The Rise of Skills-Based Hiring: Competency Over Credentials

How do you source candidates for roles no one is qualified for yet, or that require new skills? To tackle this problem, we need to start thinking differently about how we assess a candidate’s fit for our vacancies.

This is why a lot of businesses are making the shift from credential-based hiring to skills-based hiring right now.

Just because a job seeker doesn’t have the right bachelor’s degree, or the right number of years of experience in a particular role, doesn’t mean they don’t have the competencies to do the job.

So let's explore the concept of skills-based hiring, its benefits, and how to implement it effectively.

What is skills-based hiring?

Skills-based hiring is about finding the right person for the right role, no matter what their background and experience is. And if you’re thinking “but surely every recruitment process looks for candidates with specific skills?” — this is true in theory.

But what often happens in practice is that, although we intend to hire for skills as well as experience, we naturally default to college degrees, job titles, and work experience.

We do this because these credentials are tangible proof that a candidate should have those skills. And the problem with this is that we often miss out on excellent job candidates who have all the right skill sets but just haven’t taken the ‘right’ career path for the role or are too entry-level to be considered top talent.

By changing the way you select and assess candidates, you can end up with an entirely different candidate shortlist to the one you would have recruiting in a more traditional, credential-based way.

Using a skills-based model opens up talent pools, giving candidates from non-traditional backgrounds or work experience from other sectors a chance to prove themselves as skilled for the role you’re hiring for.

Why we need skills-based hiring in 2024

There are a number of changes happening in the labor market right now that have meant skill-based hiring practices are more important than ever.

In a nutshell, here’s why we need skill-based hiring:

• To recruit in an AI world - AI and rapid tech advancements are creating demand for roles we’ve never had to hire for before and that no candidates will have experience in yet. The only way to know if these candidates will be right for the role is to assess them based on their skills.
• To avoid missed opportunities - In the past, a lot of businesses would base hiring on a bachelor's degree, and even which university the candidate attended. This approach means missing out on highly-skilled candidates who just didn’t go to the ‘right’ university, or who chose to enter the workforce after high school rather than get a degree. Skills-based hiring gives you access to great candidates who have chosen a non-traditional career pathway.
• To support recruiting in global talent pools - Since the shift to remote and hybrid working, most companies have seen their talent pools increase massively. If you can recruit candidates from anywhere in the world, traditional selection and hiring processes often won’t cut it. Skills-based hiring allows you to assess large volumes of candidates using skills assessment technology rather than relying on credentials that you might not fully understand if they’re obtained in a different system.

How skills-based hiring works

So now we’ve covered what skills-based hiring is and why it’s so important in 2024 and beyond, how do you actually go about bringing skills-based hiring practices into your organization?

There are three stages of the recruitment process where skills-based hiring comes into play: identifying job requirements, creating job descriptions, and assessing candidates through assessments or other screening methods.

1. Identify core skills for roles

As with any hiring strategy, it all starts with thinking about job requirements. Taking a skills-based approach means thinking about requirements a little differently.

For example, rather than thinking about ideal candidates and what their educational background and work experience might be, break the job down into skill components. What specific skills would the candidate need to be successful in the role, regardless of their background?

Then, you want to decipher between which of those skills are hard skills, soft skills, and transferable skills. Your hard skills are your technical abilities or knowledge areas, like knowing a specific coding program or speaking another language.

Soft skills are personal attributes like organizational skills and being a good communicator. These are skills that can be crucial to a role but aren’t easy to prove in a resume or job application. They will, however, shine through in a skills assessment.

It’s also helpful at this point to bring in a skills matrix for job families so you can see which core skills would be transferable within the company.

For example, perhaps the role you’re recruiting for doesn’t require knowledge of Python, but it’s a hard skill that would be transferrable within the programming team or even in another department, like Data.

Thinking about candidates in terms of their abilities is a more holistic and longer-term approach to talent acquisition that has been proven to bring great results.

2. Implement skills-based job descriptions

Once you know the specific skills you’re hiring for, creating job descriptions that emphasize those skills rather than work experience and education requirements will help you attract qualified candidates who might’ve taken an alternative career path.

Creating job descriptions and adverts for a skills-based selection process requires a different approach too. So instead of talking about college degree requirements or how many years of experience are required to be qualified for the role, talk about outcomes and capabilities.

For example, talking about ‘evidence of skills in marketing’ could bring in candidates who have a side hustle. ‘Proven knowledge of Python’ rather than ‘two years of experience in a programming role’ would include those who have attended Python online bootcamps but are at entry-level.

Using an AI tool like Carv, you can use technology to support you during the intake call with the hiring manager and use the tool to generate a skills-based job description based on the call transcript and brief.

