Skills Gap Analysis: Everything You Should Know About Identifying Key Skills To Meet Your Business Goals

We hire people for skills, but skills decay over time, and the skills needed to remain competitive are constantly evolving.

Currently, there’s a significant gap between in-demand skills and employees with those abilities, especially in industries such as manufacturing, IT, and healthcare. 

Running a skills gap analysis is among the most efficient methods to identify and address these problems.

Here we’ll go through

• What is a skills gap analysis?
• Why conduct a skills gap analysis?
• How to conduct a skills gap analysis

What is a Skills Gap Analysis?

A skills gap analysis is a method companies and organizations use to track and measure the gap between the abilities and competencies they require and the skills their workforce currently has.

Leaders and HR departments evaluate current employees’ skill sets to gauge their work performance and determine whether they have the necessary capabilities and knowledge to reach strategic goals and keep up with emerging trends. 

Hence, a skills gap analysis is an excellent way for employers to understand their workforce’s potential and gaps that could hinder business longevity in the long run. 

It gives them tools and insights to implement proper recruitment strategies, learning and development programs, and upskilling opportunities.

It’s recommended to conduct a skills gap analysis every three to six months, or when your strategy changes because skills develop and transform increasingly fast. 

This is even more important for large organizations that must continuously improve their strategic workforce development to stay ahead of their competition. 

Why Conduct a Skills Gap Analysis?

Skills requirements change fast in nearly every industry globally. This is the principal reason companies must keep track of their workforce’s skills inventory. 

Employers, hiring leaders, and recruiters must know what abilities and knowledge their employees possess and whether they’re at a sufficient level to stay competitive and perform their jobs effectively.

The World Economic Forum (WFE) found that 1.1 billion jobs are liable to be radically transformed by technology in the next decade, which means many employers will have to address drastic skills gaps in the coming years. After all, every five years, an employee’s abilities and knowledge are about half as valuable as they were before. 

That explains why upskilling and reskilling should be regular practices, and why an increasing number of people will have to adapt their competencies or adopt new ones during this decade.

But it’s imprudent to design upskilling programs without knowing in-demand skills for a specific industry and what abilities a company’s workforce lacks. 

Effective L&D programs and employee training aim to address skills gaps and improve employees’ ability to perform their jobs well. The goal of a skills gap analysis is to inform a company’s decision-making here and where to focus their money, resources, and time. 

But it also gives them insights into how to use the maximum of their employees’ potential and align it with the latest labor market and industry trends and requirements.

Even though companies should conduct skills gap analysis regularly to get real-time data, some prefer to run it once per year. 

In that case, the following are the most common reasons that should nudge that decision.

• Experiencing a significant decline in business performance and failing to meet financial goals.
• Introducing a new software, tech platform, or process.
• Forecasting a market disruption (e.g., automation) that could hinder business performance.
• Wanting to track the loss or addition of abilities and competencies due to workforce movement.
• Pivoting or updating the business model or strategy and requiring data on the workforce’s skills inventory.

The Most Prominent Benefits of Skills Gap Analysis

Here are the key advantages companies get from conducting a skills gap analysis. 

• It allows you to tap into your workforce’s skill sets—a skills gap analysis will help you understand how many employees possess the in-demand abilities and knowledge necessary to meet strategic goals and objectives. It will also guide you on what capabilities are missing in your company and what resources and steps could help you close the gap. 
• It enhances employees’ learning and development journey—other than giving insights into your workforce’s missing skills, a skills gap analysis lets employees know what capacities they must acquire to stay efficient and be more productive. That will also prepare them for potential future roles and projects. 
• It reinforces strategic workforce planning—among other things, strategic workforce planning ensures you hire the correct number of people with adequate skills and competencies. But that is hardly possible without data on what abilities and knowledge these people should have.
• It can boost your hiring efforts—knowing what skills and abilities your future employees should have comes from the data a skills analysis provides. That helps you be more intentional in your recruitment efforts and target a more compatible audience.
• It helps reduce costs—recruitment inherently means spending time and resources, which isn’t always necessary. A skills gap analysis gives you data you can use to augment the skills of your existing workforce and promote internal mobility instead of hiring externally. 
• It helps foster high-performing teams—ensuring employees acquire the skills necessary to be competitive and efficient improves team performance and productivity. That also boosts employee morale and satisfaction. 
• It helps develop future-proof L&D programs—a skills gap analysis is vital for understanding what skills your employees lack that will be critical in the future. Thanks to that knowledge, you can build L&D programs around relevant learning content, ensuring they don’t become obsolete.
• It helps you gain a competitive advantage—the outcomes of accessing data from skills gap analysis are crucial for meeting your business objectives and being ahead of the competition. Knowing your workforce’s strengths, potential, and weaknesses is a remarkable competitive advantage that ensures a good employer value proposition.

