Hiring Internally vs. Externally
As a company expands, it is clear that its needs for employees will also expand. So there is always an expectation for hiring externally. However, we are going to show that there are multiple pros and cons of hiring internally vs externally.
What Is Internal Hiring?
Internal hiring refers to a company filling a job role by choosing from one of the existing employees.
If an employees are in a situation where they would like some mobility within the company, then internal recruitment could be the best option for them. Then, the company prepares an internal interview as part of an internal recruitment process.
What Is External Hiring?
By contrast, external hiring refers to a company filling a job vacancy by choosing from candidates outside the company. The company itself, or third party collaborators, such as recruitment agencies or headhunters, manage the recruitment process.
Regardless of how they fill job positions – hiring internally vs externally – employers have to aid new hires in their transition to a new role. When employees step for the first time in an organisation, they have to participate in preboarding and onboarding. Meanwhile, employees who are changing job positions will have to participate in a crossboarding process.
Pros and Cons of Hiring Internally vs Externally
In order to investigate when do companies prefer to hire internally vs. externally, we have compiled a list of pros and cons of hiring internally vs externally. As this list will show, there are advantages and disadvantages associated with both strategies.
What Are the Advantages of Internal Hiring?
Evaluating the advantages of internal recruitment can help you answer the question of why do companies prefer to hire internally. Or, if there are circumstances when an organisation should strive to hire externally only.
Reduces Hiring Cost
External recruitment can cost as much as 6-times more to hire from the outside than to build from within the organisation. This the conclusion of Josh Bersin, industry leader and HR analyst.
The cost per hire for external candidates is higher than for internal candidates. Firstly, there is less expenditure on job boards or sourcing expenses. Moreover, there will be no expenses for pre & onboarding the employee.
Secondly, new employees are more expensive for companies because of the learning curve associated with onboarding. New employees cannot be as productive as tenured employees. They initially lack a full understanding of the company and its processes.
Allows for employee Knowledge & Understanding of Culture
When crossboarding to a new role or department, they will preserve the knowledge and understanding of culture. They gathered everything from the very moment of signing the contract. Your Pre & Onboarding and daily work experiences are also crucial.
As an internal recruit you have a clear advantage. You understood the organisational culture and developed skills adapted to the organisational needs.
Makes Shorter Processes
The speed of filling a position is much lower in case of internal recruitment. Think, for example, of the processes of background checking, gathering documentation for setting up the taxes, pension, insurance etc. All of these occurred the first time you joined the company.
Speed to full productivity is definitely linked to gaining a full understanding of business culture and “how things are done.” So, unsurprisingly, internal hires have the advantage of knowing the company culture, its tools, methodologies and formal and informal practices.
Organisational knowledge is something that takes a while to be grasp. You need time to fully understand and then to fully apply it in your day-to-day work.
Increases Employee Engagement
Once employees fully immerse themselves in a company, its culture and its mission, they feel that they belong. Consequently, they are more prone to remain in a long-lasting employment relationship.
Long-term employee life-cycles are beneficial for both employer and employees. To keep you inside the organisation for the long term, your employer will be more prone to invest in developing your skills. This leads to your professional development and to a raised productive output. All of this contributes to your engagement with and commitment to the company.
“Hiring internally also increases engagement. And folks tend to refer others more frequently when their own career has grown within the organization.” These are the highlights of Daniel Sonsino, Founder at Guia Consulting and former VP of Talent Management.
Provides Employer Value Proposition
An employer that commits to helping and guiding employees up their career ranks, benefits from positive employer branding. Rewards for devoted and capable employees, and better career prospects and continuous upskilling will motivate you. Also, you will be more prone to recommend the employer to friends and family.
In addition, a culture founded on constant improvement contributes to increased morale of the entire workforce.
Increases Success Rate
Hiring externally can always be a gamble. Although companies spend time and resources in finding the best match for a job, nothing can guarantee a successful hire. Will the new hire be someone that adapts, learns, integrates and contributes fast?
Data from CCI Consulting suggests that poor cultural fit, rather than lack of competencies or skills, plays a greater part in why new hires leave companies.
This is the reason why introdus focuses so much on preboarding and onboarding. Structured Pre & Onboarding Programmes mitigate the risk of losing new employees. This is due to the fact that they strategically address both the practical needs of a new hire, and their social and emotional needs. Pre & Onboarding must make employees feel at home in their new companies.
Ensures Competitive Advantage
When deciding between hiring internally vs externally, internal hires have a competitive advantage. The company is already familiar with their performance to date. There is also awareness of their future potential.
Furthermore, companies already have information on the work ethic of internal candidates. They have already proved their professionalism and their competence.
Boosts Employee Performance
A landmark study published on The Effects of External Hiring versus Internal Mobility concluded that employees promoted from within the organization had a significantly better performance in their first two years than external hires.
Additionally, the study revealed that external hires were 61% more likely to be fired from their new jobs. Meanwhile, internal hires were promoted faster and had lower rates of voluntary and involuntary exit. Hence, performance on the job is an indicator for the success of the hiring process.
What Are the Advantages of External Hiring?
In the other hand, we have also identified some advantages of external hiring. It’s important to consider these essential points in order to make the right decision:
Brings Specific Expertise and Diversity of Candidates
Internal recruitment can provide a great strategy for companies with a substantial workforce. However, for many smaller companies, this might simply not be an option. The company might be small enough that it simply misses the expertise specific for the new job vacancy.
In this context, external recruiting ensures accessing a large pool of talented candidates. There is always the potential to find a rock star for the organisation. This would be someone that is just perfect for the organisational needs and its objectives.
Boosts Potential for Innovation
Bringing in new employees, who have gathered considerable experience from other workplaces, means also a boost of new and fresh ideas. Sometimes, an external candidate has an outlook that is completely different. Their outlook is not influenced by the routines that more tenured employees might have developed. Outsiders are not enmeshed in any organisational politics that might render them unproductive.
“The new hires have the potential to bring in a unique perspective on the organisation”, according to Andreas Olesen, HR Business Partner for Trafikstyrelsen.
Fills a vacancy without creating another
When a company uses internal candidates to fill up a job position, they are automatically creating new vacancies. So, for example, if a technical team leader is promoted to CTO, the company will need to fill up the newly vacated technical team leader position. And they promote a senior engineer as a technical team leader, then the company needs a new senior engineer.
Thus, external hiring is convenient because it fills a vacancy without creating another. Whereas, internal hiring creates a cascade of new vacancies within the job hierarchy.