3 Things You Need to Know About the Fast-Growing Skills Tech Market
What is going on in skills tech? The short answer: a lot.
Over the past two years, we've talked to dozens of leaders about skills. These leaders know the pace of change in their environments is accelerating, and their organizations must respond flexibly to shifting circumstances to stay competitive. They see skills as a way to build some of the agility the future requires.
That's why they're turning to skills tech. Skills tech offers the possibility of using skills in organizations at a scale, speed and accuracy that would be difficult to achieve manually.
We define skills tech as:
The technology that collects and organizes data about employees' skills.
Unsurprisingly, the skills tech market is as varied (and confusing) as the skills movement itself. It seems as if more vendors are entering the market every week — and they offer very different things.
We set out to understand what's going on in the market. Specifically, we wanted to characterize the market to help leaders make better decisions about the right skills tech for their organizations. Our September 2022 skills tech study had three key findings we'd like to share.
Finding 1: Skills Tech Is Flourishing
We found 54 vendors that provide skills tech — and we're sure there are more. New vendors appeared on our radar even as we wrapped up this study. And one learning tech vendor announced they'd added skills tech features to their existing offerings. It's a hot market.
And it's a valuable market. We estimate that revenue from skills tech offerings across all skills tech vendors is about $1.2 billion, with steady revenue growth over the past three years. Fully 97% of vendors who responded to our survey said revenue has grown steadily since 2019.
An influx of funding has also fueled this growth. We estimate that skills tech has received about $900 million in investment dollars since 2016.
All that said, the skills tech market isn’t immune to the economic uncertainty of mid-to-late 2022. Funding availability is more uncertain now than it’s been in recent years. Nonetheless, the skills movement — and skills tech with it — doesn't seem to be slowing much.
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Finding 2: Skills Tracking Is Table Stakes
When we surveyed vendors on their offerings, almost all said they offer three core functionalities to help organizations understand what skills they have (Figure 1). Those functionalities are:
- Skills tracking.
- Enabling employees to see their skills data.
- Enabling organizations to see their workforce’s current skills.
Given the fact that nearly all vendors offer these three functionalities, they are table stakes for any new vendor looking to compete in the skills tech market.
Other functionalities — offered by more than 75% of vendors that answered our survey — help organizations and employees identify and close skills gaps. For example, 86% of vendors help identify individuals’ skills gaps. And 76% also offer personalized learning recommendations to help employees close those identified gaps.
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Finding 3: Vendors Can Be Categorized Using 2 Factors
To understand the key differences between skills tech vendors, we found it’s helpful to categorize them using two key factors (Figure 2):
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- How skills are organized (more flexibly or with more structure).
- How employees' skills are identified (primarily by people or by tech).
Factor 1: Skills Organized With More Flexibility vs. More Structure
The key difference between vendors on the top versus the bottom of the matrix in Figure 2 is whether they organize skills more flexibly (top) or with more structure (bottom). What we mean by that is:
- Vendors on the top use skills ontologies that use AI to identify the relationships between skills and skill groups. Vendors on the bottom use skills frameworks (taxonomies).
- Vendors on the top focus less on skill definitions. Vendors on the bottom focus heavily on skill definitions and skill level descriptions.
- Vendors on the top typically update their underlying data continually. Vendors on the bottom enable periodic updating of underlying data.
Neither end of this spectrum is better than the other. Some organizations need more flexibility, and others more structure.
For example, organizations may need more structure if they're in highly regulated industries or have a large amount of safety and compliance requirements. Other organizations may want a more flexible skills ontology to stay on top of trends like in-demand versus declining skills or shifts in the skills required to perform certain jobs.
Factor 2: Skills Identified Primarily by People vs. by Tech
The second factor in making meaningful distinctions between skills vendors is how skills are identified: primarily by people or by tech.
Vendors that primarily use people to identify skills (left side of Figure 2) typically enable employees to input their skills into a skills profile through some combination of:
- Manually typing skills into the profile.
- Selecting from a list of suggested skills.
- Importing skills from a CV or online profile (e.g., LinkedIn).
In many cases, vendors also enable managers or subject-matter experts to verify that an employee has the skills they say they do and to indicate the employee’s skill level.
Vendors on the right side of Figure 2 use tech to:
- Infer (predict) the skills an employee likely has.
- Assess (test) an employee's skills.
Here again, neither side of the map is better than the other.
For example, we found that vendors that primarily rely on people to identify skills may be better for organizations that have out-of-date data sources, are uncertain of the validity of their data, or need to be certain a particular employee has a specific skill. On the other hand, vendors that primarily use tech may better suit organizations with concerns about getting employees to fill out their skills profiles or who want to use skills primarily for high-level planning.
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Despite the economic uncertainty of late 2022, we expect the skills tech market to continue growing and developing new capabilities. We look forward to continuing to watch this market and how it evolves.
About the Authors
Heather Gilmartin Adams is a senior analyst at RedThread Research. Trained in conflict resolution and organizational development, Heather has spent the past 10 years in various capacities at organizational culture and mindset change consultancies as well as the US Department of the Treasury.
Dani Johnson is co-founder and principal analyst for RedThread Research, and has spent the majority of her career writing about, researching and consulting on human capital practices and technology.