What are the advantages and disadvantages of internal sources of recruitment?

There are several basic ways to promote talent through your organization’s internal talent mobility platforms.

• Promotions are among the most common form of internal recruitment and are the most popular among employees.
• Transfers include moving to the same job at a similar level in another department of the same company.
• Temporary to permanent involves changing the employment contract from a temporary position (or trainee) to a full-time employee.
• Employee referrals are cost-effective because you get qualified candidates recommended by employees.

According to Jobvite’s Recruiting Benchmark Report, in 2019, about 80% of new hires were from external sources, including career sites (Monster, LinkedIn), company job boards, referrals, executive recruiters, and agencies. In comparison, internal recruitment accounted for only 8% of hires. However, there are some nuances.

We briefly compared how external and internal recruiting may differ according to time to hire, hiring costs, turnover, and recruitment methods. All these comparisons are based on AIHR, and HRForecast insights.

Below, we describe the advantages and disadvantages of internal recruitment in greater detail.

Hiring from within your business is profitable because employees are already part of your team and know your culture and policy. But despite the benefits of internal employment, relying too much on promotions and relocations can have harmful side effects. Let’s see what the gains and losses of internal recruitment are.

Hiring internal candidates can be more effective than recruiting external ones because:

• It’s fast

It takes less time to hire and onboard someone from the inside. You already know the candidates, and they also understand your company, its values, its technologies, and its processes. So you already know that internal applicants fit well into your culture.

When hiring internally, you can also approach candidates directly. Maybe you already have someone in mind for a role, so you won’t have to spend time advertising the vacancy, reviewing resumes, interviewing candidates, and doing other hiring tasks.

• It’s cost-effective

With internal recruitment, it takes less time and money to hire someone, and the initial salary for external hires is 18% to 20% higher than for internal candidates. You’ll save money because the entire process is faster (and time is money). In addition, when you hire from the inside, you can avoid expenses such as posting ads on vacancy platforms or hiring agencies to search for candidates. You can quickly inform internal candidates about vacancies via email or your company’s internal social media channel.

Instead of looking for passive candidates in resume databases, ask managers about their team members or look in your human resources information system (HRIS) to find colleagues who might fit your open roles.

• It’s less risky

Internal recruitment is less risky because you’ve already screened internal candidates when you first hired them. And you know each candidate’s reputation based on managerial data and employee records.

All of this eliminates the risk of hiring the wrong person. Think about it: sometimes, people lie on their resumes and in interviews; they may exaggerate their commitment and passion for the role. With internal recruitment, you already know about the candidates.

• It improves your employer’s brand

When you’re hiring an external candidate, demonstrating that your company is ready to offer development opportunities is a real selling point. People like to plan for the future, and if you can help them grow professionally with your business, they are more likely to join you.

• It strengthens employee engagement 

Promotion from the inside sends a message that you value your employees and want to invest in them. Giving employees more career opportunities leads to excellent results. Role-changing workers develop professionally, and other employees see that they can have similar opportunities in the future. Thus, you build a culture of trust that improves employee engagement and retention.

Despite all the advantages of internal hiring, there are some things to keep in mind. Hiring from within:

• Can lead to internal conflict 

If you already have someone in mind for a position, it can harm the morale of your workforce. Other employees who are also interested in applying may feel offended that you didn’t take their application seriously.

They may feel that this is “favoritism” and that their work and skills aren’t valued, affecting your entire business.

• Creates a gap in your existing workforce

Upskilling or transferring someone to fill a vacancy eventually leaves the previous position vacant. This entails several relocations, promotions, and transfers, leading to severe disruptions in business operations. Sometimes, external hiring is a better option.

• Limits your applicant pool

Every company must have a pool of qualified applicants for specific positions. Although the fact that your employees are already familiar with the company may seem attractive to you, their qualifications may not apply to the vacancy you need. By relying solely on internal employment, you can lose your chance to hire specialists with new skills and ideas that are more suitable for the role and have greater potential for business success.

• Results in an inflexible culture

Doing most of your hiring within your business can lead to a stagnant culture. Because employees may feel overly comfortable with the way things are done, they find it challenging to notice inefficiencies and experiment with new work methods. An inflexible culture will be problematic when employees need to advocate for change and improvement instead of relying on established, ineffective practices.

Although hiring managers don’t necessarily need to review the information and resumes, the following steps will ensure a simplified and legitimate internal hiring process.

• Ensure that promotions or job transfers aren’t the only way to honor employees or help them advance in their careers
• Set up a transparent process of CV applications and internal career paths
• Delete job announcements once you’ve found a candidate
• Combine external and internal recruitment

These activities will ensure the involvement of employees and a high level of satisfaction, which will lead to better retention of talent. Let’s consider these points by the example of Lufthansa company.

One way to do this is to have a software solution to help you connect the dots. This software can provide skills recommendations based on existing skills profiles of specific employees. In addition, technology can allow your employees to:

• Move through different career paths
• Find out the potential opportunities in their current career path
• Identify vacancies in your company and get a clear individual path on how to retrain to meet the desired position
• Learn about skills to improve to fit a particular job profile.

For example, Lufthansa got better transparency of their existing skill supply and the outlook of future skill requirements. As a result, Lufthansa got insights about future-fit skills available in the company, overviewed the local labor market, and refined its recruiting and employee development strategy.

Internal recruitment works well if you have many talents in your business. If you decide to harness the power of internal talents, don’t hire someone internally simply because it’s cheaper, easier, and faster in the short term. If you doubt that someone is suitable for this role (for example, you have decided that the candidate isn’t excellent but that promotion will “confirm their ideas”), reconsider before deciding. Avoid making a mistake that can cost you thousands of dollars.