Why You Should Implement an Internal Hiring Program
As your company grows, you’ll inevitably encounter the need to hire additional employees. Your natural impulse when filling open positions is likely to look outwards. After all, casting a wide net in the pool of all possible job candidates ought to give you the best chances of hiring the right person.
But while external hiring is the intuitive move, it's not always the right one. Internal hiring - filling new roles with current employees of your company - is an overlooked but just as important consideration when trying to match the right employees with the right positions within your firm. This may seem like a limiting approach, but it can often be more successful in the long run than hiring from outside.
In this article, we'll give you a primer on the process of internal hiring. We'll start by examining why internal hiring is often a better move than external hiring. From there, we'll provide you with some resources to start implementing your own internal hiring program today.
Why Internal Hiring Is Superior to External Hiring
If you're not convinced that internal hiring has value, we understand. It runs contrary to conventional wisdom, mostly because it limits the pool of potential job candidates. Looking outward gives you access to the best people for the job, right? So why would you limit yourself to just the people within your company?
As it turns out, research on management practices indicates that internal hiring has several advantages over external hiring, which we explore below:
1. Internal hiring saves money
Internal recruiting can actually save you money. Research by Professor Matthew Bidwell of the University of Pennsylvania's Wharton School of Management shows that external hires receive 18-20% higher annual compensation than internal hires for comparable roles. That's good news for job-hopping executives but bad news for your annual budget.
Of course, higher annual compensation is just one way external hires cost your company more money. A report from Deloitte Leadership indicates that "hiring managerial employees can cost approximately 150% of their annual salary". So even assuming these new hires stick around AND are successful in their roles (which isn't always the case, as we’ll discuss in a moment), they still come at a substantial premium compared to internal hires.
All this is to say that, given a pool of internal candidates who are as qualified as external candidates, it makes more financial sense to hire internally. But the benefits of internal recruitment go beyond finances.
2. Internal hiring save time
External candidates require a ramp up time; when you hire someone from outside your company, you have to devote significant time to training them to do their new job. Of course, new employees will have some skills that transfer from their previous roles, but you still have to give them time to get up to speed with the proprietary processes of the company and the team.
Indeed, it’s often the intangible aspects of a role that make hiring from outside of the company so time intensive. Remember, you’re not just training the new person how to do the specific tasks of their job - you’re also training them in the culture of your company and the nuances of organization-specific practices and tools.
This is the hidden time cost of external hiring, and it has a greater impact on productivity than you might think. According to the same report from Deloitte Leadership cited above, it takes an average of 2 years for the performance of externally hired leaders to match that of leaders hired internally.
Before your new employee walks in the door, don’t forget about the time cost of identifying potential candidates. At the minimum, external hiring requires you to:
Craft the job description.
Place the job posting on the various job boards (or reach out to promising candidates directly).
Wait for people to send in applications.
Conduct several rounds of interviews.
Finally offer the job to someone.
And at the end of this process, the candidate still might turn you down. The result? A giant waste of time for you, your hiring manager, and your human resources department.
Compare this to internal promotion: Deloitte Leadership reports that “companies with strong internal leadership development programmes can fill 26% more critical positions immediately”. You can cut out much of the uncertainty and wasted time of hiring simply by recognizing the benefits of hiring from within your organization: a clear upper bound on your pool of candidates and a more streamlined application, interview, and hiring decision process.
3. Internal hires have lower rates of turnover
Saving time and money represent the short term benefits of an internally-focused recruitment strategy, but internal hiring also has longer term benefits. Namely, employees who are hired from within the organization are more likely to stay with your company. This leads to a welcome stability for team members that work under and alongside your managers, and also allows you to cultivate a line of succession for C-suite roles.
When you hire internally, you’re leveraging existing company loyalty. Looking to existing employees drastically lowers the risk of turnover because this talent pool is filled with candidates who understand the company culture and the way the firm runs, and feel they are a good fit. Promoting from within not reduces or eliminates the risk of a new hire being a poor fit for your company, but also reinforces existing company loyalty by rewarding commitment and demonstrating the company’s reciprocal commitment to its existing employees.
The research backs this up. Matthew Bidwell found that external hires have “a 21 percent higher hazard rate of voluntary exit.” That is, external hires are, on average, 21% more likely to quit their new positions than internal hires. The instability of high rates of turnover not only represents an enormous waste of money and time, but a lack of consistent leadership for your other employees.
How to Start Hiring Internally
As you can now see, internal hiring has many advantages over the traditional external hiring model. To be clear, it isn’t appropriate in all cases. Young companies, for example, are often better off hiring externally due to a lack of well-defined company culture and a limited pool of internal talent.
More mature organizations, however, can save large amounts of money, time, and headache through the implementation of an internal hiring program.
But how do you start hiring internally? How do you identify your company’s future leaders? Reaping the value of internal hiring doesn’t happen instantaneously; your company must put a process in place.
One option is to start from scratch, building your own standards for identifying promising talent and creating your own internal systems to track their skills and development. This can work, but it can also feel a lot like reinventing the wheel - not to mention the financial and time cost of such a project.
For a more streamlined, effective approach, you can opt to trust the expertise of Twine. Our tools can help you build a company-wide internal network that will guide you in matching the right employees with the right roles. With our help, you can build your new workforce instead of buying it, improving employee retention by as much as 30%. Contact us today to set up a demo.