Being in the business of competencies, we often get the question about the difference between skills and competencies, and clearly defining both of these nouns is critical for successful businesses.
Skills are often seen as an ability through knowledge, and more often, practice to do something well. Competencies on the other hand are generally accepted as a set of behaviours or actions needed to successfully be performed within a particular context (e.g. a job). Competencies are organization-specific and well-developed competencies will have a set of behavioural indicators associated with them to be applied at the experience level of the particular job being defined. So whether you call it a skill or a competency the important thing is that it must be observable and measurable.
Competencies can be categorized as "core", which are those that are essential for all employees to possess, "functional" in that they are applicable to particular group (say, finance) and "technical" when they are applicable to a particular job. A proper competency profile will have all of these areas covered in defining the requirements for the job. A job profile might include both the skills needed for the job, often expressed in terms of experience (e.g 5 years at a managerial level), and the competencies needed, often these are the soft skills required to be successful (e.g. client focus or decisiveness).
Using a competency-based approach in companies used to be too hard to manage over time, as requirements changed due to technology or functional evolution. This may hold true if one starts from a clean sheet of paper without the software tools to amend and adapt competencies over time as requirements change. Now, there are tools available to make the task of implementing competency-based management a lot easier and much less expensive than in the past. CompetencyCoreTM 5 is a great tool to help manage and implement competencies, while allowing your company to adapt and evolve: www.competencycore.com/competencycore-5.
As was suggested, competencies can be used in performance management, but they are also essential for selection, succession, training and learning, and even compensation. According to analysts at Aberdeen and Bersin, competencies are critical to the successful management of modern companies, so give your organization the best chance to be successful and implement competency-based management.
Download this Best Practice Guide to learn how competencies can increase workforce effectiveness and improve business practices.