In the current UK business climate, running a skills gap analysis isn’t just another box to tick for HR. It’s become an essential strategic tool for staying afloat and, more importantly, for driving real growth. This guide isn’t about theory; it’s a practical playbook for HR directors and people managers who need to understand why closing skill shortages is so urgent and how it directly affects the bottom line.
Why a Skills Gap Analysis Is Crucial for Your Business’s Future
Knowing what your people are capable of isn’t a “nice-to-have”; it’s the bedrock of smart business management. A proper skills gap analysis takes you out of the world of guesswork and into the realm of data. It shows you, in black and white, the exact difference between the skills you have and the skills you need to hit your targets.
For many UK businesses, this is the starting line for building a team that’s resilient and ready for whatever comes next. It throws a spotlight on where you’re strong and, crucially, where you’re vulnerable. Staying competitive means facing up to realities like the growing demand for digital skills and figuring out how to meet that need from within your own workforce.
The Staggering Cost of Doing Nothing
Let’s be blunt: ignoring skills shortages costs a fortune. The UK economy is already losing between £30-39 billion a year in GDP and productivity because of this issue. If we carry on as we are, that figure is expected to hit a massive £120 billion by 2030. That’s a potential 1.2-1.6% drop in our entire economic output. The scale of the challenge is massive, as detailed in research on the UK skills gap crisis.
For your business, these big numbers break down into very real, everyday problems:
- Productivity Takes a Hit: When teams don’t have the right expertise, work slows down. Deadlines get missed, and output suffers.
- Innovation Grinds to a Halt: You can’t embrace new technology or create new services if your people don’t have the skills to make it happen.
- Recruitment Costs Spiral: It’s always more expensive to hire externally to plug a gap than it is to train and develop the talent you already have.
Turning a Problem into a Strategic Advantage
A skills gap analysis is a fundamental part of good workforce planning and strategy. It gives you the clarity to stop firefighting and start building a solid plan. Once you’ve systematically identified the gaps, you can:
- Design training programmes that are targeted and effective.
- Make much smarter, more strategic hiring decisions.
- Boost employee retention by showing people you’re invested in their careers.
At DynamicsHub.co.uk, we provide Transformative HR solutions customised to the unique way you work. Human Resource HR Management for Microsoft Dynamics 365 by Hubdrive is the leading hire-to-retire solution for the Microsoft Platform, and we help UK organisations like yours implement and support it to translate workforce data into a genuine competitive edge. This article will walk you through how to conduct a skills gap analysis that delivers the insights you need to build a team that’s ready for the future.
Laying the Groundwork for a Successful Analysis
Jumping straight into data collection without a clear plan is a recipe for a confusing, unactionable report. I’ve seen it happen too many times. A truly effective skills gap analysis isn’t about spreadsheets and surveys; it starts with a solid strategic foundation. This is where you define your purpose, tie it directly to business goals, and set the stage for insights that actually mean something.
Think of it as drawing the map before you start the journey. What’s the ultimate destination? Perhaps the business is gearing up for a major digital overhaul, planning an expansion into European markets, or trying to finally get a grip on operational efficiency in the service department. Each of those goals requires a very different set of skills. Your analysis has to be welded to these high-level objectives to have any real impact.
Defining Your Scope: Where to Point the Microscope
Once you know why you’re doing this, you need to decide who and what you’re looking at. Let’s be realistic: analysing an entire organisation of 2,000 employees in one go is almost always a mistake. It’s far better to pick a manageable, high-impact scope.
So, where should you focus?
- The whole organisation? This is only really useful for spotting broad, foundational gaps, like basic digital literacy or a consistent lack of leadership skills across the board.
- A specific department? This is a great approach when one team, like IT or marketing, is pivotal to a new business initiative.
- A single critical role? Focusing on one high-impact position, such as a project manager or data analyst, is perfect when you know that role is a bottleneck holding things back.
Nailing down your scope stops the project from spiralling out of control and ensures your time and effort are spent where they’ll make the most difference.
Getting Leadership on Your Side
This is non-negotiable. You absolutely have to get senior leadership on board from the very beginning. The trick is not to frame this as just another HR task. You need to present it as a direct solution to a real business problem they’re already worried about.
Are project deadlines constantly being missed? Is staff turnover alarmingly high in one of your key teams? These aren’t just HR issues; they are symptoms of deep-seated skill deficiencies.
By connecting the dots between a skills gap and a tangible business pain point, you transform the analysis from an administrative exercise into a critical strategic imperative that leaders will champion and fund.
