The Skills-Based Organization is Behind the Times. You Need a Capability-Led Strategy

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Skills-based organizations are just as popular as AI in learning. Neither alone moves the wheel. There’s a better way

There’s a lot of talk about skills going around right now: upskilling, reskilling, skills-based organizations, skills-led learning pathways, and so forth.

Skills have been the “big thing” for a long time, yet they haven’t hit their performance mark. It’s all hype. And the thing about hype? It’s usually a self-fulfilling prophecy. LMS vendors want to push skills because everyone’s talking about them. But most everyone is pushing the wrong solution to a problem they can’t properly articulate to begin with.

It’s time to shake things up and put a different approach center stage: Capabilities.

In this article, we’ll dive into the good, the bad, and the flaws of the skills-based organization plus the alternative to deliver on business goals. Hint: it starts with linking learning and ends with improved performance.

What is a skills-based organization?

A skills-based organization (SBO) defines work by the tasks and activities done to achieve certain outcomes. It’s an approach to strategic workforce development that emphasizes identifying, developing, and utilizing specific skills needed for roles within an organization.

Across the SBO landscape, you’ll notice a few trends and identifiers.

Skills-based hiring practices: It’s common to focus less on degree requirements during recruitment. There’s a push for practical experience over pure tertiary academics.
Deconstructing job roles into work to be done: This makes it easier to determine the skills needed to perform said work, and thereby define job roles better.
Using technology to enable talent mobility: The point of talent marketplaces is to make skills—and therefore, work opportunities—more visible to everyone in the organization.

The flaw in the skills-based approach

Big question, not-so-complex an answer when you get into it.

Let’s start with what is seen as the biggest disruptor: AI. It blew in and immediately rattled cages—ahem, job roles—by automating some routine jobs and augmenting many others. It also created demand for entirely new capabilities and even job titles (like prompt engineer and Chief AI Officer). Suddenly, it was mainstream to call it out in LMS marketing. Everyone and their dog is “AI-based” these days.

While a thorny one, AI’s merely a symptom. The root issue is much less fancy: most organizations don’t have the talent they need to meet their goals, nor do they have the systems in place to develop and retain said talent. When you throw in remote and hybrid work preferences, Gen Z’s propensity to job-hop in search of good money and purpose, and the breakdown of traditional organizational structures, it gets harder to make strategic workforce decisions.

There’s been a rise in skills taxonomies and (again) AI-boosted learning solutions on the back of this. Most often, these tack onto existing LMSs and HRISs, bloating the enterprise tech stack and budget. Maintaining an updated list of skills may also involve additional automation between systems, a costly third-party consultant, or complicated validation processes.

Yet according to Deloitte (amongst other big names), putting skills at the heart of talent strategies gets you more effective and efficient work outcomes. The skills-based approach breaks jobs down into smaller tasks, they say. It seems the best way forward for work, not least of all because it made work more flexible when work had to be flexible. (Remote, distributed work in the face of a pandemic and all.) In a skills-based organization, work is organized around the skills required to do it, rather than the job itself.

By and large, a skills-based approach to development and strategy relies on a skills taxonomy. Aside from the tech bloat, the flaw in that system is skills inevitably change, which is why we have the terms upskilling and reskilling. We’ve all been saying that skills have a short shelf life for years. This is not a surprise. Change is expected and often welcomed in business. The problems occur when that change is disruptive, whether that’s by outdating job roles based on skills, upheaving business functions, or making everyday work inefficient.

What makes skills perishable goods is that they are externally validated. You don’t design skills for your organization’s needs; they are pulled from industry standards and bodies. Add in the fact most technical skills have a half-life of just two and half years, and you get a rather unstable foundation when designing job roles and teams, the very thing skills-based organizations are meant to support.

How the capability-led strategy is the skills alternative

If you look closely at many of the vendors pushing skills, said skills are typically seen as technical or compliance requirements (e.g., can someone use this software product). That answers the question, “What skills do you have to keep your business in good standing?” but not, “What is your organization doing or lacking to meet its strategic goals?”

