What Is A Skills-Based Organization?
Traditional job roles and static job descriptions are becoming less and less relevant. Instead, organizations are shifting towards a focus on “skills”.
It’s being increasingly recognized that – in order to anticipate and close skills gaps; to reduce the risk in your business; and to enable your people to be your greatest competitive advantage – you need a skills-based approach to talent.
But what exactly is a skills-based organization, and why is it gaining traction now? Read on to discover:
- What we mean by a skills-based organization
- Why it is more important than ever
- How we might define skills
- How to build a skills-based organization
- What the skills-based approach looks like in practice
- Benefits of the skills-based approach
What do we mean by “skills-based organization”? 🤔
Work used to be characterized by jobs: People were assigned to work based on the title of the role, and the previous job titles they had held.
In a more changeable world, we can and should get more granular. The skills needed for work are changing so quickly, talent is scarce, and the technology now exists to make more accurate matches between people and work.
Seventy-three percent of business executives expect to continue to experience talent shortages over the next three years, and 70% of those respondents say they are getting creative about sourcing for skills rather than just considering job experience. – Deloitte
Talent allocation can be more precise, more agile, and ultimately fairer if we go a bit deeper than job titles.
Looking at talent through the lens of skills – what they are capable of, or what they could learn – and assigning them to work based on the skills needed – jobs broken down into component tasks – is at the heart of the skills-based approach.
“By decoupling some work from the job… people can be freed from being defined by their jobs and instead be seen as whole individuals with skills and capabilities that can be fluidly deployed to work matching their interests, as well as to evolving business priorities. And by basing people decisions on skills more than jobs, organizations can still have a scalable, manageable, and more equitable way of operating.” – Deloitte
Why is it important now? 🕙
Companies are investigating and embracing a skills-first approach now due to the accelerating pace of technological change – and, relatedly, the evolving nature of work, which demands more specific and adaptable skill sets that traditional education pathways often do not provide.
58% of employees surveyed believe that the skills their job requires will change significantly in the next five years – WEF
The COVID-19 pandemic highlighted the need for agility and rapid reskilling, as businesses had to pivot operations and employees adapted to new roles and remote work environments.
This need to pivot has not gone away. Companies keen to stay competitive are entering new markets, developing new product lines, and overhauling their operations – and thus an adaptive approach to talent is essential.
85% of business executives say that organizations should create more agile ways of organizing work to swiftly adapt to market changes. – Deloitte
Of course, moving into new markets or business areas, in response to a changing world – or simply in response to the huge impact of generative AI on every sector – means finding and onboarding brand new skillsets.
Everyone is talking about “skills” because the skills “gap” is so pronounced. Indeed, companies are frequently looking for skills that simply don’t exist yet.
Nearly 83% of human resources leaders say they struggle to find enough talent with the necessary skills – Gartner
Additionally, there is an increasing recognition of the value in a diverse talent pool: more and more leaders acknowledge that skills and experience from non-traditional backgrounds can drive innovation and performance.
But they are also finding that they can no longer sit back and wait for talented people to apply – they need to change and broaden their search, as well as consider upskilling and reskilling programs as a key tactic for closing skills gaps.
“Job titles sometimes are really unique and obscure, right? So if they don’t match what the market expects, how do we adjust those? How do we make sure that we’re really honing in on the right skills to align to these critical roles that we have to fill?” – Mike Rizzi, DraftKings
What do we mean by “skills”? 💡
In this new “skills economy”, understanding the concept of “skills” is of course paramount.
At its core, a skill is an individual’s ability to perform tasks effectively and efficiently in a specific area of expertise.
“Skills” encapsulate what a person can do, how well they can do it, and the value they can bring to an organization.
Skills are typically categorized into two broad types: technical (hard) skills and soft skills. Technical skills are job-specific, such as programming languages for a software developer or SEO techniques for a marketing professional.
Soft skills, on the other hand, are universal and include abilities like communication, teamwork, and problem-solving.
“Eventually, we see the word “skills” becoming short-hand for more granularly defining workers as unique, whole individuals—each with an array of skills, interests, passions, motivations, work or cultural styles, location preferences and needs, and more.” – Deloitte
Equally, skills are components of jobs. Forrester talks about ‘unbundling the job’: creating a more adaptive model to work, where elements of jobs are broken down into projects, gigs or tasks – and the skills needed to complete them.
