Skills: The new workforce operating system

By Sue Cantrell, Jonathan Pearce, and Michael Griffiths

In the context of the “great resignation” and the opportunities of an economy emerging from the pandemic, the major constraint to business growth is supply—especially the supply of talent. To succeed, organizations need a fundamentally new workforce operating system—shifting from managing work performed in jobs organized in a hierarchy to orchestrating the dynamic matching of skills to work. Not only does this system unleash workforce capacity now, it accelerates the cultivation of new skills needed for tomorrow. Leading organizations are already placing skills rather than jobs at the center of work and the workforce; we define this new operating system as “the skills-based organization.”

Goodbye talent management, hello skills-based organization

Talent management emerged in the 1990s, evolving from the management of high potentials to include the management of all employees throughout the talent life cycle—from talent acquisition to performance management to learning and development, careers, and rewards.

In most organizations, every talent practice is based on static jobs, not dynamic skills. Talent management is standardized and process-driven, siloed and centralized, and based on a supply chain-oriented view of the world that assumes that the workforce is an interchangeable resource to be supplied and managed at cost rather than a unique asset to be cultivated.

The skills-based organization turns talent management on its head, redefining and reimagining every talent practice to be based more on skills than on jobs, and setting a new direction for the future of work (see Figure 1). Unlike the talent management of yesterday, tomorrow’s skills-based organizations are agile, tech-enabled, and democratized to give the humans at the center of work far more agency, choice, opportunity, and equity.      

Figure 1: Skills Transforms Every Talent Management Practice

Of course, the importance of skills is not anything new. Our workforce is increasingly recognized as the key to business success, and only now has technology matured enough to make the skills-based organization possible. Today, for example, AI can infer, quantify, validate, and organize skills in a way that was previously impossible. The tech is ready and rapidly improving, but organizations are lagging behind, hindered by entrenched mindsets about what it means to “manage talent.”

No, skills are not the new currency for the future of work 

It is common today to hear about “skills as the new currency,” likening skills to money as a medium of exchange for goods and services.

This implies that skills—and the people who have them—are akin to fungible commodities, and it implies that the way to win is by collecting an abundance of skills in the organization to make its value go up (as measured by number and types of skills).

With money, the value is not necessarily the money itself—but rather what the money enables you to do. Similarly, with skills, the value is not in the skills themselves, but rather how skills can be used in nearly every talent practice to unlock value for the organization, worker, and society as a whole.    

In our view, therefore, skills are not a currency for the future of work—they are a new language that creates new conversations and new decisions through every dimension of talent and work. In the words of Grey Pryor, People and Performance Evangelist at Workday, “HTML democratized information on the Internet. In the same way, we will now have ‘HPML’ – or human performance mark-up language – that has the chance to democratize opportunity.”¹

Using skills to reinvent talent management: where to start

Skills will need to be threaded through all talent management practices to fully transform into a skills-based organization, but we recommend starting with a talent practice where the biggest business case is based on your organization’s specific needs and pain points.  Some organizations start with those practices that have the clearest connection with skills today, like learning and development or talent acquisition, or where they are based on more mature technologies easily available as upgrades to existing HR information systems (see Figure 2).

For example, Workday’s new offering Skills Cloud—which identifies thousands of skills and arranges them in an ontology—now feeds skills into its applications, such as learning, recruiting, and other modules such as Career Hub and Talent Marketplace, a platform that matches roles or short-term gig assignments with employees’ skills and interests.

Figure 2: Inching toward a Skills-Based Organization

Fully transforming talent management with skills: where we are moving next

Next, organizations can progress toward becoming a skills-based organization by threading skills through talent practices, such as workforce planning, job architecture and levelling, and leadership and succession planning (see Figure 3).

Instead of planning for headcount, organizations also plan for skills; instead of job architecture, organizations develop a more flexible work and skills architecture; and instead of succession planning as progression planning based on roles, future leaders and successors are identified based on real-time, verified skills and capabilities needed for the future.

Figure 3: Progressing toward a Skill-Based Organization

Fewer organizations have yet to also embed skills into how they assess and reward workers (see Figure 4). Although 45% of organizations reward workers for the development of new skills,² and although many have now made skills development part of performance management conversations, only 14% of companies are planning to implement pay-for-skills in the near future.³ Basing pay and other workforce decisions like hiring, deploying, or promoting employees on objective, verified data, such as skills (rather than variables like degree or tenure in a job), can reduce bias and democratize opportunity.

Figure 4: Transforming Talent Management into a New Skills-Based Operating Model

Using skills to reshape the future of work: where we are actualizing skills-based organizations

Transforming into a full skills-based organization, however, is not confined to merely reinventing the domain of HR and talent management. The bigger opportunity is to use skills as a basis to reinvent the very future of work—changing how work is done, what it means to be an organization or a worker, and the value organizations can create for human beings and greater society beyond the value it creates for shareholders (see Figure 5).

Figure 5: Actualizing the Skills-Based Organization to Reimagine the Future of Work

For example, with a skills-based organization, organizations can more easily morph into becoming workforce ecosystems that seamlessly access skills inside or outside of the organization, or export skills to customer and partner bases to gain an ecosystem advantage. Instead of organizations consisting of employees in jobs, work may increasingly also be organized beyond the job, with work and workers deconstructed into their component parts (tasks or projects; skills and capabilities) and rapidly matched to one another.

Even the very essence of the organization—its strategy—will be transformed, with skills creating new strategic directions or ambitions to create value for people as human beings, a key component of the growing movement toward stakeholder capitalism.  A greater focus on skills in organizational practices can unleash greater employability for all; enable more efficient labor markets; and provide greater opportunity, fairness, and equity as people are defined more based on their skills than on pedigree or subjective judgements of others. HR and business leaders now have a golden opportunity to reinvent themselves, dynamically orchestrating skills and work to create value for all.  

References:

¹ “The Skills Obsession: The Role of Skills in Preparing for the Future of Work,” Workday and RedThread Research webinar, 2021.

² “The Compensation Conundrum,” by Erica Volini, Jeff Schwartz, David Mallon, Yves Van Durme, Maren Hauptmann, Ramona Yan, Shannon Poynton, Deloitte, 2020.

³ Mercer Global Talent Trends, 2020–2021.

Authors:

• Sue Cantrell
• Jonathan Pearce
• Michael Griffiths
• Kari Strobel
• James Weston