Many more vendors don’t give you a way to identify skills gaps or show the impact of skills on your organization. Even worse is a system that forces you to export a spreadsheet and do manual analysis to try to show causation. Never mind one that tells you to map skills to job roles but doesn’t provide an easy process to do this.

There is a better way forward, and it comes in the form of something that encompasses skills: capabilities. A capability combines skills with knowledge, behaviors, tools, and processes to deliver a business outcome.

They differ starkly from skills in that they:

Can only be derived from your organization’s strategy
Do not routinely change; they are considered foundational to business success
Focus on long-term impact and immediate results.

Unlike the skills taxonomy, which is a glorified list, capabilities are uniquely organized into a framework. A capability framework structures capabilities based on where they are strategically needed, generally within departments. It’ll also break capabilities down into levels of proficiency or competency (depending on your vernacular). These act as standards of performance, allowing you to be more exact when writing job descriptions or designing learning plans.

The impact on business strategy

We need to consider business needs when it comes to skills-based organizations and capability-led strategies. After all, business initiatives should come back to what the business, well, needs.

The point of difference is that capabilities always start with business strategy. While both capabilities and skills can be born out of market demands, only capabilities will use the business strategy as the marker of need.

Let’s hone in on the skills taxonomy again. Are skills really the pertinent marker you’re looking for when searching to fill a vacancy? Legacy databases likely won’t consider experience, industry data, performance management, and other factors that shape human capital. Older millennials are a great example here; they’ve survived three different recessions in the last 25 years. In the most recent one, 24 million jobs were lost in the US alone. People moved industries or roles out of need, making their experience wider than pure skills.

Even as the conversation has shifted to creating more dynamism in talent management and workforce planning, skills remain only part of the puzzle—usually within the performance part.

Now let’s step back further. Can skills data directly drive business priorities like increased revenue, maximized growth, or optimized processes? Can you measure progress on those priorities by way of individual skills? Can you even break those priorities down into actionable work using skills?

The answer to all the above is likely no. (And if you hear yourself saying “no, but...”, it’s a no.) Skills also can’t give you this little thing called vision. Sure, you could say, “The aim is to upskill our entire marketing function in the next 6 months as we automate some processes”, but how do you prioritize skills for development? Are any being made redundant by automation? How do you sell this to employees, especially if tasks they do now will soon be automated? How do you measure business impact, or even make the business case for this initiative? A CEO’s never going to sign off resources for that.

Capability building, on the other hand, is rooted in business strategy. (Note: You have to get prescriptive by nature; you could never just say, “We’re improving all of the sales team’s human capabilities in the next quarter”.) You do most of the strategic work upfront by defining capabilities from your strategy or business plan.

The impact on employee development

Alongside skills, learning paths have long been a core proponent of eLearning. They are largely the core of any skills-based LMS offering. But—and it’s a large but—this created a new problem in the form of content.

You see, most LMS vendors will also tell you they have fully stacked content libraries in their systems, courtesy of third-party content providers. We’re not negging these providers. There’s plenty of good content out there (we integrate with a select few). The thing is that many platforms still force learners to find it themselves.

When you have mass content libraries, it can be very hard for learners (who are already time-poor) to identify and validate the relevance of courses and modules. If a system does happen to align content with skills, well, it’s unlikely that you’ll get actionable insights from learning completions. Does one course completion equal an individual fully adept in that skill? What do learning completions mean for talent marketplaces, and by extension, managers, leaders, HR, and anyone else who needs concise but thorough insights for performance conversations and decisions? Not a whole lot, that’s what.

Content-heavy, skills-based approaches don’t really get L&D far for a few reasons. The first one we’ve seen in enterprise vendors is a tendency to use them as a business red flag. Not a metric of strategic success or health (good or bad), but a blinking neon sign that says, “This part of the business is missing this certification for this niche product or program.”

