How the skills-first approach is changing the game
There’s no doubt about it, the skills-first approach to talent management is changing the game. More and more employers are adopting this approach as a means of tackling contemporary challenges around talent shortages, skills shortages and recruitment costs.
But how exactly does this strategy solve these problems? Are there any other big winners? And does the skills-first approach only have upsides?
To answer those questions I want to provide a big-picture understanding of this methodology and why I’m such a huge advocate for it. And I’ll do that by discussing these talking points…
What is meant by the skills-first approach
Last week I discussed the recent pivot away from degree requirements largely in the context of what recruiters and employers are pivoting towards: the skills-first approach.
I concluded that, while degree requirements aren’t going away, more and more businesses are recognising the many advantages of a skills-first approach to managing talent.
To quote WEF Specialist in Education, Skills and Learning Aarushi Singhania at this year’s AGM, the skills-first approach is where employers and recruiters focus “directly on skills, rather than on how they have been acquired.”
The typical recruitment process is focussed on assessing levels of experience and academic achievement. But skills-based hiring just wants to know that candidates have the skills to do the job – whether or not they were acquired in an academic setting or elsewhere is irrelevant.
The benefits of this approach
The data from LinkedIn shows that employers who adopt a skills-first approach are 60% more likely to find a successful hire compared with those that use a traditional approach.
Further to that, data from Applied shows that employers using the strategy see a 400% increase in diversity, a 300% increase in their number of suitable candidates, a 66% reduction in their overall time to hire, and a 93% retention rate.
Now I’m not suggesting that these figures aren’t a cause for celebration. Quite the opposite. But the truth is the benefits go way deeper. And here’s where…
More benefits for employers…
Larger talent pool
First of all, employers that adopt the skills-based approach to hiring will grant themselves access to a much larger talent pool. Creating skills-based job postings results in a substantial increase in applications from a broader set of workers, including people without specific or typical credentials on their CVs.
Recent figures from LinkedIn show that, globally, companies that hire for skills increase their talent pipeline by over 900% when compared to those that make hires based solely on credentials. And whilst there are fluctuations depending on the sector, the general trend of an increase remains across the board.
This broadening of the talent pool is especially relevant and significant given that shortage of talent is the biggest challenge facing recruiters right now. So it means employers are more likely to meet their skills needs in an ever-more competitive market.
Time and money savings
What’s also highly relevant is the imperative to make time and cost savings during this period of economic hardship. With the average hire taking 43 days from end to end, and the average C-suite hire taking 71 days, the process is often very expensive.
On top of that, there’s the cost of making a bad or unsuccessful hire – 30% of first-year earnings according to the US Department of Labour – which is 60% more likely with a typical recruitment process.
With skills-based hiring, businesses can save time and money by identifying the specific skills they need and only interviewing candidates who meet those criteria.
Reduction in unconscious bias
According to BrightTalk , 79% of HR professionals agree that unconscious bias exists in recruitment. Since our brains make decisions intuitively, without us even knowing, we’re prone to forming negative or positive attitudes about an individual or group of people. This can influence our understanding, actions, and choices unconsciously.
So we might be likely, for example, to unknowingly favour a candidate that comes from the same area, studied at the same university, or even studied the same degree.
Skills-based hiring helps reduce this by focusing on the candidate’s skills and abilities, rather than irrelevant criteria like where they studied. The proof of the pudding here is in the 400% increase in diversity resulting from a skills-first approach that I mentioned above. There is an intrinsic link between reducing unconscious bias and increasing diversity.
More predictive outcomes
Degree inflation showed us that workers without degrees were able to thrive in jobs that now make them a requirement for application. And while education and experience do have an interrelationship with ability, it’s fairly weak.
According to “Validity and utility of alternative predictors of job performance ”, a paper from the American Psychological Association, 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.
The picture is even more definitive when we look at it in more granular detail. A paper by Schmidt & Hunter showed that education was the weakest predictor of performance, next to experience and reference checks. Conversely, cognitive ability tests, structured interviews and work sample tests – all constituent parts of skills-based hiring – were far stronger indicators of performance.
Build a more highly-skilled workforce
With a recession looming, and during a perceived skills shortage, skills-based practices, like workforce pixelation, give workers access to developmental opportunities within their current roles. This creates a more broadly skilled workforce that can be tapped when companies are looking to fill roles, reducing the burden on external hires.
Improve internal mobility and retention
The approach to creating internal pathways for employees not only provides them with more highly-skilled teams, it provides them with more resilient teams that are more likely to stick around.
According to a survey by the Society for Human Resource Management , 77% of employees who left their jobs could have been retained. Of those, a significant number attributed a lack of career development opportunities as the main reason they left.?
Compounding that point is the LinkedIn data I cited last week that showed 94% of employees would stay at a company longer if they feel their employer is investing in their career.
By creating a culture where skills are the currency for progression, employers can be more deliberate about the pathways their employees take. They can identify skills gaps and give their workers the opportunity to fill them through training and transition programmes.
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The result? Workers will be far less likely to leave. Employers will be far less likely to have to look externally to fill roles. And they will end up with a more highly-skilled workforce.
