The National Bureau of Economic Research warns 21st-century companies that the tightness seen in labor markets will continue for several more years. Compounding this phenomenon is the widening skills gap, leaving some businesses more vulnerable to industry changes.
The high cost of education also contributes to fewer people getting degrees with the right competencies for the job. These observations put pressure on organizations to rethink their recruitment policies and consider getting the best talent from within the business.
Is internal recruiting the best solution? Many contemporary businesses think so. Let us examine the benefits of this recruitment strategy to understand why many 21st-century employers are shifting their hiring and recruitment efforts inwards and why your organization should start doing the same thing.
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Internal vs. External Recruiting
Companies want only the best talent for every position in their organizations to ensure work productivity and efficient achievement of the strategic objectives, vision, and mission. Hiring managers, recruiters, and other HR professionals are responsible for finding the perfect fit. They must have a clear understanding of what the company expects from its employees, including the competencies required of the job.
Hence, HR professionals must decide where to get the talent for a particular post. Should they recruit from within the organization or try their luck from the millions of unemployed outside the company?
Interestingly, Jobvite says hiring managers recruit four out of five people outside the organization, while only 8% come from within the company. However, internally recruited employees scored higher in effectiveness measures than externally sourced recruits. It is essential to point out that effectiveness scores reflect employee quality, including job performance and innate attributes.
Hiring externally or sourcing talents from outside the organization also has its perks. For example, external recruitment is necessary when no employee is best suited for the job post. The company might also need an infusion of novel ideas, which it cannot get from its current workforce. Hence, one cannot discount the importance of outside talent in an organization’s growth.
The Society for Human Resource Management (SHRM) says organizations must first look within before considering recruiting and hiring outside talent. It is perfectly acceptable to hire externally if internal recruiting efforts return empty-handed.
Why Companies are Recruiting Talent from Within
Companies cannot do away with external recruitment because there will always be some vacancies that internal recruiting cannot address. Moreover, the workforce also ages, requiring an infusion of fresh blood in the organization. Regardless, here are some of the most compelling reasons companies recruit internally. These points can also underscore how your business can benefit from such a move.
Minimizes Risk of a ‘Bad Hire’
Alex Haimann of Less Annoying CRM says hiring high-quality talent is the priority concern of CEOs and other top-level executives. PricewaterhouseCoopers also says that chief executives consider skills and talent unavailability the biggest threat to modern businesses.
Some industry experts underscore employers’ predisposition to focus more on external recruitment as the culprit. According to SHRM, external hires make up about two-thirds (66%) of an organization’s new employees. Unfortunately, many of these recruits end up a ‘bad hire.’
In a startling revelation by CareerBuilder, nearly 75% of modern businesses have had a bad hire. Companies lose about $15,000 per bad hire because HR professionals fail to conduct a thorough and comprehensive background check, hire too quickly without examining the merits of decisions, and focus too much on skills without considering the candidate’s innate qualities and attitude.
Sadly, businesses do not only contend with the financial cost of a bad hiring decision. They must also recognize the ripple effect of such bad hires on the whole organization.
A bad hire will always show disengagement at work, manifesting as ultra-slow work pace, minimal or poor-quality work output, and loss of interest in the work. They can also pull down other team members, undermining group effort and productivity. Worse, bad habits can be infectious, spreading throughout the organization if left unchecked.
CareerBuilder says that 35% of hiring managers believed candidates would learn quickly on the job. Thirty percent of them filled the position haphazardly because of management pressure, while 29% focused more on skills and not on unique attributes. The jobs site also discovered that 54% of bad hires produce a less-than-standard quality of work output, while 53% display a negative attitude. Half of the bad hires did not cooperate or collaborate with other employees, while 46% had attendance issues. More importantly, 46% of bad hires lacked the skills necessary for the job despite claiming the opposite during the recruitment phase.
Companies in the service industry can also risk losing valuable clients. A bad hire will not perform his responsibilities as diligently and conscientiously as a dedicated employee. He is prone to make mistakes, provide mediocre customer service, and overlook critical details. The result? Unhappy clients.
Modern consumers always use social media to share their experiences. Although 49% of customers will highlight their pleasant experiences with brands, 30% will not hesitate to call out companies delivering negative customer experiences. The percentage might be small, but one must consider the influence of today’s social media. People share almost anything they fancy, even with people they do not know. It is not unusual that a brand’s reputation can take a serious hit.
