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REPORT

Beyond the buzz: Skills-based hiring is the way forward

Key takeaways

ONE

Accelerating skills requirements and emergent technology are prompting organizations to rethink the way they hire to fill widening talent gaps

TWO

Claro Analytics data revealed that across certain industries, specialized skills are being prioritized over traditional markers like degrees (for some, resulting in more pay)

THREE

A strategic skills-based model futureproofs workforces and ensures organizations can adapt to future job market and technology changes

Introduction

Is skills-based hiring all it’s hyped up to be?

81% of poll respondents are prioritizing skills-based hiring this yearIn a recent LinkedIn poll, when asked if they are prioritizing skills-based hiring in their talent strategy this year, 18% of respondents said no while a resounding 81% said yes.

Two multigenerational employees discussing a report with key skills labeled over their heads

This year, organizations are pressed for dynamic, agile talent programs that are resilient against shifting markets. And in today’s workforce of scarce skills and talent, no short-term solution appears imminent. Many organizations are turning to skills-based hiring as a future-forward movement for a variety of reasons spanning from declining birth rates, aging populations, drops in university enrollment and accelerating skills requirements. It’s prompted employers to rethink how to weigh education, experience and skills as success indicators. Now, conversations are around thinking more holistically about talent, including external talent and a more flexible workforce underpinned by skills-first tactics. Yet while momentum for the skills-based movement shows promise, it’s slow to execute — for a variety of reasons.

The journey to a skills-first approach is a long one, and Craig Sweeney, WilsonHCG’s EVP of global strategic talent solutions, says many companies are slow to adapt.

“A skills-first approach requires a degree of change management, especially within traditional companies where legacy hiring approaches are more deeply embedded into the business.” Craig Sweeney EVP of global strategic talent solutions

A skills-based model places emphasis on assigning roles and fostering development according to fundamental competencies, rather than relying on conventional criteria such as degrees or industry-specific backgrounds. While operating through a skills-based lens empowers organizations to be more dynamic, according to research from analyst Josh Bersin, only 7% of companies are considered “dynamic organizations,” or ones focused on constant innovation and both internal and external career management. Yet these dynamic organizations are three times more likely to exceed financial targets and 31 times more likely to engage and retain employees. Craig adds this move also helps attract broader talent pools and “boosts the overall strength and resilience of a company’s workforce.”

The transition to a skills-based hiring model requires a change in mindset and organizational structure entirely. To become a skills-based organization means intertwining talent acquisition and talent management pieces into a cohesive system around the skills engine itself so it doesn’t become an afterthought. This alignment of leadership is essential toward addressing common mismatches in hiring. For example, around hiring conditionally for skills yet promoting due to skills. How can you advocate for diversity of thought and people in the workplace if skills are kept in such a binary?

A man on his lapotop taking training courses for work about skills-based hiring and skills taxonomies

It’s clear from advanced technology adoption like generative AI that the way forward isn’t in whether someone has a degree, but whether they possess and can develop both core and inherent skills to thrive. This is where now, more than ever, a culture of continuous learning matters. Your organization must develop and nurture employees’ skills through ongoing training, mentorship, learning and development to sustaining a skills-based approach. It's the alignment of leadership and recognizing skills are not in a binary, but a spectrum of constant learning, where each person possesses a unique combination of abilities. So, you may be wondering, how are other organizations doing it? Where do you start? And what technology do you need to effectively track this data and embed it directly into the process for long-term success?

Skills-based hires have a 9% lengthier company tenureSkills-based hires are more loyal to their employers with a 9% lengthier company tenure compared with traditional hires according to BCG.

Although few organizations have truly embedded a skills-based approach across the employee lifecycle, it’s clear its principles, when embedded properly into the hiring process, lead to improving work models that encourage staff retention, career development and effective skills taxonomies. The key is mapping out a total talent model — a long-term strategy for both the internal and external workforce — that drives decision making across all areas of the business.

Research

Why is skills-based hiring important now?

Loyalty
Skills-based hires are more loyal to their employers with a 9% lengthier company tenure compared with traditional hires according to BCG
Diverse hiring
Skills-based hiring offers more opportunities for diverse hiring; McKinsey research revealed companies “in the top quartile for ethnic diversity were 39% more likely to outperform than those in the bottom quartile”

A male recruiter interviewing people based on skills at his laptop

Historically, work models functioned based on having large talent pools to pull from. However, today’s rapid transformation is driven by the combination of AI, lower birth rates, an aging population, climate change, skills shortages, and multigenerational working — all challenges leaders are facing. While skills-based hiring isn’t new, organizations willing to undergo a skills transformation and take a skills-based organizational approach are seeing success with building skills taxonomies and developing employees’ careers faster than those operating in more traditional models.

