Diplomacy over a diploma: Look to skills when hiring

Hiring for skills is five times more predictive of job performance than hiring for education. What is skill-based hiring, why is it growing in popularity, and how can you benefit from it?

A persistent skills shortage in Australia and abroad has caused employers to get creative in their hiring practices. One such method used by employers across the world is a switch to skills-based hiring in which competency is prioritised above and apart from degree qualifications.

Skills-based hiring is a complicated process, however, that tends to require access to specific, assessable data. Today, we’re asking what skills employers are looking for in job candidates and how best to search for them.

Skills-based hiring

Skills-based hiring is five times more predictive of job performance than hiring for education and more than two times as predictive than hiring for work experience, according to McKinsey.

And the benefits go beyond job performance – workers without degrees tend to stay in their jobs 34 per cent longer than those with degrees.

“Employers are ditching degrees and embracing skills-based hiring – especially in the wake of skills shortages, post-pandemic college enrolment declines, and a widely acknowledged college affordability crisis,” said ZipRecruiter.

According to Opportunity@Work, so-called “degree discrimination” costs US employees whose skills were gained through alternative routes – such as on-the-job or less formal training programs – approximately 7.4 million jobs. In the US, approximately 72 per cent of surveyed employers said they prioritise skills over qualifications, and the share of jobs requiring bachelor’s degrees fell by 10 per cent between 2022 and 2023.

Australian employers appear to be sharing in the search for skills over qualifications. As noted by Deloitte: “[In Australia], relying on outdated methods for attracting staff, especially when coupled with the use of legacy systems in the back office,” can be detrimental to modern hiring practices.

“Skills-based hiring helps companies find and attract a broader pool of candidates who are better suited to fill positions in the long term, and it opens up opportunities to non-traditional candidates, including women and minorities,” said McKinsey.

What skills?

In looking for the right candidate, employers are searching for a combination of hard and soft skills. As noted by Jamie Kohn, research director in Gartner Research’s human resources practice, organisations are finding soft skills can be just as important as hard, technical ones.

According to ZipRecruiter, of the top three skills traits employers are looking for in potential hires, two fall under the umbrella of soft skills. Namely, work ethic and enthusiasm for the role. That said, work experience is one of the strongest indicators of soft skills. Without experience to fall back on, employers have to get creative in testing for soft skills.

“I know that if somebody worked in a given role for five years without getting fired, they probably developed the soft skills, whether it’s in customer service or another role,” said McKinsey partner Bryan Hancock.

“But if they’ve worked there six months, how am I confident they’ve got those skills? How do we develop interviews so that we, in a structured way, can test for some of the things that we know are important for the job?”

How to go about it?

As mentioned, assessing skills can be far more difficult and time-consuming than simply looking for evidence of educational achievement. According to Mr Hancock, a crucial part of the assessment phase is the interview. Analysing soft skills, in particular, requires asking the right kind of questions.

“You have to be able to go away from those generalised questions to some very specific questions: ‘Tell me an instance when you demonstrated X,’ but then let the person tell a story about some of their soft skills,” he said.

According to Mr Hancock, better access to and use of data will likely play a significant role in improving skills-based hiring. Specifically, generative AI will help hiring managers craft better job descriptions and can help identify the specific skills requirements needed for a particular role.

In realising the true benefits of skills-based hiring, said McKinsey partner Brooke Weddle, companies need to develop a clear strategy: “There’s all sorts of throwing spaghetti at the wall and saying, ‘let’s try out skills-based hiring, do some experimentation; that’s probably a good thing.’ But there’s not necessarily a clear strategy for how to take that forward.”

A skills-based hiring strategy needs to consider how to assess talent, what to do with the talent once it comes in, and how to think more broadly about building skills-based pathways, said Ms Weddle.