A new chapter begins

Future of work Workforce strategy

How to start building a skills-focused talent strategy for your organisation 

Organisations are discovering a skills-focused approach to talent management. Here’s how to get started.

This is the first article in a series designed to help you build a skills-powered organisation. We’ll share practical insights to create fulfilling career paths for your people and a sustainable talent strategy for your organisation. 

There’s a growing recognition among the C-suite that cultivating a workforce with the right skills and fostering greater agility in matching people to work is no longer optional for survival. It’s essential. In Mercer’s 2025 Executive Outlook survey, executives cited reskilling/upskilling their workforce as the biggest risk to growth this year.

This urgency is driven by hard realities. AI is expected to disrupt 44% of workers’ core skills within five years, while Australia’s unemployment rate remains low at 4.1%, indicating that skilled talent is in short supply. These factors are prompting companies to adopt skills-based talent practices as an effective way to meet their talent needs and stay ahead.

This article explains the steps you need to take to build a skills-powered organisation and how to overcome some of the key challenges that may stand in the way of your success.

Mercer Skills Snapshot Report

Welcome to the era of skills-powered organisations, where a company’s success hinges on the speed at which it develops and deploys skills to work (jobs, projects, gigs). 
Download the report

What is a skills-powered organisation? 

At its core, a skills-powered organisation (SPO) is one that prioritises the identification, recruitment, development and application of skills across its workforce. Unlike traditional models, the SPO talent model focuses on the specific skills and competencies that employees possess and, importantly, their career aspirations.

Imagine a marketing specialist who excels in data analysis and has strong analytical skills. This employee has been responsible for interpreting marketing campaign performance metrics and making data-driven recommendations. With the growing importance of data in decision-making across all departments, this individual has the potential to transition into a function-agnostic data engineer role, adding value in more places than just the marketing team.

This approach not only allows employees to leverage their existing skills and build new ones in new and exciting ways. It also fosters a sense of ownership in their careers, improves motivation and engagement, potentially leading to increased job satisfaction.

In addition to driving employee engagement, the SPO approach is a game changer for workforce planning. With a clear framework for identifying and managing skills, organisations can effectively identify and close skills gaps – whether through targeted upskilling initiatives, acquiring new talent, or borrowing expertise through partnerships and temporary staffing.

It’s clear that a skills-based approach is on the minds of Australian employers. The recent report ‘Mercer 2024-2025 Skills Snapshot survey’ revealed that 80% of organisations are integrating a skills-based approach to career development compared to 66% in 2023. And 20% have implemented skills-based rewards programs, a significant increase from 9% in 2023. This shift indicates a growing recognition of the value of skills in driving employee development and performance.

This chart is unable to display due to Privacy Settings.
The chart could not be loaded because the Privacy Settings are disabled. Under the "Manage Cookies" option in the footer, accept the “Functional cookies” and refresh the page to allow the chart to display.
While employers have made progress in taking on a more skill-based approach, the survey also demonstrates that there’s still work to do. Only half of the respondents have a skills library or catalogue – the foundation of a skills best practice. Two-thirds are using spreadsheets or an internally developed database to manage their skills, rather than modern applications that provide real-time insights into the workforce's capabilities.

How to accelerate your skills journey

To effectively implement a skills-powered approach, organisations must first establish a robust skills foundation. This involves the five key steps:
  1. Create a skills taxonomy:
    A skills taxonomy provides a structured framework that categorises and organises skills into a hierarchy. It helps to define the relationships between different skills and how they fit into broader categories. This includes both technical skills and soft skills, such as leadership and collaboration. By categorising both types of skills, organisations can create a more holistic understanding of the expertise required for different roles, facilitating better workforce planning, recruitment, training, and development initiatives. 
  2. Develop a skills catalogue:
    Once the skills taxonomy is established, the skills catalogue can be developed based on this framework. The catalogue will list the specific skills identified in the taxonomy, along with descriptions, proficiency levels and other relevant details. The primary purpose of a skills catalogue is to provide a reference for employees and managers to understand the skills required for various roles, identify skill gaps, and facilitate recruitment, training and development initiatives. Half of companies (50%) have some form of skills catalogue or library, according to the Skills Snapshot report. This resource serves as a centralised repository of skills, making it easier to identify gaps and opportunities for development. A well-maintained skills catalogue can also facilitate talent acquisition and succession planning.
  3. Assess skill proficiency:
    Once skills are defined, organisations must assess the proficiency levels of their employees. The report highlights that 63% of companies use employee self-assessment and manager validation as the primary method for assessing skill proficiency. This approach not only empowers employees to take ownership of their development but also fosters open communication between managers and team members.
  4. Integrate skills into HR practices: 
    Skills should be woven into all aspects of HR practices, from recruitment and onboarding to performance management and career development. However, it’s essential to approach this integration in a prioritised manner. Organisations may want to test the initial plan through a pilot or proof of concept, allowing for adjustments before full implementation. Starting with one business area can help gain traction and demonstrate the value of a skills-based strategy before expanding it across all HR practices. 
  5. Seek business buy-in:
    It’s vital to articulate the value of the skills approach as an enabler of business success and gain support to build a culture that values continuous learning and skill development, and data-based decision making. Ultimately, the business is the consumer and enactor of skills.

Overcoming barriers to adoption 

Despite the clear advantages of a skills-based approach, many organisations encounter significant challenges in adopting it. The Skills Snapshot report highlights some common barriers and considerations to help overcome them:

48% of organisations feel their HR teams lack the capacity or capability to implement skills-based approaches. This highlights the need for investment in HR resources and training to build the necessary expertise.

38% of organisations express concerns about excessive change. To address this, leaders need to believe in the business benefits and engage other leaders and employees in the process, ensuring that they understand the ‘what’s in it for me’ of a skills-powered approach and feel supported throughout the transition.

39% of organisations cite a lack of funding as a barrier. The reality is, however, that investing in skills development can yield significant returns in terms of employee retention, productivity and overall organisational performance.
As we look ahead, we must continue to redefine skills development so that our workforce can continue to evolve and thrive. By establishing a strong skills foundation, you can unlock the full potential of your employees, driving innovation and adaptability in an ever-changing landscape. The journey may be challenging, but the rewards – enhanced employee engagement, optimised productivity and greater organisational agility – justify the investment.

Authors

    Disclaimer:

    This content has been prepared by Mercer Consulting (Australia) Pty Ltd ABN 55 153 168 140 (MCAPL). It is intended to inform clients of MCAPL’s views on particular issues. It should not be relied upon or used as a substitute for professional advice specific to a client’s individual circumstances. Whilst MCAPL believes the prospective information and forward-looking statements made by MCAPL in this communication are based on reasonable grounds, they are predictive in character and, therefore, may be affected by inaccurate assumptions or by known or unknown risks and uncertainties. MCPAL believes the information derived from external sources to be reliable and accurate at the time of writing, but no warranty is given as to the accuracy or completeness of this information, and no responsibility is accepted by MCAPL or any of its related entities for any loss or damage arising from reliance on the information.

    MCAPL is a wholly owned subsidiary of Mercer (Australia) Pty Ltd ABN 32 005 315 917 (Mercer Australia). References to ‘Mercer’ shall be construed to include Mercer Australia and/or its associated companies.  ‘MERCER’ is an Australian-registered trade mark of Mercer Australia.

    © Mercer 2025. All rights reserved.

    Related products for purchase
    Related Solutions
    Related Insights
    Related Case Studies
    Curated

    Download the report