Internal recruiting addresses many of these concerns, especially if the human resource department has a comprehensive employee management system. Human resource professionals can keep track of each employee’s performance, competencies, and attitudes at work to determine their fitness for an open position.
Hiring managers can examine annual employee performance reports, incident reviews, disciplinary actions, and other pertinent employee-related records to determine an internal candidate’s suitability for the job. HR professionals can also interview immediate supervisors, managers, and colleagues about the candidate’s attitude and work performance.
Guarantees a Better Organizational Culture Fit
The Corporate Recruiters Survey revealed that the majority of CEOs and top-level executives rank organizational fit number one in evaluating new hires. The Graduate Management Admission Council asked employers about a dozen traits they look for in candidates. At the top is organizational fit.
Management gurus look at businesses as entities with personalities distinct from one another. An organization’s business culture forms the glue that binds everyone in the firm. Hence, it is not unexpected that employers and top-level executives expect new hires to have the personality and innate attributes that match the organization’s values, attitudes, and beliefs.
For example, a company that values collaboration expects its employees to be team players, have exceptional interpersonal skills, and other attributes necessary for smooth group interactions. A candidate who prefers working on his own might not be a perfect fit for this organization.
Another example is a business that thrives on innovation, risk-taking, and imagination. Millennials might fit well into this work environment, but a Baby Boomer might not.
External recruitment increases the risk of hiring a candidate who is not the best fit for the organization’s culture. It can lead to employee disengagement because the new hire will feel he does not belong to the group. It can also impact his work performance.
On the other hand, internal recruiting does not threaten business culture. The employee already knows the organizational beliefs, values, and attitudes and has successfully acclimatized. There might be some degree of misalignment between the employee and the organization’s values, but they are in perfect synchrony now.
Organizational culture fit can also contribute to employee happiness and satisfaction. It empowers workers to be more productive while deepening their commitment and dedication to their work. Business culture alignment also boosts employee engagement and motivation. Transitioning into their new roles is smoother and faster, allowing the company to increase productivity without substantial downtimes.
Hiring managers can collaborate with the personnel department to better understand an internal candidate’s cultural fitness. They can examine past issues HR professionals might interpret as a misalignment between corporate personality and employee attitude. Internal recruiting makes it more straightforward to establish cultural fitness than external recruiting.
Internal Recruiting Reduces Hiring and Recruitment Costs
Companies can spend an average of $4,000 for every candidate they hire, including recruitment, training, benefits, and other remuneration. Hence, hiring ten candidates can cost organizations $40,000.
Unfortunately, there are also recruitment activities that can push the overall expenditures higher. HR professionals must create job postings on different job boards. Although some platforms are free, most job posting websites require a fee to gain access to a wealth of features companies cannot enjoy in a free account. Social media networks can also help. However, HR professionals must also devote resources to post jobs on these platforms and engage those interested.
Internal recruiters must then sift through hundreds of resumes and other credentials to pre-qualify the candidates. According to Glassdoor, a single job posting receives an average of 250 job applications. Eye-tracking studies reveal that recruiters only need about seven seconds to skim over a resume to determine whether it is worth evaluating further or not. Hence, the 250 applications will require about 1,750 seconds or roughly 30 minutes.
However, the figure only entails skimming over the resumes. It excludes other activities per application, such as flipping the page, checking for information, and other tasks. Thus, it is not unusual for recruiters to require at least 24 hours to pre-screen resumes and other application documents. Unfortunately, the recruiter might have other tasks to perform, further pushing the time costs beyond 24 hours.
There is also the cost of interviews, background checks, medical examinations, drug screening tests, and other pre-employment assessments. These activities not only add to the company’s expenses but also require additional human resources.
Unsurprisingly, many businesses contract third-party recruiters or recruiting agencies to perform these tasks. It is more cost-efficient, freeing internal recruiters and HR professionals from these responsibilities while giving them more time to focus on other HR-related tasks. Unfortunately, it will still cost companies about 20% of the candidate’s base salary.
And then there is the issue of training costs. No matter how highly-qualified an external hire is, he will still need orientation, training, and onboarding to the organization’s ins and outs. The Industry Training Report says companies spend between $924 and $1,678 to train one employee. Hiring ten new employees translates to $16,780.
