Building a Skills-Based Organization, for Real

The skills-based future is coming. Or is it? Well, kind of.

Since the Covid-19 pandemic, there’s been growing recognition among HR leaders that when employers hire and develop talent based on skills, rather than things like degree requirements, they create a more diverse and tailored talent pool. They also give themselves the ability to keep up with exponentially improving digital technologies that are accelerating change. Yet despite the massive shifts in workplaces that we’ve seen over the last few years, the promise of skills-based organizations (or SBO to us in HR) has yet to be fully realized. Worse yet, many companies haven’t even begun making the shift to a SBO in earnest.

Recent research bears this out. While moderating a panel discussion at Guild’s Opportunity Summit in Nashville earlier this month, I decided to ask the room full of HR leaders for myself. I posed this simple question: Is your organization a “skills-based organization”? 

Of the almost 150 folks (and 80 companies) in the room who participated in the live online poll, 31% said they were just “starting the journey” (good news!), 35% said they were “in the middle of it” (encouraging), and another 30% were still “thinking about/planning it” (concerning). Only 2% said “mission accomplished.” And, perhaps owing to the complex and controversial work of shifting to a skills-based talent approach, 1% said “hard pass.”

The inertia isn’t exactly surprising: Without effective assessment tools and frameworks to ensure that a job candidate will succeed in a new role, the bachelor’s degree and work experience become the most useful proxy for a person’s capacity to learn and grow into a new role and easy way to cull the applicant pool. And without skills-based hiring, the prospects of becoming a truly skills-based organization — defined by Deloitte as “an organizational form that places skills and human capabilities at the heart of talent strategies, creating a new operating model for work and the workforce” — dim dramatically.

But in the midst of so much external and internal change — to technology, demographics, work locations, employee expectations, corporate responsibilities, and so on — to stick with traditional approaches to talent acquisition and development is a recipe for irrelevancy. The world of skills-based HR systems may be intimidating, complicated, and not yet well integrated, but CHROs don’t have time to wait for perfection. Companies that put skills-based workforce planning in place will have tested, connected, and invested in skills and be in a position to win.

Based on our wide-ranging conversation on the stage at Opportunity Summit, five practical tips emerged that can help you build toward a future-ready, skills-based organization – now. They are:

• Start small
• Make the right business case
• Get serious about the skills you need
• Test your way to success - starting with the frontline
• Draw inspiration from skills-based industries

Many of these steps are standard to skilling initiatives, to be sure, but the nuances and context of developing a SBO make applying them much more difficult. The most important thing: Just get started. 

1. Start small. 

The sheer scope of building a skills-based organization can be daunting. Yet big change doesn’t have to require grand gestures — it can begin with one small, actionable step toward a well-defined, incremental goal. 

“Just get started,” said David Mafe, chief diversity officer for UCHealth and the vice president of human resources for the system’s metro Denver region. “It’s not going to be easy. There will be folks who will tell you it won’t work, maybe because they’re tenured and perhaps because they have one way of seeing the world. But just get started.” 

“You don’t have to do all the big things,” added Janel Taylor, senior vice president of learning strategy and talent management for Regions Bank. “Do things thoughtfully and incrementally. Have the courage to try.” 

2. Make the right business case.

As you scale a SBO strategy, one common challenge is demonstrating that it actually makes an impact on the business. How will it drive business performance, really? How much bang will you get for your buck?

To answer this question, many CHROs focus on short-term and easily measurable impacts, particularly acquisition and retention. While important, this may be too limited. CHROs and CLOs need to help the chief financial officer and the rest of the C-suite think beyond the short-term. They must build the business case with their CFO (and other financially driven peers) that creates patience, trust, and confidence that longer-term growth and value are on the horizon. 

Megan Lessard, vice president of people acquisition and inclusion for Sunrun, said that while business leaders may not be fully versed in the discussion surrounding skills-based organizations, many are seeing a “huge bottom-line opportunity for moving in that direction.” Lessard shared that the Venn diagram of skills overlap and workforce versatility (i.e., the ability to move people around to different roles) is particularly compelling for them. 