For instance, if the sales team is struggling to hit its numbers, a skills gap analysis can pinpoint exactly why. Is it a lack of product knowledge? Weak negotiation skills? Or maybe they just can’t get to grips with the CRM. This kind of concrete connection makes the value of what you’re doing undeniable.
Look to the Future, Not Just the Past
Relying solely on current job descriptions is one of the most common traps I see people fall into. It anchors your entire analysis in the past. Your focus has to be on identifying the skills your business will need in the next two, three, or even five years. This is how you build a resilient, future-proof workforce.
Think about emerging tech like AI and advanced data analytics. Are they part of your company’s future? If they are, the skills needed to implement and manage them have to be on your radar now. A crucial first step is to clearly define the ideal skill sets for key roles, like the top skills required for a software engineer, which you can then use as a benchmark against your current workforce.
This prep work becomes infinitely easier when you have a central platform. Using a tool like Dynamics 365 HR, you can define competencies and build out skill profiles for both current and future roles. Having this single source of truth means that when you start collecting data, everyone from line managers to the C-suite is aligned on what skills truly matter. It creates a clear, unified direction from day one.
Gathering Meaningful Data on Employee Skills
Relying on a single source of data for your skills gap analysis is like trying to understand a complex film by watching only one scene. It gives you an incomplete, often misleading, picture. To get genuine insights that lead to real change, you need to pull together several different perspectives, creating a panoramic view of your workforce’s capabilities.
The good news is, you can achieve this using the Microsoft tools your organisation likely already has.
This whole process is about layering different viewpoints to build a rich, accurate skills profile for each employee and team. It moves you way beyond simple “yes/no” checklists to a place where you can understand nuance and actual proficiency.
Leveraging Employee Self-Assessments and Manager Evaluations
A great starting point is to simply ask your people what they think. Employee self-assessments are powerful because they give you a personal take on confidence and perceived ability. When you combine this with evaluations from their direct line managers, you start to get a balanced view that marries individual perception with on-the-job observation.
Within the Microsoft ecosystem, this is remarkably straightforward to set up.
- Employee Self-Assessments: You can build a detailed skills questionnaire using Microsoft Forms. Ask employees to rate their proficiency in key skills on a scale (e.g., from 1-5, Beginner to Expert). The real magic happens when you connect this form to Dataverse, creating a structured, central database of what your people say they can do.
- Manager Evaluations: These can be woven directly into your existing performance review cycle. The performance review modules within Dynamics 365 HR are designed for exactly this. Managers can assess their team members against the same pre-defined skills, adding their own ratings and qualitative comments.
By comparing an employee’s self-rating with their manager’s evaluation, you can quickly spot interesting patterns. A big discrepancy might signal a lack of confidence, a blind spot, or just a difference in expectations—all incredibly valuable data points for a follow-up conversation.
Digging into Performance and Project Data
Subjective assessments are crucial, but they’re much more powerful when backed by objective, performance-based data. Your existing systems are a goldmine of information about how skills are actually being applied in the real world. This is where you can see evidence of skills in action, not just in theory.
Think about these sources:
- Project Outcomes: Take a hard look at the results of completed projects. Was it delivered on time and within budget? Did it meet its objectives? A project’s success or failure is often a direct reflection of the team’s skills.
- Customer Feedback: Data from Dynamics 365 Sales or Customer Service can be incredibly revealing. High customer satisfaction scores (CSAT) or glowing testimonials often highlight brilliant communication or problem-solving skills. On the flip side, recurring complaints might point to a specific skill deficit in your customer-facing teams.
- Formal Certifications: Don’t forget the qualifications your employees already have. The HR Management for Microsoft Dynamics 365 solution by Hubdrive, which we implement, includes modules for tracking formal certifications. This gives you a clear record of verified, accredited skills you already have in the business.
This 360-degree approach—combining self-assessment, manager feedback, and hard performance data—provides a comprehensive and defensible skills baseline. It moves the analysis from a subjective exercise to a data-driven strategic function.
