The skills economy: What is it and what does it mean for talent?

The big questions most executives face today are: Is our company talented enough? Do we have the people and skill sets we need to achieve our critical business objectives? And, if we don’t, how are we going to get them? Boards are asking: What is the talent risk in our business plan? Not having the skills they need is now the biggest operational risk they face.

Many companies get strategy right; where they fail is around having the right people and skill sets, tackling the right initiatives, at the right time. Embracing the skills economy is now core to managing the business execution risk leaders face in a rapidly changing economy.

The “skills economy” is a transformational shift in how businesses and individuals think about professional value and success, placing individual skills – the skills we have and need, and our ability to acquire new ones – at the forefront of decision-making, while challenging the significance of traditional credentials and job titles.

The skills economy has arisen in part due to the global skills shortage. Eighty-seven per cent of companies worldwide report experiencing skill gaps now, or say they expect to within the next five years. The skills employers require from their workforce are changing faster than ever. People are increasingly aware of the need to develop transferable skills that will keep them employable. They have also come to expect more flexibility than ever.

A new approach to talent is crucial. Individual skills, rather than traditional credentials or job titles, are the new currency, or atomic unit of measurement, of work. Rather than thinking about people and jobs, companies must focus on the precise tasks that need to be carried out, and the skills needed to do those them. And, in order to stay competitive, they need total talent agility: to move people around as they are needed.

To do this, they require a common understanding of the skills they have and need, and they must adopt a skills-based approach, throughout the organization. A skills-based approach ensures talent decisions are based on what someone is actually capable of, or capable of learning, rather than more arbitrary factors such as previous education, workplaces or contacts. So it levels the playing field, while widening the talent pool and improving diversity.

Research from Deloitte shows that skills-based organizations are 107% more likely to place talent effectively, 52% more likely to innovate, and 57% more likely to anticipate change and respond effectively and efficiently.

Due to all of the disruptive market factors mentioned, this new talent era also heralds a rethink about business risk – one that places workforce risks, including skills availability, on a par with operational risks.

Research shows that organizations that create more rigour around how human risks are managed outperform their peers on profitability, operational efficiency, worker satisfaction and brand recognition. But it’s clear that most companies are not managing (and mitigating) workforce risks effectively.

A skills-based approach means not only understanding what you have and need in terms of skills, but also how those needs are changing – and what will happen to the business should any element of your talent strategy change.

Many companies face the “cold start problem” when it comes to skills – they don’t have the right data. Or, they have incomplete or out-of-date data.

Most will have information about talent stored in different systems. With the right technology and AI enrichment, this can be turned into a centralized repository of skills data – data about employees, candidates, previous applicants and alumni, together in one platform. This can include “adjacent skills”; ones that are closely related to those already listed in a given talent profile.

AI can also work out if there are “adjacent” skills people are likely to have, or could learn, based on the rest of their skills profile. It can even update profiles automatically when people learn something new or take on new projects.

Once you can connect your jobs to the right skills, and can dynamically maintain and evolve your job architecture, you have the foundation for a fully skills-first approach to all areas of the talent life cycle. Deep and dynamic skills intelligence is the key ingredient that makes everything else in a skills-based organization possible.

A skills-based approach means rethinking recruitment practices and workforce dynamics. HR can help hiring managers and teams to prioritize skills in selecting the right candidates for a role, ensuring that roles are not only filled quickly, but also correctly.

With a focus on skills data and more flexible ways of working (across roles, projects, gigs, learning opportunities), you can boost internal hiring too, and improve every stage of the talent life cycle, from candidate evaluation to performance reviews and career progression.

Skills-based insights could be invaluable in helping to plug gaps in the most business-critical projects.

A skills-first organization promotes continuous learning and provides opportunities for upskilling, reskilling and internal mobility. In such a business, the learning and development department will start to see better ROI around the skills people have gained, and get better C-suite traction by showing them how skills development is helping with overall business goals.

Talent hoarding and silos is one of the top enemies of the skills economy – so educating and incentivizing managers correctly is key. Building people’s skills is one of the ways you are most likely to keep them engaged at your company, but it may require them to move teams – and that should be embraced.

Skills intelligence cannot stay useful, relevant and up-to-date without automation – particularly in a world where skills are changing so rapidly. To keep pace with the competition and the evolving talent landscape, you need to embrace AI as a mechanism to collect and enrich data about skills, and keep information up to date.

AI-powered tools can save HR teams a lot of time, whether in skills-based assessments, or finding and nurturing candidates who are going to be able to perform a much-needed task – including internal employees looking for a change or chance to grow.

The emergence of the skills economy is incredibly significant for business, and HR leaders must play a strategic role in skills-based transformation. With the right data, technology and culture, you can adopt smarter talent strategies – maximizing efficiency while minimizing risk.