Despite the clear advantages of a skills-first approach –where, according to EY and iMocha 83% of employees say they would stay longer at a company that adopts it – many organizations still face significant challenges in making this transition.

While the benefits of transitioning to a skills-based organization are well-documented, many companies encounter significant obstacles that prevent them from fully embracing this model.

Addressing these challenges head-on is not just crucial for smooth implementation but also for ensuring that the organization can fully reap the benefits of a skills-based model.

Below, I will discuss some of the most common hurdles.

1. Overcoming Resistance to Change

Cultural Inertia: Organizations often struggle with deeply ingrained practices and mindsets. Employees and leaders accustomed to traditional job roles and hierarchical structures may resist the shift towards a more flexible, skills-based approach. One of the reasons is the transparency that comes with the model. It can be intimidating for employees who fear that exposing their skill gaps might affect their job security.

To address the different resistances, companies must implement

·     robust and transparent change management strategiesthat emphasize the long-term benefits

·     build better psychological safety and

·     emphasize the developmental support available, toensure that the focus is on growth rather than penalization.

Example: A company that attempted to implement a skills-based approach encountered pushback from middle management. They felt that their roles were threatened by the redistribution of tasks based on skills rather than formal titles. To address this, leadership clearlyc ommunicated the value of the new approach and offered reassurances about career progression within the new framework.

Research Insight: According to McKinsey& Company, successful change management in organizational transformations involves clear communication and inclusive engagement,where employees feel part of the change rather than victims of it. They discovered that “transformations with at least 7% of employees owning part of the transformation are twice as likely as those with less than 7% initiative ownership to have total returns to shareholders.”

2. Driving Cultural Transformation

Mindset Shift: Adopting a skills-based approach requires a fundamental shift in how organizations view talent. This includes moving away from traditional job descriptions and focusing more on the skills and competencies that employees bring to the table. Such a transformation often necessitates a change in the organizational culture, where continuous learning, adaptability, and cross-functional collaboration become core values.

Leadership Buy-In: For a skills-based organization model to be successful, leadership buy-in at all levels is critical. Leaders must champion the initiative, ensuring that the

·     necessary resources are allocated and

·     the transition is aligned with the organization’sstrategic goals.

Without strong leadership support, efforts to shift to a skills-based approach may falter.

Research Insight: Bryan Walker and Sarah A. Soule emphasize the need for movement for a successful cultural change in their HBR article Changing Company Culture Requires a Movement, Not a Mandate.

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3. Starting with Small Investments

Financial Costs: Implementing a skills-based organization model often involves significant upfront costs, including

·     investments in new technologies such as skills assessment tools,

·     learning management systems, and

·     talent analytics platforms.

Additionally, there may be costs associated with training HR professionals and managers to effectively implement and sustain the new model.

Resource Allocation: Beyond financial investment, organizations must also commit time and human resources to

·     develop and maintain a comprehensive skills taxonomy,

·     conduct skills assessments, and

·     create personal development plans for employees.

For many companies, particularly smaller ones, these resource demands can be a major barrier.

Example: A mid-sized company hesitated to adopt a skills-based model due to the perceived high costs of new HR technologies and the time required to develop a skills taxonomy. However, by starting with a pilot program in a single department, the company managed costs while demonstrating the value of the approach before scaling up.

Tools like Skilbit, which offer ready-made templates, can support a low-cost pilot project.

Research Insight: A report by McKinsey highlights that while initial investments in a skills-based organization model can be high, the long-term benefits, including improved agility and employee retention, often outweigh the costs​.

4. Complexity of Creating a Skills Taxonomy

Customization and Relevance: Developing a company-specific skills taxonomy is a complex task that requires a deep understanding of both current and future skills needs. Organizations must ensure that the taxonomy is comprehensive yet flexible enough to adapt to changing industry demands. This complexity can be overwhelming, leading some companies to delay or abandon the effort altogether.

Example: A large enterprise foundthe process of mapping out all relevant skills across various departments daunting. To mitigate this, they leveraged ready-made resources and collaborated with external consultants to define, map, and create a robust, scalable skills taxonomy that aligned with their strategic goals.

Overcoming the Challenges

Companies must address these challenges head-on to successfully transition to a skills-based organization. A phased implementation approach, starting with small, manageable pilot projects and gradually expanding, allows organizations to build confidence and refine their processes as they scale.

Continuous engagement with leadership, involving at least 7% of your employees, clear communication, and ongoing cultural transformation initiatives are essential to overcoming resistance and embedding the skills-based organization model intothe organizational fabric.

By acknowledging and addressing these challenges, organizations can unlock the full potential of a skills-based approach, leading to greater agility, improved talent retention, and sustained competitive advantage in the rapidly evolving world of work.

Don’t let these challenges hold your organization back. Contact Kaisa Savola today to explore how we can tailor a solution for your company.