The Benefits of Internal Hiring vs External Recruiting

Your hiring process is important to working as efficiently as possible and setting a good tone for prospective candidates considering working for your company. What happens though when that prospective candidate is an internal employee? Do you adjust your process for internal hiring vs external recruiting? 

The reality is there are a lot of differences. Each has its own set of pros and cons that you’ll want to consider before you publish a job description that determines where (or if) you’re going to recruit for the position.

If your company has an established preference for internal hiring vs external recruiting you might not have ever considered the major differences in cost to recruit, salaries, and tenure based on how the roles are filled. 

According to Business News Daily 55% of recruiters said their company doesn’t have a preference of internal vs external candidates, 11% expect high turnover and aggressively recruit externally, and 34% of recruitment teams actively focus on developing and retaining existing employees. This high-level point of view may already start shading your perspective here but I’m going to break down a few more details for you to consider with your next hire. 

The Benefits of An Internal Hire

Lower Cost to Hire

Internal hires, or employees that already work at your company have a lot of tangible benefits and a few hidden surprises. Mainly, they are less expensive in all ways. It costs 1.7X more to hire an external candidate versus an existing employee internal hires also have lower turnover rate. Internal employees don’t have the added expenses of posting on job boards, referral bonuses, or relocation fees. If you have a smaller recruitment budget you’re going to want to start with internal hires. Internal hires also require a smaller salary than an existing hire so it’s just more effective and economically advantageous to go with the internal hire. 

Quicker to Onboard

If you have a short time frame to fill a role I’d also suggest getting started searching through your internal roster. You’re going to spend less time recruiting for them then if you spent days/weeks posting to various job boards, networking in Slack communities, and mining LinkedIn for prospective candidates. As existing employees they already believe in your company so you don’t have to go through the process of explaining your why or your particular ways if they already know and love them. If the role requires significant knowledge of the company it’s not enough to hire a superfan. You have to go with someone who already knows your company. If you have someone who’s qualified, or nearly qualified, it’d be a good idea to start your job search here before beginning an extensive search.

The Disadvantages of an Internal Hire

If you have a small team and promote a team member you’re going to end up needing to replace them. This isn’t exactly a con, or a good reason to avoid an internal hire but it’s certainly something you should keep in mind. You just might not avoid an external hire search. 

An actual con however is that if you have an employee who feels overlooked for a position you give to an external hire. There’s a chance the internal hire will feel disheartened with your company and end up leaving. A LinkedIn study revealed that 24% of employees job seekers stated being overlooked for a position as the primary reason they wanted to leave their job. The opportunity to grow with a company is one way to keep job-hopping millennials loyal to the company. Fifty percent of millennials don’t anticipate being at their company on 1-year. The biggest reason they don’t anticipate being at their company is that they are disengaged with their company. Fifty-five percent of millennials cite being disengaged with their current employer which is more than any other age category.

The Benefits of External Hires

Diversity of Talent

A big reason companies go after external hires is because there is a hole somewhere in their company. Either they don’t have an employee with the needed specialized skill set that they can promote or they have a lack of diversity on their team that they want to address. That lack of diversity could be based on gender, race, disability, sexual orientation, or another marginalization factor. 

Diverse, and more importantly inclusive, teams are obviously important in this climate but they aren’t just for the sake of checking the diversity box. Diverse companies have 2.3X higher cash flows and are 70% more likely to capture new markets as their new diverse employees pivot strategies to better capture underrepresented markets. New talent is going to bring in a perspective that a tenured team or a team that lacks diversity doesn’t have. 

Growing the Company 

Sometimes you can’t hire internally because there simply aren’t enough employees. External hires help you grow to reach your full potential so it’s important that you hire intentionally for your startup. In the early stages of your startup, you’ll want to hire for potential because your employees are going to quickly outgrow their current skills and roles. This makes it important to hire employees who are passionate towards the company mission. These are the kinds of people who are willing to grow with you and lead teams as you bring on new employees.

The Disadvantages of External Hires

Most of the pros of internal hires are cons for external hires. External hires take longer to hire, are more expensive to hire, and are more likely to perform poorly. 

More Expensive 

External hires have 18% higher salaries than internal hires as more qualified hires are being lured away from already lucrative positions. It’s your job to woo them so they have more leeway in asking for a higher salary than an existing employee. Additionally, hiring internally is less expensive because you aren’t doing the work of posting on job boards, actively networking, or scheduling dozens of interviews.

Perform Poorly

External hires may bring in bright new ideas but they are also a gamble. External hires are 61% more likely to be fired for poor performance than internal hires. It takes them longer to get up to speed which leads to them on average performing poorly for the first two years. Not to mention the internal employees who feel passed over and leave because of an external hire. External hires that are prioritized over internal candidates are tricky so you may want to consider only hiring externally when the skill set doesn’t exist internally. Or just plan to spend more time getting to their peak skill level.

Conclusions

Deciding whether to prioritize internal hiring vs external recruiting is an important decision to make if you want to streamline your hiring process. Instead of making a blanket policy of internal vs external hire it may be a good idea to compare pros and cons for an internal hire vs an external hire each time you begin the pursuit for a new employee.