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The Ultimate Guide to Skills Management

30 min read

What is skills management?

Skills management is the process of identifying, evaluating, and developing the skills and expertise of employees inside an organization. This is an ongoing and strategic process, that aims to help people and HR managers understand the full capabilities of their workforce and further enhance talent acquisition, performance and development, and workforce planning.

44% of workers’ core skills are expected to change in the next five years according to the World Economic Forum. Organizations that want to remain competitive have already started to recognize the strategic importance of skills management in unlocking agility and readiness in dealing with current and future challenges.

When implemented well, skills management will empower companies to:

skills shortage

Why is skills management important?

The importance of skills management stems from its ability to have a powerful and transformative impact across the entire organization. Some of the key benefits of adopting this process include:

Understanding the type of employee skills

Mastering the skills management process begins with gaining a full understanding of the type of skills needed in the modern workplace, which is what we’ll explore below:

What are employee skills?

Employee skills encompass all the specific abilities and attributes that people have and make use of to complete their work-related tasks successfully. Each job role can be mapped into specific skills and competencies and a corresponding proficiency level, which may vary significantly based on factors such as the job role itself or the industry. Over time, skills can also change and evolve as workers take on new challenges and development opportunities.

What’s the difference between skills and competencies?

When discussing skills, an inevitable question arises: skills vs. competencies — what’s the difference?

Skills, as mentioned earlier, are the abilities that enable employees to perform their job well. They are usually easily measured and associated with proficiency levels, such as ‘beginner’, ‘proficient’, or ‘advanced’.

Skills are usually known to be more transferable, but this applies more to soft skills rather than hard ones. They can also be developed in time through targeted training and various L&D opportunities, including mentoring or coaching.

Competencies are a mix of multiple elements — knowledge, skills, personal behaviors, and traits — that determine an employee’s expected performance level in their role. Since they are often job-related, competencies are neither easily defined nor measured and usually are not transferable.

However, they can be broken down into multiple specific skills, as shown in the example below, which helps to paint a clear picture of an individual’s key strengths, weaknesses, and full potential.

skills versus comptenecies

As a wrap-up, both skills and competencies play a fundamental role in skills management. While competencies are job-related and show a big picture of the skills, knowledge, and attitudes required to perform well, skills are the granular elements in this equation. Learn more about skills vs. competencies.

What are the different types of employee skills?

When discussing employee skills, these can be broadly split into two main categories:

Soft skills, also known as human, people, or power skills, are the abilities and characteristics that allow employees to work well in teams and collaborate with their peers. One key aspect that makes soft skills highly valuable and desirable is their transferable nature — not being tied to specific roles, they can be applied across various positions, departments, and industries. Here are some examples of soft skills:

Hard skills, also known as technical skills, are specific abilities that can be learned and developed over time. Usually, people acquire them through formal or informal education, on-the-job learning, various training methods, or personal life experience.

Compared to soft skills, hard skills are easier to define and measure but less transferable and more specific to each job type. Some examples include:

However, besides these two main categories, leadership skills, digital skills, or productivity skills have gained significant importance lately and are often referred to when talking about employee skills.

Still, while digital skills fall mostly in the category of hard or technical skills, leadership skills are often associated with soft or human skills. Leadership skills are the abilities and personal qualities that each great leader needs to possess. Empathy, adaptability, or conflict resolution – just to name a few – are some of the most common leadership skills that help people leaders guide and inspire their teams and create a positive and harmonious work environment.

Productivity skills are the abilities that enable employees to be more efficient and effective. It’s usually a mix of soft and hard skills, such as time management, planning, prioritization, decision-making, etc.

Learn more about leadership skills vs. leadership traits and how to identify potential leaders.

Which types of skills will be in high demand in the future?

While the skills management process starts with understanding employees’ current skills and capabilities, it also focuses on identifying the skills of the future. This process starts with looking at the current skill gaps across the full spectrum of skills (hard and soft) and paying close attention to industry trends and emerging technologies, which will inevitably change the world of work.

With that in mind, here are some of the skills that both organizations and employees should focus on in the short and long-term future, regardless of the industry they’re in:

Learn more about some of the skills of the future.

