can compute the percent attainment o each goal, give each goal a weight

and come up with a rating.

The second component, capabilities, is much more complex. In most

organizations, the capabilities or competency dimension6 is used or

many things; oten, it is an element o the employees rating (some

purists would argue that it should not be used or this because it blursthe denition o pure perormance). As a component o an employees

perormance rating, it is usually given a xed weighting, typically lower

than the weighting given to goal achievement.

But, more importantly, the capabilities or competency part o a

perormance plan denes an employees methods o achieving results,

his / her ft with the company and potential to be promoted to more

demanding assignments. An employee who meets all his / her goals, or

example, but demonstrates none o the companys key competencies or

behaviors, is oten given a low-perormance rating and sometimes askedto leave. Most organizations realize that goal achievement at any cost

is not a long-term strategy or organizational health. People must develop

and display certain competencies in order to be considered successul.

The competency assessment process is essential to the process o

building an employees development plan. One o the critical elements

o perormance management is coaching people to develop the skills,

which are holding them back. This development planning process is tied

to an assessment o an individuals skills gaps and these gaps must be

assessed against specifc competencies, which the organization believesare valuable.

6 Descriptive inormation about the audience or program is oten called dimensional

inormation in an analytics system. For more inormation, High-Impact Learning

Measurement: Best Practices, Models, and Business-Driven Solutions or the Measurement

and Evaluation o Corporate Training, Bersin & Associates / Josh Bersin, November 2006.

Available to research members at www.elearningresearch.com or or purchase at

www.bersin.com/measurement .

The competency

assessment process is

essential to the process o

building an employeesdevelopment plan.

ANALYSIS

Most organizations realize

that goal achievement

at any cost is not a

long-term strategy or

organizational health.

K E Y P O I N T
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As Figure 3 shows, competencies make up an important but oten

conusing part o perormance management.

Most organizations use these two dimensions to develop succession

planning matrices or other orms o employee comparison charts,

sometimes called the nine-box grid. (See Figure 4.)

Figure 3: The Role o Goals Versus Competencies in Perormance Management

Primary

Elements o the

Perormance

Rating

Process or

SettingAssessed Value to Employee

Value to

Organization

Achievement o

Goals

Easy to defne,

typically defned once

or twice per year.

Through achievement

o actual results,

which are oten

objective and easy to

measure.

Gives a clear report

card on results,

which the employee

can use to measure

his / her success.

Gives the organization

a clear way to

rate, rank and

compensate high-

perormance versus

lower-perormance

employees.

Assessment o

Competencies

General competencies

are typically defned

at a global level, using

values or leadership

traits. Job-specifc

competencies are

typically defned at a

manager, workgroup

or unctional level.

Through manager

assessment, sel-

assessment and 360-

degree assessment.

Sometimes also

assessed through

unbiased tests and

other tools.

Gives the employee a

sense o how

he / she can perorm

at a higher level,

and what skills and

competencies he /

she should work to

develop.

Gives the organization

a sense o this

persons ft within

the company, his /

her potential or

promotion and a clear

understanding o

which competencies

actually result in

higher perormance.

Source: Bersin & Associates, 2006.

Figure 4: Example o a Nine-Grid Box

Level o Perormance (Goal Attainment)

Level

o

Potential

(Competencies)

May Be Coachable Potential Star Superstar HIPO(high-perormance,

high-potential)

Not Coachable Maintain Coach and Develop

(potential HIPO)

Terminate (poor perormer

and poor ft)

Terminate or Coach Coach or Terminate

(potential HIPO or poor ft)



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Many organizations plot their employees on such grids to determine who

the HIPOs7 are. Such a two-dimensional assessment is very valuable in the

determination o who the uture leaders o the organization should be.

Another valuable result o competency denition and assessment is

that it orces the organization to think hard about what competenciesthe company values and which o these competencies actually drive

results. Every company has its own culture. In a ast-growing company,

like Amazon.com, an important success-competency is innovation. Line

managers and employees are expected to think about new ways o

solving problems. As the company has been growing at more than 100

percent per year or many years, such problem-solving is an everyday

occurrence in almost every business unction.

More mature, slower-growing companies, like Sealed Air Corporation

(one o the largest manuacturers o bubble wrap and other packagingproducts), ocus on competencies, such as giving back to the

community. This organization osters programs to build hospitals in

third-world countries and contributes to pro-environmental causes.