There’s already widespread real-world evidence that big employers have recognised this and are taking the necessary steps to access the aforementioned benefits.
JPMorgan Chase recently added $350 million to their $250 million plan to upskill their workforce. Amazon is investing more than $700 million to provide upskilling training to their employees. PwC is spending $3 billion to upskill all of its 275,000 employees over the next three to four years.
Benefits for workers…
Many of the benefits for employers I outlined above are mutually beneficial for workers, too. More diverse candidates benefit from the reduction in unconscious bias, and workers in general gain from employers investing more in their skills and career progression. But where else can we find the big wins for workers?
Post-COVID hiring
The pandemic has caused an imbalance in the jobs market. Although, it could be also said that it merely accelerated a general trend in terms of the movement of labour between growing and declining industries.
Either way, the economic impact of COVID has meant that many jobs have been lost – more than 140 million globally. However, industries like logistics and manufacturing are crying out for talent. And by shifting to a skills-first approach, those industries will be able to tap into a deeper pool to fill their roles.
By simply thinking in terms of transferable skills, both workers and employers would realise where their interests converge. For example, more than 70% of the food servers who lost their jobs during COVID in the US have the necessary skills to succeed in customer service, which is one of the most in-demand jobs on LinkedIn.
However, since many customer service positions remain unfilled, it doesn’t appear that this realisation has taken place for either party. And that’s perhaps evidence that a general shift in the mindset towards a skills-first approach is still yet to take place.
But when we do reach that tipping point, skills-based hiring should create a mechanism for getting many of the workers displaced by the pandemic back into jobs.
Greater D,E&I
Whilst we’ve seen that the skills-first approach isn’t merely a compromise for the sake of fairness, it does deliver greater fairness, too.
It’s proven to level the playing field for candidates and make sure that everyone has equality of access to opportunities.
This article from LinkedIn looked specifically at Gen Z, as they are starting their careers during a time of economic hardship, which provides a distinct disadvantage. It shows that, through a skills-first approach to hiring, the overall talent pool for this group grows by over 1000% in Australia. In India, it’s even more – with growth of over 1400%.
And the data shows these increases are reflected throughout the workforce regardless of generation, with the talent pools of Millenials and Gen X also seeing significant, if incrementally declining increases, respectively.
This data also shows a global increase of 24% in the talent pool for those without degrees when a skills-first approach is applied. And when it comes to gender equality, skills-based hiring is making moves there, too. The data saw that the talent pool for women in jobs with the fewest women grew by 24% when this approach was applied.
The challenges of skills-based hiring
Now as much as I’m a big proponent of the skills-first approach, I’m fully aware that there are challenges in terms of the way it’s implemented.
Traditional candidates might be overlooked
Of course, one of the key facets of skills-based hiring is the resetting of a culture that’s enabled traditional candidates to dominate the market. However, there is a risk, if not implemented in the right way, that this approach could marginalise traditional candidates altogether.
But in its application, skills-based hiring is about balancing the relevance of skills, experience and qualifications in a way that suits each individual employer. And this should mitigate the risk of cutting out traditional candidates.
Difficulties in assessing skills
This is perhaps one of the biggest drawbacks to skills-based hiring. When you’re assessing a candidate’s skill-set, it can be difficult to accurately gauge whether or not they truly have the required skills. This can often lead to businesses hiring employees who are not actually qualified for the job.
However, we’ve already seen that cognitive ability tests, structured interviews and work sample tests provide the best predictive indicators for performance. Therefore, it’s highly advisable to test for skills, and not just rely on candidates reporting that they possess them.
Cost implications
Skills-based hiring can be quite costly because employers will often have to pay for training or certifications in order to upskill their employees.
If an employer is working for a client-based business, the client may want people working on the task to have a certain set of credentials, even though they might be fully proficient. This can mean spending a lot of money ensuring team members have the required certifications before working with certain clients.
You only need to look at the millions and billions of dollars spent on upskilling the workforces of JPMorgan Chase, Amazon and PwC as evidence of the potential cost implications of upskilling or providing necessary credentials.
And, admittedly, some employers won’t have the budget to provide certified training for their entire workforce. However, this can be achieved on a more granular and individualistic scale.
Experiential and personal development opportunities don’t have to be formal. And that’s where smaller companies with limited budgets can put strategies like workforce pixelation to good use.
Overall, investing in the workforce is a judgement call on whether or not employers value having more highly-skilled, motivated and internally mobile employees. And the evidence outlined in this article shows that there’s a more-than-persuasive correlation between those two things.
What’s next for the skills-first approach?
Like with degree requirements, there will be some industries and employers that will naturally resist change – for a multitude of reasons – and those that will more readily adopt it.
What we are seeing is less of an industry-by-industry trend towards this new approach, but individual companies getting ahead of the game, likely before their competition follows suit.
For example, in the tech industry, many of the big players seem resistant to switching to skills-based hiring. However, IBM, as shown by a Havard Business Review study , has gone against the grain, with only 29% of their IT job openings in the US containing a degree requirement. That’s against the national average of 52%.
Overall, I predict a gradual shift towards the skills-first approach that mirrors that of the shift away from degree requirements. And as the evidence I’ve outlined above shows, it can’t come soon enough!