Why Skillstech is the Hottest Business Sector: In-depth Analysis

The skillstech sector has become a billion dollar market as companies and their HR teams seek to address their skills challenges. Will the boom continue or will the bubble burst?

It has been referred to as one of the hottest markets in the business world, and it’s now a billion dollar industry.

Welcome to the world of skillstech, where software giants such as SAP and Microsoft are rushing to incorporate skills into their platforms, media moguls are joining the Board of Directors of vendors, and skillstech start-ups are still attracting significant funding despite the tough environment.

A collection of tools created to help human resources departments categorise, assess, manage and improve skills, skillstech has become big business, with RedThread Research recently valuing the market at $1.3 billion.

But what is fuelling this growth – and is this another tech sector inflated purely by hype?

What is causing the global skills crisis?

“Skeptics of the recent skills hype will say ‘we’ve always been talking about skills!’ and that is true,” acknowledges Betsy Summers, Principal Analyst, Future of Work and Human Capital Management at Forrester. “But the catalyst for recent interest is the increasing rate of skills shortages and broader talent shortages and the availability of technology that can help manage skills in a way that technology could not before.”

Skills shortages are indeed a growing concern, to the extent that the World Economic Forum has described it as “one of the most important challenges of our time”. The ManPower Group estimates that over three-quarters of organisations around the world are now experiencing difficulty finding the skilled talent they need.

Skills shortages are a global phenomenon and it is a culmination of several factors:

Many nations have had low birth rates for decades, leading to an ageing workforce. A growing proportion are now reaching retirement without employers having the skills to replace these experienced professionals.
The pandemic. Some older professionals that lost their jobs during the pandemic simply decided to never come back to work, with estimates suggesting that as many as 2.1 million US workers decided to take early retirement.
Digital transformation is rapidly and dramatically altering the skills landscape, with a growing number of professions and skillsets being rendered obsolete by technological evolutions, and an entirely new set of IT-focused skills and jobs emerging. But many skills required for these new roles – many related to AI, cybersecurity and green tech – are in very short supply.
Changing skills requirements. The half-life of skills – the period of time a skill is innovated, flourishes and then becomes irrelevant – is shortening, with estimates suggesting that it dropped from five years at the end of the last decade to now only four. But IBM has even suggested that for technical skills this has now dropped as low as 2.5 years. In other words, the average worker now needs to learn new technical skills twice as often as they did only a few years ago.

“The skills crisis threatens to have a devastating impact on commercial growth,” warns Nick Shaw, Chief Customer Officer of skills-based workforce management platform provider Spotted Zebra. “Across G20 countries, failing to close the skills gap could put at risk $11.5 trillion in potential GDP growth according to Accenture.

“And the skills shortage is an existential danger for many organisations – three-quarters of those polled by PwC have said that finding the right skills is a threat to their business.”

How are organisations responding to the skills crisis?

To respond to the global skills crisis, organisations can adopt a number of different strategies:

Widening the talent pool. According to the World Economic Forum, there are some 100 million people across multiple economies whose skills are being underutilised, or not used at all. Organisations need to look beyond their traditional job requirements, such as four-year degrees which immediately filters out many skilled candidates.
Reskilling enables organisations to assist employees in legacy roles to swap careers into areas where there is high-demand, thereby filling skill gaps, retaining capable employees and cutting redundancy costs.
With so many roles being transformed by technology, improving the skills of each worker to keep in step with their evolving roles is essential. Organisations such as Amazon, PwC and JPMorgan Chase are investing millions to provide upskilling training to employees.
Skillsforce planning. By better understanding and anticipating current and future skills requirements, businesses are less likely to have skills gaps as they can hire/reskill/upskill talent before a shortage arises. This requires a clear understanding of what skills the workforce has and what skills will be required in the future – in other words, full visibility of the organisations’ skills pipeline.

But organisations seeking to pursue these strategies have typically experienced the same challenges:

How do we define/identify/measure what skills our organisation possesses?
How do we build a consistent skills taxonomy for our workforce?
How do we know what the crucial skills are for each role so that we can hire for those skills, and assess and develop them?
How do we define/identify/measure what the crucial ‘soft’/behavioural skills are that will make a candidate a good fit for our company culture?

Skillstech has emerged and evolved in recent years to the point where there are now solutions available to support HR and L&D leaders with these skills struggles.

How does skillstech help businesses?

While the category of skillstech has become large and varied, with no one vendor able to offer all variations, the ecosystem means that there is now support available to help organisations with:

Auditing and measuring current workforce skills.
Discovering skills in the labour market (such as what are competitors hiring for, what are the emerging skills in jobs and what the cost and availability of those skills is).
Mapping out upskilling and reskilling paths.
Matching people (whether that be external job candidates or internal employees) to opportunities (jobs or projects) based on skills.
Identifying talent in the organisation.
Linking learning experiences to the skills to be learned.
Improving and updating job descriptions with skills.
Providing career paths for people based on their skills and interests.

All of this represents a huge leap forward for businesses as they look to manage their workforce’s skills and conduct skillsforce planning to anticipate and avoid any skills gaps.

“The old tools in HR tech were static and relied on people to update them, which never happened,” says Summers. “AI, especially natural language processing and using large language models, can help maintain a dynamic skills ontology that helps organisations and individuals keep up with the fact that humans are always learning and growing their skill sets over time.”

What types of skillstech are available?

Broadly speaking, two distinct categories of skillstech have emerged – platforms and data providers. Skills data providers cover vendors such as assessment companies, delivering skills intelligence about workforces or candidates.

Skills platforms, meanwhile, provide a more sophisticated service, including:

Human capital management (HCM) vendors that have embedded skills intelligence inside them, aiming to infuse all their HCM use cases with it eventually.
Platform solutions, non-HCM, that offer insights and analytics about organisational skills.
Point solutions and platforms that deliver skillstech attached to a use case, such as talent mobility or recruiting or learning.

And the skillstech market is now bursting at the seams with vendors and solutions.

“The technology market is burgeoning. It’s very crowded,” notes Caroline Ford, a Learning Leader and Performance Consultant, and Former Global Head of Skills Management at Novartis Learning Institute.

“There has been a lot of hype around it. And it’s certainly getting to the point where you can’t ignore it any more.”

Despite this complexity, Summers believes that skillstech transcends the hype – and that it addresses a crucial area of concern for today’s businesses.

“Skills has always been a concern, but only now do we have technology that can manage it dynamically,” concludes Summers. “While the initial shiny object syndrome may wear off, it will stay as a necessary component of an adaptive people strategy.”

Why is skillstech one of the hottest markets in the business world?