While this is important (compliance exists for a reason), it:

Focuses on the near to mid-term, or however long that skill is compliant for.
Is only one facet of employee performance, and by extension, business performance. Ticked boxes don’t mean your organization is thriving, only surviving.

That leads to the second issue of effective and efficient reporting. While the baseline reports for learning completions and related data can be solid (completions, non/compliance, certification, and so forth), reporting on the impact learning has beyond the LMS can be lacking.

Some vendors will gate advanced reporting. Others simply don’t create a powerful enough analytics engine, forcing admin to do manual data reconciliation after a report is generated. They offer mass skills libraries or skills mapping, but don’t have a way to show the impact or ROI of it. Odd, no?

Attaching skills to learning plans has obfuscated some of this reality. One could argue the LXPs of the learning world brought skills back down to earth with personalized learning plans. The thing is, the issue of reporting still existed. Content became more personal and curated for learners, but learning outcomes still weren’t necessarily aligned with business objectives.

That’s where a capability-led strategy comes in clutch, particularly in a performance learning management system (PLMS). The point is that learning needs to have an impact, so learning content is mapped to specific capabilities. When the time comes for a capability assessment, the system autonomously generates a development plan for learners based on the level of competency they’re performing a capability at. No muss, no fuss, no manual work aside from a more informed performance conversation between learner and leader.

So, to break it down, most skills-based learning products:

Act as mini certifications for niche roles and industries
Provide a marker of non-compliance but still lack strategic business alignment
Sit somewhat adjacent to employee development, rather than drivers of learning plans
Fail to paint even a small picture of business impact of learning done in the name of upskilling (because it can’t be done with skills).

While a capability-based learning system:

Creates personalized learning paths for every individual
Tracks learning progress at the individual level but against business performance
Assesses progress to tangible performance goals, not just learning completions.

All of this isn’t to discount skills entirely. They are part of a broader picture, but they’re not the wagon L&D or HR should hitch their star to.

Putting a capability-led strategy into action

There are a few ways building capability has the advantage over developing new skills. Firstly, you are developing new and existing skills when building capability. But you’re also doing a whole lot more.

To build capability, and create a capability-led organization, you start with the organization itself.

Step 1: Define the need

Take a moment to think about what your organization is trying to do in the next one, three, five, ten years. Now think about how it might do that, because every single capability you define needs to execute on some element of that, by way of work. Consider:

What are the company’s long-term goals and how will any capability help achieve them?
Is there a need or demand for said capability in the market?
Do you have the resources (budget, people, equipment) to build & sustain the capability?
How does it fit with existing capabilities—is it complementing or competing?
Are there potential risks associated with developing this capability?

You’re differentiating from skills from the beginning. Skills look at the individual. Capabilities consider the collective. Skills emerge bottom-up (often reactively). Capabilities come down from on high. A capability-led organization is always aligned with its business goals. Without that, you won’t have CEO buy-in.

Step 2: Describe and deconstruct capabilities

Capabilities are not finite like skills. They are made to be sustainable, and in some cases, evolve.

Ergo, each capability you create should describe a future state or outcome, one that links back to business strategy. It can help to do this task by team or function.

For example:

HR capabilities include managing employee training and development and managing legal compliance and reporting.
The finance capabilities of fixed assets management and financial strategic planning.
Customer support capabilities like managing customer escalations and complaints and increased customer feedback.

(Note: if you noticed all the hyperlinks above, we’ve got more. Check out our Capability Library of over 600 capabilities and 1600+ levels of competency.)

Many organizations use departments as core capability sets and deconstruct work from there. (Does “deconstruct” sound familiar? Oh, yeah, that’s because a capability-led strategy starts by doing what a successful skills-based organization aims to do in its entirety.)

Others create capability sets for job families, like leadership. However you do it, you want to make sure that you use universal language to describe them. Capabilities are for both employees and business; don’t use business jargon.

Step 3: Get leadership buy-in

If the CEO shapes the good word, leaders spread it. No initiative gets off the ground without them, given they are perfectly positioned to sell the story.

