Beyond hiring: How companies are reskilling to address talent gaps

As technologies and business models continue their rapid evolution, companies are experiencing a step change in the workforce skills they need to thrive and grow. Previous research has shown that as many as 375 million workers globally might have to change occupations in the next decade to meet companies’ needs and that automation could free employees to spend as much as 30 percent of their time on new work.1Jobs lost, jobs gained: What the future of work will mean for jobs, skills, and wages,” McKinsey Global Institute, November 2017. Now, in a new McKinsey Global Survey on future workforce needs, nearly nine in ten executives and managers say their organizations either face skill gaps already or expect gaps to develop within the next five years.2

Although most respondents say their organizations consider it a priority to address skill shortages, few say their organizations understand how to equip themselves with the workforce skills they will need most. In fact, only one-third of respondents say their companies are prepared to cope with the workforce disruptions resulting from technology and market trends. Most respondents say their organizations are hiring employees in an attempt to prepare for potential skill gaps, and some have made efforts to build skills in their workforces: about one-third of respondents say their organizations have begun reskilling efforts.3 Among them, many report early progress and provide insights into what these programs look like.

Skill gaps have appeared, and companies are trying to close them

The findings from our survey suggest that companies lack the talent they will need in the future: 44 percent of respondents say their organizations will face skill gaps within the next five years, and another 43 percent report existing skill gaps (Exhibit 1). In other words, 87 percent say they either are experiencing gaps now or expect them within a few years.

Respondents expect to see skill gaps as market and technology trends alter organizations’ talent needs.

Respondents expect market and technology trends to play a big part in these shifts. Three in ten say at least one-quarter of their organization’s roles are at risk of disruption in the next five years by these trends. Looking at respondents by industry, those in financial services and in high tech and telecom are the most likely to expect this level of disruption, while those in healthcare services and pharmaceutical and medical products are the least likely. (Explore the results by industry in “An interactive look at skill gaps and reskilling efforts.”)

Respondents see a need for their organizations to address potential skill gaps in a wide range of business areas. When asked where the greatest need exists, they most often say data analytics, followed by IT management and executive management (Exhibit 2). Similarly, when looking at the specific skills with the greatest mismatch between current supply and what will be necessary in the next five years, respondents expecting skill gaps to open during that time most often identify advanced data-analysis and mathematical skills.

Respondents report that potential skill gaps need to be addressed in data analytics and a wide range of other business areas.

Nearly all respondents classify closing potential skill gaps as a priority for their organizations, and about one-third say it is among the top three priorities. However, relatively few indicate that their organizations are ready to respond. One-third say their organizations are prepared to address potential role disruptions, and a smaller share—28 percent—say their organizations make effective decisions on how to close skill gaps. A potential hurdle to effective decision making is a lack of visibility into the skills of the existing workforce and the effects that the disruptions will have on workers’ roles. Fewer than half of respondents say their organizations have a clear sense of their current skills, and just 41 percent report that organizations have a clear understanding of the roles that are likely to be disrupted.

Nevertheless, most organizations are taking steps to address their talent needs, often through a mix of actions such as hiring contract or freelance workers and redeploying employees into new roles.4 The survey suggests that the most common tactic for addressing skill gaps over the past five years has been hiring, cited by two-thirds of respondents. The second-most common tactic, cited by 56 percent of respondents, is skill building, as accomplished through reskilling programs and other efforts. On average, respondents say their organizations take at least two actions to close potential gaps.

While hiring is the most commonly reported tactic in all regions, the use of other measures to match skills to needs varies by region (Exhibit 3). Respondents in Europe are more likely than those in North America to say their organizations are building skills in their workforces, whereas respondents in North America are more likely than their peers in Europe to report that their organizations have released individuals. While respondents in developed Asia–Pacific are less likely than those elsewhere to say their organizations are prioritizing skill building, those in India are the most likely to report skill-building activities at their organizations.

The measures that organizations have taken to address their skill needs vary by region.

Respondents whose organizations are building employees’ skills are more likely to say their organizations are prepared to address role disruptions than are respondents whose organizations address gaps through other methods. Of the respondents from organizations working to build skills, 44 percent say they are prepared, compared with 19 percent of those at organizations taking other actions.

Looking ahead, respondents are much more likely to cite skill building, rather than hiring, as the most effective way to close skill gaps in the next five years.5Retraining and reskilling workers in the age of automation,” McKinsey Global Institute, January 2018. Half of those who expect skill gaps in the years ahead say skill building will be the most effective action for their organizations to take, whereas 31 percent cite hiring as most effective.

The who, what, and why of reskilling programs

To address talent needs, more than one-third of respondents say their organizations either have reskilled at least one group or have a pilot or a program to do so currently under way. Another one-third say their organizations have plans to launch reskilling efforts. The most commonly cited purpose of these efforts (57 percent of respondents) is to enable the implementation of a new offering, business model, or strategy. The second-most cited reason (53 percent of respondents) is reacting to emerging technological disruptions.

Half of those who expect skill gaps in the years ahead say skill building will be the most effective action for their organizations to take, whereas 31 percent cite hiring as most effective.

