With the evolution of technologies such as artificial intelligence, the continued march of automation and the rise of the gig economy and remote work, businesses just need different skills than they did in the past. However, these essential skills are often hard to find within the workforce or being developed as we speak. This mismatch between skills employers demand and those that workers have to offer is known as the “skills gap.” This gap has real costs for businesses, with a potential economic impact of $2.5 trillion by 2028, according to Deloitte.
For organizations to remain competitive, they need to take steps to close this gap. Companies can no longer rely solely on the educational system and workplace experience to give employees the right skills; they need to be proactive in helping their workers develop valuable competencies.
Understanding the Skills Gap
The skills gap is not a new phenomenon—it has been growing for years alongside advances in technology. And it will continue to grow without concerted efforts to close it from industries, employers, educational institutions and more. In order to tackle the gap, it’s helpful to understand its drivers and impact.
What is a skills gap?
A skills gap is a discrepancy between the skills that employees bring to the table and those their employers need for the success of the business.
For example, by 2030 in Europe and the United States, demand for physical and manual skills in repeatable and predictable tasks is expected to decline by nearly 30 percent, and for basic literacy and numeracy skills to fall by almost 20 percent, according to McKinsey.
At the same time, demand for technological skills, such as coding and interfacing with technology, is expected to increase by more than 50 percent, while the need for complex cognitive skills and high-level social and emotional skills, such as initiative taking, leadership and entrepreneurship, is expected to rise by more than 30 percent.
What caused the skills gap?
The skills gap is driven by multiple factors. One of the most important is technological advancement. As companies look to take advantage of the new possibilities that technology can offer, they often find themselves limited by a lack of employees who understand and can work with these technologies. The demand for technology talent exceeds the supply.
Part of the supply problem is that the educational system has not kept pace with this demand. At many colleges, requirements and curricula have not changed in decades, and they don’t reflect the modern realities of what companies need workers to know. High costs and other barriers continue to make higher education opportunities inequitable.
In addition, many students choose low-demand majors that don’t offer skills that will put them in demand. According to the National Center for Science and Engineering Statistics, only around a third of college degrees in the U.S. are in engineering and science—but employer demand for people with these degrees is much greater.
Another factor in the skills gap is demographics. Baby boomers are leaving the workforce to retire, and younger generations don’t have the numbers to make up the difference in the pool of workers.
Impact of the Skills Gap on Businesses & The Economy
The skills gap negatively impacts both individual businesses and the economy as a whole. For businesses, the skills gap results in lower productivity because they don’t have the people they need to produce the results they want. This lack of productivity, combined with missed opportunities, can lead to reduced competitiveness and lower profitability.
The skills gap also means that companies spend more money and resources on hiring, an expensive proposition. According to Zippia:
- It takes 36 to 42 days to fill the average position in the United States.
- A vacancy in a company costs, on average, about $98 per day.
- The average cost per hire is $4,700.
- 15% of human resources expenses are allocated towards recruitment efforts.
- It costs up to 40% of an employee’s base salary to hire a new employee with benefits.
The larger economy is also hampered by a lack of the right skills. The digital skills gap could result in 14 G20 countries missing out on $11.5 trillion cumulative GDP growth if it isn’t addressed, according to a Salesforce-commissioned RAND Europe report.
Closing the Skills Gap: Strategies & Solutions
Companies must identify the skills they need to cultivate in their workforce and create programs to systematically fulfill their skills needs through recruiting and employee development.
Upskilling and Reskilling Programs
Developing new skills within a workforce may take the form of upskilling or reskilling. Upskilling means adding on to employees’ existing skills with new ones, while reskilling involves teaching workers an entirely new set of skills often through experiential programs like mentoring, coaching or job shadowing.
In either case, employees generally welcome the opportunity to learn new capabilities in an employer-sponsored setting. According to a LinkedIn survey, 94 percent of employees say that they would stay at a company longer that helps them learn. For employees, this type of opportunity represents an investment by the organization in their development and future prospects and cultivates greater employee engagement and loyalty.
Technological Solutions
Businesses are increasingly turning to technology to help them develop employee skills effectively and efficiently. In a LinkedIn survey of talent developers, 59% said they spend more of their budget on online learning and 39 percent say they spend less on instructor-led training since 2017.
Online learning programs offer several advantages:
- Convenience
- Flexibility in scheduling and pace
- Scalability
- Potential for customization
- Ongoing access to resource
- Consistency and standardization
- Timely feedback
Importance of Continuous Learning and Development
It’s important for employers who want to foster skills development within their workforce to cultivate a culture of continuous learning and development throughout the work environment. In this kind of culture, learning and growth are the norm in any position and not just limited to formal skills training programs.
This overall outlook should also guide strategies for the human resources and learning & development functions within an organization. Currently, many companies are not equipped to identify skills needs in advance and recruit and hire to fill those needs.