What are the steps of skills management?

The skills management process can be broken down into a few key components or steps:

  1. Establish business goals and align them with skills
  2. Keep track of your employee’s skills and competencies
  3. Assess your employee’s skill level and identify gaps
  4. Prioritize skill development to close the skill gaps
  5. Track skill development and assess growth and learning actions

Let’s take a more in-depth look at each step to better understand their role and importance:

#1 Skills Management Step: Establish business goals and align them with skills

Before examining the current skills and expertise of their workforce, top leadership, together with HR and people managers need to set the short- and long-term objectives of the company.

These objectives will determine the core skills, as well as the future abilities, that employees across various positions and departments will need to possess to help the organization move forward and be successful.

In this stage, organizations will also determine the most critical positions and functions to start with, together with the technical and soft skills required for each individual role.

#2 Skills Management Step: Keep track of your employee’s skills and competencies

The next step in the skills management process is gaining a thorough understanding of the current skills and expertise within the company and keeping track of them. This is where the role of a skills taxonomy comes in.

What is a skills taxonomy?

A skills taxonomy is a strategic tool that aims to store, define, and organize the wide range of skills and capabilities required to perform each role or function within the company. A skills taxonomy also ensures that over time, these skills keep track of the dynamic nature of business.

Why your organization needs a skills taxonomy

Businesses that are serious about adopting a skills management system should consider the benefits of a skills taxonomy. Skills taxonomies provide an extensive list of organizational skills in an intuitive way by ensuring a single source of truth of your workforce skills and competencies through skill names, skills descriptions, and logical hierarchies agreed upon at the organizational level.

With a skills taxonomy, you can improve a wide range of internal processes, from hiring and training to career development and succession planning.

How to create a skills taxonomy

Developing a skills taxonomy usually requires a collaborative effort across various departments, and it involves:

The well-known HR analyst and thought leader, Josh Bersin, suggests three specific functional areas you might want to focus on when starting to build a skills taxonomy:

  1. Underperforming operations such as in sales, customer service, or HR
  2. A current or future talent gap
  3. Long term transformation

#3 Skills Management Step: Assess your employee’s skill level and identify gaps

The skills taxonomy should be only the starting point for assessing your employee skills. With an application like Nestor, you can set up different proficiency levels for each skill according to the specific requirements of job roles. These proficiency levels can vary on a scale from 1 to 5 (1 – Aware of and 5 – Advanced) and can be customizable. Once you have defined the proficiency level for each skill specific to a role you can go to the next step: skills assessment.

Here is an example of how you set different proficiency levels for skills in Nestor.

Depending on the type of skills, some tools and methods will be more effective than others in evaluating your employee’s skill level. For example, technical or hard skills can be easily measured through professional assessment while soft skills will be identified more easily via peer feedback:

Assessing your employee’s skills will expose skill gaps related to the abilities or competencies that employees currently miss and need to develop in order to effectively perform their roles and meet performance expectations. Understanding existing skill gaps will help organizations discover areas of improvement and prioritize their L&D efforts to ensure their workers are as efficient and effective as they can be.

A skills matrix is a powerful tool in that direction. It offers a visual and easy-to-understand representation of each employee’s skill set and their level or proficiency in each skill. Most often, skills matrices take the form of a grid or a chart.

With the help of a skills matrix, companies can easily identify and visualize not only the individual skill gaps but also the skills distribution across employees. The skills matrix can be often used for immediate skill gap analysis and decision-making related to skill distribution within teams or projects.

Here is an example from our skills management platform:

nestor skills matrix

With the help of this grid, managers can visualize their teams’ skill level distribution and easily identify both individual and team skill gaps for each type of skill.

#4 Skills Management Step: Prioritize skill development to close the skill gaps

After identifying the existing (and potential or future) skills gaps, it’s time to look at the best ways to bridge them and plan for future development. Skill development and people growth should be a focal point of any coherent skills management process and aligned with the broader organizational goals.