How to Conduct a Skills Gap Analysis

1. Decide Your Plan and Scope

The first step is to identify the scope of the challenge lying ahead. The foundations of an effective skills gap analysis depend on thorough planning, making this a crucial stage.

To determine the workforce’s skills shortages, you must first decide who will oversee this process, when you will conduct it, who you’ll include in the evaluation, and how it will unfold. Start by identifying who the analysis should encompass and who will roll it out.

The following two are the most common levels a skills gap analysis assesses:

• Individual—you can pinpoint the skills and abilities each job role requires and how they compare to a worker’s current skills inventory.
• Company or team —you can also determine whether your team or a company as a whole has the necessary capabilities and knowledge to complete a project, or you must turn to external recruitment.

Concerning who should oversee skills gap analysis, senior team leaders are more suitable for individual assessments, while HR or external consultants are better for team evaluations. 

Choosing an outside professional helps maintain objectivity and ensures hiring managers, team leaders, and HRs can work on their tasks. 

The next step is to decide on the form of the skills gap analysis. Various methods are available for assessing employees’ proficiency in different areas, such as performance reviews, skills assessments, surveys, employee interviews, exit interviews, skills management platforms, and pre-employment tests. 

However, you can also opt for 360-degree feedback, behavioral assessments, and job knowledge evaluations and tasks. For example, running skills tests after employee interviews can help you determine in what career growth opportunities to invest.

2. Identify Critical Skills

Even though it’s borderline impossible to predict market changes and fluctuations, you can forecast what your company will require and use these insights to guide your skills gap analysis.

Here you should consider two crucial questions: 

1. What skills your company currently perceives as valuable?
2. What abilities do workers need to continue to perform their jobs well?

Many employers foster the macro and micro-skills approach.

The former represents the unique way a person operates and includes abilities such as critical thinking, problem-solving, and leadership capability. 

The latter is a person’s additional capacities, and they typically depend on their whole operating system. Hence, those are rather technical skills and have a pre-defined learning formula (e.g., code testing). 

Because of that, you must continuously observe in-demand industry trends and understand whether your employees should adopt new micro-skills or improve the existing ones. On the other hand, soft skills are always revered and necessary, regardless of the sector or company. 

For instance, your skills gap analysis can focus separately on these two types of skills. Aim to identify what macro skills your company should start fostering over the following five years and what micro skills would benefit your business now. 

You should also encourage your employees to share their affinities and what skills they would like to improve or obtain. Involving your workers in the process will also show them you care about their career progress and development.

3. Assess Current Workforce Skills to Identify the Gaps

Evaluate your workforce’s current skills, abilities, and knowledge to identify the skill sets they possess and their proficiency level. 

These insights will help you understand whether you should hire new workers or whether training is enough to help your staff obtain the missing capabilities.

But how do you tap into the current abilities of your workforce? Skills assessments are typically the easiest and most effective method. 

Focus on determining whether your employees have the in-demand skills and the necessary knowledge to use the latest technologies and perform their daily tasks. 

Create assessments tailored to your company’s and industry’s needs, such as job simulations.

You can also use psychometric tests to analyze soft skill levels, such as emotional intelligence. Combine these insights with employee feedback and performance reviews to clearly understand your workforce’s limits, potential, and opportunities.

4. Act on the Data to Close the Gaps

The results of your skills gaps analysis will guide your next steps. The information you compile should reveal if your business lacks expertise in a specific area and then you can prioritize upskilling and/or recruitment in areas that are of the most concern.

This is where you can leverage your learning and development team to help you decide the most efficient and cost-effective method(s) of upskilling your current workforce.

Summary: The Best Practices in Skills Gaps Analysis

It’s more challenging than ever to keep up with fast-changing in-demand skills and competencies. That often leaves companies with significant skills gaps that lead to revenue losses and productivity decline. 

But, despite not being easy to forecast the exact abilities an industry will need in the future, it’s possible to determine what kind of competencies your company values and compare them to current trends and demands. 

A skills gap analysis embodies these efforts and can guide workforce planning, L&D program design, and recruitment processes. 

Before conducting it, you must determine whether you want to identify skills gaps on a company or team level and the technique you’ll use to gauge your staff’s skills inventory. 

Some of the best practices for a skills gap analysis are skills assessments, employee interviews, job-related tasks, surveys, 360-degree reviews, and analyzing performance reviews.

The goal is to determine what knowledge and capabilities your company lacks to meet its strategic objectives and ensure the stellar work performance of all its employees. It should also help you understand whether you should close the gaps by recruiting new workers or training and reskilling your existing staff. 

The outcomes of a successful skills gaps analysis are increased productivity, better L&D programs, empowered employees, competitiveness, and reduced costs. These are vital for fostering a future-proof workforce that uses the maximum of its potential and helps you stay ahead of trends and competition. 

Further resources:

• Skills gap analysis template (from Talent LMS)
• How To Create A Learning And Development Strategy In 7 Steps
• What Is Succession Planning? How To Develop Your Next Great Leaders

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