March 24, 2025
Skills-based performance management enhances employee growth and drives organisational agility.
In the age of breakneck technological innovation, shifting customer demands, and a persistent talent shortage, the skills we need to be successful at work are changing faster than we think. As companies struggle to fill positions or retain talent, they are realising that the best way forward is to take a skills-based approach to workforce planning, performance management and talent management.
Unlike traditional HR strategies centred around jobs and titles, a skills-based strategy matches people with opportunities based solely on their skills and capabilities. A skills-based approach benefits employees by improving role fit and supporting their professional growth while helping organisations attract and retain talent, enhance productivity, and build organisational agility and resilience.
In 2023, global consulting firm Mercer found in its Skills Snapshot Survey that the second highest priority for executives and HR leaders was to redesign talent processes around skills. Given the relevance of skills-based talent processes, this article highlights the importance of adopting a skills-based approach to talent management and performance management and how to go about it.
A skills-based approach strengthens decision-making by ensuring team leaders assign tasks based on skills and competencies rather than credentials or personal biases. When skills intelligence informs talent and performance management – spanning recruitment, onboarding, training, and assessments – it reduces bias and favoritism. In contrast, talent decisions that are driven by factors such as titles, experience, or connections stifles agility, innovation, and growth – qualities essential for survival in the new world of work.
A skills-based approach to performance management promotes equity in opportunities and promotions. Skills-based organisations bank on skills and competencies more than degrees, experience, and professional networks. They prioritise not only people’s abilities but also their aspirations and potential to succeed, and support them with employee development programmes tailored to their needs. In such organisations, an employee can bank on their abilities to access a wide range of internal opportunities. Skills-based HR strategies also empower leaders to tap into overlooked talent and expand their skill pool. This is crucial in today's fiercely competitive job market, where companies struggle to secure the talent they need – making a deep, diverse talent pool a rare competitive advantage.
A skills-based approach promotes internal mobility, which facilitates career growth through vertical (promotions) and lateral (transfers) moves within the company. The benefits of internal mobility in organisations are many, from creating clear pathways for growth to improving organisational agility and flexibility. Many companies today swear by project-based mobility, a type of internal mobility that involves the creation of cross-functional teams with complementary skills for one-off assignments. Cross-functional collaboration fosters knowledge-sharing, improves communication, and breaks down silos. Furthermore, the overlapping skills present in a cross-functional team can greatly boost innovative thinking and problem-solving.
A cross-functional team is quick to adapt to changing project requirements. It is representative of what a skills-first approach does for a company – which is to enable it to respond to change or challenges in the shortest possible time. An organisation that succeeds in building a workforce with adaptable skill sets is better positioned to weather digital disruptions or changing market conditions in the future.
In a traditional set-up, an individual’s skills are confined to their department. But when companies use skills-based workforce planning, they help their employees put their skills to use across the organisation and in this way reach their full potential. Companies that put skills first are more productive than those that define their workers by their titles. According to Deloitte, companies with a skills-based approach are 63% more likely to show results and 49% more likely to maximise efficiency.
Even today, many companies take the traditional approach to performance management – a performance review once or twice a year and little else in between. Some do incorporate skills in their performance management practices but in one out of three cases, performance actually drops after an appraisal, says Gallup. Gartner reports that only 32% of HR leaders believe performance management delivers what employees need to perform.
Why is this happening?
A primary reason is that organisations – even those that evaluate people based on skills – fail to follow up their skills assessments with actionable skills development initiatives.
So, how does a company ensure its skills assessments and performance reviews drive genuine skills development? By collecting performance data from assessments and using those insights to design effective employee development plans. This data-driven approach not only helps companies create targeted skills programs but also aligns individual growth with company goals, creating value for both. Additionally, it fosters engagement, improves performance and productivity, and cultivates a culture of equity and fairness.
A common obstacle in implementing a skills-based performance management or talent management strategy is a lack of visibility into employee skills. It is highly unrealistic for an employer to be familiar with each employee’s skills and competencies, especially in a large organisation. And yet, collecting and using skills intelligence is imperative to strategic workforce planning. Luckily, the latest technology and performance management tools have greatly simplified the process of collecting, analysing, and using skills data, tracking employee performance, assigning roles and goals, giving and receiving feedback, and so on.