In 44% of middle market firms, HR departments are primarily operational rather than strategic, while 59% wait until there is a specific position to be filled to begin hiring, rather than using ongoing outreach efforts, according to the National Center for the Middle Market. Organizations need to be strategic in hiring and recruitment and make sure those functions have the resources they need.
Best Practices for Closing the Skills Gap
As you work to close your organization’s skills gap, here are some best practices to keep in mind.
Assess Your Skills Gap
Before you can fulfill your company’s skills gap, you have to know what that gap looks like. A thorough assessment to help you better understand your skills gap provides a strong foundation for building your goals and strategies. You’ll want to ask yourself the following questions:
- Which skills are most important right now for productivity and profitability?
- Which skills will be essential in the future?
- Which of these skills are already abundant in the workplace, and which are rarer?
- Which roles are consistently the most difficult to fill?
- What mechanisms do you already have in place to develop crucial skills?
From here, you can move on to setting your skills gap goals and creating a plan to achieve them.
Incentivize Upskilling and Reskilling
Upskilling and reskilling offer clear benefits for companies, and organizations should make sure that employees benefit as well. Incentives for upskilling and reskilling motivate employees and reward them for helping to close the skills gap. These incentives can take many forms, including covering the cost of education, direct financial rewards for developing skills, and advancement opportunities.
For example, Batesville Tool and Die Inc. (BTD), a global supplier of precision metal stampings located in Batesville, Indiana, offers a Pay for Skills program. The program rewards workers who complete designated programs, master different levels of skill development, and earn credentials and degrees with raises.
Invest in Talent Management and Development
Talent management and development is the process of positioning employees for career advancement in a way that aligns with the company’s mission. While talent management and development focuses on larger goals, it is key to making sure the company is making the most of its talent and closing the skills gap. When companies invest in robust talent management and development, they reap valuable rewards, including increased productivity and performance, engagement, and retention.
Create Impactful Mentoring Programs
Mentoring can be a key piece of the skills gap puzzle for companies. It’s a tried-and-tested way to help people grow within a structured, supportive environment.
While mentoring is ideal for helping people learn in situations such as reskilling and upskilling, its benefits go far beyond knowledge transfer. Mentoring offers mentees personalized guidance in understanding gaps in their skills, making skills goals, and making the most of their new skills.
Mentorships foster talent development and aid in talent management, while also increasing employee engagement and positive connections throughout the organization. Mentorships cultivate complex understanding and relationships that result in deeper skills and a richer experience for both mentors and mentees.
Challenges and Barriers to Closing the Skills Gap
The skills gap is a complex problem with entrenched challenges—but that doesn’t mean they can’t be overcome. Here are some of the barriers that may come up for organizations that are working on closing their skills gap, and the actions needed to address them.
Lack of Awareness & Understanding
While those working on the front lines of hiring may be well aware of the skills gap, others throughout the organization may not have the same kind of understanding of what the skills gap is and why it’s important to address. Companies need to make sure that the workforce understands the importance of this issue. This applies not just to managers, but to everyone in the company.
Resistance to Change
Change is not easy, and it often brings out resistance. This resistance is understandable and quite normal—it’s easier to just continue on doing things the way you’ve always done them rather than to learn something new. However, understanding can break down resistance. When people understand the benefits of change for themselves and the organization as a whole, they’ll be much more likely to embrace evolution rather than fighting it.
Limited Access to Resources
Around 75 percent of people believe they don’t have adequate resources to learn the kinds of skills that employers increasingly demand, according to Salesforce’s 2022 Global Digital Skills Index. If companies want to encourage workers to develop the skills they need, they need to make these resources widely available, easy to access, and rewarding to pursue.
Funding and Budget Constraints
Talent management and development has often been under resourced in organizations, despite its importance in developing the workforce. However, this is changing as companies begin to understand the return that investment in this area produces.
A LinkedIn report found that in 2017, 49 percent of learning and development professionals cited a “limited budget” as a top challenge. By 2019, that number had fallen to just 27 percent, with 82 percent saying that their executives actively support employee engagement in professional learning.
Close Your Skills Gap with Chronus Mentoring Software
Chronus can help you close your skills gap with the help of an effective, automated mentoring program. Chronus mentoring software makes it easy to create and implement a mentoring program that can be customized and scaled according to your company’s individual needs. The type of employee connection can be on-the-job experience and knowledge transfer that can better equip employees with the skills of the future.
Matching between mentors and mentees is driven by AI to create the best connections for skills and talent development. And at every step, Chronus empowers you to track the performance and outcomes you need to evaluate progress and the overall impact on your company’s biggest business objectives.
Put the power of mentoring to work in closing your skills gap. Find out how Chronus can help.
