Last week my colleague Chris blogged about the differences between competencies and skills – over the course of my consulting experience, I developed a simple framework for putting skills and competencies to work.

Think about throwing a spear – the first thing the thrower needs is energy/momentum. The spear will not fly very far unless the thrower invests enough energy in his or her throw. Second, the thrower must have developed the physical coordination to shift his or her weight and pull back the long, weighty spear in preparation to throw. Coordination is a competency that is widely applicable to a number of sports, but critical for throwing the spear. Finally, the thrower must be able to aim the spear. This is a skill specific to throwing the spear, which is markedly different from throwing other objects, such as a ball.

The People Core Assessment© pyramid, illustrates this framework. The base of any successful action in energy and engagement – no task will get done without them. Competencies sit above energy, and tell you whether or not you have the capabilities required to succeed. Finally, the specialized skills required to complete the task form the apex of the pyramid.

From experience in coaching talented cyclists as well, I’ve found support for this same thinking in one of the greatest books: The Cyclists Training Bible by Joe Friel. Mr. Friel suggests similar thinking for building up peak performance through a few selected races over the year. Build core strengths and capacities first, then more specific skills with higher intensity as the race progresses. A common mistake of endurance athletes is to work on the top of the pyramid without having a foundation in place. This is true for our day to day management challenges as well.

When you are confronted with a people management challenge, start at the bottom of the pyramid and figure out if your people are invested in the tasks at hand – do they have the energy and motivation required to carry the project forward? Winners rarely win by accident, people have to want to win. Second, take a good, hard look at the competencies of the people on your team. Do they have the core abilities needed to win? Finally, figure out what specific skills you need to develop in your team and make sure they have those skills, which are the tools you will use to attack the challenges at hand.

Ask anyone which is worse, an unskilled person or an incompetent person and I’d bet money most will answer incompetent. Why? The difference in meaning is subtle, but profound. An unskilled person can be trained. The word incompetent implies that the individual at hand does not have the aptitude to succeed or grow – they lack the basic competencies to get the job done.

I mention this because one of the most common mistakes made in Human Capital Management is confusing skills with competencies. Skills can be learned, certificates can be earned, etc. Competencies take much longer to develop. For example, a skill might be profient in C++ (a programming language), but a competency might be high capacity for problem solving. Problem solving is important for programming in any language, and can be applied to many other challenges in the workplace.

SuccessFactors Research conducted a study of competency management of our own customers, and was able to identify what some winners do in various industries. The implication was pretty clear, companies that effectively manage the competencies of their people have greater potential to do better. But competencies aren’t just about overall company performance – they are highly relevant to individuals. If you can figure out which competencies are the most important for a given position, you can better place and develop people to succeed in that position. Competencies aren’t just leading indicators of success for your company, but also for your people.

Is the rising cost of people threatening your business? The War for Talent has put a crunch on the people supply, driving up the price of talent. In fact people now account for about 70% of operating cost, depending on the industry – and this number is rising! People are the fuel for execution, but managers don’t have to lose sleep over this shortage. They just need to realize that people really are assets, and while they might cost a bit, they have the potential to learn, grow and ultimately contribute more.

It would be great if business could just turn on the tap and have access to great people all the time, but that is just not the environment we are in today. The answer to this problem is pretty clear – develop the resources that you have. The people already in your company probably have a lot of untapped potential. Look around the office, is everyone really engaged and motivated? There are a lot of ways to get more from your people, grow their skills and competencies, align their goals – but it all starts with energy.

If your people are having an energy crisis, you need to deal with it. Without motivation, it won’t matter if people have the best skill set in the industry. Fortunately, manager’s have a lot of tools to increase energy and engagement. The Conference Board did a comprehensive study on engagement and found 8 factors other than pay that motivate and energize people: Personal development opportunities, clear path for advancement, line-of-site between individual contribution and company performance, trust and integrity, nature of the job, pride about the company and relationship with one’s manager. We talk about engagement in detail in our paper Drive Top and Bottom Line Results with People Performance.

It’s okay to have a capitalist view of people performance. Supply and demand are just as important in the realm of talent as they are in the commodities market. In fact, we will be hosting a webinar on August 13^th with best-selling author and venture capitalist, Rich Moran. Erik and Rich will discuss what makes a great hire and how to keep them. The cost of capital is on the rise and we now live in a world where it’s not about hiring across the street. It is paramount to have the right people in the right place to make sure your company is capital efficient.