Rather than focus on ‘jobs’, we focus on the problem to be solved – and then uncover the people with the skills, interests, and capacity to solve it.
“71% of workers already perform some work outside of the scope of their job descriptions, and only 24% report they do the same work as others in their organization with the same exact job title and level. Meanwhile, 81% of business executives say work is increasingly performed across functional boundaries.” – Deloitte
How to become a skills-based organization 📊
Secure support from both leadership and staff
Moving to a skills-based approach demands active engagement and commitment from various stakeholders, as the transformation has both technological and cultural dimensions – and massive implications for the whole workforce.
The organization must rethink jobs (as a collection of skills); rethink workers (as unique and multidimensional); and change how they make all kinds of decisions, from hiring to upskilling, and moving people between teams.
“Ninety percent of business and HR executives say moving to a skills-based organization will require a transformation for all functions and leaders, not just HR. For HR in particular, this will be a massive transformation. Instead of managing employees in jobs, 72% of business and HR executives agree that the role of HR will move away from managing employment to orchestrating work.” – Deloitte
In terms of culture change, there is a bottom-up and top-down shift to consider.
Then there is the more tangible shift. As well as defining clear business goals, leadership must allocate resources, and support the initiative organization-wide. Adopting a new language (skills) and a new data infrastructure is just a part of the puzzle: Artificial Intelligence (AI) is required to make skills-based transformation work, and that can be a topic that comes with some confusion, concern and resistance.
Evaluate the HR team’s readiness to adopt new technology and advanced data management systems; the L&D department’s capacity to meet increased demands for upskilling and reskilling; and employee readiness to work within these new frameworks and tools. It’s a big change. Communicate the benefits clearly and often, to get buy in from every part of the business.
“Skills can be an unlock for the C-Suite’s priorities, for the board's priorities. There is a lot here that directly enables things that are very tangible and very real.” – Ash Walvoord, Verizon
Get a handle on talent and skills data
To become skills-based, you need skills data. You need to think about defining skills, mapping them to roles and tasks, and dynamically updating this information as the organization’s needs and employees’ skills evolve. It’s not easy, but it’s crucial.
Only 10% of HR executives effectively classify and organize skills, although 85% have some efforts underway. – Deloitte
Generative AI tools can play a significant role here, integrating data from various sources to provide a single source of truth about the talent within, and outside of, your organization – and ensuring the data stays up to date.
With explainable AI-powered tools, you can ensure skills are commonly defined and automatically connected between systems. AI can also infer what skills a person may have but not have listed; work out what skills they could potentially develop; and work out their seniority and proficiency, relative to industry context.
Learn more about the power of skills intelligence.
Create a skills-based view of jobs
A Job Architecture links skills to roles, integrating employee and candidate skills, market data, and skills-based outcomes like recruiting and onboarding. The architecture should be dynamic, with data updating automatically as required skills evolve, aided by AI for real-time accuracy and relevancy.
A clear and dynamic skills taxonomy helps organizations understand the skills they have, the skills they need, and how to bridge the gap between the two. In other words, you get deep and dynamic “skills intelligence.”
Skills intelligence combines insights about the current skills supply (what skills are available within the organization) with insights about demand (what skills are needed for upcoming projects or roles). This holistic view allows for better talent management decisions, ensuring that the right people with the right skills are in the right roles at the right times.
“Skills intelligence is an evolution of core HR data. We see skills as the next layer of maturity in our talent acquisition function, driving the evolution of how we identify and attract talent.” – Art Lokerson, Wells Fargo
Learn more about the power of a dynamic job architecture.
Embrace AI
People talk about skills and AI, as if these are unrelated trends, but we have in fact been caught in a paradox: To identify skills effectively, we need AI. But, in order to use AI models in HR effectively, we need reliable data around skills.
If we want to connect people and opportunities (people and work, or people and training, or people and teams), skills data is the currency that allows us to make these connections. So, as above, we need a reliable view of how the skills of our people and work are evolving in order for AI to match people with opportunities.
Without accurate skills data, AI models in HR are at risk of being ineffective, untrustworthy and biased. (The average large company uses over 80 HR systems, with disconnected and out-of-date skills data on both people and opportunities, so this risk is very real.)
“Artificial intelligence is going to be critical in order to make sure that we are going to be able to understand the different set of skills that a person has.” – Fernando Bellon, BBVA
So: for AI to work in HR, you need a way to identify, maintain and connect skills across your HR ecosystem. Luckily, AI ‘skill inference’ models have become more effective than people in predicting, suggesting and maintaining skills data, for both people and opportunities.
