What is skill-based and competency-based hiring? How are they different? How are they similar? Which is best for our organization?
In this article we give a brief overview of the differences between a skills-based and competency-based approach, pros and cons for shifting to either model, and a brief outline of how to get started with a competency-based approach.
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Introduction
In the early 1970’s, David McClelland, Professor of Psychology at Harvard suggested intelligence tests are not an appropriate predictor of job performance.
A pretty bold claim as IQ tests and higher education were the gold standard for measuring worker potential well beyond the 70’s.
Over time, organizations have come to realize that traditional markers are less of an indicator of success as our work environment and talent markets have evolved. Organizations remain challenged with defining job requirements to fill skill gaps, reduce turnover pressures, and increase organizational efficiency.
In today's world, traditional job qualification requirements (e.g. education and experience requirements) may detract from inclusivity efforts and reduce the size of talent pools companies have to select from.
Research done by Handshake found that moving from a qualification approach to a skills-based approach increased the talent pool by 2.3x, yielding 3x more veterans and 3.5x women and black students. Companies today are rapidly embracing the shift away from traditional qualification-based hiring to new approaches that place less emphasis on qualifications.
More recently, two main approaches have emerged to define the need for talent: Skill-based and competency-based frameworks.
As HR professionals decide to broaden their hiring strategy to prioritize skills in their job descriptions, others have adopted a more nuanced approach of building competency frameworks they hope will ease hiring and retention pressures as the work environment evolves rapidly.
In 2021 LinkedIn saw a 21% increase in job postings that advertised skills and competencies rather than qualifications.
Just a few years later, according to a study done by Deloitte, about 90% of executives said they are actively experimenting with skill-based approaches across a wide range of workplace practices. A study led by Northeastern University found that 69% of employers support industry-led competency frameworks, and as of 2023 research done by Remote shows skill-based hiring is up 63% in just the last year.
Employees and candidates are onboard with the shift as well. 66% of workers say they would be more attracted to work for an organization that makes decisions based on demonstrated skills and potential over their education level.
So what is the difference between skills-based and competency-based hiring? What approach is best for your organization?
Skills and Competencies– What’s the Difference?
What are Skills?
Indeed defines skills as “strengths or proficiencies that individuals gain through training and experience.” Skills are technical abilities needed to perform a certain role.
When we think of skills we think of things like coding, graphic design, accounting, data analysis, and more.
What are Competencies?
Competencies are the underlying behaviors, characteristics, and abilities that enable an individual to perform tasks or duties effectively within a specific context.
Competencies are not solely about what one can do but how they approach, execute and perform tasks. Competencies encompass problem-solving, adaptability, leadership, and emotional intelligence. They also encompass the attitude and internal belief systems that define an individual.
The development of competency models lends to a whole-person assessment, with an emphasis on individuals’ potential (Rodriguez, Patel, Bright, Gregory, & Gowing, 2002)
For example, a customer service representative’s role involves interacting with customers to address inquiries, resolve complaints, and provide product information.
To successfully perform this role, some core competencies for the position would include effective communication skills, patience, emotional intelligence, attention to detail, and the ability to maintain positivity while dealing with frustrated customers for an extended period of time.
What’s the Difference?
While skills are defined as learned activities, competencies encompass a broader scope. Current skills can serve as an immediate predictor of an ability to perform a job, while competencies offer a benchmark of high performance as the skills for the job evolve over time.
As an example, “proficiency with Salesforce CRM” may be a required skill for a sales professional at an organization. While an organization might switch from one CRM to another, the competencies for the job such as communication skills, emotional intelligence, problem solving, and adaptability will offer better indicators to long term job performance.
In some cases, organizations may refer to these as “soft skills”- citing competencies as more attitude and behavioral based.
Advantages of Shifting to a Skills Based Approach
Recent research shows there are tremendous benefits to moving to a skills-based approach. 70% of employers agreed skills-based hiring was more effective than hiring based on education & qualifications from candidate resumes. 74% saw a reduction in cost-to-hire and 89% improved employee retention.
Employees are happy with the shift from qualification based requirements to skills and/or competency strategy. 86% of candidates said they felt more excited for a role that allows them to prove mastery of the relevant skills for a job.
