Skills-Based Hiring: What It Is and Why It Works

Attracting, developing and retaining talent remains a top workforce priority and challenge for global CEOs in 2023. Skills-based hiring can help.

Skills-based hiring refers to a hiring process that focuses on a candidate’s abilities, knowledge, and experience in a specific area, rather than their education or past employment history (aka resume). We can all agree that resumes are totally antiquated and if you are still using standalone resumes to evaluate candidates, you are doing everyone a disservice.

This is not another workplace buzzword or trend, but an actual tangible strategy for the future of talent management. To be honest, we should have always applied this methodology when it comes to hiring, but nowadays it should be a fundamental requirement for all organizations.  

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The Benefits of Skills-Based Hiring

Bias in hiring is a very real thing, with 85 percent to 97 percent of hiring managers relying on intuition. This means they are infrequently leveraging objective data to make hiring decisions. Unfortunately, projecting their own subjectivity often results in homogenous workplaces and groupthink. When leveraging skills-based hiring (objective data), hiring managers can help reduce bias, which will result in hires of different dimensions of diversity.

It boosts employee retention and engagement

Lack of growth opportunities at an organization is often one of the major reasons why employees leave. So, if organizations provide employees with opportunities to demonstrate and apply their skills, that will translate to employee career progression, engagement, and increased retention.

It Saves Time and Money 

According to a CareerBuilder survey, managers stated that they hire the wrong person in 74 percent of cases. Hiring based on skills will drastically improve job match, resulting in increased revenue. On the flip side, mismatched hires result in increased associated costs due to low productivity and replacement expenses. When employees are put in roles where they can make significant contributions, it will result in better overall business outcomes.

It Taps Potential Top Talent 

Developing a skills repository for all employees will allow organizations to tap into employees with hidden potential. Often, employees are not provided with opportunities to showcase their capabilities, especially if particular skill sets are outside the scope of their role. Accordingly, conducting a skills inventory to evaluate the skills that are available within each team helps discover those hidden gems of talented employees which benefit promotions and succession planning.

It Promotes Fairness and Equity

Transparency is transformative. When hiring decisions can be justified using objective skill-assessment data, it helps improve employee morale and engagement, which promotes fairness and equity (including pay transparency). This is incredible for employer branding as organizations that can demonstrate they value talent and skill over pedigree will win over candidates.

Higher likelihood of quality hire and job match

The World Economic Forum estimates we will need to re-skill more than 1 billion people globally by 2030. Organizations that take a proactive approach to identifying the skills required for the jobs today and tomorrow will not only have a competitive advantage in innovation, but also expedite onboarding as there will likely be a shorter learning curve for new to role hires.

If 2020 did anything, it exposed the fundamental flaws that exist in the workplace. Foremost, it was the need to accelerate digital transformation from the office to a remote environment. Fast-forward a few years later to the present day, and the evolution of generative AI has swept the workplace. Again, we have a totally new set of skills that have become highly coveted. At this rate, what is next?

Aside from technology and digitization, the factors that are driving the future of work include the emergence of new business models, social shifts and dynamics, demographic changes, and addressing the skills gap.  Skills-based hiring directly addresses this issue as it is estimated that the talent shortage and skills gap in the United States alone is expected to total a loss of $8.5 trillion by 2030, according to PwC research.

Skills-based hiring is incredibly important because it helps level the playing field: Organizations can equitably assess candidates based on what they can do, as opposed to what is historically shown to have been done. The use of objective and standardized assessments in the selection process will help reduce biases and increase fairness. However, the biggest challenge in implementing skills-based hiring is actually being able to assess particular skill sets.  

How Skills-Based Hiring Works

Skills-based hiring aims to identify the right fit for the job by matching the candidate’s skill set with the job requirements, leading to better job performance and improved overall satisfaction. 

This process emphasizes skills that can be demonstrated and evaluated through tests, assessments, challenges, assignments or simulations, for example.

Here are practical ways organizations can progress from traditional hiring to skills-based hiring.

Job Descriptions

• Traditional job descriptions often depict experience, requirements and education, if applicable.
• Skills-based job descriptions incorporate identifying the exact skills required for the role, expectations and responsibilities for the position.

Skills Assessment

• Most hiring decisions in the current state are made on intuition or bias, not based on measuring the skills required for the job. 
• Skills-based assessment involves evaluating skills required for the role using multiple objective data points such as challenges, assignments, gamification or psychometric assessments.

Talent Marketplace

• Traditional methods of talent development involved proficiency continuums, growing linearly or climbing the corporate ladder and becoming specialists and subject matter experts.
• To truly expedite a skill-based approach at your organization, companies should aim to build a talent marketplace. This tactic involves focusing more on projects and the skills required for those projects, rather than individual positions or functions. Employees who are selected for their skills tend to work better with others and contribute more to team projects. This can result in greater productivity and more efficient workflows.

Skills-Based Inventory

• Traditional methods involved resumes or employment history.
• Moving to a skills-based organization will help create a skill-based database so as new projects and opportunities arise, organizations can consider pre-vetted candidates with qualified skills.

Skills-based hiring simply cannot wait. Imagine you are building a sports team. Identify the specific skills required from the players and then select team members that possess those skills. It does not need to be that complicated. At the end of the day, skills-based hiring is directly connecting talent to opportunity: a win-win for everyone.