The Concepts Of Competence In Companies

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Studying a concept such as competence is very complex as the concept is used differently by many people (Awuah 2007). According to the author, the term competence can be defined as the ability of a firm to develop and manage relations with key suppliers, customers and other organizations. The term is further defined by the UN as the possession of a set of skills, related knowledge and attributes that allow an individual to perform a task or an activity within a specific function or job (UN 2007, UNIDO 2002). A graphical display of how the UN explains competence is displayed in figure 1 that follows:

A more practical definition for the term competence is provided by the European commission which defines competence as the combination of human knowledge, skills and aptitudes serving productive purposes in firms and contributing to their competitiveness (EC 2003). From the EC definition, we notice that the possession of necessary skills and abilities should be able to provide a firm with a certain competitive advantage over its competitors. In this paper therefore, the term competence will be used to mean the ability to demonstrate knowledge, skills, experience, and attributes necessary for a firm to achieve a sustainable competitive advantage. In general, competence in a job means being competent at all aspects of each function or competency required to be performed within the role.

Figure 1: Definition of Competency

Source: UNIDO 2002

Several authors such as EC 2003 and Moe 1995 distinguish between competencies at individual and organisational level. Individual competencies imply a person s internal cognitive abilities and skills. Such competencies may be gained through education and experience in the work place (Nordhaug 1992). On the other hand institutional competence is more than the sum of competences of the individuals. It consists of institutional qualities such as the ability to mobilize teamwork and synergistic effects of interactions between individuals (Moe 1995). EC 2003 however cautions that a high level of individual competence does not automatically result in a high level of organisational competence and therefore an optimal degree of organisational competence requires a transfer mechanism that facilitates interplay between an individual and the organisation's frameworks and routines.

In this regard, Nordhaug 1992 adds that much expertise based on practical experience is accumulated by individuals working within any company. To transform the experiences of the individuals into institutional knowledge is a great challenge to which there hardly exists any universal solution. The goal must be to embed this experience in the organization in such a way that it is at any time available to those who need it, even after the individual who made it has left the company.

In contrast to many contemporary authors, UNIDO 2002 distinguishes competencies as being managerial, generic and technical. Managerial competencies are considered for staff with managerial or supervisory responsibility in any firm, including directors and senior posts. It is further noted that some managerial competencies could be more relevant for specific occupations however they are applied horizontally across a firm for example analysis and decision making and team leadership.

Generic competencies are considered essential for all staff regardless of their function or level for example communication, programme execution and linguistics. Technical or functional competencies on the other hand are specific competencies that are considered essential to perform a job within a defined area of work for example environmental management, finance management and human resource management among others. In conclusion, UNIDO 2002 notes that any function within a firm requires a set of essential managerial/generic and technical/functional competencies to be performed effectively.

2.2 Competence Development in SMEs

2.2.1 Definition of Competence Development

Competence development is defined by Koch, Gill and Ellstr m 2006 as an overall designation for the various activities that can be used to affect the supply of employee competence and skills on the internal labour market. In this connection it should be pointed out that the term competence development is sometimes also used to denote the individual learning processes through which competence is developed. The EC conversely defines competence development as the measures taken by any enterprise to develop its competence base

Competence development in this case refers to activities that are planned and organized in order to foster learning as a primary aim, but also to activities that have learning as a secondary and perhaps unintended outcome. According to the EC, any enterprise can develop its competence base by a number of different possible measures, that is to say, by recruiting the right competence from outside or by developing the human resources the organisation already possesses. This goal can be obtained from a double perspective: first of all, through the development of the competence base of its human resources, basically through different forms of formal and non-formal learning such as training courses, internal seminars, work groups, assistance to expos. This kind of perspective was termed by Nordhaug 1992 as the 'Development of in-house competence', which represents the measure a firm takes to develop their competence status available within their in-house human resources.

Competence development activities may be formal learning activities by means of internal or external courses that are deliberately planned and organized as means for work place learning. These activities may or may not result in a certificate, a diploma or a mark that is recognized by the educational system or on the external labour market. In many cases courses are carried out to meet more specific needs at the workplace, and do not result in some kind of formally recognized certificate or mark. Workplace learning through formal activities are usually financed by the employer and carried out during working hours.

In contrast, informal competence development may occur through the participation of the individual in development projects at the workplace, staff-meetings, job rotation, team-based work etc. such activities are generally characterized by a low degree of planning and organizing from the perspective of learning.

The second approach is through obtaining the desired competence externally. Examples include the recruitment of new employees, the purchase of consultant services or the co-operation with other external stakeholders. Nordhaug 1992 complements this approach by noting that external competence acquisition, where firms acquire (buy or by other means get access to) different external competencies that are outside the enterprise's boundaries and that enterprises lack internally but may be regarded as essential for the optimal performance of the firm. Relating to the work of Griffiths et al 2007, the definition of competence development in this paper will emphasize the focus on the continuous updating and building of both individual and organisational knowledge, skills and abilities.

