Leadership

Why Employers Should Stop Requiring Formal Credentials

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The entrepreneurial private sector lives or dies by the marketplace, where success and failure is determined by the quality and competitiveness of our products and services. The marketplace does not care much for any fancy credentials carried by the leadership or the employees. It is not an accident that so many of the successful pioneers of the tech industry, from Steve Jobs to Bill Gates to Mark Zuckerberg, did not finish college. The fact that they did not finish college is utterly irrelevant to the billions of people around the world who rely on their products every day.

It is not just at the leadership level that a college degree is not important. Sales people do not need that bachelor’s degree in “Communications” or Psychology to sell well; marketing does not require that. MBA and most programming jobs do not require a Computer Science degree. Much of what is needed in systems administration and IT can be learned on the job.

Yet, when it comes to hiring employees, most companies, including even the ones founded by industry pioneers, generally rely on formal academic credentials. This wasn’t always true; but it has become increasingly true because companies have come to rely on the college degree as a kind of an extended IQ test. Yet entrepreneurial companies, the lifeblood of the U.S. economy, have nothing to lose by abolishing formal credential requirements.

This is an urgent issue because the exploding cost of a college degree in America is causing young people to carry massive debt loads. I do not believe the higher education system is going to solve this problem by itself because they have built a cost structure that assumes ever-rising tuition, mostly funded through ever more creative government-sponsored ways of loading debt onto young shoulders. The higher education system has done a “regulatory capture” of the U.S. Department of Education, and the “solution” from within the system is to create ever more debt. Cost-control is a dirty word.

Those debt levels on young people are a social and moral problem. It is a problem for employers as well — an employee trapped in debt from a young age is an employee who is not going to be bold and take risks on the job, the very qualities needed for innovation.

The solution to this problem begins with private sector employers. Ultimately what keeps much of the bloated higher education system in business is the demand from private sector employers for credentials. If we take away that private sector demand, the system would be forced to reform itself. Students would evaluate their options very carefully before committing to a huge debt load.

For almost all our jobs at Zoho, we do not require formal credentials; and even when such credentials are useful (for example in accounting, systems administration or legal areas), we help our employees acquire those credentials during the course of their employment. We are proud that over 10 percent of our employees do not have a college degree; and over the next 10 years, we plan on raising this to 50 percent. Our productivity has been going up steadily, and the market demand for our products is very robust, which tells us we must be doing something right.

The benefits to employees from abolishing formal credentials are obvious, but there are huge benefits to employers as well. You get a more committed and motivated workforce, more diversity of perspectives and, finally, the can-do spirit of self-made people.

By abolishing credentials, employers do have to invest in additional training; but the pay-off on that training is immense. Employers can make judicious choices on where to allocate their training budget, in contrast to the academic world, which focuses on granting students degrees in increasingly irrelevant or politically fashionable subjects. We have reaped many tangible and intangible benefits from our investment in training at Zoho, so much so that we consider our internal training program to be a valuable strategic asset, not an act of charity.

Here are some concrete suggestions for employers, based on our experience in Zoho:

  • Start small and set a target, something along the lines of five percent of new recruits to be hired without the formal credentials normally needed for your entry-level jobs.
  • Set up a training program staffed with one professional trainer and a few employees willing to volunteer to train new recruits.
  • It helps to start the training program in the area of core expertise for your company. In Zoho’s case, we develop software for a living, so we hired students out of high school to be trained as software engineers. The benefit of starting with your area of core focus is that you would already have many experienced employees who can serve as role models and pitch in to mentor, coach and train new recruits.
  • With fairly intense training, typically it would take about a year for new recruits to become proficient in your core activity and start contributing. We recommend that you pay a stipend during the training period, which helps to promote accountability.
  • After one year, they can be formally inducted into the fully paid workforce, at an apprentice or junior role, and their training can continue on the job.
  • Over the next two to three years, as their skills improve, productivity and paychecks go up with increasing skills.

In our experience, by the time their peers get out of college, our employees that are not formally credentialed are way ahead in terms of skills and income.

With about 150 employees coming from our internal training program now doing work in cutting-edge areas, we have proved to ourselves that the model works. The young recruits we bring in every summer through this program provide us a jolt of energy. We are expanding the program steadily, in step with the growth of our company.

Sridhar Vembu co-founded Zoho Corporation and is the CEO. He led Zoho Corporation from modest bootstrapped beginnings to being a leading cloud software provider with over 1,500 employees worldwide. Sridhar began his career at Qualcomm as a wireless systems engineer in the mid-1990s, where he was fortunate to work with some of the leading minds in the wireless industry. While Sridhar holds advanced degrees from prestigious institutions, he does not believe those degrees have had any relevance to his business success.

Comments

By Tom

Very interesting aspect. An extremely good read, and I completely agree.

By Spencer

Very many interesting points. Most employers want new hires to hit the ground running and be productive instead of spending the time and effort to train them.

By karthik vembu

Excellent and very true ….

By Sahaj Kumar

Interesting article to read.. very impressive points

By kal

So very true. I just wish the rest of the business world thought the same way.

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