38% of skills based hires are very happy with their role compared to 28% of experience-based hires.
Here are some other statistics and advantages to skills-based approaches. Skills-based organizations are:
107% more likely to place talent effectively
98% more likely to retain high-performers
98% more likely to have a reputation as a great place to grow and develop
47% more likely to provide an inclusive work environment
79% more likely to have a positive workforce experience
49% more likely to improve processes to maximize efficiency.
Skill-based approaches are typically less labor intensive to implement than competency-based approaches.
Skill-based approaches are less subjective than competencies and easier to evaluate during hiring, performance evaluations and for employee recognition.
Disadvantages of Shifting to a Skills Based Approach
1. Limited talent pools can increase time to fill metrics
The decision to list required skills in the job description might lead to a narrowing of talent pipelines, especially for newly emerging technical skills.
While it’s always nice to have highly-skilled workers coming into positions ready to work, sometimes the talent market drives a premium price for hard-to-find skills.
Candidates who have extensive experience and education may be overlooked for candidates with less experience but the right skill-set. This could be risky for industries or positions that require a deep level of technical knowledge.
This issue may be complicated as employees and/or hiring managers accustomed to qualification-based hiring may resist the shift to skill-based, leading to a lack of buy-in and adoption.
3. Subjectivity and Bias
Skill assessments may introduce subjectivity in the evaluation process, potentially leading to biases if not implemented correctly. Additionally, some managers may favor certain skills over others which may limit diversity and/or applicant volumes for the organization.
4. Limited Context
Skills assessments might not capture the full context of a candidate’s abilities. Some candidates may excel in real-world work scenarios while artificial testing environments indicate a candidate might struggle with performance.
Additionally, past skills may not indicate future success. A candidate’s ability to adapt, learn new skills, and collaborate with a team may not be adequately assessed through a skills-based approach.
5. Jobs and companies change quickly, and maintaining accurate skill listings per job can be challenging.
With dynamic job requirements and advances in technology, maintaining an accurate list of skills requirements may become challenging but will be critical to ensure effective hiring and to avoid skill gaps.
This may prove costly if not executed properly and could be time consuming.
Advantages of Shifting to a Competency Framework
Shifting to a competency framework offers a holistic approach to employee evaluation, encompassing a broad spectrum of skills, behaviors, and attitudes.
Competency models may be tremendously helpful for organizations looking to boost recruiting efforts to fill positions when best-fit or prequalified talent is hard to find. In recruiting, candidates might be more attracted to work for an organization that describes jobs in terms of required competencies rather than required job tasks.
Additionally, your HR strategy might call for competency based hiring when your workplace environment rapidly evolves and requires workers to learn new or emerging skills over short periods of time.
Based on Deloitte’s research, 66% of executives say they are struggling to keep up with constantly changing skills requirements.
From the perspective of employee development, the competency approach can provide workers with a personalized focus to broaden success in the future, not just the mastery of skills they perform today.
To that point, shifting your job description inventory to a competency-based framework can improve time-to-fill metrics for hard to fill roles, aid in internal mobility, employee growth, and long-term retention.
Here are some statistics supporting the advantages of shifting to a competency based framework:
A study found only 11% of hiring failures were due to lack of technical skills, but 89% were due to wrong attitude or personality.
85-97% of hiring managers currently rely on intuition for hiring decisions rather than established frameworks. This is not ideal; especially for companies looking to systematically improve quality of hire, reduce turnover, and eliminate skill gaps.
78% of HR professionals say the quality of their organization’s hires has improved due to the use of competency based assessments.
23% of HR professionals said diversity of their hires improved with a competency-based approach.
Employees without a traditional four year degree tend to stay 34% longer than those with a degree.
Hiring solely on skills can result in unintentionally hiring a “insufferable genius” leading to a toxic workplace environment. According to MIT, a toxic culture is by far the strongest predictor of attrition and is 10x more important than compensation in predicting turnover.
Demand for transportable competencies – those that are applicable across departments and industries – outpaces that for all other skills. Communication, problem solving, collaboration, and critical thinking are highly coveted in the labor market. A fifth– ethical reasoning and mindset – is in highest demand at more than 99.8% of all soft skills (aka competencies) tracked.
