Skill Gap Analysis 101: From identifying skill shortages to planning interventions

In 2023, 69% of US HR professionals reported skills gaps in their organisations, a significant rise from 55% in 2021, according to Wiley’s Closing the Skills Gap survey. Wiley, a global leader in career-connected education, also found that 40% of HR professionals now take more time than before to find suitable candidates to plug those gaps. Studies like this reveal that organisations today are increasingly aware of the detrimental effects of skills gaps and the importance of skill gap analysis as a tool in effective skill management. Identifying and addressing these gaps has become essential in today’s competitive market. In this article, we break down the common types of skill gaps, their causes, and the steps involved in conducting a skill gap analysis.

What is a skills gap, and what causes it?

​​A skills gap is the difference between the skills currently available within an organisation and the skills it needs to achieve its objectives. Organisations encounter several types of skills gaps such as:

• Individual skills gap: When an individual lacks the skills required to perform a specific task or fill a position.
• Organisational skills gap: When an organisation as a whole faces a shortage of key skills and competencies critical to its business goals.
• Hard skills gap: When an employee or organisation lacks essential technical skills.
• Soft skills gap: The absence of non-technical skills, such as communication, adaptability, or teamwork, needed to be effective in the workplace.
• Digital skills gap: A shortfall in digital skills required to work efficiently in the digital era.
• Generational skills gap: Differences in skill sets across generations, such as Baby Boomers, Gen X, Millennials, and Gen Z, due to evolving technological and industry demands.
  

Performing a skill gap assessment requires understanding the root causes of these gaps. Some contributing factors include:

• Technological advancements: As technologies like AI, automation, and machine learning evolve, new skills are required to keep pace. Organisations (and individuals) must continually learn and adapt to these technological shifts. Failure to do so results in skills gaps that can widen over time.
• Changing job requirements: As new skills emerge, old ones become obsolete, job requirements are also evolving. Many organisations are shifting towards a skills-based approach, where the emphasis is on skills over degrees or job titles. This means employees prefer versatile employees who can transition between roles, projects, or teams as the organisation’s needs change. ​​Organisations that resist a skills-first approach and stick to traditional job structures are more likely to experience skills gaps.
• Poor L&D opportunities: Many organisations make the mistake of treating learning and development (L&D) initiatives as a one-off. Skill shortages often arise when workplaces show unwillingness to commit to lifelong learning. To develop and nurture a skilled workforce, L&D must be part of company culture.
• Employee disengagement: An employee may have all the necessary skills and yet be ineffective as they lack engagement and have poor morale. Healthy employee engagement is key to keeping the talent pool intact. This requires employers to invest in each individual’s professional and personal development. A company that knows how to value its employees is less likely to experience skills gaps. 
• Demographic shifts: A lot of organisations are seeing older employees make way for younger ones. The global workforce is gaining new talent and skills just as fast as it is losing experience and the insights that come from years on the job. As a result, skills gaps are widening in places that have failed to maintain a harmonious balance between generations.
• Educational limitations: Sometimes, skills gaps simply boil down to a mismatch between what colleges and universities teach and the actual demands of the job. This is especially true for companies that still value academic performance over real-world skills. The chasm between college credentials and job requirements is yet another reminder that workplaces need continuous learning.
• Mismanagement: Some skills gaps are due to something as simple as a bad job description, which creates a mismatch between candidates’ skills and real job requirements.

What is a skill gap analysis?

A skill gap analysis is an exercise in assessing the imbalance between a workforce’s existing skills and competencies and what it needs to meet the demands of the business now and in the future. However, it would be inaccurate to think of a skill gap assessment as just a tool to identify missing skills. A skill gap analysis is, in fact, an essential cog in any skills management system, contributing to building resilient and future-proof skills-based organisations.

One might ask when and how often should one conduct a skill gap analysis. There is no clear answer. Many organisations tend to perform a skill gap analysis when introducing new technology, onboarding employees, tweaking business strategy, or experiencing a slump. 

A skill gap analysis is often treated as a one-time event, perhaps because it has traditionally been a time-consuming exercise. However, numerous technologies and performance management tools – such as those offered by MuchSkills – now exist that can track skills in real time. This means organisations can conduct a skill gap analysis quickly and easily at any given time.

Why conduct a skill gap analysis?

Skills gaps paralyse operations and hurt performance. A skill gap analysis has numerous benefits:

1. It provides workforce insights

A skill gap assessment shines a light on employees’ strengths and weaknesses. So, it can be used to identify individuals with sought-after skills as well as those in need of upskilling/reskilling. A skill gap assessment can also show if an employee can be more effective in another role. With a skill gap analysis, organisations can gain insights on the skills composition of their workforce, helping them take stock of employees’ strengths and weaknesses and create strategies to overcome skill shortages.

