Navigating the Promise and Perils of Skills-Based Hiring to Improve the Success of New Hires

In recent years, there has been a lot of attention given to the trend of skills-based hiring as opposed to degree-based hiring. The rationale behind the trend is that hiring people with skills specifically related to their job will make them more successful in their position.

Although many people touted the initiative, which gained momentum during the Pandemic, the continued progress has been slow. The government sector seems to be leading the skills-based revolution, with 40% of states removing degree requirements for most state jobs – up to 98% of jobs in some states have had their degree requirement removed. Even the federal government has eliminated – or, rather, started to eliminate – degree requirements for many jobs, notably jobs in IT fields.

In the private sector, however, 61% of global companies actually raised work or education requirements, despite the fact that many companies announced that they would eliminate degree requirements. Despite the fanfare, private-sector hiring of non-degreed candidates for previously degreed roles only increased by 0.14% – about 1 in every 700 new hires.

This does not mean that skills-based hiring is a failure in the market, something that is only supportable in the inefficient bureaucracies of state and federal governments. Instead, it reflects the challenges that skills-based hiring poses for many companies, and how hard it can be to get the tactic right for your organization. We’ll talk about what makes skills-based hiring so hard to get right, and how you can fit it into your hiring practices.

The Promise of Skills-Based Hiring

The Harvard Business Review says that “The logic of skills-based hiring is unimpeachable.” Businesses that are struggling both to recruit good talent and expand their diversity should remove degree requirements from positions in favor of simply requiring the actual skills required to do the job. This offers so many benefits to employers and employees that it should become standard practice.

Easier to Fill Positions

Proponents of skills-based hiring point out that although college degrees have become more common in recent years, only 38% of people have them. Maintaining a college degree requirement on a position therefore removes nearly two-thirds of applicants from consideration. In a labor market where talent is scarce, this could significantly handicap a business’ hiring capability.

Finding People Who Fit Your Needs

Another argument in favor of skills-based hiring is that people with degrees don’t have the skills that businesses need in their employees. The truth is that 54% of college graduates don’t work in the area they studied, which does make one wonder whether their degree adds any value for the employer.

A skills-based hire, on the other hand, already has the skills necessary to perform the job. These skills are on their resume or otherwise demonstrated to show that the new hires are ready to start work with little or no training.

Improving Diversity

Another challenge of degree-based hiring is that it reduces diversity in the hiring pool. Although about 42% of the non-Hispanic White population and 59% of the Asian population has a bachelor’s degree, only 28% of the Black population and 21% of the Hispanic population does. By keeping degree requirements in place, companies are reducing the accessibility of jobs to minorities and perpetuating a cycle of un- or underemployment.

The Perils of Skills-Based Hiring

Although skills-based hiring has unimpeachable logic, we do not necessarily live in a logical world. Skills-based hiring seems like a winning scenario on the face of it, but in practice, the execution often reveals problems for companies that try to roll it out. Here are some of the challenges that companies face when they try to adopt skills-based hiring.

Confirming That People Have the Skills

One of the biggest challenges companies face when trying to adopt skills-based hiring is how to determine that an employee has the skills they claim. There are three primary strategies for this:

• Employers can test potential employees’ skills, but this adds a significant burden for employers, who need to create and administer skill tests, making hiring more expensive.
• Accept workplace experience as evidence. This does expand the hiring pool, but it also strands many people with the paradox that they need experience to get a job, but they can’t get a job without experience.
• Companies can accept credentials (and micro-credentials) that instructional organizations give potential hires. This works, but it depends on the credibility of the credentialing institutions.

Skills-Based Hires Don’t Necessarily Fit Your Organization

Although skills-based hires come in with many of the skills to perform a job, they don’t necessarily have the skills to fill the position. This is because many skills-based hires may lack the types of “soft skills” that students had to master to get through college, including communication, teamwork, time management, and adaptability. As a result, most hiring managers believe that college degrees are still a more valuable asset than many skills certifications, such as micro-credentials.

Degree-Based Hiring Is an Ingrained Culture

Although many companies dropped degree requirements from jobs, they continue to hire candidates with degrees rather than candidates without degrees. This is in part because of the self-reinforcing perception we talked about above, which is based on decades of degree-based hiring.

Before companies can approach skills-based hiring fairly, they will need to take a close look at their hiring practices and the biases of their hiring managers to really improve hiring prospects for skills-based candidates.

How to Succeed with Skills-Based Hiring

Although there are potential drawbacks to skills-based hiring, the demonstrated benefits make it worthwhile. In addition to the above-stated benefits, non-degree hires often see a 25% increase in pay stepping into a previously degree-limited role. Employers benefit, too, because the two-year retention rate is 20% higher for non-degreed hires, making skills-based hiring a potential win for both employees and employers.

Here are some tips that can help your company get the most out of skills-based hiring.

Stick to Areas Where There Is Good Credentialing

Not all jobs are equally adaptable to skills-based hiring. The easiest ones to transition in your business are those with good credentialing institutions that you trust. Then you can include requirements for work experience or credentials from your trusted institutions.

That way, you will have some assurance that potential hires really have the skills they claim without having to set up a testing regimen. Plus, you’ll be making your entry-level positions truly entry-level: people won’t necessarily need work experience to get hired.

Support New Hires

Another key to success with skills-based hiring is to revamp your onboarding process. Recognize that although your skills-based hires will enter with some skills, they might lack others. Provide them with the right training to help them succeed in your company.

It might not be immediately clear what training process will be most successful for your new hires. You might have to start by figuring out what skills your new hire needs help with, then taking steps to help them achieve those benchmarks. This might require different training techniques, such as mentoring, but will provide good returns.

Learn from Your Successes

When you have successful skills-based hires – those that perform admirably in their positions and may even have earned promotions – consider what characteristics made them good hires. This might be aspects of the candidate’s background, such as their personal or work histories. However, it might be characteristics of their job at your company, such as the role they were hired to fill, the path they traveled to success, and whatever support or professional development that you provided or they secured on their own. Then utilize these insights to improve your hiring and onboarding practices so that each new hire has a greater chance of success.

Apply Skills-Based Hiring in Your Organization

With the potential benefits of skills-based hiring, it would seem foolish not to try it. Making it work for your company may take some concerted effort and changes to your hiring process. However, if you take the time to invest in the practice, you will find that it pays off with a greater pool of candidates to choose from, more diversity, and skilled employees that hit the ground running to add significant value through their work.