Such a value or competency grew out o the companys history: the

company makes large amounts o plastics and elt that giving back to the

community was an important part o its corporate responsibility.

WhatWorks in the Use o Competencies

or Perormance Management?As this discussion points out, while the goal-setting part o perormance

management is relatively easy to dene and implement, the competency

part is ar more complex, subjective and broad in its use. Let us examine

three types o competencies used in perormance management: values-

based competencies, leadership competencies and

unctional competencies.

Values-Based Competencies (Core)

Many organizations choose to develop a small set o core

competencies, which are developed and approved by top management.

At PepsiCo (PBNA), or example, global competencies include

perormance-orientation and teamwork. These competencies take the

A two-dimensional

assessment (such as

the nine-grid box) is

very valuable in the

determination o who

the uture leaders o the

organization should be.

ANALYSIS

7 HIPOs are high-potential employees identied by a company or potential upper

leadership roles within the organization.


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orm o values or behaviors, which can be applied to any person in any

job. They represent the companys inner core and oten do not change

much rom year to year (even decade to decade). When a major change

occurs (e.g., a new management team, a major business challenge, a

legal or regulatory upheaval), the competencies may be amended. When

a company is caught in ethics violations, or example, the competencies

o integrity may be added.

These core, values-based competencies are oten designed personally

by the CEO and a handul o top executives. They dene the type

o company we want to be refecting the type o people and

behaviors, which are valued. These values-based competencies are

applied to every perormance appraisal in the company; they are usually

posted throughout the workplace, given to employees in wallet cards,

emblazoned on mugs and awards, and promoted at company meetings.

Leadership Competencies

Leadership competencies are those which are used to assess an

individuals ability and skills to be a leader or manager. Most

organizations have a separate set o competencies that are used or this

purpose and they are only applied to people with a certain level or

certain potential.

At GE, or example, the our leadership competencies are:

Execution (results);

Energy(passion and hard work);

Energize (ability to inspire others); and,

Edge (ability to make tough decisions).

Most companies have capabilities, such as strategic decision-making

or communication as leadership competencies. While these words may

seem very generic and uninteresting, they refect each organizations

unique belie system about what type o people should be leading the

organization. These competencies refect the organizations unique

assessment o what leadership qualities actually work in the

companys culture.

Functional Competencies

The third orm o competencies used in perormance management is

unctional competencies (those that pertain to a particular job unction),

which are rarely dened at an enterprise level. In the IT department,


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Figure 5: The Importance o Competency Management to Perormance

or example, a competency may be project management. In the sales

organization, a competency may be solution development. Such

unctional competencies oten take the orm o specifc skills (e.g.,

database administration) and are best managed at a workgroup or

unctional level.

Competency Development Is Difcult and Oten Ignored

Hard-hitting business managers oten believe that competency

development is a waste o time. They argue that results are what

matter and we should not care about how we get these results. Despite

this attitude in many line managers, our research nds that most HR

managers and executives actually take this process very seriously.

Our research ound that 86 percent o HR managers believe that

competency management is critical to their success inperormance management.

Unortunately, they nd it dicult to do well. Only 15 percent believe

their competencies are well-dened at an enterprisewide level, and ully

45 percent eel that important competencies are either spotty

or nonexistent.

Figure 5: The Importance of Competency Management to Performance Management



3%Not Very Important

Somewhat Important

Important

Critical

11%

44%

42%



Bersin, June 2006.

Eighty-six percent o

HR managers believe

that competency

management is critical

to their success in

perormance management.

K E Y P O I N T


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Figure 6: How Well Are Skills and Competencies Defned?Management

This paradox is easy to explain: the process o developing a high-value set

o core competencies or a given organization is not easy. It requires:

The priority o the senior leadership team;

Collaboration between multiple business executives; and,

A set o internal processes that allow the organization to update,

evolve and change these core competencies over time.

In best-practice organizations, a small set o core leadership and values-

based competencies are established across the organization. These

competencies (typically ewer than 10 in number) are broadly applied

to all employees in the organization to understand their readiness or

greater responsibility, their alignment with organizational culture and

behaviors, and their potential to be promoted into senior management.

Figure 6: How Well Are Skills and Competencies Defined?

