Everyone's talking about skills-based organizations. Here's how to become one

An ongoing topic of discussion in the HR world over the past several years has been the transformation from a role-based workforce structure to a skills-based one.

The premise is that the future of work is going to be more customized, personalized, and skills-based with organizations matching employees to tasks and projects based on their skills, competencies, capabilities, interests, and experiences rather than their current job title.

Talent shortages and rising costs that were attributes of the pandemic-era labor market gave even greater currency to the idea. A PwC Pulse Survey in August 2023 suggested that 84% of CHROs were increasing their investment in skills-based talent architecture.

Why should I be interested in a skills-based workforce?

In theory, the benefits of moving to a skills-based workforce from a job or role-based workforce are compelling. The work to be done is defined in a more modular way as a set of projects or tasks to be accomplished. Modules can be pulled together to deliver the desired end product, making the process and staffing more flexible and agile.

The organization can unlock previously undiscovered skills and capabilities at the same or lower costs and apply them to projects that require these skills. Where internal talent is in short supply, the organization can use the gig economy to buy or borrow the required skills while investing in upskilling and reskilling the existing workforce.

Better alignment of the employee’s interests and capabilities rather than their educational background or current job role to tasks and projects is expected to lead to higher engagement with the company and the brand, and in turn, translate to improved employee experiences and greater retention.

Over time, organizational productivity and efficiency also improve because of better resource matching. 

In practice, however, today’s organizations tend to be monolithic rather than modular, and workforce agility while highly desired is still not that easy to achieve. To move from a job-based architecture to a skills-based architecture does require several prerequisites and success conditions to be in place for value realization.

How people approach jobs, processes that need to change to enable the transformation, and technology investments needed to support the changes must also be considered. Add to that the significant investment in change management that is required before, during, and after the process. 

Chicken-first or egg-first? Laying a strong & well-defined foundation matters

Recent World Economic Forum reports have outlined skills-first frameworks for action focusing on two key enablers. Firstly, embracing a skills-first culture, policies, and mindset; and secondly, adopting a common skills language.

While some organizations like Unilever are early adopters of the skills-based approach, many companies are still in the early stages of experimenting with proof-of-concept projects and pilots, to build and deploy some of the key architectures that underpin the transformation and help value realization. The technology, process infrastructures, and operating models supporting the transformation are still evolving. 

It’s often a chicken-first or egg-first issue. Many organizations do have informal skills inventories though they are not detailed or exhaustive and may not even cover their entire workforce. Companies have basic professional, technical, functional, and management skills described in their job competency maps which is a good place to start for building the skills framework.

However, for the long-term transition to a skills-based architecture to succeed the foundational elements must be well-defined.

A prerequisite for developing the skills inventory is to agree upfront on a skills taxonomy and ontology across the organization, a common set of skills definitions that can be updated with appropriate governance, and a roadmap to realize the vision.

Organizations should consider building out a talent marketplace that is tied to the skills inventory

Note also that while skills standards do exist, they are non-exhaustive. In addition, vendors who are building out platforms and products to support a skills-based architecture may not always map to these definitions in the same way and that could create complications for future portability of the inventory.

Another reason for the organization to agree on definitions is that at some point in the maturity journey skills will need to be validated through some certification process. While technical or professional skills are fairly well-defined and can be validated with certifications or training, soft skills are more difficult to measure and evaluate.

Since the success of the skills-based transformation depends on the evaluation of the employee as a whole person as opposed to just professional or technical skills, it is even more crucial to have clear definitions that are agreed upon upfront and a governance process to support changes and updates.

At the same time, organizations should also define their data strategy for the skills inventory as well as the technology strategy to support the deployment.

Skills inventories help bridge future skills gaps 

The next step is to build out a skills inventory. This is crucial for both discovering the skills that exist in the organization today and when compared against skills needed in the future, can provide the skills gap data needed to assess the skills that must be bought, built, or borrowed.

Organizations appear to be approaching this in different ways. One popular approach is to have employees build out their own skill profiles. Another is to use a combination of external skills assessments and internal input to populate the inventories.

Both approaches have their pros and cons. Employees may tend to either under or over-report their skills. Using external vendors is both costly and intrusive. Regardless of the approach followed, it is more than likely that over time with skill assessments and external benchmarking, the skill inventory quality will improve.

Talent marketplaces support value realization

A priority HR objective in leading organizations is to improve internal mobility. Organizations should consider building out a talent marketplace that is tied to the skills inventory because the skills-based transformation is highly dependent on internal mobility and an agile workforce to deliver value.

An internal marketplace will support candidate discovery, task, and project availability, and help match candidates to projects. In addition, it can also help with improving the quality of the skills inventory.

Talent-forward companies are already experimenting with structures that are key elements for realizing value from operational agility. For example, some have already done away with college degrees for certain types of jobs, relying instead on experience or some other form of validation for capability and ability to execute.

In addition, they are investing in talent marketplaces, building skills inventories, developing strategic approaches in their learning and development areas for skill certifications, and building out processes needed to connect and deliver outcomes.

It is important to keep in mind that this will be a multi-year journey and it's important to set up strong foundations across people, process, and technology pillars to realize value.

Daya Nadamuni is an experienced workforce strategy leader with a proven track record of success at Adobe and Walmart.