The skills gap: Understanding the causes and making plans for improvement

Across the world, employers often find their organizations are not meeting their full potential because of a skills gap. But what is a skills gap, what causes a skills gap, why is it a serious problem, and what can employers do to solve this common yet frustrating problem?

What is a skills gap?

A skills gap usually emerges when employers struggle to hire people with the appropriate skills to perform the tasks required for an organization to operate effectively. In addition, existing employees may have outdated skills and this creates a gap that can be difficult to fill, especially in a competitive labor market. 

This can be a challenge for every industry and industry sector and it is not a new problem. In manufacturing, for example, a 2018 report by Deloitte found that an industry-wide skills gap could leave an estimated 2.4 million positions empty between 2018 and 2028 – and that was before the Covid-19 pandemic affected industries worldwide.

A skills gap becomes especially problematic for an organization when its internal staff training and development programs and the ability of the external labor market cannot meet its recruitment needs. It is a change management challenge that can cause serious organizational issues if it is not properly addressed.

Consequences of an unaddressed skills gap

A skills gap, when left unaddressed can cause serious problems for an organization. These include:

• Problems in being able to meet customer service objectives: This varies depending on the type of business, but issues that arise could include delays in order-taking, failure to properly resolve customer complaints, and loss of sales because of poor product or service knowledge.
• Increased costs: A skills gap is bad for the bottom line. When the right people cannot be hired at the right time – or existing employees need to upskill but employee training capacity lags behind – employers may be forced to take more expensive measures to make up the shortfall, such as hiring freelancers or contractors.  
• A drop in quality: In any industry, maintaining quality is vital to success. When employees are lacking sufficient skills to keep quality high, the business can suffer in multiple ways, including loss of revenue, dissatisfied customers, and reputational damage.
• Development delays: When a company is dedicated to developing new products or services, it is imperative that the employees responsible for this part of the business are highly skilled. When a company ceases to innovate, an opportunity arises for its competitors to win more market share.
• Competitors gaining a labor advantage: If a skills gap is caused by an exodus of employees to a competitor, this can have serious consequences for your own operations, productivity, and staff morale. 

Are there any differences in skills gap issues for public and private sector employers?

In general, technological change and reorganization processes can equally affect public and private sector employers when it comes to skills gaps emerging. The internal management of these factors, which have internal and external components, can vary between these two sectors as there can be different HR policy approaches in place. However, the workforce optimization issues caused by a skills gap can be equally detrimental to public and private sector organizations.

In the private sector, a skills gap is commonly linked to issues with bringing new products and services to market. While it can be easier to fill gaps in sales, marketing, and administrative teams, finding the right people to be truly innovative can be a major challenge.

Meanwhile, in the public sector, organizations can be at the mercy of government initiatives, decisions, legislation changes, and changes of government, all of which can affect the way departments operate. Such changes, especially top-down restructuring programs, are usually introduced with worthwhile intentions, such as social and economic improvement, but can be rendered ineffective if the people with the right skills are not in place to implement the plans.

Are there any differences in the types of skill gaps employers experience?

Depending on the industry, employers experience a range of shortcomings during a skills crisis. Some skills, such as communication and teamwork, can be hard to quantify until a problem arises. For example, a company may spend a long time working on a product launch, but a problem emerges when it is time to bring the product to market and its benefits have not been properly communicated to the sales and marketing teams, or sales and marketing staff take a self-interested, siloed approach to their role rather than working together for the good of the company.

More defined skills gaps are generally related to technical or practical skills, which are more quantifiable than the more vague or esoteric concepts such as communication or teamwork. These sorts of gaps can be more difficult to fill if the skills required are highly specialized, training courses are limited or expensive, or they are skills that are not attractive to younger workers, which means they are at risk of “dying out”. 

Different organizations may report different experiences or variations in the severity of skills gaps. For example, businesses that operate within a local or regional market may be better able to recruit locally to prevent a skills gap, but businesses with national or international markets may need to look further afield when recruiting their way out of a personnel crisis. 

Companies that operate in national and international markets may have more demands in terms of skills needed, but this also varies depending on the type of industry. A small local company that requires specialized technicians, for example, may be more prone to suffering skills gaps than a large multinational business with a large number of lower-skilled jobs, such as warehouse or call center positions.

Internal causes of skill gaps

Within an organization, many of the internal factors that can cause a skills gap have not changed significantly over the years. A 2001 report by Warwick University outlined some of the main internal causes of skills gaps and they are still relevant today. The report starts with the narrow definition of internal skills gaps existing “where fewer than nearly all staff are considered to be fully proficient”. 

Within a company, a skills gap can arise as a result of organizational or technological change – or a combination of both – which, in turn, can lead to employers becoming more demanding of the skills needed from existing employees.  

Simple personnel changes within an organization can also lead to a skills gap. A high staff turnover through either resignations, terminations, retirement (or a combination of all three) can deprive an organization of the skills it needs to be fully operational and meet targets for productivity and revenue. This sort of skills crisis highlights the need for effective succession planning strategies, as well as improved recruitment and employee retention programs. While retirements are unavoidable, high turnover through resignations and/or terminations is indicative of more serious issues within an organization that need to be identified, examined and managed.

Technology changes are inevitable in all industries. A skills gap can arise if a company fails to keep pace with the technological changes that make operations more efficient, or new technology is introduced but existing employees are not sufficiently trained to use it to its best advantage. 

