Competence Is Not the Same as Contribution: What the “smell of the place” reveals about organisational performance

Introduction

Organisations have never invested more in developing people than they do today. They recruit highly qualified professionals, implement sophisticated competency frameworks, invest heavily in leadership development, sponsor technical certifications, and provide continuous learning opportunities. These investments are based on a widely accepted assumption: if people become more competent, organisational performance will improve.

Yet experience suggests otherwise.

Many organisations are rich in talent but poor in execution. They employ experienced managers who struggle to inspire their teams, technically brilliant specialists whose ideas never influence decisions, and capable employees who contribute only a fraction of what they are able to offer. Despite substantial investments in developing competencies, innovation remains limited, collaboration is weak, and performance falls short of expectations.

This paradox raises an important question. If organisations already possess capable people, why do so many fail to realise their potential?

The answer often lies in a fundamental misunderstanding. Organisations frequently diagnose what are actually contextual problems as capability gaps. When performance declines, the instinctive response is to provide additional training, redesign competency models, or recruit more talented people. While these actions may address genuine capability shortages, they often leave the real problem untouched.

People are rarely limited only by what they know. More often, they are limited by the environment in which they are expected to apply that knowledge.

In that sense, the question is not only whether people are capable. It is whether the organisation has made contribution, judgment, initiative, and ownership feel rational.

This was the central insight of management scholar Sumantra Ghoshal in his influential lecture The Smell of the Place. Ghoshal argued that organisations should pay closer attention to the context leaders create around people. To illustrate this, he contrasted the different states of mind evoked by downtown Calcutta on a hot summer day and the Fontainebleau forest in spring. His point was not about either place in itself, but about the way environments influence energy, initiative, and behaviour.

The organisational lesson is clear. Leadership creates conditions that either encourage people to use their judgment, take ownership, and contribute more fully—or conditions that make caution, passivity, and self-protection feel more rational.

The implication is significant. Competence is not the same as contribution.

Competence describes what people are capable of doing. Contribution describes what they actually choose to do within the organisational context. The gap between the two often explains the difference between organisations that merely employ capable people and organisations that enable those capabilities to become performance.

Why Organisations Misdiagnose the Problem

When organisations fail to achieve expected results, the first explanation is frequently that employees lack the necessary skills. Sales are disappointing because the sales force needs more training. Managers struggle because leadership competencies are insufficient. Projects fail because teams need better methodologies.

These explanations are attractive because capability gaps appear tangible and manageable. Training can be purchased, certifications obtained, and competency frameworks redesigned.

Context is more difficult.

It requires leaders to examine how their own management practices influence employee behaviour. It raises uncomfortable questions about trust, autonomy, accountability, and the everyday experience of work. Consequently, contextual problems are often overlooked while organisations continue investing in capability development.

This creates an unfortunate cycle. Competencies improve, yet performance changes little because the environment continues to discourage initiative, ownership, and judgment.

The result is an organisation with increasingly capable people who remain unable—or unwilling—to contribute at their full potential.

Competence Creates Potential. Context Determines Contribution.

Competence should never be underestimated. Organisations require capable people to solve problems, make decisions, innovate, and create value. Knowledge, technical expertise, communication skills, leadership ability, and professional judgment remain essential foundations of organisational performance.

However, competence represents potential rather than guaranteed performance.

An experienced engineer can design innovative solutions, but only if experimentation is encouraged. A finance professional can provide strategic insight, but only if leaders genuinely want to hear uncomfortable truths. A manager may possess excellent coaching skills, but only if the organisational system values people development rather than short-term compliance.

The real test of whether an organisation values competence is not how much it invests in development, but what happens when competent people exercise judgment. If expertise is welcomed only when it improves execution, but resisted when it questions assumptions, identifies risk, or challenges a preferred decision, then competence remains instrumental rather than organisationally meaningful.

The important distinction is therefore not between competent and incompetent employees.

It is between activated and suppressed competence. Organisations should ask two separate questions: what are our people capable of doing? and equally important - what does our environment encourage them to do? The second question is often more revealing.

What Behaviour Does the Organisation Make Rational?

One of Ghoshal's most important contributions is the idea that organisational environments influence what employees perceive as rational behaviour. People generally respond intelligently to the incentives, expectations, and signals surrounding them. 

If taking initiative consistently creates additional work, criticism, or personal risk, employees quickly learn that waiting for instructions is rational. If mistakes are punished more severely than innovation is rewarded, avoiding mistakes becomes rational. If promotions depend primarily on avoiding controversy rather than creating value, caution becomes rational. 

Employees are not necessarily disengaged or resistant to change. They are responding logically to the environment leaders have created.

Conversely, when organisations reward learning, encourage responsible risk-taking, recognise collaboration, and demonstrate trust, initiative becomes rational. Employees voluntarily contribute ideas because experience tells them that doing so is worthwhile. 

Leadership therefore shapes organisational performance less by directing individual behaviour and more by defining the context within which behaviour becomes rational. This is the essence of The Smell of the Place.

Constraint or Stretch?

The first dimension of Ghoshal's framework concerns whether organisations create constraint or stretch. 

Constraint-oriented organisations primarily communicate limits: budget, process, mistakes,  responsibilities.

These expectations are necessary in moderation. Organisations require governance and discipline. Problems arise when avoiding failure becomes more important than pursuing opportunity.

Employees gradually learn that success means staying within predefined boundaries rather than exploring possibilities.

Stretch creates a different environment. Instead of emphasising limitations, leaders articulate ambition. They communicate purpose, challenge people to achieve meaningful objectives, and encourage them to exceed minimum expectations.

The critical difference is psychological. If constraint asks to avoid getting into trouble, stretch asks for contribution. The same competencies produce dramatically different outcomes under these two conditions. In constrained environments, using expertise defensively becomes rational. Under stretch, using it creatively does.

