have come to a stark revelation: The gap between their companies’ tech workers and their nontech colleagues must shrink. The emergence of digital technologies, especially the rapid rise of AI over the past two years, comes with immense promise to unleash growth and productivity. But companies will not see those benefits if their employees are not up to speed.

Achieving the full benefits of digital and AI technologies at scale is critical, as the gap between tech leaders and laggards is widening. McKinsey research shows that companies with leading digital and AI capabilities outperform lagging competitors by two to six times in terms of total shareholder returns.¹ Reaching this level of success requires not only talent with the deep technical skills to deploy and innovate new technologies but also an employee base that is more digitally fluent overall.

Now more than ever, for organizations to perform at their best, all employees need to be techies. Executives, too, need to become more tech-savvy.² Business leaders are increasingly responsible for delivering tech-enabled products, which requires a broader and stronger technical foundation. Depending on their business, they may need to know where the company is on its cloud migration journey to understand the true costs of new products. They may need enough enterprise architecture knowledge to understand the trade-offs between custom-developed and off-the-shelf solutions. They may need sophisticated insights into cybersecurity risks. Strong data governance relies on stewards who understand what data is needed, what it means, and how to leverage analytics and machine learning. With greater technical knowledge, business leaders can prioritize rewiring their organizations—deeply integrating technology across all core processes—to gain competitive advantages.

This reality is compelling companies to take new approaches in enhancing employees’ technical skills to improve their flexibility, productivity, and performance, as well as to retain top talent. Rather than rolling out one-size-fits-all training efforts, the companies that are most successful in upskilling prioritize targeted efforts that close skills gaps for talent in areas that are critical to their long-term strategy. They meet learners where they are, offering a variety of virtual and in-person programs tailored to remote and hybrid workforces—and they take learning beyond the classroom into the real world. They create cultures of continuous learning and improvement that keep current employees engaged and motivated while attracting new talent who strive to develop in their careers. And they tie learning to critical business outcomes, incentivizing leaders to establish effective upskilling programs and holding them accountable for results.

After many interviews with business leaders in technology and other sectors, we see opportunities for more companies to develop better programs to raise their digital competencies. In this article, we look at why upskilling is both a business and talent imperative, how organizations can start to build their digital capabilities, and how some companies have created savvier tech teams to avoid falling behind their competitors.

The need to focus on skill building is not new, but it has taken on greater urgency as labor markets tighten and companies have greater demand for people who can keep up with new technologies that are reshaping how work gets done. In a recent survey of more than 80 leaders of tech-focused US organizations, 80 percent of respondents say upskilling is the most effective way to reduce employee skills gaps (Exhibit 1).³ However, the survey reveals that only 28 percent of organizations are planning to invest in upskilling programs over the next two to three years.

Companies that are slow to launch skill-building efforts risk missing out on important benefits for their people and for the organization itself. Previous McKinsey research has shown that skills are the top barrier for employees who are willing to switch occupations and expand their career opportunities.⁴ Workers who seek upskilling represent a highly motivated, desirable talent pool for employers. At the same time, companies that excel in people development achieve more consistent profits and demonstrate higher resilience. They are also better at retaining talent, with attrition rates about five percentage points lower than those of organizations that focus more heavily on financial performance. Organizations that focus on both human capital development and financial performance are four times as likely to outperform their competitors financially.

As we listen to CEOs, their message is clear: The future is profoundly tech enabled. According to recent McKinsey research, 92 percent of companies plan to increase their investments in AI over the next three years—and only 1 percent of leaders describe their current AI deployment as “mature.”⁵ In this rapidly evolving environment, companies urgently need to help their employees enhance their tech skill sets and better understand both their industries and their organizations. One-third of the tech leaders we interviewed cite a lack of industry- and company-specific knowledge as one of the biggest skills gaps in their organizations. One respondent, who notes that there has been a competition for talent for decades, says the biggest challenge now is developing and retaining talent who have technical skills along with knowledge of the company, its technical capabilities, and its ways of working.

A previous McKinsey analysis of 4.3 million job postings across technology sectors reveals a wide skills gap, with fewer than half the number of potential candidates having the high-demand tech skills listed in job postings.⁶ The World Economic Forum estimates that nearly six in ten workers will require training before 2030 and that 22 percent of jobs globally will change due to technological advancements, the transition to a more sustainable economy, and demographic and geoeconomic shifts.⁷

Meanwhile, McKinsey research reveals that while nearly all employees and C-suite leaders have some familiarity with gen AI tools, nearly half of employees want more formal training.⁸ In the survey of US tech leaders, respondents cite several reasons for their companies’ skills gaps, including outdated skill sets and insufficient training, at 46 percent; lack of experience among employees, at 43 percent; and misalignment between skill sets being taught in educational institutions and the actual needs of organizations, at 37 percent (Exhibit 2). To reap the full benefits of AI, companies will need to fill these skills gaps.

To meet this moment, companies can take five steps to begin investing in and developing their upskilling efforts:

While taking these first steps, it is important to remember that it takes time to realize the full potential ROI from skill building. Leaders need to take a future-backed view of the opportunity and rewire the work itself to deliver and reinforce the learning. The common 70/20/10 framework suggests that employees gain 70 percent of their skills on the job, 20 percent from others, and 10 percent from formal learning. The principle of building more skills beyond formal learning will always be true, but this ratio may change as the lines blur between formal and on-the-job learning in the world of advanced-AI adoption. The future of learning isn’t about adding more training on top of work; it’s about reimagining work itself as inherently developmental. In this new paradigm, learning is not a “go away and do” activity but a seamless, integrated part of the work experience—personalized, continuous, and directly tied to business outcomes.

