Skills Economy

What is the Skills Economy?

The Skills Economy is one of the most popular modern trends in the economy and activities of various companies. It is opposite to classical ideas about the organisation of commercial enterprises. The approach called Skills Economy covers not only internal business processes but also the external market.

Simply put, the skills economy is a business concept emphasising the primacy of experience, professional competencies, and universal skills for an individual's career trajectory and building a large-scale, profitable business. Special talents and unique abilities are now considered the most valuable currency in the labour market. Therefore, the critical task of the skills economy is to close the need for developing professional skills and necessary soft skills by eliminating gaps in knowledge and replenishing experience.

How the Skills Economy Emerged

The emergence of the skills economy has occurred because, with the beginning of the twentieth century, came an era of global and ultra-fast changes that affect and continue to significantly transform all industries, forcing them to change priorities and abandon traditional business models. The theory of the skills economy was formulated to try to keep up with the times. It focuses on the main provisions around the workforce of specific organisations and individual employees.

Additionally, the concept of the skills economy is influenced by the increasing demand for generalists, i.e. people with a wide range of skills and abilities who are willing to continue learning and acquiring new skills. It causes people to need constant development, improvement of their competencies, and continuous personal and career growth. Thus, when employing professional specialists, they are attracted not only by high salaries but also by other forms of motivation, such as the opportunity to study, travel, realise their creative potential and actively apply all available skills.

A skills economy is not considered a separate type of economic system; it only confirms that nowadays, the crucial role in achieving efficient and profitable operations for a company is played by the experience and practical skills of its leading specialists. It is thanks to the professional competencies of employees that companies actively develop, enter new markets, and become industry leaders. Therefore, the skills economy offers a new format of business organisation called Skills-Based Organisation. It means that such companies are orientated towards employees' live experience, experimentation, and development of maximum flexibility in all processes rather than theoretical generalised knowledge and traditional tools.

In fact, the ideas underlying the skills-based economy approach have been around for several centuries. However, only by the twentieth century did they become more formalised and incorporated into the theory of the skills economy. These include, for example, the capitalisation of skills, the emergence of the talent marketplace, reskilling, well-being programmes, etc.

What Tools Does the Skills Economy Include?

First off the bat, the skills economy is characterised by the priority of practical skills and a high degree of employee involvement in all internal processes of the company. Thus, one of the most popular HR trends is skills gaps or eliminating skill gaps. For example, according to the McKinsey Global Survey for 2020, critical thinking and the ability to quickly make informed decisions are the main problems for employees. Leadership skills and the ability to analyse large data sets and manage large-scale projects are also missing. Companies are bringing all employees together to fill in the missing skills and providing access to shared resources, such as workshops and masterclasses. Additional tools include digital platforms, integrating meta-universes and other VR/AR technologies into workflows, mentoring programmes, etc.

Thus, another tool of the skills economy is learning from real-life experience. Such active learning can yield more tangible results than any other approach. For instance, hands-on learning is one of the most common innovative methods. Its peculiarity lies in its practice-orientated and result-oriented approach, i.e. acquiring new skills and applying them in the current reality.

Simultaneously, the concept of skills economy implies assisting employees' professional development and caring for their well-being, mental health and physical wellness. You do this through another tool - the active use of well-being programmes. It is the name given to an integral part of the corporate culture or a whole set of measures for working with the internal state of employees. The purpose of well-being programmes is to increase their loyalty and the company's competitiveness in the market. Moreover, such programmes contribute to the prevention of professional burnout and work-life balance. As a result, it significantly increases labour productivity and affects the company's overall performance. Some organisations specifically involve corporate psychologists who consult employees with work burnout, depression, and anxiety and help them cope with such conditions.

Also, in companies based on the principles of the skills economy, adaptation plans for new employees and onboarding, i.e. gradual involvement of a specialist in the social and working environment of the company, are considered mandatory. All this helps new employees take up their positions without stress and stay in the organisation longer. As a rule, other team members are also involved in such adaptation and onboarding programmes. Moreover, special collaboration spaces are created for specialists to share their experience and expertise. Thus, employees of several departments with different positions can collectively solve arising problems, quickly develop effective project plans, and perform specific complex tasks, for example, with the help of brainstorming.