“You can't just hire everybody you need,” Lessard said. “You've got to grow people in their careers to meet the needs of the future.”

3. Get serious about the skills you need.

The ideal end state for a skills-based organization is likely to look very different than today’s typical corporation. Instead of a strict hierarchy of employees with fixed roles and responsibilities, a skills-based organization will likely function more like a revolving talent pool, with teams assembled project-by-project based on the skills they bring. Companies in turn may pay for programs that allow employees to add skills and competencies needed to support the business. For organizations who are not professionals-services based, a transition to this end state may be a decade-plus proposition.

Leaders must be intentional about identifying and recruiting for the skills that the organization actually needs – both now and in the future.

But to start this journey, leaders must be intentional about identifying and recruiting for the skills that the organization actually needs — both now and in the future. Get rid of those skills taxonomies with 50,000-plus skills. Choose a dozen or so for each function that are the most relevant to solving business problems — and go from there. In fact, many organizations are netting out at fewer than 500 critical skills that they need to hire, train, and reward for in their organizations. 

Taylor suggested that organizations consider deleting the massive volumes of existing skills in their HR systems and start from scratch. 

In the same way that the investors oversee portfolios of securities, HR leaders need to build and manage portfolios of skills, and they mustn’t hesitate to divest of development in those areas that become obsolete while doubling down on others that begin to pay off. 

4. Test your way to success – starting with the frontline.

One of the best ways to build a skills-based organization that will last is not to impose top-down thinking on the enterprise, but rather test SBO where it can have an impact touching just a few roles, like frontline employees. You’ll end up with better ideas – ideas that come from people who do the work every day and see the most glaring skills needed (sometimes even in themselves). 

“It’s simple math, right?” said Taylor. “There's a larger population of people to run small experiments with. So, we can get a lot of data from just one group of people.” What’s more, the frontline “knows how things work.” 

In the end, your strategic sweet spot should be at the intersection of high employee volume and business demand. To wit: figure out where the demand is in the business for a whole lot of talent and skills. 

5. Draw inspiration from skills-based industries.

Leaders just starting their strategic discussions should look to industries that already engage in credentials-based and skills-based hiring today. Take healthcare, which during the pandemic alone witnessed a huge drop in jobs requiring bachelor’s degrees.

While healthcare tends to be more credentials-based than skills-based, the industry has a system in place to validate skills every year. 

“For nurses, respiratory therapists, and for all of those folks that are governed by licensure, it's really pretty clear the path to grow your career,” said Mafe. “You add additional skills – and those skills are validated. You are able to do that and you are able to advance to the next rung.”  

The challenge is shifting from a job description‑based and credential‑based model to that of skills‑based. “Getting folks to agree on what those actual skills are and then getting those documented so that there’s transparency around it is really the work that we have to do,” Mafe said. At the same time, this model where employees input their skills exists now. 

Indeed, making that a reality will require the ability to accurately assess each employee's unique skill set, as well as determining which employees need to be upskilled as the nature of their work evolves. Many organizations may need to consider hiring a chief skills officer to serve alongside the CHRO and take ownership of that culture change, infrastructure, and necessary processes.

SBO = future-proofing against disruption.

In the last three years, workplaces have changed more rapidly than in the previous three decades — and the rate of change is only going to accelerate. Labor shortages, shifts in employee expectations (especially among Gen Z), and the adoption of transformative new technologies have changed the types of positions organizations need to fill, as well as the skills needed to perform them. 

A transition to becoming a skills-based organization may be a decade-plus proposition.

Disruption will strike each discrete role — skills are the only way to prepare. When you focus on adding skills to the workforce, supporting them through their career development and building adaptability, you’re preparing your workforce and your business for change.

About Matthew J. Daniel

Matthew is Senior Principal, Talent Strategy and Mobility at Guild.