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What Is The Skills Economy, And How Can HR Embrace It?

In an evolving talent landscape, we are seeing the emergence of a transformative new system – with the potential to cause a seismic shift for business. It places individual skills at the forefront of decision making, while challenging the significance of traditional credentials and job titles.  

Welcome to the Skills Economy

In this new era, skills are the primary driver of professional value and success. The future of work, we now see, will be shaped by skills: the skills we have, and need, and our ability to acquire new ones. Organizations and individuals alike must therefore rethink what it means to truly thrive in this new world of work.

HR professionals in particular need to understand and adapt to this new paradigm if they want to be successful, and lead their companies to success. 

So what is behind the “Skills Economy”, and how can you guide your business towards a skills-centered approach to talent management? 

Understanding the Skills Economy

What is the Skills Economy? 

The “Skills Economy” has been driven by the global skills shortage. Employers are facing huge skills gaps. They are now working out how to transform, in a world where talent is not a fixed asset, where skills can be learned, jobs can be fluid, and priorities continually shift. 

As businesses look to fill growing skills gaps in their organizations, it is clearer than ever that a new approach is needed. Rather than thinking about people and jobs, companies must focus on the discrete tasks that need to be carried out, and the skills needed to do those tasks.

Employees, meanwhile, are increasingly focused on building and honing transferable skills that will keep them employable in a changing, increasingly digital, talent market. 

In this new world, value is increasingly being attributed to individual skills, rather than traditional credentials or job titles. Employers, employees and even governments are starting to recognize the inherent worth of “skills”, seeing them as a crucial way to unlock productivity and growth.

Skills are becoming the new “currency” of work, replacing official qualifications and educational pedigree. Talent can no longer be judged solely on educational background, or past work experience, or industry connections. 

As well as leading to more equitable outcomes, a focus on skills rather than experience widens the talent pool – and ensures you are basing recruitment and management decisions on what someone is actually capable of, or capable of learning, rather than more arbitrary factors. 

“Prioritizing competency over, say, a CV studded with glossy companies and a degree-level education, could help to ease a tight labor market. This type of skills-first hiring approach would de-emphasise details such as educational degree, years of experience and previous job titles, and instead focus on the candidate’s ability to demonstrate that their professional skills map well to the requirements of the job for which they’re applying.” – Financial Times

Where has this come from? 

The last few years have seen workforce dynamics change in lots of ways, with the pace of change being as notable as the changes themselves. There are many shifts that employers are responding to: 

  • The rise of hybrid working: As it becomes clear that work can often happen from anywhere, many of the barriers to employment (e.g. your ability to get to an office, or geographical location) are being eroded. Skills matter more than where you live. 

  • Technological advancements: New technology (generative AI is a great example) has also created more flexibility around who does what, when, and where. As well as being more portable, skills are now more easily augmented and supported by technology, and it’s easier than ever to access training and learning through online sources. There is also plenty of new stuff to learn. 

  • Changing expectations: A new generation of workers (Gen Z) has new expectations based on this technology – that is, easier and more personalized experiences. They are less likely to work somewhere (for any length of time) that doesn’t fulfil their needs. Everyone is looking to get “more” from work. 

  • The end of jobs? Following the pandemic, and in straitened economic times, people are increasingly evaluating their options: asking where they fit in the working world, and how else they might use their skills to generate income. Workers in every generation are forming new expectations around what a ‘job’ actually looks like. It can fit around their lives and locations, but it can also flex depending on critical projects, aspirations and preferences, and working styles. It could be lots of smaller projects and gigs; it doesn’t have to be full time or permanent. 

All of these factors have placed more emphasis on the skills we can learn and apply in our working lives. 

Implications of the Skills Economy

What the rise of “skills economy” highlights is the need to constantly upskill; the value of skills and learning; the more agile nature of work. All this changes how businesses look at:  

  • Lifelong learning, and building a learning culture, that also allows people to learn in their own way. 

  • Employment and hiring practices, with skills replacing traditional criteria. 

  • Performance reviews and career progression, where skill acquisition is prioritized over level and tenure. 

  • Gigs and project work, and more flexible working and learning opportunities being offered (in relevant, personalized ways).  

  • Collaboration across teams, and bringing diverse perspectives together to better solve problems. 

It offers both opportunities and challenges, requiring individuals, employers, and educational institutions to adapt in terms of culture and process, and in terms of data and technology.  

Taking a skills-first approach

Businesses embracing the new “skills economy” paradigm realize that, in order to stay competitive, they need total talent agility: to move people around as they are needed. In a fast changing environment, you need to be able to act quickly, and your talent has to be a more fluid asset. 

To do this, they require a common understanding of the skills they have and need – which means they must adopt a skills-based approach, throughout the organization. 

Smart organizations are embracing skills-based transformation: that is, thinking “skills-first” in terms of managing talent, with a totally new approach to data, technology and culture. 

Skills-based transformation across the whole enterprise means looking at every aspect of talent through the lens of skills. 

Benefits of the skills-first approach

This approach helps businesses make better talent-related decisions. They can: 

  • Expand the talent pool – in order to find the right talent to fill roles

  • Boost diversity and fairness, by encouraging a more objective approach to assessing talent

  • Improve creativity and innovation, through a culture of lifelong learning

  • Stay agile and adaptable in a world that is changing faster than ever

  • Make smarter workforce plans, and even business plans, based on a fulsome understanding of the talent resources required. 