2.2.2 A Four Stage Model of Competence Development

To simplify analysis, a model of competence development which consists of four stages is presented in this section:

Figure 2: Competence Development Model

Adopted from Griffiths et al 2007: Page 134

According to the figure above, the cycle of competence development starts with a process of orientation, in which the learner determines which competences that need to be developed. Once this decision has been made, the learner has a choice. One very quick route, typical for informal learning and competencies related to leisure activities, is to go directly to the competence development activities, based on the learner s interests and only very little knowledge of their current proficiency level. The other route, more related to formal learning and to professional development is to proceed by collecting evidence, which shows the learner s current proficiency level. After the learner has collected this evidence, they can again choose: either they can have their proficiency level officially recognized by others, or they can go directly to the competence development activities. Again, the latter route is the more informal learning route.

Griffiths et al 2007 however notes that It is very important to realize that the formal learning route is still not completely formal. In fact, assessment by others is the point where the formal learning route starts, where previous learning, which might have been either informal or formal, is turned into a formal recognition. When the cycle is passed through for the first time, the moment of assessment carried out by others is often referred to as intake assessment. This model is complemented by Ogrean 2009 who notes that the model is future-oriented and serves as the basis for ensuring that the organization is well positioned to achieve its vision and strategic goals and initiatives, and to support its values through orientation and assessment of competencies within a firm.

2.3 Challenges towards Competence Development in SMEs

An introductory picture into the challenges facing SME competence development is provided by EC 2003 that notes that specific SME research and studies taking a more holistic view of competence development in SMEs are very difficult to find. As a result, the share of SMEs participating in competence development is lower than the respective one for larger enterprises (Mandl and Dorr 2004).

SMEs are however not only constrained by limited information on competence development. According to Mandl and Dorr 2004 and EC 2003, smaller companies are indeed confronted with a wider range of barriers hindering the engagement in competence development than larger ones. The most important one they note constitutes the lack of time to both, strategically plan and participate in respective measures due to the dominance of the daily business.

Mandl and Dorr 2004 specifically note that limited financial and human resources constitute the main barriers for SMEs to engage in competence development activities. Generally, employees are too much involved in the daily business life to have time to engage in qualification measures and due to the restricted number of employees no proxy is available in many cases.

It is further noted that SMEs are often sceptical towards external advice and training as they are not informed about what is offered and/or are unsure about the quality or the price-performance ratio. Furthermore, the programmes offered do in most of the cases not correspond exactly to their needs. Due to flat hierarchies and the resulting rare career chances in SMEs, employees do not see any need for further education.

Additionally, SMEs fear that higher qualified employees will leave the company because of a lack of incentives such as higher salaries and career chances in larger enterprises. Poaching of skilled workers by other firms and training leading to wage demands, are frequently identified as obstacles. Larger firms often pay higher wage rates, so formal qualifications are perceived by many small employers as more valuable to employees than the business itself (Stone 2010). This is worsened by the fact that these firms lack competence development specialists in the company: Very few SMEs dispose of experts in the field of competence development leading to a lack of a systematic competence development scheme. This barrier is also mentioned in terms of lacking plans and, as a result, unsystematic activities, lacking personnel for conducting the training or a lacking identification of competence needs

Another obstacle identified from empirical research (Stone 2010) is that that small employers commonly lack information on what training is available to them, as well as evidence of the benefits of training to set against perceived and real barriers to training activity. Even where they perceive training to be of value, releasing employees for especially formal training is more difficult for smaller employers. Lost working time is an especially important constraint with respect to owner-manager training. Small firms often report difficulty accessing training tailored to their needs in terms of type and quality, scheduling, location

Stone 2010 further notes that the lack of access to economies of scale in training raises training costs for smaller employers, who, compared to large firms, pay typically three times more per member of staff undergoing formal training maybe another challenge towards SME competence development.

2.4 Competence Development as a Tool for SME Promotion and Development

In this section of this paper, the author basically aims at identifying the role of competence development activities towards SME promotion and development. The author consequently argues that SME promotion and development could be advanced through subsequent investments in competence development activities.

SMEs in general identify a number of benefits for engagement in competence development activities such as enhanced staff retention and motivation as well as increased competitiveness and productivity. Research shows that involvement in competence development activities has a positive effect on the individual SMEs competitiveness and performance.

