It's not what you've done, but what you're good at - that's how modern selection and talent management practices in companies can be summarised. However, this almost clichéd statement does not provide practical guidance on how a responsible manager should develop an HR strategy and how much weight to give to qualifications and skills when recruiting or when drawing up an internal training plan. As part of the Winning the Race for Skills research programme, SAP interviewed 49 HR and talent leaders from 30 client organisations about their journey to becoming a skills-based organisation. It revealed that

Companies now clearly recognise the importance of understanding the current and future skills needs of their business and workforce.

"A new approach is slowly becoming inevitable for companies. Skills-based practices put the right people in the right roles, and this brings demonstrable benefits in many areas," says Szabolcs Pintér, Managing Director of SAP Hungary, pointing out the benefits of a skills-based approach to HR.

Organisations can use skills-based practices to more effectively use resources to develop employees, optimise workforce planning and talent reallocation. Employees can perform better, which in turn improves customer outcomes and experiences. Skills-based practices make talent decisions faster and result in fair, equitable and transparent decisions, which in turn empowers employees to make more informed career decisions. Skills-based practices also broaden the pool of talent: companies can hire skilled workers they would not have found otherwise, making their workforce more diverse. And if they can find talent in-house, they can save on consultancy or external recruitment fees.

It is no coincidence, then, that there is a positive reception for skills-based HR policies among employees. In a global survey, SAP also explored the views of the other side: responses from 2,269 employees clearly showed that employees expect their organisation to prioritise skills in HR decisions. They believe that on average 70% of such decisions should be based on skills and only 30% on traditional criteria such as qualifications or job title. 88% of respondents were positive about a skills-based approach and think it would improve their employee experience. If a company made decisions based solely on skills, 58% would feel more motivated to learn new skills, 52% would improve their existing skills and 51% think it would also improve their job performance.

Four approaches to building skills into HR strategy

The survey clearly demonstrates that while a skills-based approach has many benefits for organisations and employees, there is no single universal method for incorporating it. Within a company, the areas that benefit most from it may vary, and the objectives may differ due to industry, cultural or legal factors. That's why SAP's study outlines four different approaches to help integrate skills more effectively into HR practices

#1 Skills-based approach

In this approach, organisations make decisions not on the basis of skills, but infer skills from other factors such as education or previous work experience. Workforce planning and recruitment is based on previous jobs and experience, and career development is linked to traditional promotion systems. This approach is most applicable to roles that require specific qualifications or certifications that the organisation cannot provide (e.g. lawyers, accountants, pilots). It is also applicable to positions where critical skills are so specific that they are learned by the employee rather than expected from day one. Also for roles where career development is based solely on decisions made by external systems such as trade unions.

#2 Skills-based approach

In this approach, organisations take skills into account when making decisions, but do not necessarily integrate them fully into HR strategy. Skills are only one factor in the selection, assessment and development of employees. In remuneration, skills can form the basis for bonuses or cash bonuses. This approach may be appropriate for positions such as general management, sales, product development and research, and for roles where the application and priority of skills is constantly evolving. This approach is probably most appropriate when past experience is a key context - for example, when recruiting for senior management positions where a candidate's network of contacts or industry experience may also play a role.

#3 Skills-based approach

In a skills-centred approach, the job is structured around job functions, but these are linked to a range of skills, including technical and professional skills. Hiring decisions are based primarily on the assessment of a range of skills, but are still supplemented by traditional criteria. Pay is based primarily on the skills of employees and linked to their performance

This approach may be most appropriate for functions such as marketing, operations and customer service, as well as roles where critical skills are specific and/or rare, but potential expertise can be inferred from other similar skills.

#4 Skills-based approach

In the skills-based approach, work is entirely organised around skills. Hiring decisions are made on the basis of skills assessment and the candidate's proven abilities, with no consideration of education or previous work experience.Hiring procedures in these companies are significantly different from the traditional ones, with mock tests, simulation exercises, complex profiling and assessment analysis. Compensation decisions are also based on skills, with base pay based on the skills the employee currently uses in the job, and skills deemed valuable to the business in the future can form the basis of retention bonuses.

This approach is best suited to HR, IT, administration, finance and corporate communications, or roles that rely more heavily on static and technical skills, use certain tools or processes, are common across organisations, sectors or where skills can be acquired outside of an educational setting.

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