In fact, the reliable inference and prediction of skills has proved to be one of the most powerful applications of ‘LLMs’. AI applied to HR data is now able to effectively model something that would take people more time than we have available: to forecast evolving skills by analyzing the career transition, learning and work of every person and company.
Skills are no longer just a manual and unreliable ‘keyword’. Skills are identified and suggested by AI – for people and managers to review and validate. This ‘human-in-the-loop’ approach to skills has become possible in just the last year, thanks to purpose-built HR LLMs like TalentGPT. So we can now use AI to generate reliable skills data and suggestions.
“AI is going to help us move the skill thing forward in a far better, more progressive way than we were already on the journey to get to.” – Sam Hammock, CHRO, Verizon
Operationalize skills throughout the talent lifecycle
With a robust skills taxonomy in place, organizations can derive valuable insights that inform various aspects of talent management. Crucially, with a connected technology ecosystem based around the common language of skills, they can make decisions based on skills – aligning people to relevant work and learning opportunities.
You can now decide whether to acquire skills externally, redeploy internally, or build them through targeted reskilling, using AI-powered tools for smart recommendations. Automating this process would ensure ongoing alignment with future skills needs.
“The natural ecosystem that arises when you start investing in skills data, and when you start getting really curious about skills data and how it applies, not just to the one function that you may be started with... And it is, I think, such an interesting catalyst as well for change in culture across the organization.” – Betsy Summers, Principal Analyst, Forrester Research
Embedding a skills-based approach is all about connections.
According to Deloitte, 63% of HR executives say they are using “skills-related technology embedded in core HR information systems” – but just 33% say they have a single source of skills data across the entire workforce. If you’re going to be making important talent decisions about people based on skills, then that skills data needs to be verified and valid.
Enabling talent agility requires combining capabilities across your talent tech stack – which may include an internal Talent Marketplace, Learning Experience platforms, your Talent CRM, an ATS, and so on – in order to connect talent supply to demand on a continuous basis.
“The epiphany has been how easily interconnected everything can be. And I really think that that's the answer to the skills ecosystem.” – Ash Walvoord, Verizon
So what does a skills-based talent lifecycle look like in practice?
How to use “skills” in your organization 👩🏾🔬
1. Skills-based hiring & Talent Acquisition
As you might expect, skills-based hiring focuses on evaluating candidates’ abilities rather than traditional metrics like education or job titles, leading to more accurate and diverse hiring decisions – and a shorter time to hire.
92% of companies view skills-based hiring as more effective than using a traditional CV (Fortune)
When recruiting new talent, understanding the specific skills required for a job role is a crucial first step. By defining the technical, soft, and transferable skills needed, collaborating with Hiring Managers on designing and refining a relevant job spec, and then understanding the skills of the people in the talent pool, recruiters can identify suitable candidates effectively and efficiently.
“When I took over the Talent Acquisition side, one of the things that we really wanted to do is base our search of talent in skills. Because I was definitely, definitely sure that that was the future… skills would be the future currency of talent.” – Fernando Bellon, BBVA
Source talent from your CRM systems – but the database should expand beyond previous applicants. Including current employees widens the talent pool and acknowledges that there are skills that can be developed in-house – speeding up hiring times, while boosting retention.
“How do we hone our hiring strategy then to enable our TA teams to partner with the business to identify whether we source externally for various skills, or can we facilitate more skills-based internal mobility and internal skills development?” – Olga Power, JustEatTakeaway
You might also take samples of current high performers and looking at what skills they possess, versus lower performers, in order to build out the criteria for new hires – and as a way to highlight to Hiring Managers that they can’t always predict what combination of skills will equal success in their teams.
Talent should then be evaluated on their skills through interviews, practical assessments, and skills tests – with objective evaluation criteria to ensure fairness and consistency.
Explainable AI will aid in uncovering potential or adjacent skills candidates may possess. Ultimately, hiring decisions should be based on candidates' skills, cultural fit, and growth potential – with skills emphasized as the primary factor in determining suitability for the role.
This precision in talent acquisition can significantly reduce hiring times and enhance the quality of hires – and, with more personalized outreach and nurturing, the experience for candidates is likely to be improved.
81% of business leaders say skills-first hiring can make work “work better for everyone”. (Navigating The Changing Talent Landscape)
Learn more about skills-based hiring.