It makes sense — reframing someone’s skills, understanding how it relates to a role and helping them upskill solves both immediate and long-term scarcities. From there, identifying those skills and creating a skills taxonomy and ontology will accelerate organizational placements and fill the gaps more effectively in the long term than defaulting to only “buying in” talent. It’s no longer only about the “buy-build-borrow” model in relation to people and building them up out of college.

Skills Taxonomy
  • Hierarchical classification that organizes skills into categories and subcategories (often a tree-like structure)
  • Includes skills and levels of proficiency within each
  • Generally static and don’t reflect the dynamic relationships between different skills
Skills Ontology
  • A complex framework that categorizes skills and defines the relationships and properties between them
  • A formal representation that allows for detailed understanding of how skills interconnect and can evolve
  • Dynamic and adaptive, capable of incorporating new skills and changing relationships with evolving workforce and industry demands

Now, it’s about buying skills or the potential for skills, as well as soft skills like collaboration and leadership to drive outcomes. This is part of the restructuring element to an organization, as this affects the entire hiring and internal career progression areas of the business. Yearly performance reviews are no longer sufficient to drive business outcomes and retain current talent. Much of the time, traditional reviews focus on what to do moving forward, and aren’t a true retrospective of what employees know and have learned over the past year. Consistent feedback loops and forward-thinking conversations are more impactful between employees and managers. This means managers identifying skills employees have gained and how to evolve their role into the business’s larger strategic initiatives.

To solve gaps and upskill workforces, the onus comes to organizations to address these problems head on through its internal people, processes and technology.

[WEBINAR] Join our upcoming webinar on skills-based organization strategy.

TipWithout the proper technology, data and timing to drive competency tests and organizational taxonomy to gauge a person’s skills, skills-based models can easily dissolve or become stagnant. Taking the time upfront to understand what competencies and skills are needed to drive success in jobs is key. That’s why ontologies are an important part of the implementation process.

Woman getting a notification on her computer for candidates matching skills requirements for job requisitions

Job postings without qualifications are prevalent in all industries

A chart that demonstrates that job postings without qualifications are prevalent across many US industries

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Source: Claro Analytics

The transition to a skills-based approach isn’t unique to one area or market — it’s already happening across all industries. Data from Claro Analytics, a WilsonHCG company (below), shows that from IT to consumer discretionary (or non-essential goods and services), more and more roles aren’t requiring qualifications and instead are emphasizing adaptability, communication and problem-solving. While this varies by industry, as someone without specialized scientific training certainly can’t be trained to develop a vaccine, for instance, it stresses the importance of skills ontology, or understanding how skills interplay with each other in a market plagued by gaps and talent shortages.

A chart that demonstrates that job postings without qualifications are prevalent in the US financial services industry

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Source: Claro Analytics

Financial services is an industry seeing a rise in job postings not requiring specific qualifications, standing at 27.3% in February 2024 compared to 25% in March 2023 according to data from Claro Analytics. This suggests a steadily upwards trend toward companies valuing transferable skills such as market awareness and analytical abilities. Additionally, the evolution of fintech shows the emergence of new roles and opportunities in this sector.

Now, globally, people have multiple careers throughout their working lives — the average person has 12 jobs in their lifetime from ages 18 to 56 according to the US Bureau of Labor Statistics. Accommodating how we assess their skills will help organizations stay agile and cross-functional. It’s no longer about whether someone applying for a receptionist job knows a specific software or phone system at a doctor’s office, for example, but rather, do they have the core interpersonal skills to collect and verify patient information and insurance details? This is part of the mindset shift required to successfully implement a skills-based model as people continue moving across industries and careers. And if they don’t know, can they be taught?

Two blue collar workers discussing something over a laptop using the strength of their skills

Furthers diversity, equity, inclusion and belonging (DEIB)

Traditional hiring methods can unintentionally perpetuate biases by favoring candidates with certain educational or professional backgrounds. Evaluating people based on skills and skills potential and not education furthers equity in an organization by widening talent pools to those who may have been disqualified in the past due to social disadvantages and unconscious bias in the hiring process. Plus, it’s been proven time and time again that diverse teams perform better, achieve financial goals and bring innovative solutions. Companies with above-average diversity in their management report innovation revenue 19 percentage points above those with more homogenous leadership according to BCG. Including people who may have followed non-traditional career paths or acquired skills through alternate means such as self-directed learning or vocational training also expands the talent pool, helping tackle ongoing shortages directly.

Now, more than ever, the right skills taxonomy to identify which people have the acumen to tackle company challenges will make a huge difference in creating a better future of work that proactively addresses shortages. It allows organizations to tap into diverse perspectives and experiences that would’ve otherwise gone unheard.

This includes aligning those with military careers or unconventional backgrounds — it will simplify transitioning careers and make understanding how skills transfer much easier and seamless for everyone involved.