2. It encourages learning and development

A skill gap analysis provides valuable skills intelligence, enabling organisations to design targeted and result-oriented learning and development (L&D) programmes. Employees can also use individual skill gap assessments to identify the skills they need to excel in their current roles or advance to desired positions. For both organisations and individuals, investing in continuous learning is essential. PwC’s ‘Global Workforce Hopes and Fears Survey 2024’ highlights two key reasons why: First, 45% of employees have already had to learn to use new technologies or tools to perform their work. Second, providing learning opportunities is still the best way to retain talent, with 51% of respondents expecting the skills required for their jobs to change within the next five years.

3. It streamlines recruitment

A skill gap analysis helps prevent hit-and-miss hires. By understanding the skill requirements of each role, an effective recruitment system can be put in place to meet the needs of the present while laying the groundwork for the future. As we know too well, poor recruitment decisions are a huge cash drain with the cost of a bad hire being at least 30% of an employee’s first-year earnings.

4. It supports strategic workforce planning

When skill gap analysis becomes an integral part of an organisation’s skills management, it serves as a foundation for strategic workforce planning, ensuring that the organisation never lacks the people, skills, or knowledge it needs to meet its business goals. By identifying skill and competency gaps before they become critical flaws, employers can make detailed and meticulous plans to get the workforce to where it needs to be.

5. It boosts productivity and competitiveness

Knowing the strengths and weaknesses of employees and how best to develop and deploy them enhances productivity and performance at the individual and organisational level. On the other hand, when the workforce lacks the ability to handle its tasks and responsibilities, performance and morale drop, employee attrition increases, and the organisation might lose some of its competitive edge.

How do you conduct a skills gap analysis?

While requirements differ from organisation to organisation, here’s a simple five-step skills gap analysis format that works for most:

Step 1. Define the scope of the project

This step involves deciding if the analysis will be conducted at the individual, team, or organisational level, and which stakeholders (managers, team leaders, executives, etc) will be consulted. At this stage, the organisation must also be clear about its business objectives and what it plans to achieve with the skill gap analysis.

Step 2. Examine current staff skills

What skills and competencies does the organisation have access to and at what levels? This phase has two sub-steps in which HR and team leaders must first compile an inventory of skills and then map it visually for easy viewing. Here’s how to go about it:

1. Make a skills inventory

To conduct this data gathering exercise, organisations can choose from a range of performance management tools including surveys, questionnaires, interviews, performance reviews and self-assessments. The result should be a detailed map of the skills currently present in the organisation. Ideally, this skills inventory includes not only existing skills and competencies but also proficiency levels, certifications, employees’ job titles and experience, and other relevant skills intelligence.

A skills inventory that includes a tool to measure skills proficiency aids accurate analysis. To further enhance its effectiveness, organisations can also incorporate skill benchmarking – a tool that allows employers to assess employee skills and proficiency levels against industry standards. 

A comprehensive skills inventory is an invaluable resource, giving employers a bird’s-eye view of organisational skills and competencies. This helps them identify high-potential employees, address knowledge gaps requiring immediate attention, and allocate resources more effectively. Additionally, a well-organised skills inventory with instant search capabilities aids team leaders in making quick workforce decisions and deploying talent across functions when needed.

It’s not that hard to map skills to create a skills inventory. MuchSkills can help you compile a comprehensive skills inventory right away. If you’d like to know more, here’s an article and video that guides you through the process.

2. Create a skills matrix

The next step is to organise all that skills data into a visually pleasing, easy-to-understand format: a skills matrix (or competency matrix). MuchSkills offers an easy-to-use platform for skills mapping and competency mapping, enabling clients to create visually engaging skills matrices that clearly display organisational skills and competencies. As the saying goes, “A picture is worth a thousand words,” and our skills matrix presents data through dynamic easy-to-read charts.

What’s more, the MuchSkills skills matrix includes an enhanced certification tracking tool that monitors active, expired and soon-to-expire certifications, ensuring your skills data stays current and relevant. This modern skills matrix provides clear insights into the true capabilities of individuals, teams, and the organisation, allowing leaders to quickly identify knowledge gaps and take proactive action to fix those gaps. Moreover, the MuchSkills skills matrix can also be customised to fit any organisation’s unique structure.

Step 3. Identify critical skills

At this stage, organisations must identify the skills and competencies essential for achieving both short- and long-term business goals. While the skills inventory and skills matrix provide insight into the current skills necessary for day-to-day operations, it’s important to take a forward-looking approach and anticipate future needs. One way to do this is by staying informed about emerging skills and job trends within your industry, as well as understanding which roles may be impacted by automation in the near future. This helps organisations compile an accurate list of critical skills that will drive their core business functions moving forward.

