Why Every Organization Needs Skill Gap Analysis

The global skill shortage is an open secret. Technological improvements, industrial automation, and the use of AI are some of the contributory factors. Businesses everywhere are feeling the impact when it comes to employee engagement and performance. With each passing year, companies have to grapple with candidates who lack the skills needed when working with emerging tech and process innovations.

Even though technological advancements have changed day-to-day operations, the upskilling programs at organizations have yet to catch up. The result is a widening skill gap that can affect company performance, employee engagement, and productivity.

To support this statement, we went through various studies and data that were pretty alarming. It is estimated that by 2030 the global talent shortage could reach 85.2 million, costing trillions of dollars in lost economic opportunities.

According to a study, 29% of industry leaders confirmed an increase in the skill gap over one year. Consequently, several organizations are struggling to fill vacancies.

What is Skill Gap Analysis?

Theoretically, a skill gap analysis is a simple formula that determines the variance between existing and desired skill levels among organizational teams or employees on the individual front. Although, analyzing the performance gap is not easy. Several organizations are deploying people analytics platforms to analyze skill gaps. The insights of these skill gap analyses influence strategic recruitment planning, employee skill mobility, and revised training & development (T&D) programs, leading to enhanced employee engagement.

Why Do Skill Gap Occur

Skill gaps are what’s preventing local businesses from competing in a fast-expanding global market. There can be several factors leading to skill gaps like:

  • Technological changes in the workplace
  • Employees’ inability to use the latest tools
  • Lack of training

It is the organization that has to ultimately deal with the direct implications of such gaps.

The Impact of Skill Gap on Industries

Although skill gaps affect every industry, there are a few that are significantly hit:

  • 44% of the construction industry is struggling with a skill gap
  • The finance and banking industry falls at second place with 42%
  • The IT industry is experiencing a skill gap of 39%
  • In Healthcare, the skill gap is 38%

As demand exceeds supply, the competition among organizations for qualified candidates is getting intense. This is especially true in countries with low unemployment rates as employed workers require less incentive to retrain, reskill or enter a new field. For instance, Germany has an unemployment rate of 2.8%, and the country experienced a skill gap of 35% in one year.

The 2022 Global Report indicates startling skill gap statistics by worker type:

  • 34% skill gap among white-collar workers
  • 23% skill gap among blue-collar workers
  • 18% skill gap among gray collar workers

In the prevailing environment, a skill gap analysis is the Best strategy. Before that, let’s understand its direct impact on employee engagement and productivity.

Employee Engagement

The level of employee engagement indicates what workers feel about their job, team, and organization. It impacts the team and organizational performance directly. Highly engaged employees drive productivity and demonstrate higher retention rates. However, as the skill gap increases, employee disengagement starts going up. Initially, it is an individual performance that takes a hit, but later on, it has an adverse effect on the team and organization as well.

Employee Productivity

Employee productivity is directly related to employee engagement and their ability to use the latest innovative solutions. Data shows that highly engaged employees contribute 21% more to profitability. Same way, in one study 70% of employees confirmed their productivity gets affected by their lack of skills. In fact, 40% of respondents accepted that talent scarcity slows down business expansion. HR leaders know that a skilled workforce makes the best use of resources like innovative technology, which is another contributory factor to productivity.

How Skill Gap Analysis Introduces Change

Skill gap analysis can be performed on two concurrent levels: individual and company-wide. Therefore, while analyzing the overall performance of an organization, gap analysis is a valuable tool.It can go beyond employee engagement and productivity benchmarking. Let’s dive into understanding the advantages better.

Identify Drivers of High Employee Engagement

Employee engagement is a significant driver in augmenting organizational performance. With skill gap analysis, the performance gaps and their causes get highlighted. However, data suggests that organizations that realign HR processes to match skill needs can boost employee engagement by 50%. Hence, leaders can apply these insights to refining talent-development strategies by creating compelling employee development expectations and career paths.