Choosing Your Data Collection Methods
To get a balanced view, it’s best to mix and match a few different data sources. Relying solely on one method can give you a skewed perspective. Below is a quick breakdown to help you decide on the right mix for your organisation.
| Data Source | Description | Primary Benefit | Potential Challenge |
|---|---|---|---|
| Self-Assessments | Employees rate their own proficiency against a defined list of skills. | Quick to deploy; provides insights into employee confidence and interests. | Can be subjective; some employees may over or underestimate their skills. |
| Manager Evaluations | Line managers assess the skills of their direct reports, often during reviews. | Based on direct observation of on-the-job performance. | Potential for unconscious bias; depends on the manager’s ability to assess. |
| Performance Data | Analysing objective data like sales figures, project completion rates, or CSAT scores. | Highly objective and directly tied to business outcomes. | Can be difficult to attribute outcomes to a single skill or individual. |
| 360-Degree Feedback | Gathering anonymous feedback on an individual’s skills from peers, managers, and reports. | Provides a holistic, multi-perspective view of an individual’s capabilities. | More time-consuming to administer; requires a high-trust culture. |
| Certifications | Tracking formal qualifications and credentials held by employees. | Verifiable proof of a specific level of knowledge or expertise. | Doesn’t always translate to practical application or real-world proficiency. |
By selecting a few of these, say, a combination of self-assessments, manager evaluations, and performance data, you create a much more reliable and nuanced picture of your team’s capabilities.
Creating a Comprehensive 360-Degree View
To get a truly holistic picture, you can expand your data gathering even further. A 360-degree feedback process, where you also gather input from peers and direct reports, can uncover insights that self-assessments and manager reviews might miss. For anyone interested in trying this, we have a helpful resource outlining several 360 survey examples that can provide a template for your own initiatives.
Imagine using Microsoft Teams for collaborative peer reviews on a project, or setting up Power Automate to trigger a skills assessment workflow automatically after an employee completes a major training course. These kinds of integrations create a seamless, continuous flow of information, making the skills gap analysis a living process rather than a static, annual report.
This method of using multiple, interconnected data sources within your existing Microsoft environment creates that full-circle view of your team’s capabilities without needing to invest in costly new software.
Turning Raw Data into Strategic Insights
Once you’ve gathered information from all your different sources, you’re looking at a mountain of raw data. This is the crucial moment. Right now, it’s just a collection of facts and figures, but with the right approach, you can shape it into a powerful strategic tool. The next step is to give this data meaning, turning it into clear, actionable insights that will genuinely inform your business decisions.
The whole process kicks off by establishing a clear benchmark for every role you’re looking at. This is more than just listing a few required skills; it’s about defining what ‘good’ actually looks like in practice. What level of proficiency do you need from a junior developer compared to a senior one? What communication skills are absolutely non-negotiable for a client-facing project manager? These benchmarks become your yardstick for everything that follows.
With these standards in place, you can finally start comparing the data you’ve collected—from self-assessments, manager evaluations, and performance metrics—against them. This is where the gaps begin to surface, showing you the precise distance between where your team is today and where you need them to be.
Visualising the Gaps with Power BI
Now for the part where it all comes together. A static spreadsheet filled with scores and ratings is difficult to get your head around and even harder to present to leadership in a compelling way. What you’re aiming for is a dynamic, at-a-glance view of your organisation’s skills landscape. This is where the Microsoft Power Platform really shines.
By hooking up Power BI directly to your HR data sitting in Dataverse, you can build interactive dashboards that tell a story. Imagine a report that lets you:
- Instantly spot the most critical skills shortages across the entire business.
- Filter by department, role, or team to drill down into specific areas of concern.
- See the exact number of employees who fall below the proficiency benchmark for a vital skill.
- Track the potential impact of a skills gap on specific business goals or projects.
This visual approach makes the whole analysis tangible. An operations manager, for instance, could see a direct line between a lack of Power Platform skills in their team and the constant delays plaguing key automation projects. Suddenly, the skills gap isn’t just an abstract HR concept; it’s a measurable business problem that’s hitting efficiency and costing money.
From Numbers to Narratives
Building these dashboards allows you to move beyond simply saying there’s a problem. You can start to properly quantify its impact. Instead of saying, “We need better data analysis skills,” you can now say, “Our marketing team’s current data analysis proficiency is 35% below the level needed to optimise our £100,000 ad spend, putting a significant chunk of our budget at risk.” That changes the conversation entirely.
This level of detailed analysis is becoming non-negotiable for UK businesses. The 2023 Business Barometer from the Open University found that a staggering 73% of UK organisations are now affected by skills shortages. For HR directors, this just underlines the need to use integrated tools like Power BI with Dynamics 365 to pinpoint where the real problems lie, especially when 72% of firms report struggles with AI, data, and cyber skills. You can discover more insights from the Open University’s 2023 report.
By translating raw data into visual dashboards, you give leadership a clear, compelling narrative. The skills gap becomes a strategic issue with quantifiable business risks, making it far easier to get the buy-in and budget you need for an effective action plan.
Connecting Skills to Business Performance
Ultimately, the goal of this analysis is to draw a straight line from a specific skill deficiency to a real-world business outcome. This is a core principle of effective human resources analytics—it’s all about making people data relevant to operational success.