Carv’s AI workmate can also help identify potential gaps, or potential transferable skills, for a specific role too. This ensures your job description will attract the right candidates.

3. Use skills-based hiring assessment methods

There are a few different types of skills-based hiring methods you might want to consider bringing into your recruitment process.

• Skills-based screening and resume parsing - Using the right recruitment technology, you can screen job applications and resumes automatically without any manual input. If you’re used to screening applications based on educational background and work experience, it can be hard to make that mental switch when handling this stage of the process manually. But using technology, it’s just a matter of changing the screening criteria from credentials to skills and letting the tech do the work for you.  
• Job simulations, work sample tests and skills assessment platforms - There’s a lot of great technology out there right now that allows you to integrate skill-based assessments into your recruitment process. These can take the form of submitting work sample tests, gamified job simulations or AI-powered skills assessment platforms.
• Structured interviews focused on competencies - Structured interviews are crucial to ensuring your hiring process remains fair and unbiased. Using an AI workmate like Carv, you can upload the job description and ask the bot to generate a list of competency-based questions you can use in interviews.

Whichever method(s) you use, it’s important to ensure that you consistently use the same criteria and assessment for every candidate to ensure your process is fair.

Common challenges when implementing skills-based hiring

While skills-based hiring is relatively straight forward once you have your new process in place, there are some potential challenges you might encounter along the way.

For example, if you’re working with more traditionalist hiring managers, convincing them that they should be hiring based on AI-powered skills assessments rather than a specific degree might take some work.

Skills-based hiring requires a big shift in thinking, and it can take some time to get everyone bought in. And while hiring for skill sets rather than credentials can help spotlight great candidates who might not have previously made your shortlist, you still need to think about cultural fit too.

Hiring candidates who boast the skills you need but aren’t the right cultural fit will only result in low retention, which will be bad news for your KPIs and cost the company a lot of money in the long run.

Measuring the success of skills-based hiring

Making the shift to skills-based hiring isn’t something you’ll do as an organisation over night. And as with any big process changes you make, you’ll want to have some performance indicators in place that will tell you (and any traditionalists who need some convincing!) that it’s the right move.

The main key performance indicators (KPIs) that will help you measure success with skills-based recruitment are:

1. Time-to-tire: The average number of days from the day of job posting to the day a candidate accepts an offer. A shorter time-to-hire indicates a more efficient hiring process, suggesting that the skills-based approach is better at matching candidates to roles.

2. Quality of hire: Composite metric based on new hire performance, retention rates, and hiring manager satisfaction. High-quality hires demonstrate that the skills-based hiring process is successful in selecting candidates who excel in their roles.

3. Retention rate: The percentage of new hires who remain with the company after a specific period (e.g. 6 months, 1 year). High retention rates indicate that new hires are well-suited to their roles and are satisfied with their jobs.

4. Hiring manager satisfaction: The level of satisfaction hiring managers have with the candidates selected through the skills-based hiring process. Positive feedback from hiring managers suggests that the process is identifying candidates who meet or exceed expectations.

5. Employee performance: The performance ratings of new hires, typically evaluated during regular performance reviews. Strong performance by new hires indicates that the skills-based selection criteria are accurately predicting job success.

6. Cost-per-hire: The total cost incurred in the hiring process (including advertising, recruitment agency fees, and internal recruitment costs) divided by the number of hires. Monitoring cost-per-hire helps assess the financial efficiency of the skills-based hiring process.

7. Skill gap reduction: The decrease in the difference between the skills required for roles and the skills possessed by new hires. A reduction in skill gaps indicates that the skills-based hiring process is effective in matching candidates’ skills with job requirements.

8. Onboarding time and effectiveness: The time it takes for new hires to reach full productivity and their satisfaction with the onboarding process. Efficient onboarding and quick time-to-productivity indicate that new hires are well-matched to their roles and have the necessary skills to succeed.

9. Conversion rates from application to hire: The percentage of candidates who progress from application stage through to final hire. High conversion rates suggest that the job descriptions and skill requirements are well-aligned with the candidate pool.

By comparing these skills-based hire with traditional hire KPIs, this will give you a really clear and reliable picture of whether a skills-based hiring approach is better for your recruitment strategy than a credential-based one.

Over to you

While there’s still certainly a need for credential-based hiring in recruitment — and it’s likely there always will be —  it’s clear that enhancing your process with skills-based hiring is key to future-proofing your strategy.

So the sooner you open up your hiring process to excellent candidates who have taken an alternative career path, the soon you can start filling those difficult open positions with great candidates that won’t be visible to recruiters battling the skills shortage the old way.

To see how Carv can support you with creating skills-based job descriptions and competency-based interview questions, try the tool today for free.