2. Targeted employee development & talent mobility
Recognizing employees’ skills allows for targeted training and development programs that bridge skill gaps effectively. This approach is crucial as the workforce continually adapts to new technologies and market demands.
Skill-based performance evaluations ensure that employees get actionable feedback, aiding in individual development and career progression. Organizations can also use skills insights to recommend training, mentorship, and new roles for employees, fostering internal mobility and retention.
Around 75% of executives and workers alike say skills-based pay and transparency regarding what skills are worth would be a positive development. – Deloitte
In a skills-based organization, employees are encouraged to build a versatile skill set that is transferable across various roles and industries, supporting dynamic career growth. Continuous learning is rewarded, as is people’s ability and enthusiasm to learn new things.
It begins with understanding employees’ career goals and motivations, then assessing their current skills and identifying the skills they need to achieve these goals. A clearly defined Job Architecture helps employees see the gaps between their existing skills and those required for their desired career paths, enabling them to focus on relevant development areas.
From an organizational perspective, matching employees’ skills with the business needs is vital. This can be effectively achieved through an internal Talent Marketplace, which provides transparency around opportunities for all employees. These marketplaces recommend opportunities based on the skills employees need or want to develop, including short-term projects, internal gigs, longer-term assignments, and even external contract or freelance work.
“We have been taking a bottoms-up approach over the last couple of years where we are connecting skills to roles, skills to people, and leveraging HR tech to help open doors, to help hyper personalization, to help elevate where the employee comes into the conversation in how they even think about themselves and what they might want to pursue.” – Ash Walvoord, Verizon
Learn more about skills-based talent development.
3. Smarter Workforce Planning
Workforce planning in a skills-based organization is agile, powered by dynamic data about skills and jobs. When planning can be done in real time, you can quickly identify internal or external talent that aligns with emerging opportunities and challenges – and transform the speed and efficacy of talent-related decision making.
“If you looked five, six, seven years ago, who would have thought data science would be such an integral role across essentially all our lines of business, but if we had the skills insights then as we do today, we could anticipate and drive and build that capacity for when the need actually arises.” – Art Lokerson, Wells Fargo
A skills-based workforce planning solution brings together a dynamic Job Architecture, based on skills (what you need), workforce insights (about the skills you have), and perhaps even labor market data (to help with possible future skills needs).
Continually bringing these insights together will help you make the right build/buy/borrow decisions around talent, that deliver business objectives at all levels.
Workforce planning can actually be embedded through the organization – empowering department leads, through to managers – when it is based on a common understanding of skills and a dynamic Job Architecture.
For example, if you decide to launch a new product line, you can quickly identify employees who have the necessary skills to support that launch, in a given market, and redeploy them as needed.
It should also be possible to fill your talent pipeline with the right skills profiles to ensure you can reach your goals in the coming months and years, even as they change.
Instead of thinking about headcount plans, your business can plan for skills. By understanding the skills of today’s workforce, and what skills could be acquired – particularly through upskilling or reskilling people with potential – companies can plan for the skills they need, and where they might find them.
You can also start to gauge how long it will take, and how costly it will be, to train people to meet future needs, so you can better prepare.
“With a skills-based approach to workforce planning, organizations can plan for the skills they need, where they can get them, and the type of work in which skills will need to be applied.” – Deloitte
Learn more about skills-based workforce planning.
Benefits of a Skills-Based Approach 💖
With dynamic skills data and the power of AI, companies can ensure the right people are in the right roles at the right time, on an ongoing basis; enhancing their efficiency, reducing their costs, and giving them a competitive edge. If you need to convince your senior leadership team with more benefits of going skills-based, here are some further benefits:
1. Enhanced Agility
A skills-first approach supports speed and agility by redeploying talent to the most essential work – breaking down definitions of “jobs” and boundaries between internal and external talent sources.
Properly understanding the skills within the organization helps you hire and move people to roles that not only support business goals, but also provide on-the-job learning opportunities.
According to Deloitte, skills-based organizations are 107% more likely to place talent effectively, and 77% of business and HR executives believe “flexibly moving skills to work” is critical to navigating future disruptions.
This agility extends to other business areas, such as product development, where skills-based organizations are 52% more likely to innovate and 57% more likely to anticipate and respond effectively to change.