Industry insightCurrently, the US and companies with large US workforces are the leading adopter for skills-based hiring, but other regions, including the UK and Australia, are also seeing decreased degree requirements according to BCG.

Now, what does a skills-based model look like?

[WEBINAR] Join our upcoming webinar on skills-based organization strategy

How to

What does a holistic, skills-based talent model look like?

A high-level overview to skills-based hiring:
  1. Identify skills your organization needs and how they interplay both short term and long term
  2. Enlist top-down support and change management from leaders encouraging people to adopt a new mindset shift
  3. Plan proper technology and governance to sustain and implement a skills taxonomy long term

Cataloging gaps for your skills taxonomy

Embarking toward a holistic talent model starts with knowing both your current and potential future skills gaps. Ask yourself: how are you currently trying to solve skills gaps to meet every employee where they are in their personal journey? Addressing existing gaps paves the way for employees to upskill and develop their careers — which helps employers with extra engagement and retention in the long run. It’s a win-win situation for both the business and employees. Additionally, it’s especially important to factor what skills different generations have, and what will eventually need to be replaced as Baby Boomers continue to retire.

Man searching for talent and seeing a skills shortage in generative AI

This step alone is a major overhaul, as creating a database of current employee skills, including existing workforce and job titles, is no easy feat. It requires continuous effort combined with strategic technology. Many organizations have yet to integrate a skills map so it seamlessly intertwines into everyday processes, which is why many of these skills projects start and then stagnate. Buy-in from both employees and managers on assessing skills is needed to move the needle and set a strong foundation for your skills analysis.

4 considerations when conducting a skills analysis:
  • Robust strategic workforce planning and forecasting will provide guidance on skills your organization currently needs
  • Include soft skills such as problem-solving, creativity and emotional intelligence when mapping skills across your company
  • Factor both current and future technology you'll need to build a skills taxonomy as you map out skills and blueprint internal and external jobs
  • When exploring AI solutions, be cautious that your usage is both ethical and responsibly sourced — as consent to data usage (especially from employees) is of the utmost importance

Start your skills-based journey with an interactive skills map

Now that you’ve mapped current skills, gaps and future skills needed, you’re ready to build it all in a framework.

Developing a skills taxonomy and ontology

A diagram that showcases skills ontology vs skills taxonomy

Click to expand

Organizations increasingly need a deeper understanding of core competencies of their workforce. A skills taxonomy is a structured framework that categorizes the skills within an organization, while a skills ontology is a framework that also defines the relationships and properties between roles. In essence, a skills ontology provides a more nuanced and interconnected view of skills, which can be particularly useful for organizations looking to deeply understand and leverage the competencies of their workforce. On the other hand, a skills taxonomy offers a straightforward way to categorize skills without the detailed interrelationships. Both function as an ecosystem on how skills interconnect and can evolve over time. It’s essential to remain dynamic when it comes to cataloging skills, as workforce and industry demands are expected to continuously change, and ontologies show an interconnected, nuanced view of skills, while the taxonomy identifies and defines them.

Additionally, for long-term success, skillsets must be updated regularly by employees so managers and talent teams can verify and assess them. This approach goes beyond adding these once into a master repository — because of the half-life of skills, it’s vital to assess new and existing ones together to ensure it’s updated.

Key benefits of implementing a skills taxonomy

Framework for skills gap analysis:
It provides a clear structure to identify and analyze skills gaps within the organization, allowing for targeted development initiatives
Effective employee deployment:
By understanding the skills available, organizations can allocate resources more efficiently and deploy employees where they can have the most impact
Nurturing talent:
A skills taxonomy helps in recognizing and developing the talent within the organization, ensuring that employees’ skills are aligned with business needs
Supporting talent mobility:
It facilitates internal mobility by providing a clear pathway for employees to transition between roles or projects based on their skills
Enhanced employee experience:
Employees benefit from a more personalized career development approach, leading to higher job satisfaction and retention
Optimized recruitment process:
With a skills taxonomy, recruitment can be more precise, matching candidates to roles based on required competencies and skills
Competitive advantage:
Organizations that effectively manage and develop their talent can gain a competitive edge in the market
Futureproofing:
A well-maintained skills taxonomy ensures that the organization can adapt to future changes in the job market and technology

AI on a laptop asking how it can help today with a prompt

Integrating AI and technology systems

Operating with a total talent approach means utilizing technology effectively to shift to a skills-based model. This will drive ongoing adoption, as part of the value of a skills-based organization comes from the synchronization of skills mapping taxonomy through all business lines.

A slide that demonstrates WilsonHCG's Total Talent thinking

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For many, this has meant relying on legacy technology systems to provide solutions for things it wasn’t originally designed to do. Older HRISes have skills libraries that get stored and are neglected or forgotten about, never being applied in day-to-day training or cross-functional exploration for employees. Now, however, leaders need to adopt, adapt and implement the right technologies and change management to maximize business impact. This clarifies everyone’s role for a smoother implementation process beyond technology.

