Internal vs. External Recruitment: Benefits, Costs & Best Practices

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Your hiring strategy is one of the most important parts of keeping your company’s engine running. Hiring the right people will push your organization forward with innovation and expertise.

But it’s not all about recruiting new talent.

Some of your best hires may actually be working for your organization already.

There are pros and cons to hiring both external candidates and looking inside your company’s existing talent pool. In this article, we’ll help you understand the benefits, costs, and challenges of both internal and external recruitment and provide some best practices.

Internal recruitment

Internal recruitment is an often overlooked but highly beneficial recruitment practice. Getting down to the euros and cents, an internal recruitment process has its advantages. It takes less time and money to hire someone – and compared to external recruitment, the starting salary of an external hire is on average 18-20% more than that of internal candidates.

Employee motivation

Aside from the financial aspects, internal recruitment motivates and incentivizes current employees to go that extra mile for a promotion. Meanwhile, looking externally for senior positions can disincentivize top performers who feel they should be next in line.

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A study by Linkedin found that 24% of employees who were looking for a new job cited being overlooked for a promotion by their current employer as their main motivation for leaving. In a time where job-hopping has become the norm, creating more opportunities for internal mobility can greatly increase employee loyalty.

Developing and upskilling your workforce

Boredom kills employee engagement and ultimately makes employees twice as likely to leave a company, but what are the main causes? According to a study by Udemy, 46% cited a lack of opportunity to learn new skills as the top culprit of workplace boredom, with the second being unchallenging work.

Don’t forget, the employee-employer relationship shouldn’t just be about providing services in exchange for payment. You can’t expect a person to join and then stay in the same position, doing the same tasks for the rest of their career. Employees also want to learn and grow with your organization.

Too many employers today forget how important development and upskilling is for employee retention. This is especially true for the millennial generation. A study by Gallup found that “opportunities to learn and grow” is one of the top three factors in retaining millennials.

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Cross-disciplinary knowledge sharing

And keep in mind, you don’t just have to look for hires within the same department. People have multiple talents and interests. You may just find that your sales rep is also a skilled writer. If a content marketing position opens up, who better to consider than someone who knows the value proposition of your product or service inside and out, plus different use cases?

So, instead of focusing on one strict profile, also consider crossover skills which could be applied.

The benefit here isn’t just about being able to fill a position.

Facilitating more cross-disciplinary hiring is a great way to develop functional leaders who can both learn a new aspect of the business and share knowledge from their previous department. Instead of thinking with a one track mind towards improving sales targets or meeting marketing objectives, internal mobility helps people learn to look at a problem from multiple perspectives and can effectively break down silos within the organization.

Who’s the better performer?

But it’s not just about the recruitment process itself. After the agreements are signed and dotted, the question is, who is the better hire?

With internal recruitment, there’s no need for onboarding. Your people may still require training for the new position (which means you’ll still need to provide decent inboarding) but there’s a much lower learning curve than for someone who’s completely new to the business.

A study from the Wharton School of Management found that, while external candidates receive higher salaries, they also receive lower scores on their performance reviews. In fact, external recruits are 61% more likely to be fired than internal hires. Of course, this is likely an effect of the learning curve we mentioned, but there’s also the culture fit to consider.

When you’re considering a candidate who’s been working for your company for a number of years, you’ll already have the insights you need from their coworkers and manager to know if they’re a good culture fit. Studies show that culture fit is a great predictor of the likelihood for a hire to stay in a position during the first year.

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Best situations to hire internally:

  • A small budget to hire, onboard, and train new talent
  • A position which requires significant company knowledge
  • You have high potentials eager and ready to take the next step
  • The skills needed are already available within your talent pool
  • When you’re in a time crunch to fill an important position

Inboarding, the forgotten brother of onboarding

No need for onboarding with internal recruitment but don’t forget to give your
people a proper inboarding!

