Skills Taxonomy: Unlocking the Benefits of a Skills-Based Approach

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Skills Taxonomy: Unlocking the Benefits of a Skills-Based Approach

With digital transformation underway and accelerated by the COVID-19 pandemic, organizations must understand the skills they need for this change. This is where a skills-based approach and the foundational building block, a skills taxonomy, come into play. What exactly is a skills taxonomy, and how can it help organizations drive operational efficiency?

What is a skills taxonomy?
4 benefits of a skills taxonomy for HR and managers
Elements of a skills taxonomy
Where can I find data for my skills taxonomy?

What is a skills taxonomy?

A skills taxonomy is a structured list of skills defined at the organization level that identifies the capabilities of a business in a quantifiable way. Essentially, it is a system that classifies skills within an organization into groups and clusters. Having a skills taxonomy for your organization creates a unified understanding and language that can be used to deliver effective workforce strategies and drive operational efficiency. It is at the heart of a skills-based approach.

What a skills taxonomy contains and how skills are classified depends on the unique needs of an organization.

Your skills taxonomy needs to shift and change with the dynamic nature of your business and its workforce. It’s also crucial to put in place a proven skills assessment methodology. This refers to a process that helps provide genuine insights into your workforce’s skills gaps and strengths.

Skills taxonomy differs from skills inventory. That is a comprehensive list of all the experiences, professional skills, and educational qualifications of employees in an organization.

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Skills taxonomy in the fast changing world

In a world where new jobs are created and tasks automated, organizations’ skills needs are constantly changing. In fact, the shelf life of technical skills is less than five years. Creating a highly granular skills taxonomy takes time, and such a taxonomy quickly becomes outdated.

So what can organizations do to make their skills taxonomies more agile?

The solution is to create high-level definitions of core skills an organization needs. They can also determine several personas who do high-impact work, and map out their skills.

Here’s what such a taxonomy with core competencies could look like for HR:

T shaped HR infographic

Each competency is then broken down into multiple dimensions, detailing the behaviors related to them.

This way, organizations are making sure that their skills taxonomies are future-proof and they don’t waste time on mapping out skills that will soon become irrelevant while omitting emerging skills.

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A transition from role-based to skills-based 

Historically, businesses and HR managers tended to view employees fairly narrowly within the boundaries of a role. This, with an accompanying position description, is a convenient way to summarize and abstract the complexities of an employee’s daily responsibilities into a single page or set of bullet points.   

The approach has worked until now, but unfortunately, is inherently slow due to:

  • a lack of accessible data (skills locked away in individual CVs)
  • openness to individual bias (in the heads of direct or indirect managers)
  • lacking the detail required to make decisions at the operational level in a technology-rich environment.

A skills-based approach is about diving into the skills of the workforce at an atomic level–not by broad groups of people but by the specific, enumerated skills that people possess. This centralized and transparent atomic view unlocks the possibilities for maximizing the talent of the workforce across functions, disciplines, departments, and other traditional lines of business. 

The need for a skills-based approach

Digital transformation and its effect on the global workforce isn’t new. It has been discussed for the past decade and beyond. However, with an expected 85 million jobs displaced and 97 million new ones created by 2025, we need a paradigm shift in the way we interpret and act on this matter. 

COVID 19 has also “added fuel to the fire,” and we’re seeing an unprecedented acceleration of digital transformation projects by 50% globally, which is impacting not just technology teams but every segment of the workforce and business value chain. 

The introduction of new technologies such as cloud computing, artificial intelligence, machine learning, digital marketing, and other tech-based innovation has been a significant factor in driving digital transformation.

At the same time, teams have had to become more dynamic and remote. This has resulted in a reduction in visibility of day-to-day employee work and needs. Even the informal chance-encounter “water cooler conversations” that were historically available “on-tap” in co-working environments have disappeared.  

Gartner highlights the problem, stating most companies are flying “data blind” when it comes to understanding the skills they need for transformation. This is where a skills-based approach and the foundational building block, a skills taxonomy, come into play.

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4 benefits of a skills taxonomy and skills-based approach for HR and managers 


Instead of going to market for specific roles, hiring should focus on the “packages of skills” required for the business, workforce, or team. Let’s say you’re hiring a Project Manager. An ideal candidate could be someone who possesses the skills of managing budgets, Human Resource management, time management, and reporting skills. Rather than hiring on an ad hoc basis, you can use a skills taxonomy to consider important questions such as: 

  • Do any of those skills already exist in the organization?  
  • Can the people possessing those skills be reallocated in a part- or full-time capacity, thereby saving the company unnecessary expenses?  
  • Are there opportunities to train staff internally? Is the organization better off training existing staff that demonstrate motivation and skill potential to step into a Project Management role?  
  • Are there more critical skill gaps in the organization that you should address first, before addressing the Project Management skills shortage?  
  • Is the position specification for the Project Management role optimal for the needs of the business? Are there skill gaps in the organization that you can address by expanding the scope of the Project Manager role? 

You can only properly answer these questions through a skills management exercise, which includes using a skills taxonomy. 

Learning & Development  

Workforce development has become increasingly essential in today’s competitive landscape. An effectively executed organizational training program has many well-documented benefits. They include improved employee performance, increased productivity, improved employee engagement and advocacy, reduced employee turnover, improved morale, etc.  