Organizations that use competencies have 40% lower turnover among high performers.
Organizations that use competencies have 26% higher revenue per employee.
Disadvantages of Shifting to a Competency Framework
The decision to shift from a skill-based approach to a competency framework should be carefully considered, taking into account the organization's goals, culture, and the nature of its workforce.
Although competency models can be powerful; they do have some potential downsides to consider:
1. They can be costly and time consuming to implement
Establishing a competency based framework can be a time consuming effort. In order to establish competencies at an organization, meetings are required to interview employees, conduct surveys, and organize information thoughtfully which takes time and resources.
Some organizations may elect to hire a consultant to help them conduct these evaluations which can be extremely costly. LinkedIn estimates that it could take years to complete this project at the expense of $150k or more.
2. Competency models may quickly become outdated
Based on the time it takes to research, complete, and implement competency based frameworks organizations may find that their competency models are quickly outdated and need to be reworked.
This happened to Microsoft; who needed to redo their models after only 3 years of use.
3. Interpretation may lead to inconsistency in evaluations
Human interpretations may vary in competency based assessments leading to an overlook of essential factors like motivation and emotional intelligence.
Competencies may lead to a more rigid view from employees of performance evaluations, and in some cases, may create resentment if employees feel the expectations are unrealistic or that they were unfairly evaluated/rewarded based on the subjectivity of the competency based assessment.
4. Competency based models can be subjective
Unlike skills, competencies are difficult to prove and assess. Two different leadership individuals could have a different opinion about what “good decision making” or what “effective” communication looks like.
This could lead to inconsistencies in hiring, performance evaluations, and overall talent management.
If We Decided to Go With Competencies; How Are They Setup And Used?
Typically, an organization may define a set of competencies that can be applied to various jobs. While some competencies will be relevant to every role, others will apply to specific roles, or types of roles.
From there, organizations can opt for a matrix to enable a grading or proficiency level for each competency such as novice - intermediate - expert.
Required levels may vary depending on the position as some entry level roles may require novice level competencies while more senior level roles will require a more advanced level of competency.
Above is a sample competency listing. In this example, core competencies apply to all jobs across the organization. Leadership competencies apply to roles where there is a component of management required.
As this role is an entry level managerial role - you can see that the emphasis is on coachability, willingness to learn, and accountability rather than managerial mastery of building a team etc.
Additional Considerations to Determine Which Approach (Skill vs Competency) Is Best?
Job Requirements: Holistically review your job catalog and labor requirements. A skill-based approach may be more suitable for roles where specific technical or functional skills are crucial, such as programming or graphic design. A competency-based approach may be more appropriate for roles that require a combination of skills, behaviors, traits and especially for positions that involve leadership, collaboration with others and/or adaptability. Additionally, a skill-based approach is common in industries where technical skills are paramount such as IT, engineering and healthcare.
Organizational Culture: Skill-based approaches may align best with organizations that prioritize technical proficiency, while a competency-based approach can be best for organizations who value soft skills and behaviors that contribute to the success of the team.
Training and Development Resources: A skill-based approach is much more straightforward to identify training needs and solutions when compared to competency training such as focusing on holistic employee development (both technical and soft skills).
HR bandwidth and budget: A competency-based approach may involve more investment in resources compared to a skill-based approach. This includes a comprehensive set of assessments (e.g. behavioral, personality, emotional intelligence), third-party consulting fees and/or more time invested into interviewing internal stakeholders, documenting and organizing cross-functional job requirements.
Ready to Get Started?
Adding competencies to your job descriptions can broaden candidate pools by defining the specific behaviors required for future success in a role rather than the shorter-term skills required for today.
This also might align expectations between the organization and potential candidates, ensuring a comprehensive understanding of the position's requirements into the future. This approach facilitates more informed hiring decisions as it allows for a holistic assessment of candidates beyond the technical skills they have learned in the immediate past.
As we navigate the ever-evolving world of work, it's essential for organizations to determine their preferred approach (Skill-based Model vs Competency-based Model) and deliver clarity to their workforce.
Visit MoshJD.com today to learn how our AI-powered job description management software can help your organization shift to competency-based or skill-based job descriptions. Contact a MoshJD representative to chat more about what’s right for your team.