Little, Only a Few Areas

Well-Defined,Certain Jobs and Roles

Somewhat Spotty

Well-Defined,Enterprisewide

Not at All

4%

10%

12%

31%

43%





Bersin, June 2006.


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Which Competencies Matter? Our Research

In 2005 and 2006, we worked with SuccessFactors, a ast-growing

provider o perormance and talent management sotware solutions,

to identiy what elements o perormance management drive greater

business results. In this case, we studied one pivotal element: the use o

competencies. We set out to understand what competencies drive high-

growth and high-prot organizations and, by reverse, which ocus on

competencies that may, in act, be correlated to low growth and

low protability.

While we cannot determine whether competencies, in act, cause

business results or are an impact o business results, we know now

that a correlation exists. The inormation rom this report will be

highly valuable to organizations in planning and implementing their

management processes. I you want to be a high-growth company

in your industry but you are managing by the process o low-growth

companies, you may want to consider a change.

One might imagine that most organizations would develop similar

competencies or success. Ater all, what works in one prot-seeking

organization should work similarly in another, right?

No. Our research has ound otherwise. It turns out that best-practice

competencies vary by industry and organizational maturity.

Our Methodology

SuccessFactors has several million perormance appraisals and

competency models rom a wide range o global corporations. The

company looked at the use o competencies among 28 o these large

organizations in more than 300,000 perormance appraisals using 1.389

million competencies in our specic industries. We then sought to look

at the relative nancial perormance o each o these companies and

compared their use o competencies to nd patterns.

To make sure that we were comparing companies with similar maturity

in their perormance management processes, we selected organizations,

which had the ollowing characteristics:

They had been using SuccessFactors or at least 12 months;

All dierent competencies were translated into SuccessFactors 51

standardized competencies (included with SuccessFactors);

Best-practice

competencies vary

by industry and

organizational maturity.

ANALYSIS


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They had a signicant percentage o their employees using

SuccessFactors (50 percent or greater); and,

They had publicly available nancial inormation.

These 28 companies were grouped into our industry segments:

Five in nancial services;

Nine in high technology;

Six in industrial manuacturing; and,

Eight in retail.

For each o these our industries, we then rated their nancial

perormance as high perorming or low perorming against two

dimensions: protability and revenue growth.

Figure 7: Competency Usage by Industry

Number o CompaniesNumber o Uses o

Competencies

Financial Services 5 133,000

High Technology 9 89,000

Industrial Manuacturing 6 789,000

Retail 8 378,000

Total 28 1,389,000

Source: SuccessFactors Customer Data, 2006.

Figure 8: Two-Dimensional Analysis o Financial Perormance

High-Perorming Organizations Low-Perorming Organizations

Proftability

Return on Equity at least 10 percent

higher than the industry average.

Return on Equity at least 10 percent

lower than the industry average.

Growth

Growth in Revenue by at least 10

percent higher than industry average.

Growth in Revenue by at least 10

percent lower than the industry

average.

Source: SuccessFactors Customer Data, 2006.


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For each o the our industry segments, we looked at the aggregate use

o competencies in perormance management or the high-perorming

companies versus the low-perorming companies. We then looked

at the competencies used by 80 percent or more o the perormance

appraisals and only listed those, which were in use by 10 percent or

more o all perormance appraisals.

NOTE: In this analysis, we cannot specically isolate the eect o these

competencies on growth or protability. In act, to keep this research

unbiased by specic company strategies, Bersin & Associates had no

knowledge as to the actual companies used in the research study. There

are obviously many other actors which aect a given companys nancial

success including its products, market share, size, positioning and years

in business. Rather, what we are doing in this analysis is pointing out

industry-specic trends trends that are clear enough to be used or a

general understanding o how competencies are used in management.

One o the things you will see is that high-perormance management

competencies tend to vary not only by industry but by organizational

maturity. We believe you will nd these trends illustrative

and actionable10.

O course these ndings cannot be applied blindly without taking into

account your companys very situation (internal and external), as well as

your companys strategy and core values11.

Findings: High-Growth Versus Low-GrowthCompanies

Figure 9 shows competencies in use by high-growth versus low-growth

companies in each o the our industries.

As you can see by analyzing this chart, there are no consistent high-

growth competencies versus low-growth competencies in this data.