Throwing money at employee development is easy, however achieving a return on that investment can be difficult. Which training is essential? What type of training will produce the biggest “bang for the buck”? Which training can you postpone? More broadly, which training moves the needle on helping the business to achieve its objectives?  

By taking a skills-based approach and targeting training to fill specific skill gaps, organizations can maximize ROI on their L&D investment by ensuring they don’t waste resources:  

  • Where proficiency exists and is already assessed and validated, and  
  • Where training is excessive for the target skill level assigned to an employee (or role)  

Your organization can optimize and maximize expenditure by assigning training only to high-value targets that directly align with organizational objectives.

According to a report from the World Economic Forum, “[b]reaking job roles down into required skill sets can allow employers to better understand viable job transition pathways based on the level of similarity in the skills required for different roles, and can enable employers to make more informed decisions on the kind of reskilling and upskilling required to support those transitions.”

Resource allocation

A skills-based approach enhances resource allocation activities by empowering organizations to allocate the right resource with the right skills to the needs of a given activity or engagement.  

By starting with the skills, an organization can define its required capabilities at a granular level.  These skills are mapped to employees and assessed. The resulting reports identify strength and gap areas using a skills-based approach.

For example, an organization may define a set of project management skills it requires. Then, they assess those in Project Managers. By matching this data with the skill needs of a team, the organization can match the best resource to the team’s needs. 

This is more effective than matching based on role requirements (e.g., matching a Project Manager to a need for a Project Manager) because it considers the granular breakdown of the Project Manager skill set and the levels of competency within that skill set. 

Organizations that leverage a skills taxonomy and a skills-based approach to resource allocation report better overall outcomes, improved staff satisfaction, and improved customer satisfaction.

Find out what using skills taxonomies can look like in practice in a video interview of AIHR’s Dieter Veldsman with Simon Carvi, the founder of an upskilling platform Huneety:



A skills-based approach breaks down the concept of the “vertical career path” and “role-based or team-based projects”. As pointed out above, it’s about looking at the atomic skills element of your business. Then, you utilize that pool of capabilities to deliver customer value or business objectives (training, recruiting, etc.). 

This has multiple benefits as you are creating a much more collaborative and agile workforce.  

  • Does a skill set required for a customer project exist outside of the direct team? 
  • Are there opportunities to direct employee training based on interests that exist outside of their role?  
  • Are there senior employees that show an elite skill level that can provide mentorship and coaching to new hires? 

Employees can move more freely around an organization. They have access to informal and formal opportunities that would not have existed before.  

Elements of a skills taxonomy

Skills hierarchy 

A hierarchical skill taxonomy structure provides the same benefits as the hierarchical structure of files and folders on your computer. It allows grouping of related skills and provides a logical way for people to traverse what could be an extensive list of organizational skills in an intuitive way.  

Starting at the root of the hierarchical tree, categories are defined broadly and become more specific the deeper down the hierarchy you go. At the top level of the hierarchy should be the broadest capabilities of the organization. 

In the above example, the broadest capability is “Human Resource management”. Within it is the more specific category of “Recruitment”. Beneath “Recruitment” are the skills related to that category – “Shortlisting” and “Interviewing”.  This is by no means the only solution, as the organization’s needs should heavily influence its skills taxonomy.  

Skill names 

Skill names should not be so broad that the organization loses out on the valuable insights provided by a greater level of specificity. They also shouldn’t be so specific that measuring staff performance against them becomes unwieldy.  

Skill descriptions 

These descriptions are key to creating a unified understanding of each skill. Keeping the descriptions as detailed as possible prevents individual interpretation. This becomes critical when you begin using this as a basis for auditing and assessing the competency of your team. 

Skill mapping 

In order to move beyond a static and simple skills library, you must figure out how you want to assign your employees to roles, teams, and different geographic locations. Having these specific categories mapped to each skill helps build context and relevance to your data. It becomes an essential part of measuring success and making data-led decisions based on specific skill gaps and strengths. 

Where can I find data for my skills taxonomy?  

The size of a skills taxonomy can be hundreds if not thousands of skills. As a rule of thumb, if you’re starting from nothing, one of the best things you can do is begin with a single department or segment of the workforce to prove the concept and then expand further across your organization. Here are three options for accelerating your skills taxonomy efforts: 

Leverage open libraries 

Libraries such as ESCO, developed by The European Commission, or O*NET, sponsored by the U.S. Department of Labor, are two examples of open-source skills taxonomies. They contain thousands of skills that are free to use to help you make significant inroads in defining your organization’s skills taxonomy. 

Leverage skills management vendors  

Skills management vendors sometimes have pre-compiled lists of skills available to customers to help them speed up the onboarding process onto their platform. If you are implementing a skills management tool for managing skills in your organization (a highly recommended practice!), leveraging your vendor’s skill taxonomies can help you get started. 

Leverage existing organizational skill lists 

Since skill tracking is not a new concept, there’s no doubt that parts of your organization have undertaken initiatives in the past to define the skills of the workforce.  The granularity of these lists may or may not be at the level of detail you require in building your modern skills taxonomy; however, they could provide a start that closely aligns with your business’s operations. 

A final word

A skills taxonomy is the first step to unlocking the benefits of a skills-based approach. Whether you’re planning a digital transformation project, looking to create a more agile and resilient business and workforce, are keen to enhance employee experiences, or looking to deliver more value to your customers, now is the time to level up your HR efforts.

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