Why organisations should adopt skills-based hiring

Seventy-five per cent of companies globally are struggling to find skilled workers, according to research published in 2024 by the ManpowerGroup. In the US, this figure is 70%.

The causes for the skills shortage are many – including an increasing number of retirements among Baby Boomers and a post-pandemic surge in the demand for flexible work (so much so that industries unable or unwilling to offer flexibility are the worst hit). Another possible reason, say experts, is a deeply entrenched attitude regarding the way organisations look for talent. When looking to fill positions, most organisations focus on finding candidates with pedigree – those who possess specific educational qualifications and have held certain roles – instead of ensuring that candidates have the skills needed for the vacancy they are hoping to fill.

The share of managers who don’t have a traditional four-year degree has increased 20% since the previous year.

This is an old problem. As far back as 2017, a study flagged the perils of degree-focused hiring. The study, titled Dismissed by Degrees, conducted by researchers from Harvard Business School, Accenture and Grads of Life, warned against the propensity of organisations to use “college degrees as a proxy for a candidate’s range and depth of skills”. It said that this was making the US labour market more inefficient by preventing companies from finding the talent they need to be successful. The approach was also hurting middle class Americans by closing several opportunities to them, with many competent candidates simply not applying for the job because of the minimum requirement for a four-year-degree, added the study.

Winds of change

The good news is that over the years, a growing number of organisations have realised that academic performance and pedigree are no substitute for the right skills.

In 2015, at a conference in San Francisco, Google’s Senior Vice President of People Operations, explained how Google’s obsession with hiring elite school candidates waned after its executives realised that candidates who performed really well at elite schools weren’t necessarily the best performers at the workplace. 

The following year, the UK offices of Ernst & Young stopped requiring new hires to have a degree after an internal study found no evidence of a correlation between academic success and job performance.

Several large organisations have since gone down the skills-based hiring path. Besides Google, this includes tech majors such as Apple and Tesla.

The shift is showing on the ground too.

According to LinkedIn data from 2020, the share of managers who don’t have a traditional four-year degree has increased 20% since the previous year. This and the fact that some of the world’s biggest companies have pivoted to skills-based hiring is evidence that this approach definitely has some advantages.

But what exactlyis skills-based hiring and what exactly are its benefits?

What is skills-based hiring?

Skills-based hiring is an approach to recruitment and talent acquisition focused on evaluating job candidates primarily based on their demonstrated skills and abilities relevant to a specific role, rather than traditional qualifications such as college degrees or formal credentials. This method emphasizes matching candidates' practical capabilities directly with the requirements of the job, thereby reducing reliance on outdated job descriptions and broadening access to opportunities based on competency rather than educational background. It aims to identify individuals who possess the necessary hard or soft skills, whether acquired through formal education, professional experience, or alternative learning pathways, to effectively perform the job tasks and contribute to organizational success.

Benefits of skills-based hiring

Skills-based hiring has several benefits.
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First, skills-based hiring gives employers a larger talent pool to choose from, especially for mid-level jobs.

The CEO of a heating systems company in the US told SHRM that he faced a major talent acquisition problem till he started focusing on skills-based hiring. Citing a specific instance, he said once his team rewrote a job posting to drop a degree requirement, they were flooded with applicants.

Data from LinkedIn seems to support this too. Job descriptions that mentioned responsibilities over requirements received 14% more applications per view than job posts that mentioned “requirements” but not “responsibilities”.

Second, skills-based hiring leads to increased diversity and inclusion at the workplace.

Taking a deliberate decision to disregard academic qualifications and work history in favour of focusing on candidates with the right skills gives organisations access to a pool of diverse candidates who may not necessarily tick the traditional boxes but still have all the skills needed to do the job.

Of course, it must be said that there is more to diversity and inclusion than just adopting a skills-based hiring approach. Experts say organisations that genuinely want to build a diverse and inclusive workplace must overhaul the A-Z of hiring completely. This includes eliminating bias at the selection stage (possibly by tweaking the design of hiring algorithms), reaching out to community organisations to tap a wider talent base, as well as taking a hard look at the organisation culture to ensure that efforts to build diversity do not stop at just hiring but by welcoming and enabling these new hires to succeed and grow within the organisation.

Finally, skills-based hiring is believed to reduce turnover. Employees without a traditional four-year degree stay 34% longer than those with such a degree, according to data from LinkedIn.

On track for skills-based hiring

So far so good.

The tech industry was one of the first to adopt skills-based hiring possibly because tech skills are easily quantified. A candidate either knows Java or doesn’t, right?

But how does one assess if candidates have the right non-technical skills such as soft skills without depending on formal qualifications such as academic backgrounds to guide our assumptions?  (For instance, recruiting managers who assume candidates with an Ivy League background will be natural leaders and high performers).

Several organisations use online assessments such as coding tests or predictive soft skill assessments to judge if applicants have the right hard and soft skills. A number of pre-employment assessment tools and platforms have emerged to help organisations with these assessments. They include HackerRank and DevSkiller (focused on coding) and Pymetrics (soft skills). Some hiring managers give candidates work sample tests and evaluate their suitability on the basis of the results. Organisations usually follow these assessments up with the traditional interviews (sometimes multiple interviews) and reference checks.

---- Noel Braganza - A story ----

A few years ago, as Design Director at a design and technology company in Gothenburg, Sweden, it was my responsibility to grow the team and keep the existing team happy. For that reason, it was very important that I found the right talent when vacancies arose. The right candidate didn’t only have to be skilled, they also had to have the right temperament and fit the team’s overall work culture.

I have long believed that CVs do not help me judge any of the above. CVs simply show hiring managers a candidate’s past accomplishments based on which we are meant to determine if the applicants have the right skills and temperament for the job.

I adopted a different approach instead. I asked applicants to send me a cover letter specific to the job at hand (no generic cover letter) and attach a clear portfolio with their application. 

The cover letter helped me get a sense of the candidate’s attitude, mentality and vibe, and the portfolio helped me understand their skills. I presented the candidates who passed these two filters with a design challenge that helped me evaluate their thought process and technical skills.

Throughout this process, I never once looked at the candidate's CV. Among other things, this allowed me to avoid making any assumptions based on whether they went to a fancy school, their work experience or their past roles, and focus more on their skills, mindset and soft skills – all of which are critical factors for hiring the right person.

Thanks to my approach, I was able to hire exceptional candidates fresh out of school as well as with experience – all of whom had the mindset to help them thrive in a challenging and creative environment.

The team blossomed as everyone possessed a variety of unique skills but shared common values that kept the team engaged, positive and determined to grow.