Through our interviews with tech leaders and our work with companies on upskilling efforts, we find that skills gaps fall into three main categories: technical foundations, technical expertise, and business fundamentals. Taking a deeper dive into each, we identify specific skills targeted most often by companies and highlight examples of organizations that are succeeding in building their teams’ digital capabilities.

Organizations can enhance employees’ baseline fluency on relevant tech-related topics to help them develop strong learning mindsets and adjust quickly as technology changes. The top basic tech skills that successful organizations focus on include gen AI and other emerging technologies, agile methodologies, data fluency, and engineering. They also ensure that employees understand the company’s current tech stack and how its components and teams work together.

Successful companies tend to work with learning partners to develop these skills virtually through live or on-demand courses. For organization-specific needs, they augment readily available courses with customized content that is cocreated by external learning and development professionals and internal subject matter experts.

In one example, a global consumer-packaged-goods company developed a digital academy that enrolled 3,000 employees to help the company build skills needed for a digital transformation of its manufacturing and supply chain operations. The senior-leadership team kicked off the process by aligning on a vision for the company’s digital transformation. The organization then developed more than 100 hours of learning content, which employees accessed through self-paced online courses as well as remote and in-person workshops. Content was tailored for specific roles, including frontline workers, change teams, and senior leaders. Importantly, the learning journey extended beyond the classroom to fundamentally change ways of working in the frontline-operations team. In the first 18 months after the launch of the digital academy, the company achieved a 20 to 40 percent increase in throughput and productivity within the team.

Companies can help employees develop deeper technical knowledge and experience in their roles to address urgent business needs. These include areas such as AI and machine learning, cloud technology, product management, cybersecurity, and architecture. Successful organizations rapidly develop and customize training programs for these next-level tech skills—and they often provide learning opportunities through employee-led pathways (programs designed around individuals’ aspirations and goals) and external certification channels (see sidebar, “What’s in a badge?”).

Which advanced tech skills companies prioritize in their upskilling efforts depends on their strategy and their digital maturity. Established, low-growth organizations tend to be the least advanced in their digital capabilities and have dated tech stacks, so they often focus on skills that will help them modernize—for example, cloud, DevSecOps (development, security, and operations), and architecture. Stable organizations that are growing in low- to mid-single digits and have started on their digital journeys focus on unlocking new growth by embracing product management and strengthening connections between technology and the business. Tech-focused companies, at the forefront of embracing new technologies, emphasize building skills that enhance the customer experience and accelerate growth.

Employee-led upskilling initiatives work well when they prioritize skills that help the organization develop a long-term competitive advantage and retain highly skilled talent. For example, a large professional-services firm launched a new AI consulting practice and needed a program to train hundreds of existing and new employees per quarter in AI, blockchain, robotics, and other advanced technologies. Given the speed of innovation, the program had to be able to scale up or down and evolve its content quickly as skill needs changed. Instead of instituting a more conventional learning program, the chief learning officer established a three-month “skills accelerator” that integrated learning into employees’ day-to-day work and kept pace with client demand and staffing needs. It incorporated self-assessed online exercises, “bootcamp”-style intensive workshops, and apprenticeships with the firm’s technology experts. The firm used the training results to assign staff to real-world projects, which provided further learning opportunities, and tracked the revenue impact. This initiative helped the firm become more agile and responsive to technology changes while allowing employees to feel more confident about keeping their positions in a tough job market.

Just as business leaders need to understand tech, tech employees need to understand business. Employers can assist employees in tech roles with developing their business acumen, organizational knowledge, and the soft skills required to influence change across the company. These include complex problem-solving, creative thinking, communications and storytelling, stakeholder engagement, people management, and conflict resolution.

Companies that excel in helping upskill tech employees in these areas take a cross-functional approach to the content and tailor it for the tech organization, providing tangible examples to help employees apply it to their own day-to-day context. One global retailer recently created a comprehensive training academy for tech talent to develop both foundational business and tech skills, with a path to gaining deeper technical expertise over time. The company’s tech leadership was integrally involved in identifying the skill priorities for the program. These include building capabilities for managing both technical and nontechnical teams, as well as developing strategy and communications skills and institutional knowledge to lead change efforts in a large, matrixed environment. After successful pilots with more than 60 employees—more than 90 percent of whom recommended the program for their colleagues—the company is now scaling the effort to train more than 1,800 employees in its first full year. This initiative is also attracting new tech talent who are seeking more professional development.

The three categories of skills gaps described above affect people at all levels of organizations. Tech employees need upskilling in all three areas—foundational knowledge of how technology works in their organizations, deeper skills in their technical discipline to deliver cutting-edge work, and a fundamental understanding of how their work fits into the bigger picture of the business. Team leaders and middle managers in tech roles need the expertise and credibility to lead tech workers, along with the ability to work cross-functionally and drive business results in complex environments. Also, senior managers and executives should have enough technical fluency to use it to create strategy and deliver business results (assuming they already have strong fundamental business skills).

With almost a quarter of US jobs expected to change by 2027 as the pace of technological innovation intensifies, upgrading skills is a strategic imperative for companies and employees.⁹ Building upon the strategies and examples covered above, organizations can consider the following forward-looking practices, which have the potential to accelerate skill building:

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More and more employees have started to use digital technologies in their work—a trend that will only continue in the years to come. To keep pace, organizations can accelerate their efforts to help their nontech employees build their digital skills. At the same time, companies can provide more advanced training for their tech teams to teach them business fundamentals so they can help make the organization more productive and competitive. Developing an effective upskilling strategy requires leaders to identify their organizations’ biggest gaps and opportunities and to align their corporate strategy and governance with responsive learning-and-development programs so that everyone is included in the effort to build digital capabilities for the future.