"Skills-based hiring" — it's a phrase that's on everyone's lips, but what is it? How did it evolve? Is it useful? What does it mean for employers and the future of recruitment? Let's find out.

What is skills-based hiring?

This recruiting practice assesses potential employees based on their abilities as opposed to their degrees or certificates. Rather than eliminating or pushing job-seekers through to the next round of interviews according to what's on their CVs, organizations are selecting new workers who, simply put, are capable of doing the job.

Such competencies include great verbal and written communication, critical thinking and problem-solving. Some employers evaluate a candidate's suitability by administering tests designed to see if a candidate has the skills they claim.

Why have organizations moved toward it?

As Harvard Business Review explains, employers have begun to add formal qualification requirements for the same job descriptions in what's become known as "degree inflation." It's been the norm to see prerequisites like "bachelor's degree" and "at least 3 years of industry experience" in a job listing.

These stringent conditions have alienated vast swathes of potentially excellent workers by discarding their applications without a second thought. Rising numbers of organizations have recently realized this and adapted their recruitment process accordingly.

The "Great Resignation" that began in 2021 saw employees quitting their jobs en masse, resulting in a massive and widespread labor shortage. As Entrepreneur explains, employers are coming to understand that if they want to fill their vacancies, they need to look beyond a university transcript.

What are its advantages?

The primary benefit of adopting a skills-based hiring approach is obvious: the employee talent pool expands considerably. 

Secondly, employers are more likely to find the right person for the available position when they don't focus on formal qualifications. The person with a commerce degree who can crunch numbers won't be right for the marketing position, but the person without a degree who understands consumer needs will be.

Furthermore, employers who adopt a skills-based hiring approach enjoy greater employee retention: a study conducted by Harvard Business Review found that workers hired based on their prowess stay with their employer almost 35% longer than hires based on their certifications.

Additionally, as Vervoe explains, minorities such as people of color have been subject to systemic oppression that prevents them from obtaining a university degree or even completing high school. Skills-based hiring allows companies to improve their diversity, which is crucial for success.

What are its implications?

As more organizations turn toward skills-based hiring, those who don't will be left in the dust. Job-seekers themselves are increasingly realizing that their capabilities are far more valuable than their education and tend to mistrust employers who prioritize the latter over the former.

Between employers needing to fill vacancies and qualified candidates becoming more discerning over the companies to which they apply, hiring managers will need to reassess their hiring practices if they want their organization to stay relevant and competitive.