Among industries, respondents in high tech and telecommunications are the most likely to say their organizations have already reskilled part of their workforce: 23 percent say their companies have reskilled at least one group or class, compared with 13 percent of respondents in other industries. (For a look at the data by industry and region, see “An interactive look at skill gaps and how organizations tackle them.”)

According to respondents, reskilling programs most often focus on building employees’ skills in critical thinking and decision making, leadership and managing others, and advanced data analysis (Exhibit 4). All are skill types that previous research has found will be in greater demand in coming years. These programs also tend to focus on building multiple skills: on average, respondents at organizations with reskilling programs say those efforts have prioritized five skills.

Reskilling programs most often focus on building employees’ skills in critical thinking, leadership and management, and advanced data analysis.

While a majority of respondents at organizations with current or planned reskilling programs are confident in their organization’s abilities to choose employees to train and skills to teach, most say their organizations lack the capabilities for designing other aspects of the programs. Nearly six in ten say their organizations are good at selecting which employees to reskill and have effectively prioritized the skills to address. But fewer than half say their companies have strong capabilities in curriculum design, and only one-quarter say their organizations designed the programs’ incentives well. Four in ten say designing the programs’ communications plans is a strength for their organizations, and fewer than one-quarter say the same about plans to engage external stakeholders.

Reskilling programs face other obstacles, too. Among respondents reporting current or planned reskilling programs, 53 percent say the most significant challenge has been balancing their programs’ needs with those of current business operations. Measuring the programs’ business impact is another common challenge, cited by 41 percent of respondents.

McKinsey Global Surveys

McKinsey’s original survey research

Despite these challenges, respondents expect further reskilling efforts in the next five years. Of the respondents whose companies have delivered a reskilling program, 46 percent say their organizations will reskill more than one-fifth of their workforce in the years ahead. Nearly three-quarters of respondents say they expect their organizations to invest more in learning and development over the next five years.

Early reskilling efforts appear to pay off

Although reskilling programs are generally at an early stage, many organizations are already seeing positive results from them. Nearly seven in ten respondents reporting reskilling say the business impact from the programs has been greater than or equal to the investment in them. What’s more, 48 percent say the programs are already enhancing bottom-line growth. Respondents also see other benefits: most say their organizations’ reskilling efforts have improved performance on seven other key performance indicators, including employee satisfaction and customer experience (Exhibit 5). Further, respondents reporting reskilling efforts are more than twice as likely as other respondents to say their organizations are prepared to address potential role disruptions (53 percent, compared with 24 percent of all others).

Respondents say their organizations’ reskilling efforts have improved performance in a variety of ways.

Respondents who say their organizations have successfully reskilled (by virtue of being effective or very effective at delivering reskilling programs and achieving impact that matches or exceeds their investment) offer clues as to how other companies might run reskilling programs. These respondents tend to credit the engagement of leaders and employees: 48 percent say having the senior-management team sponsor the programs helped them succeed, and 43 percent say having high levels of employee engagement set their programs up for success.

Respondents reporting success at reskilling are likelier than others to say their organizations have a culture of lifelong learning. Eighty-four percent of respondents reporting reskilling success say their companies have such a culture, compared with 58 percent of those from organizations with unsuccessful programs.6

Additionally, respondents from organizations with successful reskilling efforts are more likely than others to say strong skill-management practices are in place (Exhibit 6). For example, respondents reporting success are about three times likelier than those with unsuccessful efforts to say their organizations effectively make decisions on the right actions to take to close future skill gaps.

Respondents reporting successful reskilling efforts are more likely than others to say their organizations have strong skill-management practices.

Looking ahead

As more tasks become automated and companies redesign jobs to encompass different activities, it will be critical to enact strategies that help employees develop the new capabilities needed. This will be a major undertaking. Our survey results suggest that most companies will prioritize learning and development as they try to close skill gaps. Companies that have not yet begun reskilling their employees should consider taking these actions:

  • Understand which skills you need. Companies might not recognize skill gaps in their workforce, but they probably have some already. A diagnostic can show which skills the workforce possesses and which will be necessary in the future. Understanding which skills to develop in the workforce requires a rigorous, empirical approach to comparing the supply of each skill with the business’s strategic needs.
  • Be strategic in how you close gaps. Companies must decide what actions they should take to address each gap. Filling most gaps will require a mix of approaches, such as hiring and reskilling. For each approach, it is necessary to decide which specific programs or initiatives to implement to gain the right skills in the workforce. This decision also includes candidate selection: Which employees should be reskilled first? Meanwhile, companies should prepare the workforce for change by explaining the reskilling agenda, including each employee’s future role and reskilling options.
  • Build training capabilities and partnerships. Applying the science of learning will improve the outcomes of any reskilling effort. Companies should structure the learning journey to help employees retain new skills and apply them to their role. To do so, the reskilling curriculum should blend in-person and digital learning opportunities. Employees should be assigned to train in a cohort of employees with similar experiences and should be involved with projects that allow them to practice skills while they learn. Because organizations may need to cultivate a broad range of workforce skills, they will likely need to assemble learning resources from multiple providers—for example, online platforms, universities, and technical organizations. Fostering a culture of lifelong learning also can encourage employees to develop new skills.
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