Human Capital and the Skills Gap

Human Capital and the Skills Gap

As Heather E. McGowan points out in her article Human Capital Era Reality: The Skills Gap May Never Close, the skills gap has always been with us and dates back to “the dawn of the first hand tools.” Of course, knowing how to make a stone-age hand tool was what IBM calls a perishable skill, in other words, a skill that would become obsolete. Over more recent times, skills have perished at an ever-increasing rate, and workers have had to add to their skill sets to remain employable. McGowan argues that the skills gap is now a “skills abyss” that will never close, and we need new models that focus on human capital. 

Here we look at: 

  • How the skills gap has evolved 
  • Skills gap and the four industrial revolutions 
  • What is human capital, and why we need to invest in people 
  • Refocusing from shareholder value to human capital 

The changing nature of work 

The nature of work is moulded by technological progress. The first industrial revolution was all about steam power, and the second was about electrical energy and mass production. The necessary skills were often learned on the job and were easy to define & to transfer . The third industrial revolution was driven mainly by computerisation, and desirable skills moved from manual physical routines to more cognitive labour with the manual tasks increasingly performed by machines. Currently, we are in the throws of the fourth industrial revolution, where robots increasingly perform both routine cognitive and manual labour.  

Rather than destroying jobs, technological progress is creating ever more opportunities and new jobs. The rate of innovation is such that we do not yet know what those jobs will be, but we need to prepare future workers to perform them. We also know that these will not be jobs for life and that employees will need to constantly update their skill sets throughout their career.  

Future jobs will require specific skill sets that include: 

  • Technological know-how and digital thinking  
  • Analytical & critical thinking 
  • Creative and innovative mindset
  • Continuous self learning and unlearning skills
  • Adaptability and flexibility
  • Agility
  • Initiative and proactiveness
  • Resilience & stress tolerance
  • Problem-solving skills
  • Negotiation skills
  • Explorer mindset 
  • Self-management skills 

and so-called soft skills, including empathy, social & emotional intelligence, and collaboration. Investing in these assets or human capital potential is what I mean by investing in human capital.  

What is the skills gap? 

The widening skills gap is essentially the gap between the skills we require to perform a particular job and those available to the employer. The result is that employers struggle to find workers with adequate training. According to Deloitte, the skills gap is likely to result in 2.4 million unfilled positions between 2018 and 2028 – at the cost of US $2.5 trillion.   

According to IBM, even though talent shortage is the greatest threat organisations currently face, most have failed to address the problem, instead relying on traditional hiring and training strategies. The need for new skills emerges continually, while the “half-life” of skills continuously declines.  

Over recent years, the need for soft skills has overtaken the need for digital and scientific skills. In 2016 “Technical STEM skills” and “Computer and software application skills” were considered by executives to be most the two most critical skills. Two years later, those had fallen to 6th and 8th on the priority list, having been replaced by “Willingness to be flexible, agile, and adaptable to change” and “Time management skills and ability to prioritise”.  

No longer can people rely on their existing skillset to keep them employed. Instead, they need to reskill rapidly to remain employable in a rapidly changing world. This sea change is what McGowan describes as the “Human Capital Era”.  

What is human capital? 

Human capital does not appear as an item on a company’s balance sheet; however, it is undoubtedly an intangible asset.  It represents the workforce’s economic value in training, education, skills, experience, work ethic, health, and many more attributes that contribute to productivity. By investing in its employees, a business can build on that capital, thus adding value to the individual employee, the workforce, and the entire economy. By accumulating human capital, companies can drive economic growth.  

However, just as any asset can depreciate over time, so too can human capital. For instance, if an employee cannot keep up with ever changing technologies and methods, then their human capital depreciates, or if robots replace human skills, human skills lose their value.  

Investing in reskilling versus investing in human capital 

Traditionally, if workers lacked a desirable skill, then the natural approach would provide them with that skill through retraining, but that is only one human capital element.  

In the past, specifying the necessary skills knowledge workers need was relatively simple, but that is no longer the case. The world is changing so rapidly that it is no longer practical to keep up to date – skills become obsolete far too quickly. A robot will perform everything that can be performed by a robot, and robots are becoming ever more capable.  

Of course, reskilling remains part of the picture, but it is becoming an ongoing need rather than something that happens once or twice in a person’s working life as in the past. Rather than merely updating knowledge and practical skills, we need to focus on equipping people with the abilities they need to adapt and create. Such skills include imagination, emotional intelligence, creativity, curiosity, and mental agility. Unlike traditional skills, which decline over time, human capital skills are more likely to last a lifetime.  

Human capital and shareholder value 

For many years, the underlying principle of business economics has been to maximise shareholder value. Shareholders invest in the business, and the directors strive to provide them with the highest return possible. In other words, doing anything possible to boost the companies’ share price.  

To a significant extent, the shareholder value model has now given way to customer-centricity. The Internet and associated technologies have provided customers with far greater choice and information. If sellers fail to satisfy their customers’ needs, they will lose them to alternative sellers. Modern businesses now have no choice but to prioritise customers. Of course, shareholders still matter, but in the longer-term rather than optimising short-term profits.  

Along with the move to customer-centric business, similar changes are occurring in employee profiles. In a customer-focused company, engagement, culture, and overall working experience and the other soft skills we have highlighted previously are far more critical than manual and technical skills that we progressively transferred to machines and robots.  


Investing in human capital is becoming increasingly important as companies strive to plug the widening skills gap. New skills are needed at too fast a rate to supply them using traditional reskilling models. In line with a shifting focus from shareholder value to customer-centric ways of working, employees need to be versed in a range of soft skills they can apply to emergent workplace demands.  

Horton International is the leading executive search boutique firm to secure unique and innovative leadership talent that will consistently drive top performance. Horton International develops a profound understanding of your needs, business objectives and specific culture to deliver the perfect match candidates who will bring a sound competitive advantage to your company. 

With almost 50 years of history and more than 40 offices in the World, Horton International will help you solve your talent needs through a flexible, speedy, efficient and a proprietary disruptive search process which allows us to thrive in high-level sophisticated and key niche leadership positions worldwide. Our global team is passionate to deliver the highest quality service, best results and committed to developing a long-term, close, and active strategic partnership with all our clients.  

Latest Post

Insights To Your Inbox

Sign Up to Receive the latest news and leadership insights.

Sign up to receive the latest news and leadership insights