“We’re going to need jobs that are skills-based, don’t necessarily require college degrees, and are collocated in communities where they could use [them],” said Eric Chewing, McKinsey partner, on the state of US manufacturing.
According to our 2022 State of Skills-based Hiring report, we found that 76% of employers use the data-backed, hiring method to identify and recruit talent directly leading to 91% of companies seeing an increase in workplace diversity.
But are these results replicable across all industries, including manufacturing? In other words, can companies implement skills-based hiring regardless of their sector?
If you’re asking yourself similar questions, you’re not alone.
In this article, we’ll examine why skills-based hiring is on the rise, which industries have embraced it successfully, and which ones show more resistance and why. This will allow you to understand how skills-based recruitment can be used across various sectors successfully.
Table of contents
What is skills-based hiring?
Skills-based hiring is a recruitment practice that involves hiring applicants based on their quantifiable skills rather than assessing them purely based on their resumes or university degrees.
Resume-screening practices can be bias-prone and yield inaccurate results. For example, more than one-third of Americans admit to lying on their resumes. Instead, hiring managers and recruiters use scientifically backed tests or assignments to verify the applicant’s skills early in the hiring process.
This approach creates a fairer, more objective hiring experience for candidates. That’s because skills-based hiring is about screening candidates based on their ability to do the job not previous work experience, university degrees, or professional connections. This approach produces employees that are more likely to succeed at their jobs and stay with your company longer.
There are two main types of skills-based hiring:
- Tests are the most popular method, according to our State of Skills-Based Hiring report. They can focus on a candidate’s hard skills, like coding or foreign languages, or soft skills, like communication and people management. Alternatively, multi-measure assessments, a combination of different tests, measure a candidate’s cognitive abilities, personality traits, and values.
- Assignments involve giving candidates take-home assignments or asking them to submit a mock work sample. These let people demonstrate their ability to handle the different types of challenges they’re likely to face in the role.
Want to learn more about skills-based hiring, its history and development, and why it’s a fairer way to build future-proof teams? Check out our guide to The rise of skills-based hiring: past history and current trends.
Why is skills-based hiring on the rise?
Skills-based hiring has been a growing trend since 2019 and is being adopted globally. In fact, in our 2022 State of Skills-based Hiring report, almost 40% of respondents said they plan to increase their budget on skills-based hiring in the future. Some of the key drivers behind this popularity include:
- The shift to remote or hybrid work: the current move towards distributed work models increases the need for skills-based hiring because it lets you find and assess talented individuals from all over the world.
- The rise of automation and new tech: having certain specialist knowledge is no longer enough to excel in a role thanks to advancements in technology. Machines are increasingly able to match us on hard skills so companies use skills-based hiring to test for people’s ability to adapt, communicate, innovate, and comprehend.
- The Great Resignation and Reshuffle: in early 2021, workers started to quit their jobs en masse and look for more satisfying roles, sometimes in different industries. Skill assessments make these transitions easier because they help you identify transferable skills and tap into people’s potential.
- Disillusionment with traditional, lengthy hiring practices: resume-based hiring methods pose significant barriers to entry for fresh graduates and Gen Z workers who haven’t had the chance to gain experience in their chosen field. However, skills-based hiring levels the playing field and provides a more equitable experience for the candidate.
- A desire to reduce hiring costs and mis-hires: according to our findings, companies that adopt skills-based hiring reduce the number of mis-hires by up to 92.8% and the overall cost-to-hire by almost 89.8%. That’s because this approach lets you quickly filter out those who aren’t suitable for the role so you can dedicate your resources to your top candidates.
- Growing awareness of D&I in the workplace: 91% of employers who hire candidates based on their skills and merit see an increase in workplace diversity. And while the most important reason for organizations to practice D&I is the social benefit, there’s also a causal link between diverse and high-performing teams. For example, gender-diverse teams are 25% more likely to financially outperform less diverse companies, while ethnically diverse teams are 36% more likely to.
However, despite its business benefits and growing popularity, skills-based hiring isn’t as widely used in every industry. Here’s why.
Skills-based hiring by industry
Despite skills-based hiring becoming increasingly common in a variety of industries, it’s still far from the norm across the board. Let’s take a look at which industries have already adopted this approach and which ones are on their way.
One of the early adopters of skills-based hiring in the tech industry was IBM, which in the early 2010s began to shift away from traditional hiring methods in favor of skills-based recruitment. This change was mainly driven by the need to attract and retain skilled workers in a rapidly changing technology landscape.
“We were staring at a shortage of skilled tech employees,” said Nickle LaMoreaux, CHRO for IBM, in an interview with Gallup. “The half-life of skills is shortening, and two-thirds of the [US] adult population doesn’t have a bachelor’s degree… They say necessity is the mother of invention, and that’s [where] we found ourselves about 10 years ago.”
