How skill-based talent management boosts productivity and fairness in the workplace

Traditional HR views talent management as a series of short-term activities addressing the component parts of the employee life cycle. Recruitment, onboarding, development and compensation are often handled in isolation, meaning overly simplified assessment criteria like personal connections, education and job titles are used to move employees through the pipeline. Adopting a skills-first approach requires HR to consider the shelf life of various skills and capabilities, and think long-term.

Historically, organizations relied heavily on biased measures of success when hiring, promoting and compensating employees. This can perpetuate a system that excludes certain groups and narrows talent pools. As organizations grapple with widening skill gaps, there is a need for a more equitable, effective approach.

Recently, leading organizations have recognized these shortcomings and shifted towards skill-based models for talent management. This approach, if implemented correctly, can improve productivity and foster fairness and equity.

Within organizations that are adopting this approach, the talent management process focuses on a person’s skills and competencies. Organizations first design a skills framework and then assess employees objectively within that – focusing on the attraction, development, compensation and mobilization of talent. What follows is a comparison between traditional methods and the new, skill-based way.

Traditionally, the recruitment process has focused on titles, responsibilities or tenure, rather than unbiased assessments of a candidate’s ability to execute. This can reinforce stereotypes rather than broaden the bench in diversity of thought, skills or experience. Leaders might mitigate the risk of poor hiring decisions by over-reliance on personal introductions or hiring laterally from competitors. This can hinder an organization’s ability to adapt and attract new talent and skills.

To overcome inherent biases, organizations should focus on the skills required to excel in a role with an understanding of a candidate’s potential, rather than a prescriptive approach to career paths or qualifications. Talent managers should keep an open mind to alternative routes to acquiring skills, and be aware and attuned to less conventional career paths and the value of diverse life circumstances when assessing potential candidates.

In developed economies, a typical career path was to attend university, front-load formal accreditations and use that same skill set in the same industry (if not the same company) for the next 40 years. Shifts in technology, global trade, labour markets and other macroeconomic factors mean the job-for-life concept is dwindling in favour of less traditional employment relationships.

Skill-based training can subvert this traditional approach to looking at a business’s specific needs (e.g. hygiene qualifications, Salesforce training or coding). This can benefit those organizations able to capitalize on skills and experience that the current labour market is demanding. This could include emerging technologies such as AI, as well as culturally driven competencies such as diversity and inclusion.

Research shows that power, inertia and mimicry are still the three largest determinants of pay, rather than individual performance. This means that organizations seem doomed to replicate what has always been, rather than embrace new ways of working. Employees who do not fit the mould of an organization’s “preferred” leader can become disillusioned and create churn.

In a fair system, compensation should be closely aligned with value creation. While a straight-line comparison between output and the bottom line is not always possible, organizations can still build a compensation framework that recognizes skills. For example, aligning salary raises or bonuses to specific certifications or training helps to a) attract the right candidates from the outset and b) encourage current employees to invest in ongoing learning and development.

McKinsey’s work with the Rework America Alliance highlighted how this approach was able to expand talent pools and increase retention in blue-collar roles, even in the face of economic uncertainty and growing automation. Skills create observable and measurable expertise in performing tasks, and thus, aligning compensation with skills can increase fairness and equity.

Most organizations rely on management input to identify high performers or those in need of additional support. This can mean bias towards a favoured group of people, rather than objective assessment, which can be an impediment to progress and stymie innovation and fresh perspectives.

Basing succession or promotion decisions on objective skill assessments helps eliminate the influence of favouritism, ensuring that the most qualified individuals are chosen. Unilever pioneered this with its Future Fit plan, which aims to reskill or upskill employees to help them guide their career paths, identify training needs or enhance their skills to progress or move into other roles in the business.

Cultivating a strong pipeline of internal talent helps convey a sense of security and continuity that benefits the whole organization. This requires the identification and ongoing nurturing and training of future leaders, as well as a comprehensive overview of the range of skills available within the current workforce.

Skill-based use cases hold great potential for promoting equity in the workplace; however, their success relies heavily on the unbiased collection of skill data.

If the processes used to gather and evaluate data are tainted by systemic biases, the resulting decisions will perpetuate inequalities. To harness the power of skill-based talent management, organizations must commit to transparent, consistent and inclusive methods for assessing skills and continually reviewing and refining collection methods to ensure they are equitable. This creates a level playing field that fosters genuine meritocracy and unlocks the full potential of skill-based approaches.

Trust is essential for the success of skill-based talent management. Without trust in the accuracy and objectivity of skill data, people are likely to revert to familiar (and flawed) metrics such as education and personal connections. These can perpetuate biases and hinder the inclusion of diverse talents, creating an echo chamber rather than a forum for new thinking.

Skill-based talent management is an opportunity to increase productivity and fairness in the workplace. Focusing on employees' capabilities and contributions rather than their connections or backgrounds leads to a more inclusive and meritorious environment. However, to reap the full benefits, organizations must establish trust and ensure fairness in data collection processes. Only then can they revolutionize how they develop, reward and advance their workforce.