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Skills Tech Market Is Booming

Employers will need to piece together their own solutions from array of offerings

Skills Tech Market Is Booming

Technology can turn the promise of a skills-first future into reality for employers - and the skills tech market is flourishing.

RedThread Research, an HR technology analyst firm in Woodside, Calif., estimates the size of the skills technology market at $1.3 billion, with vendors reporting steady revenue growth since 2019.

Skills tech collects and organizes data about what employees can do. The skills tech market is evolving rapidly but is still in an early stage, according to Stacia Garr and Dani Johnson, co-founders and principal analysts for RedThread, who presented their research and analysis at the recent HR Technology Conference & Exposition in Las Vegas.

Garr explained that skills tech mainly does four things - though not all at the same time:

  • Collects information about employees' skills.
  • Provides information about skills in the external labor market.
  • Organizes skills data by helping build or import a skills framework.
  • Makes it easier to use employee skills data by mapping skills to jobs and pushing data across HR systems.

"Very few if any technology can do all four of these things," Garr said. Therefore, employers will have to navigate a vendor ecosystem to successfully use skills tech, rather than engage with a single vendor to do it all, she said.

Garr explained that the skills tech market is highly fragmented and complex. It continues to grow because "skills technology is more complicated than we thought when we were first talking about this a few years ago."

Another reason for the buzz is that more and more practitioners are interested in it, she said. "That means vendors are hearing about it, and the big HCM [human capital management] providers don't have everything they need. So that's provided more opportunities for smaller vendors."

Skills assessments are also on the rise. "More employers are using machine learning and AI to analyze employee activities, job roles, past experiences, education and market data to understand their skills," Garr said.

RedThread found that at the organizational level, skills tech is mostly being used to analyze skills data, identify skills gaps and map skills to the existing jobs architecture.

"This tells me that we are at an immature stage in skills tech, because employers are mostly just analyzing and mapping data, and not pushing it out into the organization where it can be useful," Garr said.

At the employee level, skills tools are being used by workers to see their own skills data, identify personal skills gaps, and, to a lesser extent, plan career development.

"The problem with that is that employees already know what their skills are, and probably know their skills gaps," Garr said. "Organizations should be using skills data to provide value back to employees, helping them reskill and plan their careers."

The discussion around skills verification will continue to be critical, Johnson said. "There is no clear answer yet on the best way to verify skills," she said.

The Vendor Landscape

Johnson said employers interested in investing in skills tech will need to be able to differentiate between vendors.

RedThread concluded that two factors most meaningfully distinguish vendors from one another: how skills are organized and how skills are identified.

The first factor has to do with whether skills are organized with flexibility or structure.

"Vendors that organize skills more flexibly generally use skills ontologies as their fundamental organizing method," Johnson said. "Skills ontologies ingest massive amounts of data and use machine learning to identify the relationships between skills and skill groups."

She said vendors typically use many data sources to feed their ontologies, including client organizations, labor market data, job postings and social media profiles.

"Skills ontologies dynamically update as new information is added," she explained.

Johnson said vendors that organize skills in a more structured way generally help organizations build skills taxonomies. "These can include thousands of skills and typically contain detailed definitions of each skill," she said. "They also often include descriptions of proficiency levels and target proficiency levels for each skill. Skills taxonomies are generally updated periodically rather than continually."

The second factor in making distinctions between skills vendors has to do with how skills are identified - either primarily by people, or primarily by tech.

Some vendors rely on people to identify employees' skills, with tech playing a supporting role, Johnson said. These vendors typically enable employees to input their skills into a skills profile through manual data entry, selecting skills from a list, or importing skills from a resume or LinkedIn profile.

Vendors that use technology to identify employees' skills either infer the skills an employee likely has or assess an employee's skills, Johnson said.

"In skills inference, AI estimates an employee's skills based on factors like their job title, function, seniority, time in role, industry, geographic location, and in some cases work activity or work product," she said. "Inference works best with lots of good data. The more data points indicating an employee has a particular skill, the more likely the employee actually has the skill."

RedThread found that almost all (98 percent) of skills tech vendors offer skills-tracking functionalities, enabling employees and organizations to "see skills."

About 86 percent identify employees' skills gaps by comparing an employee's current skills to the skills the organization thinks they need and the skills the employee wants to develop.

Around three-fourths of skills tech vendors offer personalized learning recommendations. "Some vendors assign a 'fit score' or 'match score' that indicates how well an employee's skills align with the skills required for an opportunity," Johnson said.

Another common functionality is skill-to-job mapping. "Most organizations still use roles and job titles to structure work and people practices, so they want to know what skills align with these existing structures," Garr said. "Many vendors, therefore, help organizations assign skills to jobs in their existing job architectures."

AI in Skills Tech

Johnson said skills tech vendors are using artificial intelligence to identify skills, generate skills taxonomies, make sense of skills data, automate workflows and understand skills trends.

"We think that AI will make skills technology more effective and efficient," she said.

Garr added that she agrees with those who say that generative AI is being overhyped in the short run but underhyped in the long term. "AI and machine learning is like 'the cloud' 10 years ago - it will fundamentally reshape how we architect technology, eventually," she said. "Not today, not tomorrow, but soon."


​An organization run by AI is not a futuristic concept. Such technology is already a part of many workplaces and will continue to shape the labor market and HR. Here's how employers and employees can successfully manage generative AI and other AI-powered systems.