We like to use a heaven vs. hell formula.

Pain point / capability building = win-win.

Pain point x inaction = more trouble down the line.

Leaders need to see that a capability-led strategy is solving a problem (or multiple problems) for them. This means creating a sense of urgency for said problem, with capability building as the solution.

You can likely start with some strategic and cross-functional KPIs, like:

Employee engagement
Team effectiveness
Business process improvement
Revenue per employee.

But you want to also understand the specific pain points of each leader. Those challenges generally fall into two categories.

Strategic, which comes down from your CEO
Operational, which is the remit of leaders. These can be systemic or cultural.

Operational will pertain to how work gets done to achieve functional outcomes. For sales, the KPIs might be quotas for the quarter or increased customer satisfaction. Your IT leaders probably think in terms of tech innovation and business enablement. The communications department is likely focused on executing brand strategy or product launches.

Get each leader to explain what stops those KPIs from being hit. Those blockages are the first wins to aim for, aka the first point of attack for capability building. As opposed to the individual focus of skill development, capability building is about codifying a new way of work.

Step 4: Diagnose capability gaps

There are two major reasons to assess capability gaps, and therefore two major differences between capability gaps and skills gaps.

To understand the availability and strength (or scarcity) of capabilities
To assess the maturity of capability building as a process or function.

While an organizational endeavor, you still need to understand capability at the individual level as the collective is the sum of all its parts. For this, there are three types of capability assessments you can use.

The self-assessment is an introspective look at an individual’s strengths and areas for improvement. It isn’t used in isolation (as it’ll be biased), but rather as a point of comparison against another assessment.
The manager assessment is used more often than other assessments, wherein a manager evaluates a team member’s capabilities with a more objective view of performance.
The subject matter expert assessment is used when niche or specialized capabilities are being evaluated.

The traditional way to do any kind of performance assessment is within a spreadsheet or document. The downside is that it’s hard to collate, store, and manage multiple versions of data. The Australian public sector uses something called a capability discovery tool, though it’s still a standalone product. We think we can take it a step further.

A PLMS puts the assessment and development within the same system. This differs from skills-based tech, which relies on many different skills taxonomies that are highly generalized and don’t align with strategy. Different solutions aren’t able to speak to each other, creating a quagmire of lists of skills and terminology that overwhelm the people they are meant to assist.

As mentioned, content mapping provides the exact learning content needed to develop capabilities. What’s key is this is not a pass/fail approach to assessment. Competency exists on a spectrum, wherein people should always be improving upwards but can, for a myriad of factors, stagnate or even regress in competency. Think of each level of competency as performance milestones or indicators; the descriptors should show a logical progression. You have a couple of routes here.

Experiential descriptors: Foundational, intermediate, advanced, strategic.
Role descriptors: Team member, team leader, specialist, executive.

All of which leads us to the next step.

Step 5: Build capability

That’s a deceptively simple heading. Building capability is just about the hardest part of this process, and the one with the most eyes on it. Here, we essentially start designing methods of learning and development.

There are a few ways you can look at this.

Short-term or easy wins: Training initiatives that will have fairly immediate impacts.
Mid-range: Longer programs, but generally with deadlines in the near future.
Long-term: Programs with ongoing milestones, but designed to match future business needs.

Short-term capability building

Think about the day-to-day and week-to-week. How can learning solve everyday problems?

You don’t need to reinvent the wheel. If anything, it’s about optimizing your current methods for L&D or introducing easily implemented programs. Think:

Coaching. This can be formal (a systemized program) or informal (up to the discretion of managers), but either way offers safer spaces for experimentation, communication, and development.
On-the-job learning. Stretch goals or assignments are great ways to contextualize new knowledge. It’s also cost-effective and, paired with coaching, allows managers to course-correct undesirable behaviors in the moment.