The critical success actors that we do see are as ollows.

High-perormance

management

competencies tend

to vary not only

by industry but

by organizational

maturity.

ANALYSIS

10 Actionable inormation is inormation that provides data which can be used

to make specic business decisions. For more inormation, High-Impact Learning

Measurement: Best Practices, Models, and Business-Driven Solutions or the Measurement

and Evaluation o Corporate Training, Bersin & Associates / Josh Bersin, November 2006.

11 For more inormation, please visit:

http://www.successactors.com/research/competency-usage.asp.
http://www.successfactors.com/research/competency-usage.asphttp://www.successfactors.com/research/competency-usage.asp


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Financial Services

In nancial services, an industry which has undergone signicant

consolidation, high-growth companies ocus on quality, initiative and

communication. These are leadership-level competencies, which

can be broadly applied across the entire organization. We will see this

trend emerge throughout this research: by developing and rewarding

leadership skills, organizations ocus on capabilities not execution

and encourage employees to break down barriers, tear through

bureaucracy and ocus on what matters. In an industry where the

products are oten associated with money and data, quality is clearly o

paramount importance. Initiative is a highly valued competency because

these companies tend to be so large: individuals must have tremendous

initiative to drive value and change. And we believe communication is a

highly valued competency because these organizations tend to be stove-piped into clear and distinct unctional business units. Communication

breaks down these large barriers, and makes individuals more eective

and gives them greater perspective.

Figure 9: Competencies Used by High-Growth Versus Low-Growth Companies

Growth

CompetenciesFinancial Services High Tech

Industrial

ManuacturingRetail

Higher

12-Month Growth

Than Their

Competitors

Quality

Initiative

Communication

Creativity /

Innovation

Job Knowledge

Communication

Customer Focus

Leadership

Planning

Sel Development

Job Knowledge

Teamwork

Quality

Teamwork

Integrity / Ethics

Work Environment /

Saety

Lower

12-Month Growth

Than Their

Competitors

Job Knowledge

Customer Focus

Technical Skills

Planning

Decision Making /Judgment

Problem Solving /

Analysis

Dependability

Sel Development

Technical Skills Personal

Organization

Strategic Thinking /

Management

Customer Focus

Job Knowledge

Creativity / Innovation Technical Skills

Customer Focus

Integrity / Ethics

Technical Skills


In the nancial services

industry, initiative is a

highly valued competency

individuals must have

tremendous initiative to

drive value and change.

K E Y P O I N T


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Remember that nancial services companies tend to be very large (in both

assets and number o employees) and a large percentage o their workers

are white-collar managers. These rst- and second-line managers tend

to have very limited spheres o infuence (i.e., they may manage a single

branch or a single small oce). The high-growth companies are using

leadership-like competencies to coach these employees to break down

bureaucracy, ocus on the big picture (i.e., quality) and manage like

leaders (communicate).

Competencies that tend to avor lower-growth companies are ones,

which manage and reward more job-level skills. Two o the top three

competencies (job knowledge and technical skills) are competencies

that are hygiene actors in perormance. Without job knowledge and

technical skills, you cannot deliver your job. Competency in these areas

does not help the business grow, however, it may help the business stay

where it is.

Interestingly, customer ocus is a competency, which showed up in low-

growth companies. We believe the explanation or this is that high-growth

companies are naturally customer-ocused. Their products, services and

marketing ocus on customer needs by instinct. Lower-growth companies

may be orcing customer ocus because there is a tendency to be too

internally ocused by nature, indicating one o the reasons and attributes

to stagnation in the marketplace.

An important point to make here is that competencies in use at lower-perorming companies may not be the cause o low growth, but rather

the eect. When a company stops growing, there is a tendency to panic

and ocus on short-term management issues: making employees more

productive in their current positions. In the low-growth companies, we

believe some o the competencies we nd are symptoms not causes.

High Technology

High-technology companies are ar dierent rom nancial services

companies, in that they:

Tend to have ar ewer employees (note that ewer than seven

percent o all the competencies in this study came rom high-

technology companies);

Must live through very short product liecycles (some as short as six

months); and,

Because nancial services

companies tend to be

stove-piped into distinct

unctional business

units, communication

breaks down these large

barriers, and makes

individuals more eective

and gives them greater

perspective.