Think about a practical example. A software company wants to improve its customer retention rate. A skills gap analysis, visualised in Power BI, might reveal that while the support team has excellent technical product knowledge, their scores for ’empathy’ and ‘conflict resolution’ are consistently low.
This insight allows you to connect the dots:
- The Skill Gap: A deficiency in soft skills within the customer support team.
- The Business Impact: Higher customer churn and lower satisfaction scores.
- The Solution: Targeted training in communication and conflict resolution.
- The Metric for Success: A measurable increase in the customer retention rate over the next two quarters.
This clear, evidence-based approach makes your findings impossible to ignore. It transforms the skills gap analysis from a report that sits on a shelf into a live, strategic tool that actively guides investment in your people and drives meaningful improvement in business performance. It’s the crucial bridge between knowing you have a problem and knowing exactly what to do about it.
Turning Your Analysis into a Practical Action Plan
Let’s be honest: an analysis is useless if it just sits in a folder. All that hard work visualising data and pinpointing skills gaps means nothing until you turn those insights into a concrete plan of action. This is the moment your analysis becomes a real catalyst for change in your organisation.
There’s no one-size-fits-all solution here. Every skills gap you’ve found will need its own specific remedy. The trick is to have a framework for deciding the best course of action, weighing up the urgency, the complexity of the skill, and, of course, the budget.
Your Four Core Strategies: Buy, Build, Borrow, or Bridge
Your final action plan will almost certainly mix and match four core strategies. Knowing when to use each one is crucial.
- Buy (Hiring): Sometimes, you just need to bring in new talent. This is often the quickest way to get a highly specialised skill, especially at a senior level, that would take years to grow internally. But it’s not without risks – it’s the most expensive option and a bad hire can be a costly mistake.
- Build (Upskilling): This is all about investing in your current team’s training and development. The ‘Build’ approach is fantastic for morale, a proven way to boost retention, and it ensures the skills you’re developing are perfectly aligned with your company culture and systems.
- Borrow (Contracting): Got a specific need for a defined period, like a six-month IT project? Bringing in a contractor or freelancer is often the perfect solution. You get immediate access to top-tier expertise without the long-term overheads of a permanent employee.
- Bridge (Redeploying): This is the art of moving existing talent from one part of the business to another. If you have a brilliant employee in a role that’s winding down, but they show a real aptitude for a skill needed in a growing department, redeploying them is a massive win for everyone.
Think of it like this: for an urgent, complex role like a new Head of Cybersecurity, you’ll probably need to ‘Buy’. But for a widespread need, like improving data literacy across the marketing team, ‘Build’ is your best bet.
Creating Personalised Development Plans in Dynamics 365
The ‘Build’ strategy is often the most rewarding, and it’s where an integrated HR system really shines. Within a solution like the HR Management for Microsoft Dynamics 365, you can seamlessly move from spotting a gap to creating a personalised development plan for an employee.
This isn’t about sending everyone on the same generic course. It’s about linking training directly to performance goals. For instance, if someone’s performance review flags a weakness in project management, you can assign specific training modules or a mentorship opportunity right there in their development plan. As they complete these, their skills profile updates automatically. This creates a living record of their growth and makes training a targeted, effective intervention.
Making the Business Case: Budgeting and ROI
To get your plan signed off, you need to talk money. Specifically, Return on Investment (ROI). You have to clearly show the financial upside of your proposed plan.
Let’s walk through a realistic UK-based example. Imagine you’ve identified a critical need for an experienced Power Platform developer.
- The ‘Buy’ Option: Hiring a developer on a £65,000 salary will likely cost the business over £80,000 in year one. That’s before you even think about recruitment fees (often 20% of the salary), National Insurance, and the time it takes to get them up to speed. If it turns out to be a bad hire, the costs could spiral, potentially reaching £240,000 in lost productivity and rehiring expenses.
- The ‘Build’ Option: You find two promising internal people who have the right aptitude. A specialist six-month Power Platform training course might cost £5,000 each (£10,000 total). Even factoring in the time they spend training instead of on their day job, the investment is a fraction of the hiring cost.
In this scenario, the ROI on the ‘Build’ strategy is undeniable. You’ve not only saved the business tens of thousands of pounds but also cultivated valuable in-house expertise. On top of that, you’ve invested in two motivated employees who now feel valued and are far more likely to stick around. When you present your action plan with this kind of clear financial justification, it’s much harder for leadership to say no.