In fact, 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.

68% of the business leaders we spoke to in Navigating The Changing Talent Landscape think focusing on a person’s capabilities and competences, more than their formal education and time spent in a previous job, can better support business growth. 46% believed skills-first hiring expands their talent pool and helps create a more inclusive talent pipeline.

How To Embrace Skills-based Strategies

While every part of the organization needs to look at skills development, adaptable employment practices, and the recognition of individual capabilities, the HR function is uniquely positioned to bring the skills-based approach to life

Get started with Skills Data

The main impediment to companies embracing the Skills Economy is the “cold start problem” – they don’t have the right skills data. Or, they have incomplete or out-of-date data.

Most companies will have information about talent stored in different systems – and this can, with the right technology, be turned into a centralized repository of skills data. Bringing data about employees, candidates, previous applicants and alumni together, and using AI to enrich the data, is step one. 

AI can also work out if there are ‘adjacent’ skills people are likely to have, or be able to learn, based on the rest of their skills profile. And it can ensure people’s skills profiles automatically update when they learn something new. 

Once you can connect your jobs to the right skills, and can dynamically maintain and evolve your Job Architecture – only then do you have the foundation to take a fully skills-first approach to hiring, development and redeployment.  

Consider including external labor market data, along with your internal data, to ensure your data set is as useful as possible – and leads you to insights you can put into action. Partnering with an expert in building dynamic skills taxonomies is recommended. 

Skills Intelligence is the key ingredient, running in the background, that makes everything else in a skills-based organization possible.

Champion Skills-based Talent Acquisition and Internal Mobility

A skills-based approach means rethinking recruitment practices and workforce dynamics to focus on skills and flexible ways of working (with projects, gigs, learning opportunities and more.)

HR leaders therefore have a role to play in influencing Hiring Managers and teams to prioritize skills at every stage of the talent lifecycle, from candidate evaluation to performance reviews and task/project management.

They can also help promote internal mobility, and looking within – rather than defaulting to external hiring – to fill open positions. Become a strategic ‘talent advisor’ to the Hiring Managers you work with, and help them see the benefits of looking at the skills people have (or could learn) and using those insights to plug gaps in the most critical projects.  

Build a Culture of Learning and Skills Development

HR leaders need to promote continuous learning and provide opportunities for upskilling and reskilling, progression opportunities. They need to provide employees and managers with the tools to evaluate skills they have (individually or on their teams) and plan proactively for development.

Of course, the L&D department is crucial here. If you are already banging the drum for lifelong learning at your company, now is the time to encourage leaders to look to skills-based transformation – to make your life a lot easier. 

Under a skills-based approach, you see better, clearer ROI around the skills people have gained; you can get better C-suite traction by showing them how the skills you are building as an organization are helping with overall business goals. 

Don’t let the managers’ fear of ‘losing talent you’ve upskilled’ prevent this critical cultural shift. Talent hoarding and silos is one of the top enemies of the skills economy. And, conversely, building people’s skills is one of the ways you are most likely to keep them engaged at your company. 

The key is to get every part of the business talking the same language. If leadership, managers, employees – and every part of HR – is aligned on the language of ‘skills’, you can all track progress around employee development in a very straightforward way. 

Adopt Technology for Skills Management

Adopting and implementing technology platforms for skills data management, analytics, and talent development is absolutely critical. Skills intelligence is not something that can be kept useful, relevant and up-to-date with manual effort alone – particularly in a world where “skills” are changing so rapidly.

If you want to keep pace with the competition and the evolving talent landscape, you need to embrace the (now possible) automated approach to collecting and enriching data about skills, and keeping all that information up to date. 

HR leaders need to advise their businesses on the right solutions (and best practices) to identify skill gaps, track skills development, and support succession planning. They also need to encourage and empower managers to make use of such technological solutions on an ongoing basis. 

As noted above, you need a reasonable investment in “skills intelligence” and a dynamic Job Architecture, to provide you with insights that are usable throughout the talent lifecycle. Apply explainable AI to the data and get insights that lead to better talent outcomes. For example, 

  • Candidates can see the skills they have, alongside the skills for an open role, to better find the right role for them – quickly. 

  • Employees can understand where to develop, in order to meet their career aspirations. 

  • Recruiters and Sourcers can expand their search beyond (previous) job titles, to unlock wider talent pools and fill those expanding gaps. 

  • Managers can see how to upskill or make better use of their team across the most crucial projects, because they know what skills they ‘have’ and where they have gaps. 

AI is a huge time-saver for HR teams trying to perform skills-based assessments, or identify and attract candidates who are going to be able to perform a specific task. Moreover, it can power your internal Talent Marketplace: a platform to help recommend career paths and learning opportunities to employees, based on their skills and interests, as well as business needs and goals. 

The emergence of the Skills Economy is incredibly significant for business, and offers a chance for HR leaders to take on a more strategic role in the quest for transformation. 

It’s clear that the right data, technology and culture is crucial in the shift to skills-first talent strategies, which HR professionals and business leaders must prioritize in order to stay competitive. It begs the question of HR leaders: do you have the skills you need?

Learn more about skills-based transformation.