Having this alignment ensures that employees acquire and develop the specific competencies and expertise necessary to contribute effectively towards achieving the company’s mission and staying adaptable in a dynamic business environment. As a result, organizations can take advantage of improved productivity and efficiency, higher engagement and retention rates, rapid innovation, and business continuity and agility in the face of disruptions.

Therefore, developing the abilities and knowledge of employees has become an absolute must for organizations that want to future-proof their workforce and ensure they have the right skills to succeed, both today and tomorrow.

Some of the most common goals aimed at closing the skill gaps through skill development are:

Having these goals in mind, it’s important to add that skill development takes, in most cases, two forms: upskilling and reskilling.

Upskilling represents all the actions taken to improve the current skills or develop new but related skills that will help employees remain relevant and meet the performance expectations of their role. Upskilling often becomes necessary when technology or industry changes make old skills less relevant (or even obsolete) or simply change the nature of a given role.

Upskilling is perfectly aligned with traditional career paths, which are all about making the right vertical moves to climb up the corporate ladder and eventually reach a managerial or leadership position.

Learn more about the importance of upskilling.

Reskilling encompasses all the efforts made to retrain employees and help them learn new skills, which are often (significantly) different from their existing ones. Just like upskilling, the goal is to keep these members of the workforce relevant, by redeploying or preparing them for new functions, or what we call lateral moves instead of vertical ones. Most of the time, reskilling becomes necessary when technological shifts or major changes at the organizational level make entire teams or departments redundant.

Both reskilling and upskilling can target hard and soft skills, with the mention that the former are usually easier to develop than the latter. Still, soft skills are more transferable, making them highly valuable for lateral or cross-departmental moves — which is what reskilling is all about.

How to prioritize skill development and close the skills gaps

Some of the most common steps your organization can take to close the skills gaps are:

Learn more about closing the skills gap.

#5 Skills Management Step: Track skill development and assess growth and learning actions

Like any other process or system, skills management can only provide value when its effectiveness is monitored and improved regularly. The end goal is to keep the process relevant, updated, and aligned with (changing) employee and business needs.

To track the success rate of skills development as well as the impact of learning and development initiatives, organizations should look at several metrics:

Based on these insights, decision-makers and stakeholders can identify trends or patterns and make timely adjustments that support the effectiveness of L&D programs. They can also decide early on if some of these programs simply do not meet the initial expectations and should be stopped or replaced.

This final step of the skills management process might also reveal that some skills can simply not be developed internally. In that case, the company needs to decide if they will hire externally and in what form (full-time employees, contractors, freelancers, etc.)

The role and impact of skills on modern talent management

Skills management plays a significant role in modern talent strategies due to the changing nature of work, the importance of staying competitive, and the need for agile and adaptable workforces.

Let’s look at each stage of talent management — planning, attracting, selecting, developing, retaining, and redeploying employees — to understand how skills can be an organization-wide transformative power:

Skills-based hiring

Embracing a skills-based approach can completely revolutionize the recruitment and hiring process. In addition to offering access to wider and more diverse pools of candidates, including those without traditional degrees or certifications, skills can also improve the quality of the candidates recruited.

By leveraging a job description based on abilities and proficiency levels, which lists both critical and desirable (or nice-to-have) skills, it becomes much easier to identify people with the right skill set and the potential to further develop in the future.

This approach also reduces personal biases and ensures the company hires people with real-life skills, who bring in unique perspectives and can contribute to its mission.

Skills-based learning and development

The old way of having development plans based on job role requirements is ineffective and even dangerous since requirements and jobs can change or even disappear entirely.

Skills-based approaches instead surface personalized opportunities focused precisely on the area(s) where each individual or team needs to improve. These targeted programs are not only more effective but also less expensive in the long run since they are chosen and designed from the start to meet the real needs and aspirations of employees.

Skills-based performance management

The traditional practices associated with performance management are usually rigid and past-oriented — which is why they fail to deliver the desired outcomes in the modern workplace.

By embracing a skills-based approach, HR and people managers can transform the entire process into a growth- and future-oriented activity, which is more effective and satisfying for all parties involved.

In this new model, performance metrics are aligned with applying the skills necessary for a given role (as well as their related proficiency levels). This is further completed by personal development objectives, which are agreed upon by each employee with their manager and which target specific skill gaps or areas for improvement.

