A Guide to Developing a Competency-Based Performance Management System


Competency-based management systems mean employee-oriented performance management systems. The emphasis is on the "how" of performance. This means that there is a shift in focus from why an organization conducts business and performs to how it achieves optimal performance levels. Contemporary organizations emphasize development of employee competencies or skills for the achievement of long-term optimal performance. Competency-based management systems developed in conjunction with the popularization of the learning organization model in the 1990s. The focus shifted on the competency of human resources in an organization.

Competency and Performance

  • In order to develop a smooth functioning competency-based management system, you have to know the meaning, importance and measurement scale of competence and performance. In generic terms, performance is always organizational in nature. Front-line and middle-level management is seldom involved in formulating performance standards and goals. Performance levels are established by top management. These goals are further broken into short-term departmental goals and communicated to employees. Employees do not know the mission or the long-term organizational goal. Performance is always measured on a quantitative scale. It shapes, determines and controls all organizational activity and behavior. Competency is the skill-set of the employee. It is qualitative in nature and is measured with a reward system. Competencies, which are futuristic in nature, can be further developed and improved, but not depleted.

The Performance Agreement

  • When an organization agrees to create and develop a competency-based management system, it must carefully review its organizational structure, policies, departments and employees. Managers have to strike a performance agreement with the employee. This means matching an employee to a job based on individual skills. It involves further training, development and improvement of new skills. Performance agreement at the departmental and organizational level refers to restructuring and retraining. You have to redefine organizational structure and retain competent employees for suitable jobs. This also includes retention of employees who can be retrained to take on new competencies.

Organizational Restructuring

  • Competency-based management is holistic in nature, requiring an overhaul of the organization structure, function and process. Employees have to be evaluated on an individual basis and matched to functions according to expertise. Departments have to form teams based on competencies. Similarly, top management has to change performance appraisal, communication and monitoring systems to open, two-way methods. Top management has to involve employees in establishing performance goals. It has to create a system for dynamic communication, continuous learning and development, including cross-functional team working. Top management has to do all this with a focus on turbulent market environments. Emphasis should be employee satisfaction, personal involvement, career development, and motivation and employee job enrichment.

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