A skills-based organisation uses skills, rather than jobs, as the basic unit for deciding who to hire, who does what work, how people develop and, eventually, how they are paid. Instead of matching a person to a job description, it breaks work into the skills it needs and matches people to work through those skills, including people who do not hold the usual job title or degree. The idea gained ground in the early 2020s, helped by a 2022 Deloitte report that described the skills-based organisation as "a new operating model for work and the workforce".
Jobs, skills and membership: three ways to organise people
| Membership-based | Job-based | Skills-based | |
|---|---|---|---|
| Unit | The person, as a member of the company | The job, with a description and a grade | The skill, matched to tasks and projects |
| Hiring | Graduates hired for potential, placed later | Hire for a defined role | Hire for skills, including without the usual credentials |
| Moves | Rotation decided by the company | Apply for a vacant job | Move to work and projects that need your skills |
| Pay | Grade, ability and tenure | Size of the job and the market | Increasingly, the skills a person holds and uses |
| Typical of | Large Japanese employers, traditionally | Most of the world | A small but growing number of employers |
Japan is debating a move from the first column to the second (job-based employment). The skills-based model goes a step further. In one sense it is closer to the Japanese tradition than job-based employment is: both see the person as more than one job. The difference is that skills are named, measured and visible to the person, not judged privately by the personnel department.
What changes
- Hiring. Requirements are written as skills, and degree or years-of-experience filters are removed where they do not predict performance. Some US employers and state governments dropped degree requirements for many roles for this reason.
- Deployment. Internal talent marketplaces list projects and gigs by skill, so people can move to work without changing job.
- Development. Learning is tied to the skills the business will need, and progress is visible.
- Workforce planning. Planning by skills shows where capability is short before a role goes unfilled.
- Pay. The hardest step, and the one fewest companies take. Most keep job-based pay and add skills to promotion and development decisions.
How companies start
- Pick a pilot area where skills change fast and shortages hurt, such as data, technology or engineering.
- Build a skills list (taxonomy) small enough to use: dozens of skills for the pilot, not thousands for the company.
- Find out who has which skills, from self-assessment checked by managers, project history and assessments. Inferred skills from AI tools need checking.
- Use skills in one decision first, such as internal moves or hiring for one role family, and measure the result.
- Extend gradually. Most organisations that call themselves skills-based apply it to some decisions and some parts of the workforce.
Why it is hard
- Skills data goes stale unless people and managers keep it up to date, and few have the incentive.
- Taxonomies sprawl. Lists of thousands of skills are unusable; lists that are too short say nothing.
- Managers hoard people. Internal marketplaces work only if managers let their best people move.
- Pay systems are built on jobs. Grades, benchmarks and budgets all assume jobs; changing them is slow and risky.
- Evidence is thin. Much of what is published comes from consultancies and software vendors; independent evidence on results is still limited.
In Japan
Skills-based approaches arrive in Japan alongside the job-based reforms and the government's push for reskilling (リスキリング) and internal mobility. The Cabinet Secretariat, the Ministry of Economy, Trade and Industry and the labour ministry's job-based HR guidelines of August 2024 cover internal job posting and career autonomy, both of which a skills-based model depends on. The membership tradition is an advantage here: Japanese employees are used to moving across functions. The gap is visibility. Under rotation, the company decided where skills were needed; a skills-based model asks employees to see, and choose, for themselves.
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Questions
What is a skills-based organisation?
An organisation that uses skills, rather than job titles, as the basis for hiring, deploying, developing and sometimes paying people, so that work can be matched to whoever has the skills it needs.
What is the difference between skills-based and job-based?
Job-based employment organises people around defined jobs with descriptions and grades. A skills-based organisation breaks jobs down into skills and matches people to tasks and projects by skill, so a person can contribute beyond one job.
What is skills-based hiring?
Hiring on demonstrated skills rather than on credentials such as degrees or years of experience. Requirements are written as skills, and candidates are assessed on them, often with work samples or tests.
Is any company fully skills-based?
Very few, if any. Most organisations that describe themselves as skills-based use skills for some decisions, such as internal moves or hiring for certain roles, while keeping job-based pay and structures.
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By Yan Sen Lu, Managing Director of Makana Partners and Editor of The Hardest Market.
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