Signaling and Perceptive Cues
Hiring has always been fraught with information asymmetry – with a lack of tangible items to evaluate (at times made difficult by regulation), employers judged candidates by the few data points available, such as degree(s) attained, university attended, accomplishments claimed, interpersonal “cultural fit” and, as available, referrals. The odd thing is that few of these actually speak to a candidate’s knowledge and skills – instead they are “perceptual cues” – indirect measures that help employers guide decision making. Such perceptual cues do not have much to do with the employable skills and are a suboptimal way of hiring – however, substitute options have notably been absent.
The same phenomenon occurs in other fields, notably in healthcare. When I ask my friends and co-workers for a physician referral, they typically provide me a name, but their accompanying rationale is unequivocally weak – “because they have a good bedside manner”, “they take time to listen to my questions”, “they graduated from Stanford”, “they’re listed as one of the ‘top doctors’ in San Diego Magazine.” These are all perceptual cues – none of these answers really addresses if the medical diagnosis and plan of treatment is correct. Contrast this with Dr. Gregory House, the acerbic, narcissistic and just plain rude doctor of the eponymous TV show. He has appalling bedside manner and his supervisor has to annually set aside additional funds to cover the inevitable legal bills arising from his care. Yet year after year (albeit with a few tenuous moments) the hospital keeps employing him because they know he’s one of the best thinkers and, more times than not, he alone can come up with the lifesaving diagnosis saving patient lives.
In the same way, employers really don’t know a whole lot about prospective employees. Resumes are helpful but often have significant issues (studies have shown that as many at 34% of job applicants lie on their resumes). Interviews are also helpful but can be highly misrepresentative and biased, not only by gender and ethnicity, but also height, weight, and accent (even something known as “vocal fry”). In each of these cases, we (sometimes unconsciously) use mental frames and perceptive cues to select candidates. Picking people by their past school or degree or stated accomplishments is ultimately just as limiting as to whether they are tall or trim. LinkedIn is trying to develop a better way.
What LinkedIn Is and What it Isn’t
At its inception, LinkedIn was a keeper of information surrounding one’s basic employment history and educational background, much like a resume. This allowed prospective employers (and, by extension, high priced recruiters) to hunt for talent much more easily than in the past. Since one of the best perceptual cues is the positive nod from a mutual acquaintance, connections were an original and obvious part of a solution. Those sets of features were better than the tools available in the past – and were available for little or no cost. However gaps still existed in terms of knowledge about an individual and their work history – after all, if LinkedIn was just an electronic version of a resume, then one can surmise there was still some level of misrepresentation (although perhaps a bit less as the information was exposed to friends and colleagues – a naturally self-regulating function).
Then LinkedIn added recommendations and more recently endorsements. Endorsements on LinkedIn are quite simplistic – contacts are asked (somewhat incessantly) to click a button indicating if the person has a skill. This aspect of LinkedIn has not been relied upon to date – we have all noted the sometimes random skills LinkedIn auto generates and displays leading to odd endorsements for irrelevant skills (what are “Fruity Loops” anyway?). Collecting more data over time has helped; patterns are developing and, anecdotally, I have seen my close contacts’ endorsements generally converge to their truer skill sets.
Against this backdrop, it is important to recognize where LinkedIn fits in the landscape. While often bucketed in with purely social media plays Twitter and Facebook, LinkedIn is quite distinct. Indeed, while advertising comprised 89% of Twitter’s revenue and 94% of Facebook’s revenue (Q1 2015), the same percentage for LinkedIn is a relatively scant nineteen percent. The majority of LinkedIn’s revenue comes from talent solutions (62%) and paid subscriptions (19%).
Despite masquerading as a social media company, the numbers reveal that LinkedIn is really a company focused on reducing our dependence upon perceptive cues in what may be the largest market of all – the market for skills.
Show What You Know
Lynda.com was founded by Lynda Weinman and Bruce Heavin in 1995 (eight years before LinkedIn) rather inauspiciously as a company that produced educational videos, predominantly in the digital arts. Lynda took these videos online in 2002 and over time, grew the business steadily and quietly (notably not taking in outside capital until 2013). Today Lynda has nearly 4,000 courses and over 100,000 video tutorials in its catalog, all offered at low cost ($24.99 a month for all you can eat) and now even in multiple languages (through a subsidiary).
While Lynda managed to stay off the radar of Silicon Valley for some time, there are plenty of other training companies offering online courses at low cost, ranging from Skillsoft (which can trace its roots back to SmartForce and even NetG 25 years ago!) to Skillshare and PluralSight. While each of these companies has been successful, they suffer from the same limitation – after completing a course, how do you demonstrate and share this information?
The marriage between LinkedIn and Lynda can be very unique. On one side, there is a tool that provides much better knowledge about the skills that people possess. On the other, a tool that allows someone to learn quickly, conveniently and at low cost. In Ryan Craig’s wonderful book College Disrupted, he describes this as a ‘competency marketplace’ and foretells that these have the power to unlock human capital in a transformative way in the future.
To be sure, others are trying to build the same full offering. Pluralsight announced the purchase of Smarterer (a platform that seeks to assess your skills and make them transparent) late in 2014. Yet, this is the ultimate chicken or the egg conundrum – employers must have confidence in the party that is providing transparency of skills and that is not easily achieved without a base of employers already using the system.
In this, LinkedIn is unique – with a large preexisting user base (364 million people worldwide), scads of data and significant employer acceptance, they may be the only party on the planet who can credibly build a vertically integrated company based around showing and demonstrating skills and in so doing, can create a modern day monopoly in capital exchanges for the most important form of capital in the 21st century – human capital.
Editors Note: This guest post is written by Raj Kaji (LinkedIn endorsements available here), who has worked for over a decade in Higher Education, including at Bridgepoint Education, Walden University and Laureate Education as well as an entrepreneur in founding four start-ups. All points presented represent the personal views of the author and in no way reflect the opinions of his current or past employers.