Measuring Success and Fostering Continuous Improvement
A skills gap analysis isn’t a project you complete and then shelve. Think of it as the starting point for an ongoing cycle of improvement that should become part of your company’s very fabric. The real value is unlocked when you start measuring the impact of your action plan, proving its worth and refining your approach along the way.
This transforms the analysis from a reactive, “fire-fighting” exercise into a proactive engine for growth.
To do this right, you need to track the right metrics. It’s not just about looking at who completed a training course; it’s about connecting your learning and development efforts to tangible business outcomes. By focusing on the right key performance indicators (KPIs), you can demonstrate the true value of closing those critical skills gaps.
Key Metrics to Monitor
The success of your action plan can be measured through a variety of data points. By tracking a mix of efficiency, performance, and financial metrics, you start to build a comprehensive picture of your progress. This is the hard evidence you need to justify continued investment in your people.
Here are some of the most impactful KPIs I’ve seen clients use:
- Time to Proficiency: How quickly does a team member become fully effective in their role after their training? A shorter timeframe is a clear win and a strong sign that the learning was relevant and well-delivered.
- Employee Performance Metrics: Look for direct improvements in areas linked to the new skills. This could be anything from a jump in sales figures and better customer satisfaction scores to a noticeable drop in production errors.
- Recruitment Costs: As you get better at upskilling your internal talent, you’ll find you don’t need to hire externally for certain key roles as often. Keep an eye on the reduction in recruitment agency fees and advertising spend for those positions.
- Internal Promotion Rate: A healthy culture of internal development naturally leads to more promotions from within. This is a powerful metric that shows you’re building clear career paths for your team.
Building Dashboards for Real-Time Insights
The best way to monitor these KPIs is to make them impossible to ignore. This is where building a dedicated dashboard in Power BI becomes a game-changer. By connecting directly to your HR and performance data within Dataverse, you can give leadership a clear, immediate view of your progress.
Imagine your leadership team seeing a dashboard that shows, in real-time, the direct correlation between your investment in data analytics training and a 15% increase in marketing campaign ROI. This kind of visual evidence makes the value of your skills initiative undeniable.
This approach drives accountability and keeps the skills agenda front and centre. It shifts the conversation from, “We think the training is helping,” to, “We can see the training has improved performance by X%.”
Making It a Continuous Cycle
A truly effective skills gap analysis is an ongoing process, not a one-off event. Business needs change far too quickly for an annual review to cut it anymore. Instead, you should aim for regular, scheduled reviews of your skills landscape to stay ahead of market demands and new technologies.
This continuous loop of analysis, action, and measurement is only really possible with integrated systems. The leading hire-to-retire solution for the Microsoft Platform, HR Management for Microsoft Dynamics 365 by Hubdrive, provides the foundational tools to manage skills, track development, and measure impact all in one place.
Got Questions About Skills Gap Analysis? We’ve Got Answers.
We often get asked the same questions by HR leaders and people managers across the UK when they’re getting started with skills gap analysis. Here are a few of the most common ones.
How Often Should We Be Doing This?
While it’s tempting to tick the box with a big, company-wide analysis once a year, the reality is that isn’t enough to keep pace. Think of it as an ongoing conversation rather than a one-off event.
For fast-moving teams like tech, sales, or marketing, we find that a lighter quarterly check-in works wonders. It keeps you agile. Then, the annual review serves as a way to zoom out and make sure everyone is still pulling in the same direction, aligned with the company’s bigger strategic goals.
What’s the Single Biggest Mistake People Make?
Hands down, the most common pitfall is getting tunnel vision and only looking at the skills you need right now. A skills gap analysis that only focuses on today’s job descriptions is already out of date.
A truly strategic analysis is forward-looking. It asks: where is the business going in the next two to five years? What capabilities will we need to get there?
When you shift your focus from plugging today’s gaps to building tomorrow’s talent pipeline, you stop playing catch-up and start leading the way.
Can This Really Help Us Keep Our Best People?
Absolutely. In fact, it’s one of the most powerful retention tools you have. The analysis itself is just the diagnostic; the magic happens in the follow-up.
When you identify a skills gap, you’re also uncovering an opportunity to offer targeted, meaningful development. Investing in your team’s growth shows them they’re valued and that they have a future with you. This isn’t just a feeling—it directly boosts job satisfaction, engagement, and ultimately, your retention rates. You’re giving your best people a clear reason to stay and build their careers with you, not somewhere else.
At DynamicsHub.co.uk, we provide Transformative HR solutions customised to the unique way you work. Human Resource HR Management for Microsoft Dynamics 365 by Hubdrive is the leading hire-to-retire solution for the Microsoft Platform.
Phone 01522 508096 today, or send us a message.
