Should You Hire Internally or Externally?

Should You Hire Internally or Externally?

Published : May 31, 2017

Hiring the wrong person isn’t just a small “oops” for your organization: it could be a five-figure “oops,” according to Forbes.

When you hire the wrong person — someone who is a poor cultural fit, or has an underdeveloped skillset — you waste time, money, and potential that could leave your organization at a standstill. Unfortunately, there’s no magic formula to find you the perfect candidate for your business. But, if there were a magic formula, it would start with deciding whether to hire internally or externally.

Each time you begin the search to fill an open position, think carefully about whether this position would be best suited for someone already within your organization, or for an outside candidate who can bring a new perspective to the team. Both options have virtues. Internal hiring can boost morale and workplace culture, and the pool of candidates is already familiar with the organization’s mission, culture, and needs. External hiring is a great opportunity to add expertise that your team was previously lacking, and promotes a greater balance of skills and ideas across the organization.

Of course, any list of “pros” comes along with a list of “cons.” Read on, as we explore both the benefits and challenges of internal and external hiring, to help you make that all-important decision for your own team.

Internal Hiring

Internal recruitment comes with a set of natural advantages. Selecting a prime candidate from your own company can improve employee retention, by showing your staff there’s ample space and opportunity for them to grow within the business. Top performing individuals actively want to learn and grow in their chosen positions. Promoting from within the organization is a great way to encourage and support your top talent, and give them plenty of reason to stick around.

Internal promotion also means you won’t need to re-teach a new recruit everything your existing workforce has already learned. Your internal candidate will already be deeply ingrained within your business culture, understand your business model, and be ready to jump into action in a new role.

There are limitations to the internal route. Hiring internally narrows the pool of candidates and skillsets available to only those within your organization. Sometimes, internal hiring is unrealistic simply because there are no current employees who fit (or are interested in) the job description of the open position. Even well-qualified internal candidates may prove to be a bit too ingrained in the current work culture, limiting their ability to think outside the box and innovate — though, this can be offset by investing in ongoing education for employees.

Internal job promotions can sometimes curtail diversity within a company, and may lead to issues with the Equal Employment Opportunity Commission when it comes to promoting a more varied workspace.

External Hiring

External recruitment allows you to reach out and collect an inflow of completely new skills and ideas. You gather a range of talented people who haven’t been over-exposed to your corporate culture — equipped with fresh inspiration and an out-of-the-box perspective. Your external prospects may bring strategies from their former employers that you can integrate into your own business practices. They may also ask questions and challenge the status quo in a way current employees haven’t thought of yet, keeping your organization sharp.

External recruiting also provides a chance for rebalancing the diversity on your teams. Hiring employees from different backgrounds introduces varied knowledge and experiences that can’t be taught, strengthening the organization.

The obvious downside of external hiring is that it takes more time and money to find, interview, and train outside candidates.

The Difference Between Compensation Plans

Although finding the right candidate should be your top priority, all businesses must consider the financial impact of hiring. The compensation and benefits you need to offer for a new position can differ depending on whether you employ internally or externally. A Pennsylvania University study found that external hires receive 20% more in wages than internal employees for the same job. Despite the increased pay, external hires consistently receive lower performance reviews than employees promoted from within — the same study revealed that external hires were 61% more likely to be fired, and 21% more likely to quit.

The lesson? It’s easier to retain and strengthen already-loyal employees than to build newfound loyalty from scratch. When you hire externally, you’re dipping your toe into the shark tank and competing against a host of other businesses. When you promote internally, you’re rewarding people who have shown long-term dedication to your company. Instead of offering higher wages, you can foster the same devotion with life insurance and retirement benefits, which are more cost effective for your organization.

Which is Right for You? Choosing the Internal or External Approach

Most businesses gravitate towards internal promotion over external recruitment. Promotion is often far easier and cheaper than recruiting from scratch; though, your aim as a company should be to ensure that you’re choosing the right candidate for the job at hand, regardless of bias. With the job description in hand, ask yourself the following questions:

  • Is there someone in your existing workforce who meets all the criteria of the open position?

  • If you were to promote an internal candidate, would you need to hire someone to fill their existing position? Would you be able to distribute their current responsibilities across the team?

  • Is there a gap (in skills or knowledge) in your staff that’s been limiting the team’s productivity or efficiency?

  • What amount of time and resources can your organization afford to spend on recruiting, interviewing, and training?

The answers to these questions will help you define what you really need from this new position. When you understand clearly what you need, you can identify where to look in order to meet that need. In a thriving business with enough talent to consider both internal and external recruitment, ask yourself how each approach would impact the existing atmosphere. If you want to encourage high-achievers to stay on board and strengthen employee morale, internal promotion may be your answer. If you need to balance your team’s expertise, or expand with new skills, external employment may be the solution.

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