Competencies are probably most closely related to abilities. However, in our craft, the term ability normally means either able to do or a special talent; while competencies relate more to expertise and experience. Competencies can be thought of as the state or quality of being well qualified to perform a task. A person gains competency through education, training, experience, or natural abilities. Klemp (1980, p21) defined competence as “an underlying characteristic of a person which results in effective and/or superior performance on the job.” While a more detailed definition is “a cluster or related knowledge, skills, and attitudes that reflects a major portion of one's job (a role or responsibility), that correlates with performance on the job, that can be measured with well-accepted standards, and that can be improved with training and and development (Parry, 1996, p50).“

While there are many definitions of competency, most of them have two common elements:

The competency is an observable and measurable knowledge and skills.
The knowledge and skills must distinguish between superior performers (or exemplary performance) and other performers.
Since its initial conception, attitudes, traits, or personalities have also played a major role in competencies, even though they are not normally thought of as being observable and measurable. Some people group attitudes with competencies, such as McClelland, while others, such as the U.S. Army, separate them by listing attitudes under attributes to create a Capability Model (Northouse, 2004):

Attributes —> Competencies —> Performance Outcomes
David McClelland
The original use of competencies was conceived by David McClelland. He first used it as an alternative for the replacement of intelligence tests with criterion reference testing (McClelland, 1973). He argued that intelligence tests were not valid predictors of intelligence and irrelevant to the workforce. There used to be a joke among Psychologists that intelligence was what the intelligence test measured, but McClelland thought the joke was “uncomfortably near the whole truth and nothing but the truth.”

Following his groundbreaking 1973 article, a number of large organizations called him. McClelland selected to work with the U.S. State Department to improve their failing selection process, which was based on selecting the best and brightest from elite universities. McClelland developed competencies for each position based on behavioral interviews with superior performing Foreign Service Officers and underpinned each competency with behavior indicators. However the State Department never really implemented his findings because it challenged their fundamental view — they came from the top schools themselves and were personally committed to upholding the status quo, rather than improving their selection process (Berger & Berger, 2003). However, he was more successful in implementing similar programs for the U.S. Navy and other large organizations.

Contrasts
If one had to contrast or contextualize competencies with something, it would probably be tasks (to include conditions and standards). Tasks are normally very specific in that they inform the task holder and other interested persons, such as supervisors and trainers, on how each logical and necessary action results in a major accomplishment. The main benefit of tasks is that since they are normally very specific, especially when they include the steps, they leave little room for error when it comes to evaluating the worthiness of task performance. However, being very specific, they can be extremely time-consuming to create, especially when a job may have 50 to 100 tasks or more. And with jobs and processes rapidly changing in many environments, they can quickly become outdated. In addition, when it comes to such professions as management, leadership, and knowledge workers, most job responsibilities are often ill-defined and very broad in scope, thus the specific nature of tasks do not work well.

Thus, the ideal of competencies, which at first may look more like broad conceptions of a job, is to base them on the analysis of exemplary performers (McClelland, 1973). After an analysis, normally composed of interviews and/or observations, a few keyword(s) are chosen to describe each competency. Each job normally has five to ten competencies. The number is normally kept small, otherwise they run into the same problems as tasks — there are simple too many to properly evaluate and keep up-to-date.

For example, some of the competencies for a person in a leadership position might include Ethics, Decision Making, Team Development, and Coaching.

Behavioral Indicators
As noted, competencies are normally based on an analysis by interviewing and observing an expert performer. During the analysis, key behavioral indicators are determined for successful performance of the job. These behavioral indicators are linked to a competency. For example, the competency of Decision Making might include the following behavioral indicators:

Dealing with difficult decisions:
Able to connect information together in order to diagnose problem.
Determines root cause to fully resolve issue
Sensitive to the needs of others when dealing with divisive issues.
Commits to a course of action:
Can make decisions quickly when necessary.
Seeks the correct answer and understands the impact that the decision could have on other organization issues.
The behavioral indicators are often contrasted with INEFFECTIVE indicators, for example:

Dealing with difficult decisions:

Avoids making decisions and often waits for others to make the decision.
Does not take responsibility for wrong or ineffective decisions.
Since one of the main uses of competencies is to help in the interviewing and selection of new hires, questions may be created to elicit responses from the candidates that will reveal their past behaviors with the premise being that past behaviors will help in predicting the behaviors that you can expect from them if hired. Listed below are two lines of questions to help in determining a person's competency on Decision Making. Note that each question is followed by one or more questions in case there is a need to draw additional information from the candidate:

Tell me about a recent decision you have had to make in which there was little or no time to seek addition information? What impact did the decision have on the business? What did you do to help lessen the risk of making a bad decision?
Tell me about a time you made a bad decision? What lessons did you learn from it?
Competency models are also helpful in the growth of present employees. Few, if any employees will be expert performers in all the competencies listed for a position, thus the model is used to help them with their career growth within the organization. For example, in one organization where I worked we had a manager who was very good, except for his decision making aspect. He had a tendency to make decisions that were good for his department, but were often not well suited for the organization as a whole, that is, according to the behavioral indicator given above, he failed to realize the impact his decisions had on other organizational issues. Thus he was promoted to a department that had a history of making good decisions and put under the mentorship of a person known to excel in making quality decisions (sometimes it pays to be not quite perfect).

Criticisms
The two major complaints about competencies seem to be its lack of a common definition and understanding and the possibility of becoming ethnocentric.

While many terms in our craft lack a common definitions and understanding among its members, competencies seem to be about the worst offender. In some cases, the word entirely changes. For example, Behavioral-Based Interviewing looks as if it is mostly based upon the concept of the competency modeling process.

Since competencies often encompass attitudes, there is the danger of them becoming so specific that it could promote ethnocentrism, rather than diversity. One has to be quite careful when including attitudes with competencies.