How AI Liberates the Transition to a Skill-Based Organisation

AI

By Jacques Bughin and Jeroen Van Hautte

What do companies as diverse as Booking.com, Accenture,1 Revolut, GSK, Walmart, or Unilever have in common? Answer: they have been on a common journey to migrate their organisation to a skills-based organisation (SBO).

At a time when the skills mix of workers is exploding and the future of work is dramatically changing with work-from-home, automation, and AI, front-running companies are moving their organisations to a world of better skill use and continuous learning.2 But what they mostly find is that AI skill tech is a critical software solution to support the journey to an SBO.

The Causes and Rewards of SBO

The concept of the SBO represents a paradigm shift in the traditional working model. Instead of rigid job-centric structures, these organisations prioritise human skills, defining work by breaking down roles into tasks and activities based on required competencies. This transformative approach fosters an environment that values employee expertise, continuous learning, and adaptability over traditional siloed structures.

The trend towards skills-based organisations (SBO) is now well established and is inevitable for at least three reasons.

The first is that digitisation and other trends are shifting the skill set needs for the workforce. One would argue that skill shift has always been there. For example, coal miners in the past used to carry out heavy physical and manual tasks requiring gross motor skills and physical strength. Today, they increasingly operate machines that do the heavy and dangerous toil, and need to apply more complex skills by monitoring equipment and problem solving. Nurses in 1957 were required to administer medicines, monitor patients by taking their pulse and temperature, and help with therapeutic tasks, including bathing, massaging, and feeding patients. Today, they still administer medicines to patients but also help perform diagnostic tests and can analyse the results, employing skills and filling roles that were more common to doctors half a century ago. But our research with Nobel Prize recipient Chris Pissarides3 shows that the skill shift has been accelerating in recent years, and the skill obsolescence rate has been doubling in the last decade.

Digitisation and other trends are shifting the skill set needs for the workforce.

Second, the number of skills the workforce needs to master is only getting larger, not smaller, per individual. The skill set is moving to soft skills and, under a digital lens, skills that are also notoriously absent from the main scope of traditional educational systems. The result is an increasing mismatch where the skills of workers are badly utilised As a case example, consider taxi drivers. While, in 1970, fewer than 1 per cent of US taxi drivers had a college degree (meaning they master some clear cognitive skills), the proportion had risen to nearly 15 per cent by 2013 and is now reaching 17 per cent , with close to 10 per cent of them with a business and  engineering degree.4 Sure, those skill sets may be useful elsewhere.

Other research by OECD and other academic labour market scholars, using the PIACC skill taxonomy, concluded that skill mismatch affects 30 per cent  of workers in any of the 34 countries it analysed.

Third, AI itself is radically building a major skill shift and a new organisational model of the workforce where workers must augment their skills with technology5 while seeing tasks automated. Finally, using the catalyst of the COVID-19 crisis, a lot of organisations have been testing and promoting new work models, such as remote work. What we recently found6 is that, in general, the difference between using and avoiding fully agile work environment has been associated in the last three years with 3.1 points of extra revenue growth annually7 for large companies worldwide.

Given those trends, companies which have adopted an SBO are demonstrating some clear rewards. A plethora of research mentions among other things that SBOs are 52 per cent more likely to innovate8 and 57 per cent more likely to anticipate and respond effectively to change. They have a 98 per cent likelihood of retaining their top talents.9

AI Tech Is a Must-Have to Powerthe SBO Transition

From the above, pivoting to an SBO is one of the most robust proven ROI cases. In fact, a typical mismatch of skills of 20-30 per cent at the level of the firm is not unusual, and may translate to a gap (versus a perfect match) of more than 5-6 per cent of productivity loss.10 On a global basis, this is a 5 trillion GDP gap, linked to misuse of labour skills, according to consultancy BCG. And this does not take into account the fact that employees may feel frustrated, especially high performers.

Evidently, the organisational pivot is a fantastic opportunity for the CHRO, but  it is nevertheless a massive enterprise-wise task for which the CHRO may have operational accountability. Fortunately, this is where AI tech comes to the rescue.

AI itself is radically building a major skill shift and a new organizational model of the workforce.

While AI adoption11 has seen a staggering 70 per cent increase across business over the past five years, the spotlight has often been on supporting customer services and supply chain optimisation, but is now also moving into a key untapped potential in the field of so-called “skills tech”. This emerging market, with pioneers like TechWolf, Workday, or Skillate, is at the forefront of delivering AI solutions and tools to unleash the power of the skill-based organisation, storing and defining skills, inferring competencies across the workforce, and predicting / recommending training needs using AI and machine learning.

