How Successful Companies Are Hiring for Competencies

Competency-based hiring practices may lead to increased diversity and lower turnover.
By: | October 22, 2018 • 4 min read

There’s a lot resting on the decision of who to hire. Consider that companies lost an average of $14,900 on every bad hire in the past year, according to a CareerBuilder study. That same study reported that 74 percent of employers say they’ve hired the wrong person for a position (and I suspect the other 26 percent just don’t want to admit it!). Turnover costs—as compared with a national unemployment rate that sits at 3.9 percent through April 2018, according to the Bureau of Labor Statistics—suggest companies need to hone their hiring practices as they search through a much smaller pool of applicants. Many employers, when interviewing job candidates and selecting employees, rely too heavily on skills reflected in résumés versus assessing overall attitude and aptitude.

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Allow me to suggest a better alternative: competency-based hiring. Consider that soft skills are proven to comprise 75 percent of the reason people succeed or fail in a job. Competency-based hiring can also prioritize an applicant’s ability to perform like the company’s existing top employees. Instead of focusing on education (e.g. four-year degrees) and experience (e.g. length of time in a job), competency-based hiring evaluates the soft and hard skills required to actually perform well on the job.

“Hiring Smarter”

Multinational healthcare company Swisslog implemented a successful competency-based hiring program after struggling with employee attrition and performance issues in the crucial field-service technician role, as well as a lack of age and ethnic diversity within its workforce. The Switzerland-based company, with more than 2,700 employees located in over 25 countries, develops and delivers integrated automation solutions for health systems, warehouses and distribution centers around the world.

Swisslog turned to a competency-based system to assess its top-performing technicians and build custom behavioral targets to rank applicants who were the best cultural fit, and then matched the performance targets for a competency-based hiring approach.

The company discovered its top-performing technicians ranked high in the attributes of self-alignment, enriching others, responsibility, persistence, supportiveness and resiliency. The technicians, who are responsible for diagnosing and troubleshooting the customers’ manufacturing or distribution processes, must be articulate, proactive, self-motivated and independent. Behavioral attributes not critical for the position include approval seeking, correcting others, coachability and a strong desire for change, novelty or variety.

By identifying the differences between top performers who stayed in the job longer than a year and those who failed to complete training, Swisslog reduced its turnover rate by more than 65 percent, saving the company $3.5 million over two years. Traditionally, Swisslog fired 5 percent of its field-service staff every year for behavioral issues. In the three years since it began hiring based on competencies, the company has fired zero people for behavioral issues.

“Our competency-based plan provides a great depiction of people and reflects their behavior accurately,” says Roy Dockery, vice president at Swisslog. “Having that level of insight allows me to hire smarter, and then create action plans to improve employee performance.” Roy also notes that since switching to competency-based hiring, Swisslog has more than doubled ethnic diversity and has now attained equal-age diversity across three generations.

Rethinking Hiring Criteria

At the typical Fortune 1000 company, 75 percent of applicants are typically eliminated from consideration by applicant-tracking-system algorithms for formatting reasons before a human even sees their résumé. However, companies that use a competency-based hiring tool at the beginning of their hiring process interview more women and candidates of color than those that do not, especially in typically white male-dominated industries such as technology.

A competency-based tool can be used in any step of the hiring process, but when implemented as the first step to prioritize applicants, employers often find their optimal interview candidates within the first five to 10 applicants, instead of reading hundreds or thousands of résumés.

A competency-based hiring tool allows employers to cast a wider net, take more applicants from more sources, and still spend less time evaluating them. Many organizations that receive a lot of applicants, such as the State of Colorado, manage the process by cutting off applications at 75. The average time to read a résumé is 6.25 seconds, so by prioritizing the most qualified candidates first, HR managers have more time to evaluate each applicant.

On average, people with non-traditional backgrounds or prior convictions score 10 to 17 points higher than recent college graduates on many qualities desired by employers, including resiliency, determination, grit and gratitude. Often, they do not meet typical HR selection criteria, such as a bachelor’s degree or consistent work experience. However, in 2017, 42 percent of our clients reported hiring top-performing employees who did not meet their original hiring criteria. These are valuable workers who are typically overlooked in a conventional hiring approach.

Soft Skills That Are Always in Demand

According to a LinkedIn Workplace Learning Trends 2018 report, 94 percent of employees would stay at a company longer if it invested in their development.

With the average cost of losing a good hire valued at $29,000 by a CareerBuilder study, hiring for employee retention is an economic investment. Competency-based hiring is long-term hiring, while skills-based hiring comes with a time range.

Many soft skills, such as empathy, dependability and teamwork, will always be in demand, according to Age of Agility’s recent report, Education Pathways for the Future of Work. Technical qualifications that change rapidly with new technologies can often be acquired through on-the-job training.

Texas-based technology company Firmatek has seen great success in its hiring practices and employee retention numbers since it began using a competency-based hiring process. As Firmatek President Lauren Elmore explains, “We narrow our pool of candidates by identifying the soft skills and mindsets that are most important for specific job roles and our organization’s culture.”

The Future of Hiring Practices

Forward-thinking employers are taking action by hiring for competencies, teaching the skills needed for the position and then retraining employees to keep them current and reinvigorate their zest for the job.

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One way to gauge candidate competency is to ask questions that engage their ability to reason, communicate complex data and stay focused on tasks. However, that’s difficult to scale and duplicate across hiring managers and geographies. Assessing against behavioral targets tailored to your specific company and roles offers a way to standardize and streamline this process. It provides a means to measure applicants compared to your top performers, rank applicants based solely on skills, identify skill gaps and set professional development plans from day one to simplify the process for recruiting and talent acquisition professionals.

According to a recent Forbes article, “Competency-Based Hiring: 10 Signals the Shift is Happening,” companies are moving away from degree- and pedigree-based hiring in favor of competency-based hiring by applying data-driven approaches to their hiring practices.

Companies of all shapes and sizes have adopted competency-based hiring practices and are seeing glowing results – in the form of reduced turnover and hiring costs, increased efficiency in the hiring process and a positive company culture overall.

Michael Simpson is CEO of PAIRIN, a social enterprise software company with a mission to make education relevant and hiring equitable.