In the current competitive and complex economic environment, human capital is increasingly recognised by both countries and by business organisations as a key engine for growth and competitiveness (L fstedt 2001, EC 2003, Moe 1995). Moe further identifies that companies will rarely be allowed to benefit significantly from competitive advantages in terms of monopolies or privileged access to certain raw materials, special means of production or protected markets. The success of any company will depend on its ability to compete in the management of resources and in exploiting markets which are in principle available to all. Competitiveness in the market-place, as well as for the best people, will also increasingly depend on the environmental qualities of the company. Thus, the key to success is in a superior ability to recruit, develop and mobilize human resources. The best way to adapt to the changing environment and new requirements is to increase the organization's competence and to use it in the best possible way (L fstedt 2001).

Against such a background of globalisation and competition, the availability of up to- date knowledge, also within the smallest enterprises, is of increased significance not only for the individual company but also for the economy as such (Mandl and Dorr 2004). The authors further note that the current economic environment is characterised by global competition, fast technology developments, shorter product life cycles, more demanding consumers and changing enterprise structures through merges, alliances and take-overs. Thus, the new growth theories make economic growth dependent on the rate of accumulation of both physical and human capital, defined by the levels of knowledge, skills and competencies of the workforce (EC 2003)

Another important concept of how SME promotion could be advanced through competence development is provided by Koch, Gill and Ellstr m 2006, who argue that competence development can result into increased individual and organizational performance. This view is supported by Stone 2010; in his famous quotation that Firms that train their workers are significantly less likely to close than those that do not In addition to this, Fretwell 2002 notes that employee morale is created by and directly proportional to the degree of employee competence supported by leaders throughout the organization. Employee morale within an organization in turn has a direct impact on the satisfaction level of its customers and the company's ultimate success. When relationship-based leaders promote core competency development of its workforce throughout the organization, an opportunity exists for ensuring high employee morale and customer satisfaction, an increase in employee and customer retention rates, and a positive long-term outlook for the company's successful performance. Common knowledge suggests that employee morale has a direct impact on the satisfaction level of an organization's primary external customers.

The director General of UNIDO Carlos Magari os was not so far away from this argument when in his introductory notes to the UNIDO Report mentioned that At this juncture, I consider it essential to introduce a comprehensive scheme of competencies that would align better our managerial and technical profiles with our services. This will allow us to focus our attention on appropriate core values and use competencies systematically, enabling UNIDO to effectively sustain its modernization in accordance with present and future challenges

Therefore, it is not strange that management literature advises enterprises to develop into organisations that facilitate the learning for all of their staff and continually transform themselves in order to maintain and improve their competitiveness. Some authors point out that it is easier to rebuild an organisation when it has lost all its physical records and systems than if it has lost all its employees. Available national evidence complements the previous results, confirming the important role attributed by SMEs to the upgrading of their human resources.

In general, firms that are able to invest in the development of their human capital and the improvement of organisational capabilities will be able to gain a competitive advantage need to survive in today s competitive world.

2.5 Concluding Note

Improving the performance and sustainability of local entrepreneurs and small and medium enterprises (SMEs), which represent the backbone of global economic activity, can help achieve sustainable growth. SMEs can play a much bigger role in developing national economies, alleviating poverty, participating in the global economy and partnering with larger corporations. They do, however, need to be promoted (World Bank 2007). Such support requires commitments by and between governments, business and civil society.

Competence development through the enhancement of skills, knowledge and abilities therefore poses a viable route for such small companies seeking to remain in business and grow into larger companies. In order to attain a sustainable competitive advantage, small firms need to focus on the core competencies and capabilities of the firm. For a core competence to create value and provide a valuable basis the core competence must enhance competitive advantage(s) by creating superior customer value and must be difficult for competitors to imitate or find substitutes for.

A focus on core competencies however does not change the fact that the company needs many professions, competences and skills within its organization. Furthermore, the competence of a company cannot be limited by available internal resources, thus the need for SMEs to interact with and draw upon external resources.

Stone 2010 and EC 2003 suggest that the best way forward in promoting SME competence development is to change prevailing perceptions/culture, including the desirability of skills-intensive production and workplace development strategies. The next step would be to organise effective sectoral /regional outreach mechanisms for directly dealing with small business owner-managers, providing them with information and support. There is also further need to ensure there is flexible provision of training which individualises training information, content and delivery to the needs of each small business. In this regard, there is need for the integration of formal training and learning with informal learning processes in the workplace, accommodating training around work demands and minimising time spent off-site. Further suggestion include collaboration between small businesses through pooling resources and networking and, more broadly, to provide opportunities for small businesses to share skills, knowledge and experience with other business people and to develop training partnerships between larger firms and small businesses

In conclusion, we note that the development of competence cannot be improvised and that investments in competence development among SMEs must be systematic and consistent over long periods of time.