Some skills management software come with data visualisation tools that turn complex data into user-friendly interactive, graphical interfaces. Apart from data simplification, such skills management tools and platforms assist managers in extracting insights from data, identifying skills gaps, making comparisons, and creating skills-related workforce reports. Most importantly, they formalise data collection and help integrate skills data officially into performance management and talent management systems.
Skills management platform MuchSkills, for instance, enables organisations to generate a wide range of skills intelligence reports to optimise workforce planning and talent management. These include skills distribution reports to understand the strengths within teams, skills opportunity & risk reports to identify gaps and future needs, new, lost & gained skills reports to track workforce development, and certification reports to monitor compliance and qualifications. Additionally, skills trends reports provide insights into emerging expertise, while skills growth reports help measure progress over time. Utilisation reports ensure teams are effectively deployed, and skills utilisation reports highlight how well employees’ abilities align with business objectives. With these insights, organisations can make informed, data-driven decisions to enhance performance and strategic growth.
Here are four ways to take a skills-based approach to performance management and talent management:
Typically, employees are assessed on how they perform in pursuit of a goal or the outcomes they achieve. But did you know that 75% of businesses and 73% of employees prefer skills-based evaluations? That’s because skills-based reviews are more rewarding. Integrating skills into assessments empowers managers to evaluate an individual’s performance not only in the present but also in the future. When a leader looks at a team member’s current performance but also considers their ability, willingness, and readiness to take on certain responsibilities later on, they gain the ability to glimpse into the future – a necessary skill to survive disruptions and challenges down the line.
Performance conversations offer organisations a valuable chance to understand the people driving their success. Yet, many companies reduce them to tick-the-box exercises with little follow-up – wasting an opportunity to fuel growth and engagement. Skills-based HR strategies thrive when employers take these conversations seriously.
Increasing their frequency through regular one-on-ones and check-ins makes them far more effective than once-a-year reviews, especially when tied to clear, measurable goals. Managers can also use these discussions to build deeper connections – exploring team members' interests, untapped strengths, and career aspirations while offering feedback, mentorship, and recognition. A future-focused approach further enhances their impact, turning conversations into a catalyst for performance and growth.
Performance conversations aren’t just about frequency but also about the lens through which performance is assessed.
Managers must move beyond treating performance management as a disciplinary process and instead focus on ongoing guidance and real-time feedback to drive employee growth and development.
The way feedback is delivered matters just as much. If conversations are always critical, employees will start dreading them. But when feedback balances strengths and accomplishments with constructive advice, employees are more likely to engage, learn, and improve.
Apart from feedback, self-assessments are a powerful tool for building a robust skills-based performance management process. Encouraging employees to reflect on their work, challenges, and support needs fosters trust, engagement, and motivation. After all, high performance requires the right support.
Encouraging employees to conduct periodic self-evaluations using established criteria helps them take ownership of their growth, cultivating accountability and self-awareness – an invaluable skill. Self-aware employees not only recognise their strengths and areas for improvement but also understand their impact on others, seek feedback proactively, and continuously refine their performance. For managers, self-assessments offer meaningful insights, leading to richer discussions and more constructive feedback.
Keeping track of employees’ skills and competencies is challenging because skill sets are constantly evolving. Many a time, managers might be unaware of a team member’s past professional experiences, which is invaluable input for a skills assessment. Luckily, there are technological tools that help organisations handle this challenge. Using tools like skills management software, HR leaders can collect data about current skills and proficiency levels as well as knowledge gained from past experiences. Visualisation tools turn this inscrutable data into easy-to-consume graphs and charts.
With skills management software, organisations can streamline processes such as collecting and aggregating workforce data, identifying skill gaps, supporting strategic workforce planning, and improving transparency in talent management. Furthermore, this also creates a data trail that enhances compliance and equity in performance evaluation. As technology becomes more advanced, skills assessments are becoming increasingly data-driven and more and more organisations are using performance data for skills development. And why not! Companies that support employee performance are four times more likely to outperform their rivals, face lower attrition rates, and see 30% higher revenue growth.
Finally, here’s how to implement a skills-based approach to performance and talent management at your organisation, with a little help from MuchSkills:
You may also check out our playbook on conducting regular check-ins with employees.
Internal mobility push: With MuchSkills, companies can discover and mobilise in-house talent with agility, streamline role fit, and reap the benefits of internal mobility in organisations.
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