Compliance or Discipline?

The second dimension concerns compliance versus discipline.

Compliance depends on external control. Detailed procedures, approval chains, reporting systems, and oversight ensure that employees behave correctly. The underlying assumption is simple: people must be directed because they cannot be fully trusted to exercise judgment.

Discipline means something entirely different. It is self-discipline. Employees understand organisational objectives, accept responsibility, and regulate their own behaviour without requiring constant supervision.

This distinction profoundly affects how competencies are used.

Under compliance, people follow procedures. Under discipline, people apply judgment. They interpret patterns and recommend action. They make thoughtful decisions aligned with organisational purpose.

Competencies create the greatest value when applying judgment becomes more rational than simply complying.

Control or Support?

The third dimension asks whether management exists primarily to control or to support employees.

Many organisations unintentionally define management through supervision. Managers approve decisions, review work, monitor performance, and correct deviations. Employees soon understand that significant decisions belong to management. Initiative becomes risky. Waiting becomes safer.

Support-oriented leadership operates differently. Managers view their role as enabling success rather than directing every action. They remove obstacles, provide coaching, clarify priorities, facilitate collaboration, and help employees solve problems.

Control produces dependence while support produces capability. This explains why exceptional managers often achieve remarkable results with apparently ordinary teams. They are not necessarily surrounded by more talented people. They simply create conditions in which taking ownership becomes more rational than waiting for direction.

Contract or Trust?

The fourth dimension concerns contract versus trust. 

Every employment relationship contains contractual elements. Roles must be defined, responsibilities allocated, performance expectations clarified. However, organisations differ fundamentally in whether these contracts define the entire relationship.

Contractual organisations encourage employees to think primarily in terms of obligations, while trust-based organisations focus on value creation. 

Trust, therefore, transforms the nature of contribution. People willingly share ideas, collaborate across boundaries, admit mistakes, and invest discretionary effort because they believe the organisation will respond fairly. Competencies become more valuable because employees voluntarily apply them wherever they create value rather than only within formal role definitions.

Trust therefore represents more than an interpersonal quality. It becomes an organisational capability because it makes broader contribution feel rational.

Competencies Also Shape the Context

The relationship between competencies and organisational context is not one-directional. While leadership environments influence how competencies are expressed, competencies themselves gradually influence the environment.

Managers who demonstrate coaching competencies create support. Leaders who consistently act with integrity create trust. Employees who demonstrate accountability strengthen self-discipline. Individuals who think strategically encourage stretch. Communication competencies improve collaboration and reduce uncertainty. These behaviours accumulate. Over time they become organisational norms.

Culture is partially created through values statements or executive speeches but it mainly emerges through thousands of daily interactions shaped by individual competencies. 

Organisations therefore develop the smell of the place they consistently practice.

The Leadership Question

Discussions about organisational culture often begin with an aspirational question: What kind of culture do we want to create? Organisations invest considerable effort in defining values, writing mission statements, and describing the behaviors they hope employees will demonstrate. While these initiatives have value, they often overlook a more fundamental question.

Ghoshal's work suggests a better one: What behaviour does our organisation make rational?

Is it rational to challenge assumptions? Admit mistakes? Help colleagues? Take ownership? Experiment and learn? Or is it more rational to stay silent, follow the process, escalate decisions, and avoid risk?

People rarely behave irrationally. They behave rationally within the context leaders create. If initiative is punished, caution becomes rational. If compliance is rewarded over judgment, people stop thinking independently. If mistakes carry more consequences than missed opportunities, innovation naturally declines.

This changes how we think about leadership. Leaders shape culture primarily through the systems they design and the behaviours they reward not through values statements or communication campaigns.

Performance measures communicate priorities. Promotion decisions define success. Responses to failure determine whether people learn or hide mistakes. Every management practice contributes to what Ghoshal called the smell of the place.

In the end, culture is not what an organisation says it values. It is the behaviour that people conclude makes the most sense.

From Competence to Contribution

Competence is potential. Contribution is realised potential. The difference between the two is the environment in which people work.

Think of competencies as seeds. Every seed has the potential to grow, but potential alone is never enough. Growth depends on the conditions around it. Fertile soil, the right climate, water, and sunlight determine whether the seed thrives or remains dormant.

Organisations work the same way.

Competencies give people the ability to create value. The smell of the place determines whether they actually do. Stretch inspires ambition. Discipline builds ownership. Support enables action. Trust gives people the confidence to use their judgment.

When these conditions exist together, competence becomes contribution. People go much further than meeting expectations—they look for better ways to solve problems, collaborate, and create value.

When they don't, organisations receive only a fraction of what their people are capable of delivering. Although they are competent, the environment never allows it to flourish.

Conclusion

Organisations do not succeed simply because they employ competent people. They succeed when competent people are willing and able to contribute their knowledge, judgment, initiative, creativity, and commitment.

That contribution is shaped by the environment leaders create.

When contextual problems are misdiagnosed as capability gaps, organisations continue investing in training, recruitment, and competency development while leaving untouched the conditions that suppress contribution. They may become richer in capability without becoming stronger in performance.

By contrast, environments characterised by stretch, discipline, support, and trust allow people to use more of what they already know and can do. In such organisations, initiative becomes rational, judgment is expected, ownership is encouraged, and collaboration is reinforced by daily experience.

This is the enduring insight of Sumantra Ghoshal’s The Smell of the Place: leadership is not primarily about controlling people, but about creating the context in which people decide how much of themselves they will bring to the work.

Competence is only the starting point. The real measure of leadership is how much capability becomes contribution.

Every leader should therefore ask, periodically and honestly: What behaviour does our organisation make rational?

The answer may reveal more about future performance than any competency framework ever could.