As a result, growth becomes a continuous and proactive process, instead of a reactive one, and each evaluation can provide more accurate and actionable performance insights.

Skills-based workforce planning

Skills-based approaches can also improve your workforce planning strategy, an essential aspect of modern talent management that aims to analyze and predict the organization’s demand for various skills, expertise, or specific roles.

Here, these approaches will help HR departments and stakeholders make better data-driven decisions and leverage skill data insights to identify teams that are understaffed or departments with surpluses.

Skills-based approaches will also support succession planning, a subcategory of workforce planning if you want. Its aim is to identify and prepare employees for leadership or other key positions within the company, to prevent the loss of high-level knowledge when someone departs or retires.

Skills insights will quickly reveal the candidates who have the right soft skills to become future leaders and will also help L&D managers define the best development programs for each individual, creating a strong pipeline of potential leaders and ensuring business continuity.

Skills-based redeployment

Just like succession planning, redeployment can be considered a subcategory or an element of workforce planning. We’re treating it separately due to its high significance.

Redeployment is not only an answer to talent shortages but also an effective solution to keep your employees relevant and enable them to continue to provide value to the company.

The need for redeploying talent, and implicitly for reskilling, will only increase over the next decade as the Fourth Industrial Revolution and AI implementation will see less complex roles disappear.

By applying skills-based methodologies to various processes, including redeployment, organizations are in a better position to identify abilities and functions with a shorter (expected) life and take proactive measures to develop more agile and adaptable workers, who can mold their skill set to a broader range of business needs and tasks.

Choosing the best skills management platform and tools

To effectively identify, evaluate, and manage the skills and expertise of your workforce and make strategic decisions about closing the skill gaps, developing talent, planning for succession, or improving performance, you need the right skills management platform and tools.

One of the key characteristics of skills or competency management software is the centralization of real-time employee data, which isn’t limited to skills and can include information ranging from proficiency levels and work experience to education and professional aspirations.

What are the advantages of using skills management software?

The main benefits of using this type of software solution stem from its capacity to help companies save time and money by quickly overcoming the most common challenges associated with the skills management process: identifying, tracking, measuring, and visualizing skills.

Of course, the list of benefits doesn’t end there. Thanks to skills management software, organizations can also:

What are the essential features of skills management software?

The key features or modules of the skills management platform are designed to address and support many of the strategic components of skills management.

Maintain a centralized database of skills or competencies

Creating and maintaining a centralized database of skills and competencies is the cornerstone of effective skills management. This centralized database is often referred to as skills taxonomy or library. It includes skills data, capabilities, qualifications, and employee attributes that offer clear visibility and a unified understanding of skills within an organization.

Map specific skills and competencies to job roles

Another must-have feature of any skills management solution is the ability to map specific competencies and skills to job roles.

Competency frameworks can be very useful in this direction. Competency frameworks involve defining the specific skills, knowledge, behavior, and attributes required for different roles within the organization. They should be easily customizable to meet the specific needs of businesses across various industries.

Track the skills of individual employees

Assessing the current skills of your employees based on job requirements and proficiency levels should be a central part of skills management.

Tools like Nestor can help you evaluate current skill levels from multiple points of view. Some of the most common skill assessments include:

Performance reviews:

Regular performance reviews provide the necessary setup to evaluate and discuss skill assessments with employees. During performance reviews, employees and managers can review progress on skill development and how an employee performs using the skills required for their job role.


Through self-assessments, you can empower employees to rate their skills and knowledge for themselves and provide examples of how they’ve used them. A self-assessment is a great tool to use because it approaches the skills inventory from a self-perspective. Employees can also express which skills they want to work on improving.

360 feedback

Use 360 feedback to get a holistic view of an employee’s skills and knowledge. Co-workers, managers, and any direct reports can provide feedback on an employee’s skill levels and give a good sense of how they are performing compared to the expectations of the job.

Identify, visualize, and analyze skills gaps

Skill management tools like Nestor enable organizations to track skills and visualize gaps in multiple ways.