ANALYSIS

High-growth

companies are

naturally customer-

ocused by instinct;

low-growth companies

may be orcing

customer ocus because

there is a tendency to be

too internally ocused by

nature.

ANALYSIS


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Manage many key technical employees with high levels o education

and technical skills (the competency maps in this industry support

this type o workorce).

High-growth technology companies greatly reward creativity and

innovation. These companies know that they are currently in the processo creative destruction o their own product lines. Again, we see a

ocus on leadership skills: communication and leadership.

One o the interesting competencies, which is well-regarded in high

technology, is job knowledge. We believe this indicates the greatly

varied, technical and complex nature o many high-value positions in

high technology. Engineers, technical managers, support people and

high-technology manuacturing employees must have a deep level o

understanding o their jobs. Unlike a bank teller who can be trained in

a ew days, these individuals may take months or years to ully mastertheir jobs. In ast-growing high-technology companies, job competency is

critical to success.

Lower-growth technology companies again tend to ocus on more

pragmatic, tactical skills. Problem-solving, which may appear to be a

strategic skill, is actually more o a bar to entry in a high-technology

company. These companies are always solving problems and we believe

such a competency is likely considered a mandatory to succeed.

Capabilities like sel-development, dependability and personal

organization are tactical skills, which are unlikely to create competitiveadvantage. They may help a company become more protable and

improve quality but, in high technology, the keys to success are

innovation, growth and ocus.

One anomaly in this industry is the competency technical skills,

which is attributed to lower-growth companies. Our only explanation

is that the high-growth companies probably hire into technical skills

and consider it a de-acto competency to drive high perormance. It is

unlikely that a high-perorming engineer or support person does not

have excellent technical skills. On the other hand, a poorly perormingcustomer service worker who is not customer-ocused will not perorm

better by improving their technical skills. Again, as in nancial services,

higher-growth companies are using competencies to build and reward

leadership behaviors.

In ast-growing high-

technology companies,

job competency is

critical to success.

ANALYSIS

In high technology, the

keys to success are

innovation, growth and

ocus.

ANALYSIS


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Industrial Manuacturing

Here we see a dierent pattern again. These companies have large

workorces (789,000, or more than hal o our competencies, are in this

industry), many o which are in plant-foor operations, logistics, nancial,

sales and service unctions. They work in teams and small workgroups,and are oten located ar rom the corporate headquarters. In this

industry, growth is typically driven by product quality, speedy delivery,

competitive pricing, low-cost structure and market-driven eatures.

Innovation and speed to market is ar less important than in high-

technology. Low cost, high quality and scalability are ar more important.

High-growth manuacturers value skills, which deliver on these

attributes: planning, teamwork, quality, job knowledge and sel-

development. These are competencies that characterize an excellent

manuacturing manager, shopfoor worker or service center manager.We believe sel-development is highly valued because these companies

have a much harder time moving workers rom position to position

manuacturing workers are less highly trained and tend to be less fexible

in their skills. Sel-development, then, is an important competency that

drives fexibility and growth in the organization itsel.

Interestingly, in this industry lower-growth companies tend to be

ocusing on competencies that we regard as turnaround competencies.

Remember that these competencies may be symptoms o trying to

turn around a slow-growth company. The customer ocus competency,while highly valuable, may indicate an attempt to change a broken

organization and get employees to think more about the customer to

drive new growth in a slow-growth company (in heavy equipment or

automotive industries, or example). Again, technical skills is a very

tactical competency, which we believe does not create high perormance

or competitive advantage.

Retail

The retail competencies are somewhat counterintuitive. Rather than tryto explain away the results, let us try to interpret them. Remember

that retailers have large pools o employees with very low skills,

high turnover and oten low levels o seniority. It is not uncommon

or retailers to have turnover rates o 100 percent to 150 percent or

higher. They suer rom high levels o loss (thet), personal behavioral

diculties on the job, and the need to comply with strict regulations or

saety, ood handling, equipment handling, etc. Most retailers (e.g., ood

We believe sel-

development is

highly valued because

manuacturing workers

are less highly trained and

tend to be less fexible in

their skills.

ANALYSIS


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service, groceries, home improvement, electronics) have many saety-

related challenges in their stores. Employees who do not comply with

saety rules will endanger themselves, their peers, their customers and

the whole company.

