Skills versus competencies - where is the difference?

In this article, we look at the key question of the extent to which competency models and skills can be integrated as concepts. What is the exact difference between skills and competencies across different use cases, why do I need both and if I need both, how do I combine them in a meaningful way?

What are competencies and why are they important?

Competencies comprise an overarching combination of skills, knowledge, behavior and attitudes. In performance management in particular, competencies serve as a tool for evaluating behavior and creating a certain degree of transparency in situations where there are no clear quantitative targets. Competencies often encompass a variety of observable behaviors that are required to perform successfully in a particular role. Competencies are often strongly linked to the strategic goals and culture of a company and promote the holistic, long-term development of employees from an organizational development perspective. HR departments often define lighthouse competencies, competencies that define desirable behaviors for the company regardless of the job role (e.g., ability to work in a team). As a concept, competencies therefore offer a kind of clarity that enables HR departments to define desirable behaviors and skills and align them strategically with the company's goals. The clarity of competencies is both their greatest strength and their greatest weakness, depending on the application.

An illustrative example of this is the “ability to work in a team”, which is characterized by numerous small, concrete actions such as “friendly communication” or “inclusive collaboration”. The challenge is that competencies are often formulated in such general terms that they are not sufficiently detailed for some practical applications. In order to make a competence such as the ability to work in a team tangible, it must be broken down into smaller, clearly defined behavioral anchors. These include, for example, effective communication or active listening, skills that can be learned and measured individually and thus enable effective implementation in daily practice. They help to evaluate the behavior of employees by mapping an expectation that serves as an orientation for performance. If I, as a manager, enter into a performance dialog with a specialist, the competencies to be discussed would help me to evaluate performance globally together with the specialist. In practice, however, competencies are often highly aggregated, leaving only very general categories that are too abstract for many use cases. So if the performance dialog reveals that I, as a specialist, do not yet meet all the requirements of “team skills”, what exactly does this mean for further development?

What are skills and why are they important?

Skills are measurable abilities that are built up through knowledge. These include, for example, programming skills in Python, operating specialized machines or project management using agile methods. Skills are a concept that can be applied in the short term, are measurable and can be developed in a targeted manner. They are often more specific than competencies and are easier to quantify using tests or knowledge questions. Skills can also be broken down even further depending on the use case in order to draw even more precise conclusions about the required level of knowledge. For example, if I want to learn more about Microsoft Excel, my knowledge gaps can be represented more precisely by certain subcategories (functions in Microsoft Excel) of the more general skill (Microsoft Excel), which results in more specific learning recommendations (e.g. an e-learning course on functions in Microsoft Excel). A competency model, on the other hand, quickly becomes impractical if you define all possible behavioral anchors that define desired levels of knowledge regarding a competency.

Skills make it possible to develop employees in a targeted manner and adapt their skills to the changing requirements of the market in an agile manner. In the future, the focus will increasingly shift from rigid job titles to more flexible skill profiles, giving companies greater dynamism and adaptability. While up to 85 million jobs could be lost in the next two years, according to a study by the World Economic Forum (2023), up to 97 million new skill-based jobs requiring specific skills and expertise from employees could be created at the same time. This shift shows how critical it is to focus on employee skills. 70% of managers are already planning to shift their HR approach to skill-based strategies in order to respond more quickly to market changes. The focus on skills is not just an adaptation mechanism, but a strategic advantage: companies that place skills at the center of their HR strategy can react up to 30% faster to market changes. In addition, the focus on targeted skills increases the adaptability of employees and prepares them for future challenges.

For some use cases, skills as a concept in and of themselves are less suitable. In performance management, for example, the mere ability to do something or a certain level of knowledge is not a meaningful indicator of whether the person has actually delivered the performance. In performance management, however, skills can be useful if, in addition to clearly defined behavioral anchors, they make the picture to be created in the performance discussion clearer. You therefore have more data points at hand to provide employees not only with the required performance, but also with the necessary specialist knowledge and skills.

How do competence models and skill taxonomies fit together?

While competencies are behavior-based, skills form the basis for acquiring the knowledge and abilities required to exhibit the expected behavior. Only with the corresponding knowledge, i.e. the skills, can you change your behavior, and conversely, without the necessary knowledge, the expected behaviors described by competencies cannot be fully implemented. Competencies alone are often formulated too rigidly and generally to enable targeted and effective further development in many application cases. Skills are therefore a complementary counterpart to competencies: While competencies describe the target behavior, skills are the building blocks for learning and developing this behavior. Together, they enable comprehensive and effective personnel development in which both individual abilities and the desired behavior in the company are harmoniously promoted. As the World Economic Forum aptly states: “Competencies define what people should be. Skills describe what people can do.” Both concepts play an important role in the modern working world, but must be clearly differentiated in their application in order to maximize the benefits for companies and employees.

A successful integration of both approaches allows companies to combine strategic foresight with operational flexibility. It is important to emphasize that it is not always sensible or possible to assign skills to every competence in the model on a 1:1 basis. Not every skill is necessarily derived directly from the content of the higher-level competencies. Particularly in large corporations, there are countless skills, such as industry or sector-specific skills, which cannot be derived directly from a competency model or which were not taken into account in the original definition of competencies. A certain degree of pragmatism and a flexible combination of competencies and skills are particularly productive in order to be able to act strategically and operationally.

In any case, companies must first ask themselves which knowledge and skill elements (skills) are required to successfully demonstrate the behaviors (competencies) required in a role. A common approach is to break down competencies into smaller, more specific behaviors/behavioral anchors and identify which skills are required to perform these behaviors. However, this idealized approach is often difficult to implement in practice when trying to link all skills to all competencies. Instead, a pragmatic approach can be chosen in which competencies are viewed as overarching clusters of some of the skills in the database. This means that competencies continue to function as central building blocks in performance management and remain behaviour-oriented without being broken down into even more detailed behaviours for all skills that exist in an organization. Instead, they are understood as aggregations of different skills. In this context, companies ask themselves which specific skills tend to fall under which competence, i.e. which skills support the demonstration of a certain competence.

Competency models and skill taxonomies can be supplemented and combined in different ways, depending on how far along a company is in its development, how large a company is, which use cases it prioritizes and what requirements it places on the skills and behavior of its employees at certain points in time. Below we have provided two examples to illustrate the process under different circumstances. 

The successful integration of skills and competencies creates a strong basis for personnel development. Competencies offer a long-term strategic orientation, while skills enable targeted, short-term development opportunities. The picture illustrates these concepts using two case studies: A medium-sized IT consulting company introduces a competence-skill management system to specifically link performance and further development. A logistics group is expanding its existing competency model to include skills in order to recruit in a more targeted manner and support HR processes such as reskilling and succession planning. The model shows how companies can effectively combine skills and competencies in order to react more flexibly and efficiently to market requirements.

In a world that is constantly changing due to technological advances and labor market dynamics, skills provide the necessary agility, while competencies continue to be important to create transparency about employee requirements. Companies that rely on a skills-based strategy can react more quickly, develop their employees in a more targeted manner and are thus better prepared for future challenges. Competencies provide orientation, a long-term perspective and strategic planning capability, while skills are the tools for reacting quickly and precisely to new challenges.

Interested in an in-depth introduction? Register now for our Masterclass: Skill Management from A to Z and learn in an 8-hour course how you can support your company on the way to becoming a skill-based organization.