Once you’ve defined skills and understand your business gaps, it’s time to apply the skills data in your desired technology stack, including correlating skills and tracking them.

NoteYou’ll need a strategic combination of technology and processes to update skills on a regular basis, because any technology (especially AI) requires a level of governance and program management.

Following our earlier example, many phone systems and software that receptionists use become obsolete over time — so prioritizing the core skill of interpersonal skills will matter most when placing talent in roles and cross-functional projects. That’s how your skills taxonomy and ontology will help you classify and apply roles. This level of adaptability is how the shift to becoming a truly skills-based organization happens.

Generative AI use will be a major player here, as once you set up your skills classifications, expert implementation can ensure automation on skills classifications so you can better track lateral career movements, progression and alignment for talent. In 2024, 26% of EMEA-based organizations are adopting AI to conduct pilot projects according to Everest Group’s research. Companies are investing in a wide range of product offerings to fill gaps in technology stacks, so it’s important to do a thorough audit to understand cost and value to communicate ROI later down the line.

A Everest slide that demonstrates generative AI across the talent recruitment value chain

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Source: Everest Group®

Futureproofing your workforce

Once your skills-based model is more mature, you can then look holistically at both internal employees and external people to fill your gaps. From there, you’ll have the tools to forecast skills and futureproof your workforce.

For internal employees, developing your internal mobility program helps target underrepresented groups, untenured individuals and those finishing or starting big projects. It also provides an opportunity to upskill, reskill and implement continued training toward other roles. Prioritizing this in your talent model retains top talent and supports your own internal gig economy, where employees can expand their skillsets — sometimes even making lateral moves in the business for continued learning and development.

You can look to external employees on a short-term basis to “buy” skills in and plug current gaps, such as experienced hires (the “buy” part of the buy-build-borrow model), flexible workers, contractors, and early careers workers. It also gives you a clear indicator to plan future hiring efforts if budgets currently can’t sustain a larger, full-time workforce.

TipA skills-based model can also bridge generational gaps by reskilling aging employees, as well as upskilling early careers workers.

Man looking off to the side thinking about skills taxonomies and ontologies in his organization

Implement ongoing assessments to validate skills

A major piece to cross-comparing skills and sustaining a skills-based model is creating a spectrum that’s used to benchmark your organization’s people. For example, for communication as a skill, how can you best validate the skillset in your technology on a scale of 1-5 and correlate its tracking in Workday or another software system? This competency-based testing helps employees not only validate their skills but empowers them toward experiential learning and engaging with opportunities and projects to develop and grow. It provides clarity on both existing and desired skills in an engaging way.

This is how you’ll continue to better track meaningful, ongoing career progression for employees. Oftentimes, leaders look to talent partners to help handle this aspect long term, as it can be an administrative burden on internal talent teams. For mature skills-based models, the question evolves to: How can you use automation of your skills taxonomy to upskill on an ongoing basis?

Change management and cultural shifts

A WilsonHCG slide that explains how to acheive skills-based hiring

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The change management piece to shifting to a skills-based model cannot be overstated in its importance. Taking a phased approach that keeps people looped in from the beginning will garner the best results. Ownership for the shift to a skills-based approach — and at large, a holistic talent model — is dependent upon alignment between talent acquisition, HR and talent management teams for a solid change management foundation.

TipIt’s vital early on to gain buy-in from the C-suite, including the CEO and CHRO, as this helps remove cultural barriers and communicate the value of a skills-based approach to the rest of the organization.

For internal talent acquisition departments, it’s helpful to get support from hiring managers most receptive to seeing the value of thinking skills-first instead of qualifications-first. Restructuring job specifications and role assessment is a major step in the skills-based shift. Unfortunately, many hiring managers are accustomed to only reading conventional qualifications to evaluate someone’s ability to fulfill a job description. It’s important to both coach and train hiring managers on the benefits of moving to a skills-based model and differing assessment style to determine an individual’s role suitability.

TipConsider running a smaller pilot program where you identify skills and demonstrate internal success stories for buy-in. A talent partner can facilitate this for you, as well as technology consulting and proper change management to shift to a skills-based model.

Conclusion

Thinking in a skills-based, total talent model

By adopting a skills-based approach, organizations can become more agile and ensure they’re prepared for the evolving demands of the modern workplace. The road to a skills-based workforce is long, but it encourages loyalty, retention and career growth, while evolving systems to be more equitable and cost-effective. Putting in the work for a skills-first model is worthwhile, but it requires change management from the top and a solid implementation plan for the long term.

Contributing authors

Alicia O'Brien

SVP, innovation & customer success

Janine Chidlow

Managing director

Craig Sweeney

EVP, global strategic talent solutions

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