Remembering these actors, it makes sense that the three most widely usedcompetencies are perectly aligned with this environment. Teamwork

encourages employees to communicate and work together in an

environment o high turnover and low levels o seniority. Integrity /

ethics reminds employees that they are stewards o the company and

they must take cash handling, product handling and customer ethics

seriously. Work environment / saety again indicates a ocus on what

really matters or retail success. Are these three growth-related

competencies? While they may not appear to be, they indicate that well-

run retailers ocus on operational excellence. We know rom our regular

research with companies, like McDonalds, Starbucks, Lowes Home

Improvement and others, that growth is driven by a consistent, sae and

repeatable in-store experience. Employees are not trained to be creative

they are trained to deliver customer solutions through quality

processes and procedures.

Competencies in slow-growth retail companies again tend to indicate a

ocus on solving problems. Customer ocus is a must-have or any

retailer. When this is part o a perormance appraisal, it is a symptom

that there is not enough customer ocus in the organization as a

whole. Again, a ocus on technical skills is tactical and does not clearly

dene the dierentiating characteristics o a retailer.

Findings: High-Prot Versus Low-ProtCompanies

In this section, we discuss the competencies employed by high-prot

versus low-prot companies in each o the our industries. Remember

that here we are typically looking at companies that may or may not

have growth at all. Companies with the highest prots in their industryare oten not the astest growing. These are companies that are not

necessarily trying to gain market share but, rather, contain costs,

drive eciencies, reduce turnover, and tighten operational procedures

to reduce waste and ineciency. In act, some o the low-prot

companies may be some o the high-growth companies in the

previous analysis.

Teamwork, integrity /

ethics and work

environment / saety

are three key growth-

related competencies,

which indicate that well-

run retailers ocus onoperational excellence.

K E Y P O I N T


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Financial Services

We did not have enough inormation to analyze high-prot nancial

services companies. The lower-protability group, however, tends tomanage by competencies that are very similar to the high-growth

companies. We believe this is supported by our previous analysis: driving

leadership behaviors will lead to growth. These companies may be the

up and comers in this industry, not the market-share leaders. Several

nancial services companies, especially those with a retail-banking ocus,

have grown through acquisitions; naturally, you see that type o growth

being correlated with a lag eect beore you see the expected synergies

hit the bottom line. I you grow aggressively, you cant maintain superior

prot levels in parallel.

High Technology

In high technology, protability is driven by both market-share

leadership and process innovation. Most high-technology products are

only protable or the rst ew years o their lie, and they must be

continuously rereshed to keep their edge. This demands companies

avoid being one-trick ponies. They must develop sustainable processes

Figure 10: Competencies Used by High-Protability Versus Low-Protability Companies

Protability

CompetenciesFinancial Services High Tech

Industrial

ManuacturingRetail

Higher

Return on Equity

Than Their

Competitors

Not Enough Data Job Knowledge

Communication

Customer Focus

Quality

Leadership

Creativity /

Innovation

Job Knowledge

Adaptability / Flexibility

Quality

Interpersonal Skills

Teamwork

People Development

Personal

Organization

Quality

Customer Focus

Dependability

Lower

Return on Equity

Than Their

Competitors

Communication

Quality

Initiative

Job Knowledge Planning

Creativity /

Innovation

Problem Solving /

Analysis Sel Development

Technical Skills

Dependability

Personal

Organization

Strategic Thinking /

Management

Customer Focus

Creativity / Innovation Technical Skills

Sel Development

Integrity / Ethics

Teamwork

Work Environment /

Saety Customer Focus



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The Role o Competencies in Driving Financial Perormance

Bersin&

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or product management, product development and market analysis.

These complex processes are driven by high-paid managers and

technical specialists who oten move rom company to company. Only by

developing a sustainable management process can prots remain high

over a long period o time.

In high technology, we nd that high-proft companies have many

o the same competencies as high-growth companies creativity, job

knowledge, communication and customer ocus. These higher-level

leadership competencies indicate that these companies are managing or

organizational capabilities not individual capabilities an indication o

a company, which is attempting to develop people, develop sustainable

processes and institutionalize a culture that will sustain many years o

product cycles, not just one.