At the individual level, you can use an Employee Skills Profile, which is a comprehensive record of the skills, competencies, qualifications, and experiences possessed by an individual employee. On the Skills Profile, you can see acquired skills – (skills acquired from past experiences), required skills – (skills required for the current job role), and skills desired (skills to be developed in the future) and easily visualize the existing gaps for the required skills of the current role and future role you might be interested to pursue.

Here is an example of an employee skills profile level from our skills management platform. The current skill displayed – communication – is required at an Advanced level for a Community Specialist. However, Anna Johnson – Community Specialist in this example – has a current evaluation for this skill as Proficient. Therefore, Anna has a knowledge gap in this skill, which means she will have to take action in the future to level up her expertise regarding communication.

nestor skill level

At the team level, you can use Skill matrices, which are an important component of any skill management platform or tool. A skill matrix makes it easier to spot skill gaps and trends by creating a visual representation of the skill distribution in your team based on proficiency levels. You can use it to gain insights about the skill gaps of an employee compared with other peers for each skill required in his job role and also to prioritize skill development.

Enable advanced filtering based on skills

Advanced filtering capabilities are one of the features you should pay attention to when choosing a skills management platform. This functionality can prove to be very helpful by supporting advanced filtering and searching for employees based on their skills and competencies.

Learn more about the features, advantages, and impact of skills management software.

How Nestor supports and enhances skills management

Nestor is designed from the ground up as a People Intelligence Platform that uses skills as a single source of truth to drive workforce agility, higher performance, and continuous growth.

We see the transition from traditional talent management to skills-based approaches as paramount in a world of work where paradigm shifts (like remote work) and new expectations are forcing businesses to re-think their strategies and processes, from hiring and training to retention and redeployment.

With a wide range of modern modules — from dynamic skills taxonomies and effective skills assessments to insightful skill gap analyses and personalized upskilling and reskilling — we help organizations identify the most in-demand skills for the future of work and help them equip their talented workforce with the abilities and tools required to thrive in the modern workplace.

And our results haven’t gone unnoticed! For instance, we’re proud of being recognized as the #1 Easiest to Use Skills Management Software in the G2 Spring Awards.

We also enjoy an excellent 98% adoption rate, having earned the trust of HR and people leaders in mid-to-large enterprises, including F500 companies, across the US, Latin America, and Europe.

Frequently asked questions (FAQ) about skills management

What is the purpose of skills management?

The purpose of skills management is to help HR and business leaders develop an in-depth and accurate overview of all the skills and competencies available within their workforce so that these insights can then be used to improve other processes, like hiring, training, performance, strategic workforce planning, etc.

What are the advantages of skills management?

Some of the main advantages of skills management are its ability to improve workforce agility, enhance overall performance, boost employee engagement and retention, nurture higher levels of innovation, and make L&D programs more relevant and effective.

What is the skills management process?

The skills management process involves identifying, evaluating, and developing the skills and expertise of employees in a strategic and future-focused way.

What is the tool to map required and desired skills for a team or project?

The skills matrix is perhaps the most common tool used to map the required or desired skills for a team or project. It takes the form of simple but insightful visual representations, which present the skills and proficiency levels of each employee or job role.

What is the purpose of each skill assessment?

The purpose of each skill assessment is to accurately determine in an objective manner the current proficiency level of an employee for a specific skill or their entire skill set. Regular skills assessments seek to determine and nurture (professional) development and identify the best training methods and possible challenges.

Who benefits from skills management within an organization?

When implemented well, all people within an organization benefit from skills management. HR departments and stakeholders can make better data-driven decisions in regard to talent planning. Managers and team leaders can develop their own skills while helping their people evolve and remain relevant. And employees can get a better understanding of their current capabilities and the opportunities available to grow further.

Unlock the Power of Skills

Nestor’s skills management software helps you unlock the power of skills to drive organizational agility and empower your people to grow and expand their skill sets to meet the most pressing business needs.

  • Skills mapping for each position

  • Employee skills assessments

  • Skills gaps identification

  • Customized career paths & growth

Meet the 1st Easiest to Use Skills Management Software