What is skills-based hiring – and why has it become so important?

A revolution is taking place within recruitment. Major brands including IBM, Boeing and Walmart are tearing up traditional hiring practices, dropping degrees from job requirements, and adopting a skills-first focus. 

This approach sees organisations prioritising the skills required to be successful in roles, rather than focusing on previous job titles, previous employers and academic achievements – and conversations about this approach are taking place at the very highest levels. 

In his first State of the Union address, the US President announced that the administration would keep the economy strong and support workers by hiring staff “based on their skills, not degrees”. Elsewhere, it was a topic of discussion for the World Economic Forum at Davos recently, where it was suggested that focusing on skills “could democratise access to economic opportunities and pathways.”

Addressing a skills shortage

While this growing interest may indicate that skills-based hiring is a new approach, it has in fact been around for decades – Josh Bersin points to energy, pharma and telecom companies that have been using it for years. It is gathering particular momentum at present, however, due to one very important development: the skills crisis. 

Businesses know they need to cast their net wider to address the skills crisis, but at the same time they want to ensure that they are focusing on the right people. 

“Skilled labour shortages are hampering economic growth across the globe,” highlights Ian Monk, CEO of skills-based workforce management platform Spotted Zebra. “In the UK alone, the Office of National Statistics has reported a record 1.2 million job vacancies, with more than half of those with a worker shortage stating they are unable to meet the demands of their customers.”

So what is skills-based hiring – and how do businesses believe it could solve the skills crisis?

What is skills-based hiring?

Skills-based hiring starts with a rigorous understanding of the hard and soft skills required for specific roles, ideally gleaned from multiple sources including manager/employee surveys, industry data, job specifications and even the input of occupational psychologists. For a digital marketing role, for instance, this could include Google AdWords (hard skills) and analytical skills (soft). 

With these skills identified, job advertisements can focus on skill requirements rather than qualifications and job history. The subsequent interview process seeks to validate applicant skills via assessments, self-evaluation and skills inference. The approach allows businesses to make data driven, skills-based, best practice recruitment decisions. 

A skills-based approach to hiring can help companies unlock new talent pools.

As well as identifying applicants that are a perfect fit, the process can also identify those candidates that don’t possess all of the skills, but have enough adjacent capabilities that they could develop the requirements with some training. 

Perry Timms, Founder of People and Transformational HR (PTHR), explains: “We simply don't know, don't have or can't acquire certain key skills and capabilities – skills that are emerging and even unknown. Who'd have thought that this year you might need a generative AI prompt creator? But if you had someone who is an analyst, a programmer/developer and a problem-solving type of person, who is alive to AI and aware of how to leverage it, whatever tool comes into being; you've got one. 

“Skills-based hiring gives you a pool of people to deploy more responsively to work that needs to be done.”

How can a skills-based approach solve the skills crisis?

Current methods of finding talent are excluding large proportions of the population who may have the appropriate skills because they don’t have traditionally accepted credentials, education or experience. 

More than half of companies around the world cannot find the skills they are looking for – almost double what it was a decade ago.

McKinsey has reported that skills-based practices help companies to attract a broader pool of talent, filled with candidates that are a better fit for positions in the longer-term. In one real-world example from its report, one organisation created a skills-based version of one of their job postings and went from receiving one over-qualified candidate for the role to 18 appropriately-qualified applicants.

“A skills-based approach to hiring can help companies unlock new talent pools – with LinkedIn data showing that taking a skills-based approach to hiring can widen talent pools by 10x,” says Becky Schnauffer, Head of Global Clients at LinkedIn Talent Solutions.

“So if organisations want to maximise their talent pools, they’ll need to adjust the way they view candidates’ potential, let go of any preconceptions about qualifications and job titles, and take into account the wide range of skills that jobseekers offer.” 

Ian Monk adds: “Businesses know they need to cast their net wider to address the skills crisis, but at the same time they want to ensure that they are focusing on the right people. Skills-based hiring gives you that certainty. The great thing is that it works equally as well for roles where you have lots of applications – allowing you to quickly and accurately identify who would be the best fit.” 

Three major benefits

There are further benefits of skills-based hiring: 

• Retention: Over half (56%) of people leaders report that talent retention is a major corporate benefit of skills-based hiring. “A skills-based approach to hiring helps to create a skills-based culture, and we know that this is something which helps keep employees in businesses for longer,” explains Schnauffer. “LinkedIn data shows that companies whose employees learn skills on the job have a nearly 7% higher retention rate at the 3-year mark, so a skills-first approach is key to strong talent retention.” 
   
• Job performance: Research from McKinsey has indicated that hiring for skills is five times more predictive of job performance than hiring for education and more than two times more predictive than hiring for work experience.
   
• Diversity: Skills-based hiring fosters workplace diversity and equity. Deloitte has reported that 75% of executives say hiring, promoting, and deploying people based on skills can help democratise and improve access to opportunities. Perry Timms adds: “Studies on job descriptions looking for biased wording have been proven in tests to deter people of a certain age, ethnicity, educational attainment, social status, disability and gender. So we rule out potential best candidates and that's something we'd never know or be able to track. Skills-based is a much more likely frame of reference for people to apply without feeling deterred by subtle biases in job specs.”

A skills revolution

Given these huge advantages, it is perhaps little surprise that a growing number of organisations are adopting a skills-based approach. And the number is expected to continue to rise. “Deloitte reports that 85% of HR executives want to become more skills-focused,” says Ian Monk. “Furthermore, 79% of workers say they would prefer to work for a skills-based organisation.” 

Speaking recently, Jonas Prising, Chairman and Chief Executive Officer of ManpowerGroup, said of the skills gap: “More than half of companies around the world cannot find the skills they are looking for – almost double what it was a decade ago. And the need for a skills revolution continues to be the defining challenge of our time.” 

Skills-based hiring could be just the revolution required. 

If you enjoyed this article, read: Why we need to flip the skills script.