Step 4. Analyse and plan interventions

The next step involves comparing the workforce’s actual skills and proficiency levels (as shown in the skills inventory in the skills matrix) and the critical skills identified in Step 3. Once the data has been analysed and skills gaps identified, strategic workforce planning to plug those gaps can commence. When it comes to acting on skills gaps, here are some best practices:

Targeted training

Upskilling/reskilling staff is the most cost-effective way to address skills gaps. It helps build core skills while improving employee engagement and retention. That said, employers have a duty to ensure training programmes are relevant and tailored to bridge knowledge gaps rather than an exercise organised simply for the sake of having one.

Experiential learning

For any skill development initiative to truly work, participants must be given the opportunity to test their newly acquired skills. Taking a class, attending a workshop, or watching a few videos doesn’t make one knowledgeable. According to the universally accepted 70-20-10 L&D model, 70% of learning takes place on the job, 20% through developmental relationships (collaboration, interactions with colleagues, etc) and only 10% through formal learning initiatives (training sessions, coursework, etc). It is vital that employers match L&D efforts with opportunities for employees to practise their newly acquired skills, such as projects or hackathons.

Continuous learning

Promoting continuous learning is a sure-shot way to ensure an organisation is capable of adapting to change. Learning takes many forms. Apart from training workshops, there are mentorship programmes, subscriptions to online education and certification courses, and tuition reimbursements. 

It has been proved that such initiatives produce positive results. Take the case of international fast-casual restaurant chain Chipotle, which has partnered with many colleges and universities to offer employees hundreds of business and technology degrees as part of its Cultivate Education programme and covers 100% of the tuition cost. In the first two years of this skill development initiative, which was launched in 2019, Chipotle’s retention rate rose 3.5 times among enrolled employees, who also showed that they were 7.5 times more likely to be promoted to management positions.

As the Chipotle example shows, organisations need not despair if they don’t have their in-house training programmes. They can always partner with colleges and e-learning platforms that provide appropriate, personalised, and flexible learning experiences.

Internal talent marketplace

When NASA was faced with skills gaps, it created an internal talent marketplace that it now uses to match talent with mission needs. According to NASA’s Exploration Technology Office deputy chief Nick Skytland, the internal talent marketplace has not only increased employees’ skills but also helped them “expand their network, work across agency projects, and apply their expertise to advance the NASA mission”. An internal talent marketplace can stop skills gaps from developing and widening to a great extent because it breaks down rigid workplace hierarchies and promotes a more democratised way of making opportunities available to employees.

Recruitment

When training and internal career mobility fail to do the trick, an organisation might have no choice but to hire an external candidate to fix a skills gap. A skills-first recruitment strategy informed by the results of a skill gap analysis will help organisations narrow down candidate lists and identify individuals with the right mix of skills, competencies, and experience. Furthermore, employers are more likely to make successful hires with targeted recruitment campaigns and referral programmes.

Step 5. Evaluate and repeat 

The final step is to evaluate the effectiveness of one’s skill development interventions planned in response to the skill gap analysis. As discussed above, experiential learning is a great way to measure effectiveness. Apart from this, employers can ask employees for their feedback on training methodologies and offer suggestions for improvements. It’s important that employers be welcoming even of negative feedback and show willingness to act on these. By conducting regular skill gap assessments followed by performance evaluations and feedback surveys, organisations can fine-tune their talent strategies and make sure that they align perfectly with organisational goals and industry trends, even as these evolve over time.

The evaluation step is important for another reason – it leads to greater understanding of what works for one’s organisation and what doesn’t. For example, a start-up might realise that it does not have the luxury of time to support apprenticeships programmes, given that a formal apprenticeship could last as long as four years, by this estimate at least. Instead, it might find a better fit in a cohort-based learning programme – where employees learn in groups – with a defined timeframe. This not only fulfils the organisation’s learning objective but also fosters healthy competition, collaboration, relationship-building and soft-skill development among participants.

In conclusion

Remember, an organisation need not reinvent the wheel each time it needs a skill assessment, thanks to the wide variety of skills management and performance management tools available. The MuchSkills’ skills gap analysis format, for example, makes the process inherently manageable as it provides a structured framework and approach for conducting a skill gap analysis, which can also be customised and adapted to suit varying business needs and models. Leading workplaces have successfully used MuchSkills’ skill gap analysis to systematically and effectively identify and address skills gaps, ensuring optimal performance both at the individual and organisational level.