“Identifying adjacent or foundational skills of workers who are displaced by automation or whose roles are no longer needed can help organizations redeploy them to work that is needed.” – Deloitte
2. Greater Productivity
A skills-based approach allows organizations to find the right talent in unexpected places, unlocking untapped capacity and potential within the workforce.
In the current economic landscape, tapping into new sources of talent and broadening the talent pool is more important than ever. Focusing on skills enables organizations to make the right selections regarding contract workforce or internal talent, leading to increased productivity and better use of human resources.
Forrester reports that skills-first hiring criteria are 5 times more predictive of an individual’s future job performance than educational background, and 2.5 times more predictive than work experience.
3. Enhanced Employee Wellbeing
Employees today expect to be seen as individuals, not just as workers. A focus on skills ensures that organizations have up-to-date, accurate, and enriched data about their employees' skills, enabling better matching of people to opportunities.
This personalization enhances the employee experience, making people feel valued and allowing them to thrive in roles that highlight their skills. Providing choices around work assignments adds to the employee value proposition of flexibility, addressing the modern workforce’s demand for choice and autonomy.
4. Boosted Diversity and Equity
A skills-based approach (powered by explainable AI) helps businesses discover and tap into overlooked talent, thus promoting diversity and equity. By focusing on skills rather than job history, networks or degrees, organizations can reduce bias at every stage of the talent lifecycle, from hiring to promotions.
This approach democratizes opportunities, ensuring fair access to work based on skills.
80% of business executives say making decisions about hiring, pay, promotions, succession, and deployment based on people’s skills rather than their job history, tenure in the job, or network would reduce bias and improve fairness; and 75% say hiring, promoting, and deploying people based on skills (vs. tenure, job history, or network) can help democratize opportunity and improve access to it. – Deloitte
You can discover talent that has been overlooked. Recruiters and hiring managers will find that people they may not have otherwise considered are put forward for roles, because – although their previous job titles don’t seem like a perfect match – their skills (and potential) could be ideal.
You can automate recommendations, so that those with lower confidence in their own skills and abilities are “encouraged” to apply for a given opportunity – widening the playing field.
A skills-first approach takes companies beyond a ‘tap on the shoulder’ approach to opportunities and promotions, and uses objective criteria to not only find the best fit for each task, but shine a light on undervalued or underappreciated talent inside your organization.
5. Improved Retention
A skills-based approach helps with retention, by providing career growth opportunities within the organization – allowing employees to grow without needing to leave.
This approach encourages continuous learning and skill-building, helping employees apply their skills in new ways and solving real problems in the flow of work. Targeted development not only enhances job satisfaction and retention but also boosts productivity and aligns with the strategic goals of the business.
“Skills-based practices can help employers upskill workers and provide learning opportunities to enable internal mobility and boost retention… provide on-the-job training and continuous-learning programs, and develop internal road maps to promotion from entry-level roles without requiring a degree.” – McKinsey
According to Deloitte, skills-based organizations are 98% more likely to have a reputation as a place to grow and develop and 98% more likely to retain high performers. Providing internal career development opportunities helps retain employees ready for new challenges and supports ongoing skills development.
49% of respondents noted that a skills-first approach supports transformation initiatives by better mobilizing existing employees' skills, while 45% observed improvements in employee engagement and productivity. (Navigating The Changing Talent Landscape)
The Future is Skills-based 🔮
As organizations strive to make access to work fairer and ensure work gets done in a challenging labor market, they are increasingly considering how to match people with “jobs to be done” based on meaningful, useful, and equitable metrics: skills.
“Having the ability to know what skills you have in your company, then predict what skills you’re going to need in the future, and filling the gap, is really how your company is going to grow or change or transform.” – Jacqui Canney, ServiceNow
A skills-based organization prioritizes the identification, development, and deployment of skills over traditional job roles and titles. This approach enhances agility, drives better talent management decisions, supports strategic workforce planning, and promotes diversity, equity, and inclusion.
By adopting a skills-first mindset, organizations can thrive in the rapidly changing business landscape, leveraging the full potential of their talent – and their wider talent pool – to achieve sustained success.
“Being skills first, I think is a great way to kind of preserve where we're going in the future. So ditch the traditional job description, the rigidity of those, and really think about maximizing the investment on the skills side.” – Elle Lebourg, Hilti
Embracing a skills-first approach is not only a business imperative but also a societal one. By focusing on skills rather than educational background, birthplace, connections, or experiences, organizations can contribute to fair access to work and opportunities for all, realizing the mission of fair access to work.