External recruiting costs extend beyond the initial hiring and training activities. There are also expenses inherent in integrating the new hire into the company’s daily operations. The organization must allocate work resources, such as computers, desks, chairs, communication devices, and other tools necessary to perform work efficiently.
Internal recruiting addresses these issues because internal recruiters already have readily available data about prospective candidates. They no longer need to conduct a background check because the employee already has one upon his employment.
Human resource professionals need not post job vacancies on job boards and social media. They can utilize various company communication tools to spread the news. Internal recruiters can send emails to team leaders and supervisors, who will disseminate the information to their respective subordinates. Internal recruiters can also create flyers and posters for display in common areas, such as the staff lounge, cafeteria, or anywhere employees congregate within the business premises.
Internal recruitment also minimizes training and onboarding expenses. Training for new employees almost always involves an orientation about the company. Internal hires do not need that because they are living evidence of the organization’s culture. The only training they will need is the competencies necessary to perform their new work roles, requiring only the budget for these activities.
Although there are no concrete estimates as to how much a company can save when hiring internally, one thing is certain – it is lower than the average cost of hiring and recruiting externally.
Internal Recruiting Shortens the Hiring and Onboarding Processes
Recruitment and hiring are not only costly. They are time-consuming, too. Companies spend about 41 to 42 days to recruit and hire externally. As mentioned, it involves preparing and posting the job vacancies to job boards and other platforms. It also includes pre-screening the applications and conducting pre-employment assessments.
Although the company might reassign some employees to temporarily cover the vacancy, there is no guarantee that the new hire will hit the ground running. Ideally, the new hire should perform his work responsibilities splendidly on Day One. Employers expect the new employee to blend well with peers and be productive immediately.
Unfortunately, it is not always the case. Experts say mid-level managers and high-level supervisors require at least six months to reach their full productivity.
On the other hand, the breakeven point for ordinary employees is 12 weeks. Unfortunately, the first month of employment often sees the employee contributing 25% productivity. Hence, the company’s productivity takes a significant hit in the first two months, breaking even only after four.
Internal recruiting does not require 40 days to complete. With efficiency, systematicity, and organization, HR professionals can hire the best internal candidate for the job within a few weeks. If they are conscientious in their work, hiring managers can zero in on a suitable candidate within several days.
Reaching the company’s breakeven point is also faster, especially if the HR professionals hire the best internal candidate for the job. The business does not need to wait three to four months for the employee to reach 100% productivity. The employee might accomplish it in two months or less.
Internal Recruiting Boosts Employee Morale, Engagement, and Loyalty
Almost a quarter (23%) of newly-hired employees quit their jobs before the 12th month. More than four out of five employees (82%) resign because they do not see or feel any sign of professional growth or progression in their company. Unfortunately, only a third (35%) of businesses have a concrete succession planning program. Succession planning is a long-term process preparing some employees for future roles within the organization.
Companies recruiting and hiring internally give employees a reason to be happy. It shows that the organization values their contribution and recognizes their effort, abilities, and attitudes. The recognition motivates employees to perform better in their work. They might not get the job today, but they are confident other opportunities are possible.
Internal recruiting also improves employee engagement, enhancing team performance, boosting productivity, reducing turnover rates, and guaranteeing higher retention. A Gallup survey revealed that a 100-person business can lose up to $2.6 million annually due to employee turnovers.
Encouraging employees to grow within the organization also boosts morale and fosters brand loyalty. Most people view these internal recruitment activities as a reward for their hard work, dedication, and commitment. It motivates them to perform beyond expectations, exceeding performance standards and producing high-quality outputs every time.
Final Thoughts on Internal Recruiting
Internal recruiting offers many advantages over external recruitment. It is one of the most cost-effective ways to hire the best talent while eliminating bad hiring decisions and ensuring organizational culture fitness. The time and resource requirements for hiring and recruiting are also substantially lower than external recruitment efforts.
More importantly, internal recruitment enhances employee morale, productivity, loyalty, and engagement. However, there will always be instances when a company must recruit and hire talent from outside the organization. Hence, it would be best for HR professionals to revisit their hiring and recruitment strategies to prioritize people already in the business. If none meets the requirements, sourcing talent externally can be a viable solution.
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