You also want to have places people can go to learn. Knowledge management systems can be anything from your learning management system or PLMS to OneDrive and SharePoint—a location that is accessible and easily updated. An LMS or PLMS is the smarter option long term since you’ll be able to shape business-critical knowledge into learning content and map that to specific capabilities.

The one exception to the short-term rule is all methods should continue to be used over time. One-and-done training rarely has sustained impacts, and very often the impacts it does have are localized and therefore can’t be traced to business.

Mid-term capability building

This is where training starts to get more prescriptive to business.

Let’s start with the good old learning pathway. What do you align it with? Perhaps a performance goal? Maybe succession plans? If you’re not aligning it with anything, we’ll tell you now that there’s no point to the pathway. The same goes if the whole pathway is solo online courses.

Think about what the organization needs in the next year in terms of talent. Your maturity model will be helpful here, but so will the insights and forecasts of leaders. Let’s say IT needs a stronger leadership pipeline. Following a capability assessment, that could play out over six months like:

A few prerequisite one-time courses to reinforce existing or introduce new knowledge.
A workshop for new leaders. An easy way to roll out leadership training to many emerging leaders across the function and get them to validate information between peers.
On-the-job learning like job shadowing or short-term assignments in a more senior role.
On-demand, evergreen content that employees can use as refreshers (see: the knowledge management system, above).

The final part would be a capability assessment at the six-month mark to reassess capability gaps. Learning outcomes should be expressly linked to performance and talent requirements from the beginning, to make training design more effective.

Long-term capability building

Where short and mid-term problems solve individual and team needs, long-term programs focus on greater business goals and developing the capacity to achieve those.

It’s at this stage that you may start to expand and institutionalize your training methods. Capability academies are the next step up from training universities or even course catalogs. They are physical or digital learning spaces dedicated to building the capabilities your organization needs to succeed. Succession management, developmental assignments, and job rotations are baked into the structure.

What makes the capability academy a long-term method for capability building is scalability and sustainability. Learning software can match pace with growing user bases, while you can create or curate third-party content that directly services a capability. But the key factor is that learning becomes “always on”—available when, where, and how your organization needs it.

That gives you room to think about avenues like certification and communities of practice. Creating internal certification programs means you can credential processes, mindsets, and expertise and show clear pathways for progression. Communities of practice are a great way to share knowledge in large enterprises, as well as open channels for social validation of knowledge.

Step 6: Track progress

Think of this step less as tracking progress and more like codifying process improvement. It’s not just about finessing weaker points of execution, but making capability building the lifeline for your organization.

You can start with your classic L&D metrics here.

Learner engagement and knowledge retention (by way of assessments) to for insight into the relevance and impact of training content.
Performance improvement to show the efficacy of training design.
Learning completions help reinforce the above.
Training ROI gives you information for justifying investments.

This creates the foundation for improving learning design. But it would be like putting on your gym gear and sitting on your bed instead of going to the gym—you’re not even halfway done.

To really make this click with your capability strategy, you’ll want to end every program with another capability assessment. Re-assessments show performance outcomes in definitive terms (by level of complexity), and create a historical record of performance improvements that employees can use in performance conversations with their managers (say performance one more time).

But if we left assessments solely at the start and end of training, then we’d leave a giant chasm into which all sorts of things can slip (consider the timeframe of long-term capability building).

In between, you want to embed capability building into performance management. Consistent evaluations or conversations with managers help reroute or reinforce learning pathways (as well as latently show managers the impacts of capability building).

Key takeaways

So, which do you choose: a skills-based organization or capability-led strategy? At the end of the day, it’s all about your business priorities.

Let’s be real—if you’re aiming for that executive seat, thinking like an executive is non-negotiable. All the skills in all the taxonomies out there won’t cut it.

A capability-led approach empowers you to:

Seamlessly link learning with performance
Strategically align skills, knowledge, and behaviors
Gain a competitive edge
Stay agile in market shifts
Boost productivity and efficiency.

And, no, spreadsheets won’t cut it. You need robust capability-led software to make it happen. If you cut corners in the process of capability building, you’ll get half-baked results.