How to Conduct a Skills Gap Analysis For Your Organisation

Introduction:

In today’s business environment, talent remains a critical factor driving enterprise risk, with nearly every country ranking skills shortages or unemployment as a top 10 concern. In fact, labour shortages will continue to exist in many countries for the foreseeable future. Hence skills shortage is a critical obstacle in business success not just for today, but for tomorrow,

48% of HR leaders see skills shortages as a top threat to their business this year (2024).

To override this risk and deliver in a dynamic environment, organizations must proactively build organizational capability for current and future success. This begins with conducting a Skills Gap Analysis. 

Skills Gap Analysis is a process that helps organizations identify and address the difference between the skills their employees currently have and the skills they need to achieve their goals.

Benefits of Conducting a Skills Gap Analysis

• Improved workforce productivity and efficiency: The skills gap analysis is a key input into designing a workforce strategy that is efficient as well as effective. Having the right skills means people can do their jobs better, producing better outcomes, not only for now, but for times to come.
• Helps in better decision-making regarding training and hiring: By knowing the skills gap, L&D professionals can better plan the learning and development strategy in line with actual business outcomes. Concrete skill development interventions such as training, coaching, and mentoring shall empower employees to acquire the required skills and perform better.  
• Enhanced employee engagement and retention by investing in their development: Training and development and career progression are highly valued by talent, and investing in employee training enhances employee satisfaction. Moreover, organisations with high levels of employee engagement are 21% more profitable and 3X faster at growing profits than their competitors. Hence skills gap analysis ties in strongly to business outcomes. Organizations can set up their employees for success with the right upskilling and reskilling, and cultivate better trust and sense of belongingness, leading to lower employee attrition.
• Ensures the organization remains competitive in its industry: A data-backed, proactive and predictive approach to skill development helps build future skills early on. This helps both people and organizations adapt to market changes in an agile and future-ready manner. This is especially important in today’s VUCA world. 

Common Challenges in Skill Gap Analysis and How to Overcome Them

• Lack of Skills Data: Organizations may not have adequate data about current organizational skills repository and the market skills landscape. Building accurate and reliable skills data infrastructure internally, and data sources externally (such as access to the latest labour market trends) forms the foundation for skills gap analysis.
• Inadequate Skill identification: Not everyone may be equipped to understand the type and levels of skills, and analyse skill gaps for each job role. Having the right skilled personnel to add insight, foresight and predictability for current and future skill requirements, requires knowledge about different types of skills and competencies. Training on various types of skills and job roles can help.
• Operational challenges: Skills Gap Analysis across job roles, functions, and entire organizations is a time, effort and financially intensive exercise. Organizations may struggle to allocate resources to take this through. L&D should seek leadership buy-in and allocate resources at the outset, while designing the learning and development strategy.
• Cultural and change: The skills analysis exercise often involves interactions with employees to understand the current state of skills that people have. This may be viewed by employees as a threat or a questionable move on their capabilities. Clear, transparent communication and a collaborative approach that involves employees in the process, can help overcome such resistance to change. 

Step-by-Step Guide to Conducting a Skills Gap Analysis

1. Define Your Organisation’s Goals and Objectives: Summarize the organization’s business goals, both short-term and long-term, outline the KSA (knowledge, skills and attitudes) that will help achieve these. Also factor in the organizational values. This can be done at every level i.e. job role, department, function, and overall organization. Other aspects are to identify the critical roles and hot skills which directly contribute to organizational growth. Using a competency map can help kickstart this.
2. Identify Required Skills for Each Role: Outline the skills that the organization requires for current and future job roles. 

• For current job roles – job descriptions, performance management data, training data, and job market reports can serve as inputs. 
• For future job roles – macroeconomic predictions, labour market reports and skills reports will help predict future required skills. 

Both are necessary to be able to build skills in an agile manner and make the organization future-resilient. Some questions to ask are, “What skills are valuable for the company?”, “What skills will help employees do their jobs better”?, and “What skills should we develop to stay relevant in the future?” .

3. Assess Current Employee Skill Levels: To evaluate employees’ current skills, HR and L&D must collect current skills data through self assessments, manager assessments, 360 degrees feedback, performance review data, and skills assessment surveys. It is important to assess the current skill itself, as well its proficiency level.
4. Compare Current Skills Against Desired Skills: Conduct analytics to identify the gap between a role holder’s actual workforce skills and ideal skills. Elaborate the same for proficiency levels. A detailed competency mapping exercise or referring to a competency map can help visualize these gaps and arrive at the skills matrix.
5. Develop a Plan to Address Skills Gaps: Identify whether to go the Build or Buy way to develop the desired skills and bridge the skills gap: 
   

• Build skills: 45% of HR leaders report that rewarding skill acquisition has been the number one approach in ensuring organizations have the skills they need. 38% believe in building via experiential learning, while 29% opt for building via internal training. To build, L&D must design or redesign the learning and development strategy periodically, in alignment with the identified skills gap. Employees may need to scale up skill proficiency levels in their existing skills through upskilling, or need to add on new skills through reskilling or cross skilling. Training, mentoring, coaching, and blended learning strategies can enable people to better their current productivity as well as become future-ready. To make skill building a habit, leaders need to cultivate a learning culture and sustain it.
  
• Buy skills: 45% organizations believe that buying/hiring new talent with the required skills and/or experience, while 39% opt for rewarding skill deployment (e.g., paying a premium for skills used). This can be achieved through skills-based hiring. In fact, research says that talent pools expand nearly 10x when using a skills-first approach. Naturally, 73% of recruiting pros say hiring based on skills is a priority. The hiring strategy should evolve to factor in the skills dynamism and skills shortage landscape. Devising a talent acquisition strategy which is agile and business-forward, is critical to skills success. This may look different for different businesses – a full time workforce, an on demand workforce or a blended workforce strategy as the midway.
  

6. Monitor Progress and Re-evaluate Regularly: Emerging technologies like AI and Gen AI are drastically reducing the shelf life of skills. Hence the need to adopt a continual and agile approach to talent management. HR leaders and business leaders must periodically check-in on the skills gap, putting in place the right metrics to continuously monitor and reassess their skills repertoire. The frequency of conducting a skills gap analysis varies by factors like nature of business, nature of workforce, shelf life of organizational skills, macroeconomic changes, socio-cultural fabric, and much more. This skills strategy must tie in to the over talent management strategy. 

A proactive approach and a continued commitment to a skills-first talent strategy is crucial to build a more resilient workforce and therein, a resilient organization. Continual leadership buy-in at the CXO level is essential to this.

Organisations that embed a skills-based approach are 63% more likely to achieve results than others.

It is clear that skills-first approach must not be only in HR’s purview, but a business priority.