3 Reasons Why Skills-Based Hiring is The Way Forward

The rapid pace of technology, evolving employee expectations, and the influence of societal changes have thrown traditional hiring methods into disarray. The struggle to find the right talent for technical roles has become a global challenge. In response, a new approach has emerged-skills-based hiring. This innovative strategy offers a future-focused solution that can revolutionize your company’s human resource strategies.

Skills-Based Hiring: What Is It?

Skills-based hiring is when companies hire new talent based on what they can do instead of what 4-year degree they have or where they worked before. It focuses on a person’s existing skill set and willingness and ability to develop new skills. A skills-based hiring model does away with traditional education requirements and previous work experience. Instead, it identifies candidates based on how well their skills match a particular job. This more inclusive approach opens up the job market to individuals who have garnered skills and knowledge through less traditional channels.

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Why You Should Consider Skills-Based Hiring

Over the last few years, there has been a significant decline in the value people place on formal education and a college degree. Technology has also created a skill shortage, especially regarding technical roles that often don’t require college degrees. It’s no surprise that employers are reconsidering their hiring practices to keep up with changing times. According to LinkedIn’s 2024 Future of Recruiting report, 73% of recruiting pros say that skills-based hiring is a priority for them. Here’s why skills-based hiring should also be the way forward for you.

1. Future-Proof Your Organization

According to global organizational consulting firm Korn Ferry, “By 2030, demand for skilled professionals will far outstrip supply, with a financial impact of $8.452 trillion in unrealized revenue”. In other words, the current skills shortage will only worsen and cost companies a lot of money. Companies that revamp their hiring strategies to adopt a skills-based approach will be preparing themselves for the future and staying on top of this forecasted skill shortage.

To hire new talent based on skills, companies must first identify existing skill gaps and preempt future needs based on their strategic objectives. This exercise will help them fine-tune their learning and development strategy to address current gaps and provide them with a roadmap to prepare for any requirements that might arise in the future.

A skills-based approach to talent acquisition and management can also serve companies during a potential recession. Employers’ focus on developing their employees’ skills benefits both parties. It offers employees internal advancement opportunities during times when external hiring is stagnating. It also helps employers streamline their talent acquisition activities since they can tap into an existing talent pool with the skills they seek.

2. Expand and Diversify Your Talent Pool

In the current hiring model that most human resources teams use, jobs list traditional qualifications such as a 4-year college degree as a mandatory requirement. Such requirements exclude a vast proportion of the talent pool. With skills-based hiring, you can expand and diversify your talent pool to help optimize your workforce.

Skilled Through Alternative Routes (STARs) is a category of individuals often disregarded in traditional hiring models. This includes anyone who doesn’t have access to a 4-year college education or has developed job-relevant skills through avenues such as community college, military training, practical work experience, and training programs. Seventy million people in the United States alone fall under this category. That’s a talent pool of 70 million skilled workers who could fill the current or future skill gaps within your company. Prepare yourself for potential skill shortages by tapping into this heavily overlooked pool of candidates with skills-based hiring.

It’s widely acknowledged that a diverse workforce boosts innovation, performance, and profitability. Skills-based hiring is a tool that can help you build this diverse and inclusive workforce. By hiring for skills, you can expand your candidate pool, bringing in a greater variety of talents and backgrounds, and making your workforce more robust. This inclusivity is a key aspect of skills-based hiring that can make your company feel more welcoming and open to all.

3. Boost Employer Loyalty and Retention

According to a McKinsey podcast that discusses the merits of skills-based hiring, “Organizations that use skills-based hiring practices see lower turnover in their skills-based hiring cohorts.” This is because hiring for skills ensures a more precise match between a candidate’s abilities and the job, boosting job satisfaction. When employees feel like their skills are valued and they are good at what they do, they are likelier to stay at that job. This reassurance about the positive impact on employee satisfaction and retention can make the audience feel more confident about adopting a skills-based hiring approach.

A skills-based approach is most successful when applied to every aspect of the employee experience well past the hiring and onboarding stage. This includes creating opportunities for employees to develop new skills through learning and development. Identifying employees’ skills and encouraging their development makes them feel more valued and, in turn, boosts motivation and retention. Career development, or lack thereof, is often cited as one of the top reasons for leaving a job.

Final Thoughts

Skills-based hiring is regularly touted as a human resource trend to watch in the future. Companies in both the public and private sectors have recognized the importance of identifying and hiring employees based on their skills rather than their qualifications. With new technological advancements comes an increased demand for novel skills. Adopting a skills-based approach will help companies develop a more resilient and loyal workforce that is better prepared for potential skill shortages and future economic developments.

Want to know more about adopting a skills-based hiring approach? In addition to taxes, accounting, bookkeeping, and CFO services through its FinOps, Escalon’s Essential Business Services include PeopleOps (HR, benefits, recruiting, and payroll) and Risk (business insurance). Talk to an expert today.