Furthermore, for the employees' convenience, Talent Marketplace is an effective personal and professional development tool. It consists of applications that automatically identify the potential and opportunities of employees based on their interests, preferences, needs and existing skills. The marketplace also helps train specialists, telling them what new skills they need to acquire, what knowledge they need to replenish, and what areas they need to develop. Simultaneously, the complete talent marketplace should consider not only the professional competencies of an employee but also their hobbies, work style, learning preferences and all kinds of soft skills.

The Advantages and Risks of the Skills Economy Concept

Abandoning unnecessary formalities and building a company based on competent management and employee experience have significant advantages over traditional business forms. For example, organisations based on the skills economy are distinguished by the following:

• Increased Flexibility and High Adaptability

Companies that focus on their employees and their professional development tend to be more successful in competition. It is because innovative approaches allow for faster development in the digital age, more active response to changes within the market and emerging challenges, and skilful use of all the opportunities of digital technologies. For example, the skills economy helps to immediately respond to new consumer demands, emerging trends, and business directions.

• Openness to Everything New and Additional Opportunities

In most cases, companies' isolation and fixation on their production do not allow them to open new horizons and make a leap in development. Suppose the management of an organisation is focused on finding opportunities for employees' professional and personal growth. In that case, the company will significantly strengthen its position in the market because each specialist will maximise their potential. In other words, improving only production and technical parameters is impossible, forgetting about what drives progress - human capital.

• Increased Labour Productivity and Efficiency

The concept of a skills economy creates a favourable and comfortable environment for all employees. They can realise their creative potential and demonstrate various skills and abilities regardless of their position. Thus, the team's efficiency as a whole and of each employee increases.

• Increasing Staff Motivation

Motivation is vital to running a successful business and building a dream career. Therefore, it is imperative to identify the force that will motivate employees to be active. Within the framework of the skills economy concept, in addition to traditional salaries and quarterly bonuses, the motivator is the opportunity to realise creative ideas, pump up valuable skills of various categories and gain practical experience, find a mentor, get valuable advice and recommendations from them, and use the opportunities of the talent marketplace to learn about themselves and their personal characteristics. There is a reason why the skills economy includes various tools; it once again emphasises the employee's priority and their experience over formalities.

That said, the academic community has criticised and questioned the skills economy. It is not due so much to the innovativeness of the approach, but to some of the risks to which it can expose the entire company. Thus, one of the disadvantages of the skills economy is the inability to predict human behaviour and the excessive freedom and trust given to employees. Human nature is changeable, so it is impossible to create an ideal universal model of a perfect specialist and make every employee follow it. Moreover, it is not easy to bring the diverse experience of specialists to a single system.

Besides, the concept of a skills economy requires additional software development, creating an internal talent marketplace, etc. Therefore, high financial and time-related costs are considered one of the concept's most significant disadvantages.

Also, by allowing employees to perform specific tasks and realise skills, there is not only an opportunity to increase motivation and labour efficiency for some employees but also a risk of productivity decreases and deterioration of results for others. Therefore, monitoring the activities of all team members is still necessary, but the theory of skills economy sometimes misses this criterion. It tends to provide excessive freedom in the actions of specialists.

Conclusion

Thus, the concept of skills economy promotes more active personal and professional development and the company's entry to a new level, expansion of scale and increase in profits. The skills economy kills two birds with one stone: it allows employees to realise their potential, and do what they love, and work in a comfortable and pleasant environment while not forgetting the more global business goals. Therefore, the tools that the skills economy approach uses are applied by professionals both independently and in an integrated way within individual companies. You should agree that it is not superfluous to think over an onboarding guide for new employees, to draw up a plan for the whole team or, at the very least, to take care of your colleagues' professional well-being and fulfilment. It is also worth paying particular attention to the trend of continuous learning, encouraging cooperation between colleagues, regularly analysing the skills already present in the company, and identifying the missing skills that are most in demand.

Although the skills economy is not a separate type of economic system and isn't studied within the framework of social sciences, it allows companies to strengthen their position in the competitive market and quickly respond to the changing conditions of the external world, in line with the current trends of globalisation, digitalisation, and the culture of care. Thus, a company's development through improving its employees is rightly recognised as an effective and profitable strategy. It fundamentally changes our thinking about education, work, and career development. It is essential for professionals and their managers to gradually introduce innovative approaches into their activities to remain successful and in demand in the labour market.