There’s a hot debate at the macro level on whether there really is a skills gap—the gap between the skills that employers need and ones that current employees have to offer—or not. Some argue there never was one, and the problem stems from poor educational opportunities for America’s youth. Others argue that it not only exists, but it’s getting worse.
As an HR manager or corporate trainer, though, you don’t care about the macro level. You care about your own company. Maybe you need to fix a major skills gap immediately to compete, or maybe you just want to learn how to prioritize your training and hiring budgets. Either way, it pays to do a skills gap analysis.
We’ll explain what a skills gap analysis is, then show you how to do one yourself. (Not to brag, but we’ve developed a free, downloadable Excel template that adds a crucial step related to skill importance that will net you more actionable results than other methods.)
Let’s get to it!
A skills gap analysis is a tool for determining the gaps between the skills your employees have today and the skills they need for your organization to accomplish its goals moving forward.
Performing a regular skills gap analysis can help your organization in a number of ways:
- A skills gap analysis helps you make the best use of your training budget. Companies spent an average of $1,071 per employee on training in 2021. Companies spent as much as 11% of their training budget on learning tools and technologies. Doing a skills gap analysis can tell you how to prioritize that training spend to get the best results.
- It improves worker retention and productivity efforts. According to a 2022 LinkedIn study, leadership and management training, as well as upskilling and reskilling employees, are the top two areas of concern for learning and development experts. A skills gap analysis can mark the beginning of investments in those types of programs while giving workers the skills they need to perform better in their roles or seek promotions from within your organization.
- It prepares your company for major disruption. Staying ahead of the major skills your organization needs to have to survive—whether developing AI or analyzing data—will ensure you’re not scrambling when it’s too late and your competitors have already adjusted.
- It informs your long-term recruiting strategy. Whatever skills you can’t develop internally, you’ll need to hire externally. A skills gap analysis can help you update those job descriptions and skills requirements so that you’re bringing the right people into the organization.
A skills gap analysis can be scaled up or down as needed depending on available resources and needs. You can perform one on the whole organization, a single department, or an individual worker.
Our skills gap analysis method is similar to many other methods out there, but with one critical difference that we believe offers more actionable results. We’ll explain what that critical difference is when it pops up in the assessment process. But for now, just follow along.
We’re doing this in Microsoft Excel to automate some of the math. For simplicity’s sake, we’re also acting as if you’re performing this analysis on a whole team or department rather than an individual.
The first step with any skills gap analysis is to meet with the stakeholders of the group you’re analyzing—likely a department head or team lead—to figure out the skills the group needs to succeed.
The skills you decide on can come from several sources. You could evaluate job descriptions or the mission statement of the organization. You could analyze industry trends or customer satisfaction. It doesn’t matter if they’re soft skills (e.g., emotional intelligence) or hard skills (e.g., AI programming).
The important thing to keep in mind is that now is not the time to assess what skills this group does or does not have. It’s just what’s needed to thrive long-term. Once you’ve landed on 5 to 10 skills you want to prioritize, you can move on to the next step.
The rest of the steps that follow will leverage this Excel template.
This is the critical difference with our method that we mentioned earlier.
While every skills gap analysis method out there factors in employee competency regarding different skills, none of them also factor in the priority of each skill.
When you open the Excel file, you will see this in the first tab:
Take the skills you identified in step one and add them under “Skill Name.” Then, under “Skill Importance,” rate each skill on a scale of 1 to 5, with 5 being the most important skill for the team or department and 1 being the least important.
Think carefully. If you end up with a bunch of 4s and 5s, you didn’t do this step right. Ideally, you should end up with importance ratings across the entire scale.
Your final result should look something like this:
Once you’re done, move on to the second tab in the spreadsheet: “Skill Ratings.”
This step is the bread and butter of your analysis, where you’ll assess the competency of each current employee for the skills you’ve identified.
Where it says “[Team/Department Name],” add the team or department you’re analyzing, then add the employees on that team or department below—one for each row. You’ll notice the skills you entered in the last step have already been populated in separate columns on this tab.
For each skill, assess each worker on a scale of 1 to 5: 1, meaning they’ve already mastered that skill, and 5, meaning they don’t have that skill at all. That may sound backward, but again, we’re trying to measure a gap. The higher the number, the more severe the gap.
You can come up with competency ratings using a number of different sources:
- Performance reviews
- Skills assessments and tests
- Surveys and interviews
Whatever methods you use, the final result should look something like this:
Now it’s time to see where your gaps are. Head to the last tab in the spreadsheet: “Results.”
Your “Results” tab will look something like this:
The numbers in each cell where an employee and a skill intersect are generated by multiplying the skill importance in the first tab by the skill competency rating in the second tab. The bigger the number, the bigger the skill gap. Or, for visual folks: red is bad, green is good.
The “Gap Total” row at the bottom sums up the skills gap for your entire team. In the example above, you can see leadership (315) and digital literacy (300) represent the biggest skills gaps. Note that emotional intelligence was rated as more important than digital literacy earlier (5 vs. 4), but the average competency rating for digital literacy on this team is much lower than that for emotional intelligence, which is why digital literacy represents a larger gap.
The “Gap Total” column, on the other hand, sums up the gaps for each employee. In the example above, you can see Vision (117), War Machine (114), and Loki (113) need the most work.
That’s it! You’ve done a skills gap analysis.
If you need a shorter version of what we just outlined, take a look at our checklist.
Of course, finding a skills gap isn’t the same as filling a skills gap. Once you’ve finished your analysis, it’s time to use those results to inform your learning and hiring strategies as you move forward. Here are just a few ways you can go about it:
- Create or purchase new training content. If you have a learning management system (LMS), you can create or purchase courses dedicated to improving specific skills gaps. Many LMS vendors offer customers a course library with premade content for a large variety of skills.
- Start a mentorship program. The other great thing about a skills gap analysis is it tells you who’s already adept at specific skills. You can use this information to pair up workers in a mentorship program and help them teach each other important skills.
- Consider the contingent workforce. If certain hard skills are impossible to develop internally, consider hiring temporary or part-time workers with those skills to quickly shore up processes and complete projects that need immediate attention.
- Refine your recruiting strategy. Review everything—your talent sources, your job descriptions, your interview practices, your candidate assessment templates—to ensure you’re prioritizing the right skills in your job applicants and setting your business up for success long term.
When it comes to HR and talent management, things are changing right now faster than we can comprehend.
According to the World Economic Forum, a large portion of the top 10 jobs of 2030 doesn’t even exist yet. By performing a regular skills gap analysis, and adjusting your learning and hiring strategies accordingly, you can set your organization up to roll with the punches of disruption.
- The Labor Market Doesn’t Have a ‘Skills Gap’ — It Has an Opportunity Gap, Brookings.edu
- The US Digital Skills Shortage Is Worse Than We All Thought, IndustryWeek
- 2021 Training Industry Report, Training Magazine
- The Transformation of L&D, LinkedIn
- Effective Ways to Conduct a Skills Gap Analysis, Recruiting Daily
- Top 10 Jobs of the Future — For 2030 and Beyond, World Economic Forum