The low-proftability companies are ocusing on individual capabilities and again tactical competencies, such as dependability, problem-

solving, technical skills, personal organization and sel-development. One

anomaly is the appearance o creativity and innovation among lower-

prot companies. As we described earlier, this may be an indication o

high-growth companies with lower margins during their growth phase.

Industrial Manuacturing

What are the strategies that lead to highly protable manuacturers?

They must invest in manuacturing innovation, they must lead theirmarkets, they must globalize their processes, and they must retain

and retrain their workers. Interestingly, many o the competencies in

the high-prot manuacturing group are similar to those in the high-

growth group: teamwork, quality and job knowledge. It is interesting

that adaptability and fexibility are also highly regarded competencies

in high-prot manuacturers. We believe this indicates that these

companies reduce costs by increasing the fexibility o their workorce.

When manuacturing plants change or retool, workers must take on new

positions. This competency encourages these companies to hire, coach

and train people to be more fexible.

We believe that the low-prot competencies in this industry are

indicative o higher-growth companies, which are ocusing on growth

versus prots.

Higher-level leadership

competencies indicate

that these companies

are managing or

organizational

capabilities not


ANALYSIS

Adaptability and

fexibility are highly

regarded competencies in

high-prot manuacturers

... this indicates that these

companies reduce costs by

increasing the fexibility

o their workorce.

ANALYSIS


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Retail

Interestingly, here the lower-protability retailers tend to use almost

the identical competencies as the high-growth retailers. This may be due

to the growth versus protability tradeo discussed earlier. We also

believe that some o the higher-protability retailers may have solvedthe problems o integrity, ethics, saety and teamwork through well-

built cultures and training programs. As a result, they are managing to

higher-level values: customer ocus, quality and dependability. These are

higher-level competencies, which indicate a more mature organization

with more senior people. More-protable retailers solve the tactical in-

store processes through better training, equipment, culture and process

rather than through direct management.

Summary o FindingsLet us again remind the reader that this research does not tell us whether

any o these competencies are a cause, eect or symptom o

growth and protability. We also want to remind the reader that many

other actors weigh heavily on growth and protability: organizational

maturity, size, market positioning and more.

On the other hand, we believe there are some key messages in

this research.

1. High-perormance companies(by growth or protability) ocuson managing to organizational capabilitiesand not simply

individual capabilities. They tend to ocus on competencies

which drive leadership, management skills and personal growth.

Lower-perorming companies tend to value tactical, job-specifc

competencies like technical prowess.

2. Perormance management by itsel is only a ormal process under

the larger umbrella o management. Great companies hire, train

and promote great managers.Great managers will hire and develop

great people. Mediocre managers will hire and promote mediocreperorming people. We believe this research illustrates that high-

perorming companies ocus on developing everyone to be a good

manager whether you are managing yoursel, your teammates or

your subordinates.

3. Perormance management must ollow the companys business

strategy. Each o these our industries has very dierent workorce

and talent management challenges.

The higher-level

competencies

indicate a more mature

organization with more

senior people.

ANALYSIS


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Financial services companies are trying to create alignment and

break down organizational barriers. High-impact competencies

include: quality, initiative and communication.

High-technology companies are trying to hire, promote and

develop innovation, process excellence and rapid responseto market changes. High-impact competencies include:

creativity, innovation, leadership and customer ocus.

Global manuacturers are trying to drive down costs,

increase the fexibility o their workorce and ocus on global

process excellence. High-impact competencies include: job

knowledge, quality, adaptability / fexibility

and teamwork.

Retailers ocus on in-store behaviors, teamwork and

competencies that promote integrity, saety and service.

High-impact competencies include dependability, customer

ocus, integrity and saety.

In the wide range o management processes, competencies are the

ocus point which helps organizations understand precisely where

to ocus resources such as incentives, coaching and development. By

clearly identiying the right competencies organizations can make

sure that managers are recruiting and managing people in the most

strategic way.

This research shows us that successul organizations ocus on the

competencies required or their industry at their level o maturity. I

your company is going through a turnaround, a major shit in product

or market ocus, or another major business change, you should

revisit your companys core competencies. The competencies which

brought the company rom growth to maturity may not be the same

competencies that bring the company to a new phase o growth.