Since 2019, skills-based hiring has been gaining popularity in the tech industry. With tightening margins and increasing difficulties in acquiring qualified individuals, HR teams look for ways to validate their hiring decisions and reduce the chance of mis-hires.
Additionally, tech is a knowledge-intensive sector where skills can go out of date quickly. So companies need to look for employees who meet the constantly-evolving set of technical skill requirements. Finally, skills-based hiring relies on up-to-date technology to be implemented most effectively. This gives the tech industry the edge, specifically when hiring for roles in telecommunications, marketing, broadcasting, and publishing.
To differentiate candidates from each other, tech HR professionals focus on skills assessments for:
- Hard skills like Node.js, CSS, and React Native
- Soft skills like attention to detail, problem-solving, and critical thinking
- Personality and culture add tests like 16 types and the Enneagram
Applying these tests helps you hire candidates that stand out for their technical ability, while also discovering what motivates them and how they’ll best fit in with the team.
[Skills-based hiring allows many technology companies] to maintain flexibility in employee recruitment, enabling them to adjust quickly based on their needs at any given time. [They’re] able to weed out candidates who don’t fit their criteria very quickly based on their performance and can grow at a far quicker pace…Annie Morris, the editor in chief at Made in CA
2. Creative industries
Compared to the tech sector, skills-based hiring is a relatively new practice in creative industries such as design, media, advertising, and film. That’s because historically, they’ve relied heavily on traditional hiring methods like reviewing portfolios, resumes, and references to evaluate applicants.
However, in recent years, there’s been a growing recognition that skills-based hiring can be beneficial in the creative industries as well. This shift has been driven by several factors, including the increasing use of technology in the creative process and the need to stay competitive in a rapidly changing market.
For example, many design firms now use skills assessments, such as design challenges, to evaluate candidates and identify the best fit for a particular role. This approach has been especially popular in the field of digital design, where specific technical skills are often more important than general experience.
Let’s look at Adobe, for instance. After submitting their application and conducting a series of introductory interviews, candidates are given a “take-home” assessment. Depending on the role, these can include a role play, coding, or writing assignment. Adobe designs these assignments to give their candidates a better idea of the day-to-day work involved.
Adopting a new way to recruit is also gaining importance in advertising. According to Forbes, this sector is struggling with “elusive consumers who actively avoid it.” Customers are looking for innovative campaigns that foster an emotional connection and brand relevance. This puts pressure on advertising agencies to hire individuals who can modernize their creativity and utilize technology to meet consumer demands.
By assessing individuals based on their technical and creative skills, agencies can hire individuals to help them differentiate their brand and drive innovation. Not to mention empower their employees by “automating the boring work [with AI] and elevating the fun work.”
As the creative industries continue to evolve and technology continues to play a bigger role in the creative process, we can expect to see more and more companies embracing skills-based hiring as a way to identify the best candidates.
Despite the benefits of reducing mis-hires, cost-to-hire, and time-to-hire, skills-based hiring is still relatively uncommon in manufacturing roles and blue-collar jobs. That’s mainly because manufacturing roles often involve machinery and manual labor, so many companies don’t see much value in hiring workers remotely and testing their skills beforehand.
Additionally, pre-employment assessments can’t test for practical job-specific skills. For example, you could test a candidates theoretical knowledge on the area of HVAC repair, but knowing if they can actually repair an AC unit is another matter.
But companies in logistics and manufacturing can’t hire fast enough. And pre-employment assessments can speed up the recruitment process along with improving the quality and retention rates of hires made. That’s because these assessments help the candidate make an informed decision about whether the job is right for them.
Implementing skills-based hiring … may seem more daunting for businesses that employ blue-collar workers – but this approach soon becomes intuitive, especially as it makes a huge difference to how quickly and effectively recruiters and HR managers can assess candidates.Eva de Mol, a co-founder of Capital T
There are different ways to test the suitability of candidates for a given blue-collar position including:
- Job simulations are typically conducted during interviews. Candidates are placed in a hypothetical situation and asked to solve a relevant problem. For example, an audio/video engineer is asked how they’d handle signal loss during transmission.
- Job trials involve you putting a candidate in their future work environment and having them perform on-the-job tasks. This gives you a good overview of the candidate’s skills and aptitude, but this might not be practical for jobs where additional training is needed.
- Pre-employment skills tests help you assess a candidate’s skills and ensure they fit the job. You can test them for cognitive abilities, role-specific skills, and assess their attitudes and behaviors with various kinds of personality tests.
The best approach to hiring for blue-collar roles is a combination of skills assessments for all or most candidates and a job trial or a job simulation for shortlisted applicants. This gives you much more accurate and reliable results.
Want to learn more about hiring for blue-collar roles? Check out our guide to Why are pre-employment assessments useful for blue-collar jobs?