Introducing new work practices can be another internal cause of a skills gap if the change is not managed properly. For example, the Covid-19 pandemic forced many workplaces worldwide to adapt to remote or hybrid working, but if staff were not properly trained to adjust to new ways of doing business, productivity could suffer. This is an example that can and should be easily remedied with a combination of training and technology, but other new workplace practices can expose skills gaps that might be harder to solve. 

Closely related to new work practices causing a skills gap, setting new business goals can be problematic if there is a shortfall in staff development to meet updated targets. If new goals are set that are not aligned with current skill levels, there can be a serious period of adjustment, training, retraining and recruitment, to ensure the business can continue to move forward. 

External causes of skill gaps

External factors can be harder to control than internal factors when a skills gap arises, but employers should still have sound strategies in place to manage these factors so operations are not affected. These factors include economic conditions, local labor market trends, demographics, immigration patterns, education and training capacity, and force majeure incidents, such as natural disasters or pandemics. In addition, internal and external causes can collide when a company’s skill needs change because of internal factors and external factors, such as an aging population, resulting in a skills gap. 

Economic conditions can affect the skill levels in an organization in multiple ways. Basic rules of supply and demand in the labor market can have an impact – if, for example, basic skill levels are required but demand for labor is high, wages can rise significantly. In sectors where competition for labor is intense, this problem can be intensified. Fluctuations in supply and demand of labor can reflect fluctuating economic conditions. The employers that struggle to pay higher wages are more exposed to skills gaps in these circumstances.

Demographics, such as an aging local population, can cause a skills gap – in that instance, an organization that requires a young workforce, especially if physically demanding work is involved, can be problematic. Immigration patterns can help solve skills gap issues if an influx of skilled people have arrived, but people leaving a local area to seek opportunities in other towns, cities, regions, or countries can have the opposite effect.

As well as wage levels rising to reflect economic cycles and skill shortages, the schools, colleges and training facilities that can supply the right people at the right time play a role in determining whether companies will suffer a skills gap. Heavy reliance by employers on the capacity of government and private educational institutions to ensure workforce needs are met can lead to a skills gap, albeit one that might be solved if the employers better develop their internal training programmes.  

If employers are consistently receiving a low number of applications when vacancies are advertised, this can be caused by a mixture of the external factors mentioned above, as well as internal issues. The internal causes can be remedied with practical organizational changes, especially in regard to training for newcomers, ongoing training and development, and succession planning. Solving these issues will reap financial benefits as well as improving employee experience.

Dealing with skills gaps

Depending on the cause of a skills gap, there are different ways that employers can solve the problem, particularly with a focus on long-term remedies to prevent further issues in the future.

• Skills audit: A good way to help prevent a skills gap before it happens is to undertake an organization-wide skills audit. This is a good way to not only create a detailed record of the skillsets of every employee, but it also helps identify areas where upskilling is required. One of the pleasant surprises that can emerge from a skills audit is to discover employees have skills and qualifications that the employer might not have been aware of – this can help prevent skills gaps by better deploying employees within the organization. If skills gaps are identified, employers then have an opportunity to improve training processes to help ensure long-term success. The best result here is motivated, productive, multi-skilled employees who are versatile and able to move around various roles in the company and share their knowledge internally.

• Improved internal training programmes: Following on from a skills audit, it makes good business sense to regularly review internal training processes. For example, it is worth examining whether senior employees would be able to mentor junior employees on a one-to-one basis. This has the advantages of upskilling junior employees, creating a more well-rounded workforce, and aiding in succession planning. At a broader level, it is worth investigating internal training sessions where knowledge can be passed on to multiple employees at the same time. 

• Working with external training providers: When an organization is unable to meet all its training needs internally, investing in external training providers is a smart move. External training providers should be carefully selected, keeping in mind that the cheapest provider is not always the best for this process. Local schools, colleges and universities may also offer relevant training programs for employees where they can participate in person. Virtual training has become increasingly popular, particularly since the Covid-19 pandemic caused lockdowns across the globe. 

• Better recruitment practices: A skills gap can be frustrating if hiring suitable people becomes a challenge. This could be the catalyst for reviewing and improving the way you recruit people. Are you advertising through the most relevant publications and websites? Are you using a recruitment company that does not understand your needs? Are you asking the right questions at the interview stage? Is unconscious bias playing a role in rejecting suitable candidates? Asking yourself these often tough questions can be a powerful first step in improving the way employees are recruited – and, as a result, your workforce will have the skills required for success.

• Anticipating changes: Taking a proactive approach can prevent a skills gap before it happens. Changes – both positive and negative – can affect the labor market and therefore the supply of employees with the right skills. If there are indications of economic contraction or growth that will have an impact on your workforce, it is best to take steps such as improved training and better recruitment practices before a skills gap develops. Strategic workforce planning, taking advantage of industry and market intelligence, and being aware of how factors beyond your control, such as a change in government, might affect your organization are all part of a proactive rather than reactive approach. 

Skills gaps do not have to take organizations by surprise. By taking a long-term, strategic approach to ensuring a properly skilled workforce is in place at all times, employers can reap financial and social benefits. Preventing skills gaps is an important part of developing a resilient organization that can survive and thrive, even in challenging times. In the next blog, we will take a deeper dive, including examining the ways that digital transformation can help with the skills gap issue.

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