Powered by machine learning and data-driven tools, companies can then exhaustively map the current skills of their workforce. This involves creating skills matrices to identify existing skill sets within the organisation, highlighting strengths and weaknesses. This information then enables strategic planning of skills enhancement and renewal initiatives, ensuring that employees remain relevant and equipped for the jobs of tomorrow. AI skills technology acts as a visionary force, predicting future workforce needs, also identifying areas where additional training or recruitment may be required to meet the demands of future work.

Mapping the HR Tech Journey

Mapping

If a company has not already embarked on the journey, then here are five key important steps.

Step 1: Get ready

SBO is a pivotal change. Hence, only a CHRO who has the drive, the vision, and the support of the board can make it happen.

Step 2: Select your skill tech partner

As discussed, SBO must be implemented and facilitated by skill tech. While some large providers will claim to have the right solutions, the best of these are coming from AI-native firms that can support a comprehensive AI factory for HR, including cleaned and accurate skill data, AI algorithms that fit HR needs, and AI Ops that make AI easy to use by employers and employees. On top of those qualities, (mostly cloud) app-based solutions allow ease of integration and access, and providers must have strong proof of data security.

Step 3: Clarify  

One major issue of the SBO is that CHRO and organisations will jump without having built the definition and taxonomy of skills they want. Having one unique definition of skills is a critical first step. The second step is the main objective of the transition, whether it is mismatch resolution and hiring speed-up, a skill-based internal labour market with the enterprise, etc.

Step 4: Implement and build workflows around skills

Step 5: Move from employer-centric to employee-centric: develop the best skill portfolio for each employee

If all this is clear, it is time to launch that SBO. 

What are you waiting for?

About the Authors

Jacques BughinJacques Bughin is the CEO of MachaonAdvisory and a former professor of Management. He retired from McKinsey as a senior partner and director of the McKinsey Global Institute. He advises Antler and Fortino Capital, two major VC / PE firms, and serves on the board of several companies.

Jeroen van HautteJeroen van Hautte is a co-founder and CTO of TechWolf, one of the fastest-growing AI companies in Europe. The company leverages AI to help organisations understand the skills of their workforce and works with some of the world’s biggest brands. Jeroen developed his expertise in AI at Cambridge University and is recognised by the World Economic Forum and Forbes Under 30 as a leader in technology.

References:

  1. Becoming a Skills-Driven Organization. Accenture. https://www.accenture.com/content/dam/accenture/final/accenture-com/document/Accenture-Becoming-a-Skills-Driven-Organization-Repopdf.
  2. Preparing for the Coming Skill Shifts. 2020. MIT Press Direct. https://direct.mit.edu/books/edited-volume/4630/chapter-abstract/212324/Preparing-for-the-Coming-Skill-Shifts?redirectedFrom=fulltext.
  3. Embracing the New Age of Automation. 16 January 2018. Project Syndicate. https://www.project-syndicate.org/commentary/automation-jobs-policy-imperatives-by-christopher-pissarides-and-jacques-bughin-2018-01?barrier=accesspaylog.
  4. Taxi Drivers Detailed Occupation. DATA USA. https://datausa.io/profile/soc/taxi-drivers.
  5. The Future of Work: Augmentation or Stunting?. 04 May 2023. Springer Link. https://link.springer.com/article/10.1007/s13347-023-00631-w.
  6. Does Working from Home Work?. 14 September 2023. Intech Open. https://www.intechopen.com/online-first/1162351.
  7. “Net better Off?” Why companies should scale new, tech-based flexible work practices. 26 September 2022. The European Business Review. https://www.europeanbusinessreview.com/net-better-off-why-companies-should-scale-new-tech-based-flexible-work-practices/.
  8. Taking a skills-based approach to building the future workforce. 15 November 2022. McKinsey. https://www.mckinsey.com/capabilities/people-and-organizational-performance/our-insights/taking-a-skills-based-approach-to-building-the-future-workforce.
  9. Skills-based organizations. 02 November 2022. Deloitte. https://www.decom/global/en/issues/work/skills-based-organizations.html.
  10. Fixing the Global Skills Mismatch. 15 January 2020. BCG. https://www.bcg.com/publications/2020/fixing-global-skills-mismatch.
  11. AI Adoption Skyrocketed Over the Last 18 Months. 27 September 2021. Harvard Business Review. https://hbr.org/2021/09/ai-adoption-skyrocketed-over-the-last-18-months.

Additional References:

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