Blog post

Why skills-based hiring will be more important than ever in 2024

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4 minutes

HR experts are predicting that the traditional hiring process will not be enough to help employers address skills shortages in the coming year - particularly in sectors such as financial services and telecoms. We examine why companies, candidates and employees could all benefit from a skills-first approach to talent management.

Skills took centre stage in the world of talent management in 2023. The European Union launched its Year of Skills; skills-based hiring was a key topic of discussion for the World Economic Forum at Davos; and skillstech was lauded as one of the hottest topics in HR by a host of leading experts.

And 2024 will prove that this is no flash in the pan. 

A swathe of HR communities and publications are predicting that skills-based practices, and skills-based hiring in particular, will be one of the major trends to characterise the coming year. 

HR Daily Advisor writes: "Early adopters of skill-based hiring in 2023 saw significant returns in KPIs such as reduced time to fill open positions, cost per hire, and an increase in diversity. The future of talent acquisition will likely see many teams carry skills-based hiring into 2024."

HRD writes: "HR leaders should increasingly prioritise skills-based hiring, which involves identifying core skills required for a role and matching candidates based on their proven abilities, regardless of their formal education. This approach broadens the talent pool, allowing access to diverse candidates with relevant competencies who might not have traditional qualifications."

The Society for Human Resource Management (SHRM) writes: "2024 is the year when organisations make skills-based hiring and internal talent mobility a reality for their workforce. It's time to help eliminate bias from talent in terms of who should do what job and why. The way to do that is to ensure external hires aren't prioritised over internal talent mobility and that hiring focuses on the skills people have." 

Let’s look at a few of the good reasons why skills will become even more important in 2024, and why skills-based practices will continue to rise in prominence. 

Skills shortages are worsening

Many western nations have had low birth rates for decades. Elsewhere, Japan has notably experienced the same. This has led to an ageing workforce, and a growing proportion are now reaching retirement without employers having the skills to replace these experienced professionals. 

The situation has been exacerbated by the COVID-19 pandemic. Some older professionals that lost their jobs during the pandemic simply decided to never come back to work, with estimates suggesting that as many as 2.1 million US workers decided to take early retirement. 

With fewer skilled workers in the talent pool, there has been a notable power shift. Workers that possess in-demand skills are now in charge, with the growth in hybrid working only making it even easier for professionals to change jobs. It is estimated that a third of US workers changed jobs in 2022, with many of those also changing industry, demonstrating that there is an unprecedented level of mobility in today’s workforce. In other words, skilled workers are increasingly hard to recruit, and even harder to retain. 

Some of the hardest hit industries include financial services, with the Financial Services Skills Commission (FSSC) estimating that the sector could contribute an additional £555.6 million per year to the UK economy alone if it closed its skills gaps. 

Telecoms is similarly facing significant talent shortages, after years of low recruitment, retiring employees (more than 60% of the engineering workforce are past the age of 50), and a lack of trainees/graduates to top up the talent pipeline.

Skills requirements are changing

Digital transformation is rapidly and dramatically altering the skills landscape - with a growing number of professions and skillsets being rendered obsolete by technological evolutions, and an entirely new set of IT-focused skills and jobs emerging. The OECD estimates that 1.1 billion jobs are liable to be radically transformed by technology in the next decade. 

Keeping up with these changing requirements is proving to be extremely challenging. The half-life of skills -  the period of time a skill is innovated, flourishes and then becomes irrelevant - is shortening, with estimates suggesting that it dropped from five years at the end of the last decade to now only four. But IBM has even suggested that for technical skills this has now dropped as low as 2.5 years. In other words, the average worker now needs to learn new technical skills twice as often as they did only a few years ago. 

This is having a dramatic impact on the skills landscape, and exacerbating skills shortages. 

73% of financial services jobs are now classified as highly skilled (managerial and professional roles), up from 52% 20 years ago. With investment in skills across the industry failing to keep pace with changing skills needs, the FSSC estimates that 160,000 workers across the industry (16% of the workforce) currently require upskilling.

It is a similar story in telecoms, where growth and development are taking place at breakneck speed as advances in fixed and mobile connectivity gather pace. With Manpower research indicating that 45% of telecoms firms have identified a deficit of digital/IT skills within their current workforce, many are hoping to hire in the skills. However, the same study reports that 42% say there is a specialist digital/IT skills gap in the labour market, raising the prospect of a massive shortfall in technical skills.

The great reskilling is imminent

There is huge volatility in the job market at present and research by Forbes Advisor estimates that around a third of the working population are looking to change jobs. 30% of the working population have seen their working status change over the past three years, either by leaving their job, returning to education or retiring. But, driven by the cost-of-living crisis and a desire to increase their earning potential, a further 35% are actively seeking a job change. 

Crucially, many of these are also looking outside of their current industry for their next role. Indeed, research by the Boston Consulting Group has revealed that two-thirds of workers globally are willing to retrain for new jobs and switch careers and industries.

While this may be a threat for some businesses that are concerned about losing employees, there is a flip side. As Kevin Pratt, Business Expert at Forbes Advisor, notes: “A volatile workplace is no bad thing – it means people are willing and able to change according to variances in demand. Take the inexorable rise of the IT sector in general and AI in particular. These will provide many well-paid jobs in the coming months and years, and happily there are likely to be people who will want and be able to grasp the opportunities that arise.”

Skills-based practices come to the fore

Given these trends, it is little surprise that so many HR communities and publications are predicting that skills-based practices will continue their inexorable rise in 2024. 

With shortages of technical skills in the labour market, businesses from the likes of telecoms and financial services will need to widen their search, without compromising on candidate quality. The growing movement in the job market means that highly capable individuals are looking beyond their industries for new careers, and with the right insight, organisations can capitalise on this opportunity to fill vital roles. 

Because organisations adopting a skills-based approach to hiring understand the behavioural skills that make candidates a good match for the role and the organisational culture itself, that means they can confidently access this wider talent pool without fear of harming hiring outcomes. 

Little wonder then that research from Deloitte Private has found that in the face of recruitment challenges, more than half of c-suite executives of private US businesses will be increasing their skills-based hiring in the coming year. 

Elsewhere, the same study found that 43% of those questioned said they will also be relying heavily on reskilling existing staff in the next 12 months to meet their talent needs. This is a great opportunity to obtain the vital skills required to support strategic goals while simultaneously retaining capable employees who are keen to explore different career paths. Again, a skills-based approach will dramatically improve the chances of success. 

Because skills-based organisations understand both the blend of technical and behavioural skills required for success in a role, as well as the skills that each employee possesses, they can quickly and accurately match individuals to opportunities for a much higher rate of reskilling success. 

By embracing a skills-based model, leaders are discovering a previously broader landscape of highly valuable skills that can support their organisations’ talent management strategies for the coming year.

2024 is shaping up to be not only the year of skills, but the year of the skills-based organisation