In today’s competitive labor market, attracting and retaining skilled workers has become a critical operational challenge. According to McKinsey research, a staggering 87% of companies are either currently experiencing a skills gap or expect to face one soon.
The growing demand for skills and workforce agility is magnified by the transformative shifts brought on by artificial intelligence (AI). As a result of these shifts, 90% of executives surveyed by Deloitte said their organizations are actively experimenting with skills-based hiring practices, weighing capability over educational pedigrees.
Despite enthusiasm for the concept, few companies are successfully implementing a skilled-based hiring strategy across their organizations in a consistent and effective manner. Many appear to commit to being “skills-first” in name only, with no substantial changes made to their hiring practices beyond simply removing stated degree requirements from their job postings.
Implementing a skills-based hiring strategy that goes beyond superficial commitment and drives lasting impact is no easy feat—but it’s well worth the effort. Let’s explore three key steps that HR and business leaders can take to successfully make this transition and fully realize the benefits of skills-based hiring.
Step 1: Embrace Skills Taxonomies to Avoid Flying “Data Blind”
Skills data is the foundation of any successful skills-based hiring strategy. Yet, unfortunately, many companies today fly “data blind” with regards to the skills they need for transformation. According to Gartner research, 53% of leaders identified an inability to pinpoint necessary skills as the biggest obstacle to workforce transformation, and 31% admitted they have no means of identifying market-leading skills.
Without a clear understanding of the specific skills that need to be nurtured or acquired, organizations risk inefficient hiring processes, poor talent alignment, and missed opportunities to capitalize on the potential of their workforce. This is where a skills taxonomy becomes indispensable, serving as a foundational guide to direct and inform the entire skills-based hiring journey.
Developing a skills taxonomy involves meticulously identifying, categorizing, and defining the skills required across various positions and levels within the company. It should be comprehensive, examining skills currently in your organization across the entire catalog of job descriptions, business units, and locations around the globe, and covering both hard and soft skills. It should also outline the hierarchy of skills, indicating which skills are foundational and which are advanced, and how they interrelate.
Once a skills taxonomy is in place, it is crucial to align job descriptions with it, adding or removing skills that might be driving talent gaps, extending fill times, and unnecessarily inflating price points. Standardizing the language used in job postings to reflect the taxonomy will enhance the accuracy of candidate matching and ensure both recruiters and job seekers have a clear understanding of the expectations for each role, setting both parties up for success.
Step 2: Broaden Talent Requirements Beyond Traditional Constraints
Once an organization builds a skills taxonomy and identifies the competencies central to business success, the next step is translating those insights into actionable changes throughout the hiring journey. This involves updating talent acquisition and hiring processes to emphasize skills rather than credentials.
Some roles may still rely on formal education, specific degrees and years of experience. However, for many positions, these traditional benchmarks are no longer accurate indicators of competence and shouldn’t be the sole criteria. In fact, LinkedIn research shows companies that prioritize skills are 60% more likely to make successful hires than those that rely on credentials.
To avoid inadvertently excluding candidates who possess the necessary skills but lack traditional qualifications from the talent pool, HR and business leaders should be open to accepting alternative credentials beyond college degrees, such as certifications from online courses or bootcamps. Job posting should also highlight transferable skills, allowing candidates to showcase abilities that can be applied to different roles and industries.
Additionally, AI-enabled remote skills assessments are a valuable tool to empower organizations to evaluate candidates’ competencies through practical, scenario-based tests that simulate real job tasks. This allows leaders to objectively measure a candidate’s ability to perform the required tasks, regardless of location and background, enabling fairer evaluations and reducing the influence of bias that can often occur in traditional hiring processes. Skills assessments also facilitate personalized learning and development and upskilling opportunities by identifying candidates’ existing competencies and skills gaps.
By implementing these changes throughout the hiring process, organizations can tap into a wider and more diverse talent pool. When removing barriers like degree requirements that hinder marginalized groups and creating an environment where all employees have equal access to opportunities, companies can enhance employee engagement, satisfaction, and innovation.
Step 3: Expand Candidate Sourcing Channels
To effectively implement a skills-based hiring strategy, organizations must adopt a strategic growth mindset and diversify their channels, methods, and markets for sourcing candidates.
As organizations increasingly move towards a skills-based hiring model, many will rely more heavily on a contingent workforce, leveraging freelancers and contractors with unique expertise to fill skills gaps quickly. This approach allows companies to scale up or down based on project needs, ensuring they have access to specialized skills when required without committing to long-term hires.
Adopting a remote-first strategy serves as another powerful method used to accelerate skills-based and contingent hiring by eliminating geographical barriers that often restrict access to skilled talent. Magnit’s Summer/Fall 2024 U.S. Labor Market Report showed that sourcing difficulties vary significantly by region and skillset. For instance, IT and automation skills have proved difficult to source in the Northeast, with skills like IT application architecture taking 45 days, on average, to fill.
By adopting a remote-first approach and focusing on talent landscaping in different parts of the U.S., organizations can tap into a global talent pool of specialized workers, allowing them to attract skilled candidates based on their competencies rather than their physical proximity.
The Next Era of Work is About Skills, Not Degrees
Tomorrow’s workforce will be largely defined by skills, not degrees. Organizations that embrace this mindset and implement a skills-based hiring approach now will be better positioned to foster innovation through their diverse and highly qualified workforces.
Dustin Burgess, Senior Vice President of Strategic Advisory at Magnit.