Streamline Recruiting and Diversify Hiring

Effective performance gap analysis enables HR heads to develop data-driven insights to inform talent decisions, improve workforce processes and promote a positive employee experience. Furthermore, it enables organizations to conduct strategic workforce planning effectively, leading to higher onboarding effectiveness with a more diverse set of hires. It increases the likelihood of success in improving your recruitment efforts by saving organizational resources. As data suggests, an effective strategic plan that considers skill gap insights while framing HR policies can lower training and development program costs by 50%.

Competitive Edge Against an Industry-wide Benchmark

Skilled HR resources accelerate organizational growth, improve change management and policy adoption and provide a competitive edge in the industry. Similarly, organizations harness publicly available professional data to identify new recruiting sources and compare their workforce to competitors. For example, Amazon reimburses 95% of the tuition fee of employees at fulfillment centers to take courses in-demand. In the same way a “Virtual Contact Centre” trains employees to work from home. No one can deny the competitive edge that Amazon enjoys over others and their employee development policies really draw applause.

Better Staff Retention

Data suggests that 56% of hiring managers anticipate, that a shift in technological intervention and automation impacts on skills that organizations need their employees to possess. Organizations that focus on the performance gap analysis insights and invest in their workforce training and development enjoy better internal mobility, employee loyalty, and a decrease in attrition rates by 50%. In addition, skilled and trained employees show better time management, work planning, and managing project budgets more effectively.

A survey report suggests that 46% of employees are anxious about widening the skill gap and know that their current skill set won’t be relevant by 2024. Therefore, improved organizational Training and Development (T&D) can impact employee morale in manifolds. Some of the direct benefits of skill gap analysis are as follows:

Boosts Individual Learning

Skill gap analysis processes make employees aware of the skills they lack. A better understanding of futuristic skill requirements keeps the employees prepared for the future and motivated. As a result, employees take training more seriously. Improved learning and development lead to employee engagement and increased productivity.

How People Analytic platforms accelerate change

People Analytics is a significant leap in the field of HR. Smart professionals with proficiency in data science, and statistical and analytical tools can understand the various facets of the employee lifecycle. This helps HR heads foresee the upcoming trends in the human capital industry, so they can develop better T&D models and mitigate talent scarcity.

Thanks to people analytics platforms, 87% of companies worldwide are already aware that either they have a talent scarcity or may experience it in the future. These analytic platforms provide a plethora of means for enhancing talent acquisition, talent management, and inbound mobility. It can directly improve employee engagement and productivity by understanding the causes of skill and performance disparities.

Bridging the Gap with People Analytics

Managers and senior talent leaders can unlock the power of data with people analytics, like —increasing rigor, reducing bias, and improving performance. However, with people analytics, employees and their managers interact strategically for effective skill gap analysis. They both dive deep for detailed skill assessments. This process develops a better communication strategy that improves participation in assessments.

Moreover, there is no denying that organizations are rich with employee data. Employees’ reviews, feedback, surveys, and performance evaluation sheets highlight a deeper understanding of employees’ talent. Statistical analysis of employee data opens a wide range of insights and highlighting the skill lacune is one of them.

Most HR heads and leaders use people analytics platforms to avail the benefits of skill gap analysis programs. People analytics can develop and execute programs that build a resilient and thriving workforce, which mitigates the risks of today and tomorrow.

Every Cloud Has a Silver Lining

The statement fits well regarding skill or talent gap analysis. People Analytics provides an opportunity to uncover the skill lacune of employees. Remedial solutions work better when one knows the depth of the problem. Therefore, businesses use these platforms in framing a better strategic workforce policy. These policies support the hiring and retention of top-performing employees by leveraging the most efficient channels. In essence, People Analytics platforms make way for better T&D policies. This helps in improving talent management, creating the base for rational performance drivers, and implementing need-based training programs.

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