4. Competencies send a powerul message. Organizations should not

plug in ready-made competencies rom an existing library unlessthey truly refect the companys culture, business strategy and

unique market dynamics. A competency model (even a simple one)

which is embedded in a perormance management process has many

organizational eects. The competency model:

Tells managers what is important;

Tells employees what is valued;

Successul organizations

ocus on the

competencies required

or their industry at their

level o maturity.

B E S T P R A C T I C E

Competencies should

truly refect the

companys culture,

business strategy

and unique market

dynamics.

ANALYSIS


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Denes who will be promoted and who will leave the company;

Contributes to equitable compensation; and,

Gives hiring managers the guidance to hire the right people.

We recommend that whatever competency approach your company

uses, you enlist the support and buy-in rom executive management.Best-practice organizations develop the model with line-o-business

management input.

5. Keep your enterprisewide competency model simple. It is only a

means to an end: the goal is to build a high-perorming, sustainable,

resilient organization. I the competencies do not contribute to this

goal, simpliy them.

There is little value to modeling every employees tasks or

perormance management. Individual job unctions and workgroups

can implement such ne-grained competency management to meet

their own needs.

6. Reinorce your companys competencies through every process and

behavior in the organization. Executives and leaders should model

the competencies through their words, their behaviors and

their recognition.

Can organizations use perormance management processes to drive

improved business perormance? We believe the answer is clearly

yes. We hope that this research helps business and HR managersbetter understand the important role that competencies play in

building a high-perormance organization.

Keep your enterprisewide

competency model

simple.


Reinorce your

companys

competencies

through every process

and behavior in theorganization.



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Figure 1: Adoption Rate o Perormance Management Processes 5

Figure 2: Penetration o Sotware-Based Perormance Management Systems 6

Figure 3: The Role o Goals Versus Competencies in Perormance Management 8

Figure 4: Example o a Nine-Grid Box 8

Figure 5: The Importance o Competency Management to Perormance Management 11

Figure 6: How Well Are Skills and Competencies Dened? 12

Figure 7: Competency Usage by Industry 14

Figure 8: Two-Dimensional Analysis o Financial Perormance 14

Figure 9: Competencies Used by High-Growth Versus Low-Growth Companies 16

Figure 10: Competencies Used by High-Protability Versus Low-Protability Companies 21

Appendix I: Table of Figures


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About Us

Bersin & Associates is the only research and advisory consulting rm

ocused solely on WhatWorks research in enterprise learning and

talent management. With more than 25 years o experience in enterpriselearning, technology and HR business processes, Bersin & Associates

provides actionable, research-based services to help learning and HR

managers and executives improve operational eectiveness and

business impact.

Bersin & Associates research members gain access to a comprehensive

library o best practices, case studies, benchmarks and in-depth market

analyses designed to help executives and practitioners make ast, eective

decisions. Member benets include: in-depth advisory services, access to

proprietary webcasts and industry user groups, strategic workshops, and

strategic consulting to improve operational eectiveness and business

alignment. More than 3,500 organizations in a wide range o industries

benet rom Bersin & Associates research and services.

Bersin & Associates can be reached at http://www.bersin.com or at

(510) 654-8500.
http://www.bersin.com/http://www.bersin.com/


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About This Research

Copyright 2007 Bersin & Associates. All rights reserved. What Works

and related names such as Rapid E-Learning: What Works are registered

trademarks o Bersin & Associates. No materials rom this study can beduplicated, copied, republished or re-used without written permission

rom Bersin & Associates. The inormation and orecasts contained in this

report refect the research and studied opinions o Bersin & Associates

analysts. Any company, trademark, trade name, product name, service

mark, logo and the like reerenced herein are the property o their

respective owners.

This study is based on data made available by SuccessFactors, a leading

provider o on-demand perormance and talent management sotware.

SuccessFactors business model gives the company the ability to capture

real-time perormance management data rom its shared database o

approximately two million users across a broad cross-section o industries.

The availability o this usage data makes this study the rst to refect

actual perormance management practices, rather than reported

business behaviors.

SuccessFactors has legal right to the aggregated data (all o which

is anonymous and not specic to any customer) used or this study.

SuccessFactors made its data and data analysis available to Bersin &

Associates at no cost, and has no paid relationship with Bersin & Associates

in association with this study. All data interpretations, explanations anddiscussions in this study have been independently drawn by Bersin &

Associates analysts.

Documents

The Role of Competencies in Driving Financial Performance