Best practices for internal recruitment

Create a culture of internal hiring

If your organization doesn’t have a culture of hiring internally, it’s necessary to promote the benefits. Managers may at times be wary of losing top performers. Therefore, it’s essential to create a culture in which internal and cross-disciplinary recruitment is seen as a way to grow the business.

It’s not about stealing and losing top performers, it’s about nurturing their growth and helping them reach their career goals within the organization – rather than losing them to the competition.

Managers should be encouraged to have regular conversations with their team members about their skills, interests and long term career goals in order to identify potential internal hires. Encourage managers to support team members who want to develop cross over skills which could be useful, not just for their team, but across the organization.

To facilitate this transition, your HR department also needs to change its mindset towards (internal) recruitment. Start offering cross-disciplinary opportunities and considering internal candidates who may not fit the exact profile, but have cross over skills which could be honed and developed.

Process: Internal recruitment vs. sponsorship

The next step you need to consider is how to structure the process. What’s the best way to find the right internal candidates for a specific position? While it’s essential for managers to better understand their employees’ career goals, should we be relying solely on management recommendations? And who should we open the position up to? Everyone or only those with high potential ratings?

An interesting study from the Wharton School of Business sought to compare the effectiveness of hiring through internal job postings (which are open to everyone) versus sponsorships (which are based on management recommendations). 

They found that candidates hired through internal postings – as opposed to internal sponsorships – received higher competency and contribution ratings during their first year, were more likely to be seen as top performers, and less likely to be considered low performers. On top of that, they were 20% less likely to churn in their first two years.

Ultimately, the study suggests that relying on internal postings vs. sponsorship can be more effective in two ways. First, by having to create a job description, managers are forced to consider the specific needs of the role objectively, rather than molding the job description to fit a particular candidate. Two, it reduces the potential for bias in the hiring process.

By opening up the position to everyone, instead of just a select few, you won’t miss out on great potential candidates who may not be on your management team’s radar.

External recruitment

Of course, hiring internally can be great in certain situations, but there are also certain cases in which an external recruitment strategy will be more effective.

First, when recruiting external candidates you’ll have a much larger talent pool to choose from. While upskilling is a great way to help your workforce develop, if you don’t have someone in your organization with the foundational knowledge they need to take on a new skill, it can take much longer to train for this position. A study found that the half-life of specific technical skills is now approximately 2.5 years.

Looking for talent externally will give you higher chances of filling the position with someone who already has the technical knowledge they need to start making an impact.

One of the most important reasons you need to keep introducing new talent to your organization is diversity. Instead of hiring people with the same profile, studies show that cognitive diversity, or differences in perspective and thought process, actually improve a team’s decision-making abilities. There are also numerous studies that show workforces that are diverse in gender, race, ethnicity, age, and educational background are more productive, innovative and generate higher revenue.

New hires bring a fresh perspective to your business. When a change in direction is needed or the established way of doing things isn’t consistent with what the company needs anymore, bringing in new talent can help you shift both direction and mindset.

One of the best examples of this is the shift towards a digital transformation.

Especially in more traditional organizations, we’re often seeing senior level legacy employees struggle to adopt this new approach towards work. In this situation, legacy employees can really benefit from the entrance of new, more digitally minded hires who can help them make this transition.

Finally, when your organization is on a growth trajectory and looking to expand, hiring externally is important for growing the business. Remember, each time you hire internally you’ll always have another vacancy you need to fill or redistribute. Instead, external hires close a vacancy gap and increase your numbers.

Best situations for external recruitment

  • When you need to grow the business
  • To bring in fresh, new perspectives and improve diversity
  • When a change in direction or mentality is needed
  • To acquire new skills and expertise within your organization

Before you go

Missing out on the benefits of internal recruitment is a mistake too many organizations make. Hopefully, these insights will help you identify the best opportunities for putting internal hiring into practice and define your own successful internal recruitment strategy.

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