The definition
Competency management is the practice of defining the competencies a role requires, assessing people against them, and feeding the result into decisions about hiring, development, promotion and succession. A competency is a described pattern of behaviour — how a person approaches work — rather than a discrete capability.
It usually operates through a competency framework: a written set of competencies, each defined at several levels, mapped to roles. The framework is the artifact; competency management is what an organization does with it.
Why it is harder than skills
A skill can be tested. You can write five questions about database indexing and find out whether someone can answer them. A competency such as ownership or judgement has no equivalent test, which means it is assessed through observation, and observation is where inconsistency and bias live.
The mitigation is writing competencies so they name observable behaviour rather than qualities. Reliable is a quality and cannot be assessed fairly. Flags risks early enough to change the plan is a behaviour, and two managers reading it will look for roughly the same evidence.
Where it goes wrong
The common failure is a framework that describes an ideal employee rather than the work. Frameworks written that way are long, aspirational and impossible to disagree with, which is exactly why nobody uses them — there is no version of a person that fails them clearly.
The second failure is separation from decisions. If promotion conversations happen without reference to the framework, the framework is decoration. The test is whether anyone has ever been told no because of a competency, and been shown which one.