One example of a company that uses skills-based hiring in the manufacturing industry is GE Appliances, a global manufacturer of household appliances. This company uses the approach to find employees with specific technical skills and experience like CNC machining, robotics and automation systems, Python, and C++. They also test for problem-solving skills, critical thinking, and the ability to work in multidisciplinary teams. And according to their official Glassdoor page, this method is highly popular among candidates, with 82% of them reporting a positive interview experience.
Overall, the shift towards skills-based hiring in the manufacturing industry is part of a broader trend toward a more flexible workforce. Companies are recognizing that in order to remain competitive, they need to be able to quickly and efficiently respond to changing market conditions, and that requires a workforce that is highly skilled and adaptable.
4. Service industries
In 2023, skilled-based hiring is starting to gain momentum for service roles like customer success managers or shop assistants, and in the service industry at large. Of the companies we surveyed, more than half (58%) have adopted skills-based hiring in the past two years.
One of the factors influencing this shift is the growing focus on customer experience (CX). To remain competitive, businesses need to provide a high-quality customer experience, and this requires employees who have the right skills and abilities.
For example, a study by McKinsey into the future of CX found that despite heavy investments into various tools and technologies, employees still fail to understand their customers more deeply. That’s because survey-based measurement systems aren’t as effective anymore. “For organizations to lead from a customer-centric position, they increasingly need… [to obtain] deep, granular insights on what is driving [CX.]” To do that, companies require people who know how to aggregate and analyze vast data sets.
In addition to technical skills, service-based businesses are also emphasizing soft skills – like communication, problem solving, and emotional intelligence – to provide a more personalized and proactive customer service experience. So it makes sense for service workers to be tested on their ability to handle face-to-face interactions and communication.
Skills-based hiring helps the service industry hire people with the right skills, making employees a better fit for the job at hand. It also simplifies identifying transferable skills and finding competent workers without previous service-based experience that have the skills and mindset necessary to succeed.
We [use] skills-based hiring at [our company because] we believe that having a diverse set of skills helps us improve customer service, increase productivity and creativity, and ultimately meet our customer’s needs.Lisa Dietrich, Partner at girokonto.io
The education sector has been slow to adopt skills-based hiring. That’s mainly because education relies heavily on degrees and qualifications – perhaps more than any other sector. For example, individuals need a Qualified Teacher Status (QTS) to teach in most state-maintained schools in the UK. However, they would need to have an undergraduate degree or equivalent to obtain QTS.
Additionally, the main priority of many institutions is to prevent cheating among applicants, especially when assessing a large number of individuals from the same school. Using the same test for all candidates who have a pre-existing relationship makes it harder to obtain accurate results.
However, focusing purely on academic accomplishments and certifications leaves this industry vulnerable.
Educational institutions famously fail to prepare students for a labor market focused on skills and individual capabilities. Because of this, we’ve seen drastic shortages in skilled talent, gaps in opportunity in the labor market, and rising unemployment and underemployment among graduates.
In fact, underemployment rates are highest for older Gen Z (born 1997 to 2012) workers. Our study found that generally, employers prefer to hire teen workers for low-skilled jobs and younger millennials for roles that require more experience, leaving many fresh graduates stuck in the middle. As a result, many of these individuals are forced to find employment in low-skilled roles that often don’t align with their career objectives.
And since fewer students are pursuing higher education, educational institutions need to emphasize skills-based learning and hire educators with the specific skills to develop future-proof graduates.
For example, in response to the growing demand for workers with skills in science, technology, engineering, and mathematics (STEM) fields, many schools and universities have begun to prioritize hiring educators with backgrounds and experience in these areas. This allows them to offer students a more hands-on, experiential learning approach and better prepare them for careers in these in-demand fields.
Skills-based hiring: building resilient teams no matter the industry
With skills-based hiring, it’s easier to build and retain diverse and aligned teams with the necessary skills to thrive in your organization. And organizations, regardless of their industry, report staggering improvements in their recruitment metrics after adopting skills-based hiring practices. Most notably, 92.5% of businesses reduced mis-hires, 91.4% cut their total time-to-hire, and 89.8% decreased their total cost-to-hire
Skills-based recruitment is being embraced globally, with almost 40% of our survey respondents saying they plan to increase their budget on skills-based hiring in the future. However, some industries implement this approach more widely than others.
Our data shows that skills-based hiring is used most often in the tech industries but has been met with more resistance in the education sector, where reliance on degrees and qualifications is still strong. Ultimately, different industries use skills-based recruitment in unique ways to fulfill varying needs. By using a data-driven approach that matches individuals with the roles that best fit their competencies, you can achieve a more diverse and high-performing workforce across all positions.
Want an efficient way to recruit skilled individuals in your industry? Skills-based hiring helps find the best candidates for your open positions. Download the report to learn more.
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