Internal Hires May Not Always Have the Inside Track

When to hire internal or external candidates

Whether you recruit externally or promote internally should depend on your needs and circumstances. A study by the IZA Institute of Labor Economics found that internal and external hiring practices both come with their own set of advantages. The study found that an organization’s hiring preferences typically depend on the role and nature of the job. 

The study also found that internal hiring is best suited for roles where existing organizational knowledge is critical. It may also be beneficial to hire internally when promotions can be a strong motivator for existing employees. 

However, if your company is in need of a fresh new perspective, you may want to consider external candidates. External hiring can also prove beneficial since outsiders are less likely to be bogged down by existing organizational politics. 

The pros and cons of hiring internally

If you’re thinking about promoting internally, there are some benefits and drawbacks to consider. Before making a decision, factor each one and compare them to your business’s circumstances.

Pros of hiring internally

An Organization Science study found that companies greatly benefited from investing in internal candidates. The research emphasized that companies should be mindful of employee performance and retention, and recommended prioritizing internal candidates for vacant roles. Other positive benefits included:

• Organization knowledge. Employees hired internally retain organizational knowledge and can get up to speed in their roles much more easily as compared to external hires. Internal hires are more likely to already be familiar with the job, as they may have already served in an acting capacity in the vacant roles. They are also well-versed with the organization’s culture and policies.
• Reduced time in hiring. Internal staff require less time to onboard in new positions. With an already existing performance track record, less time is required to screen the candidates. Full interviews may not need to be conducted either.
• Shorter onboarding time. The process of onboarding employees who were internally promoted is shorter compared to that of external hires. Internal staff are already familiar with the context and content of their new role. They are also familiar with team members and adapt to their new roles very quickly.
• Stronger employee engagement. When a company hires from within, this sends the message that the company values its current employees and is willing to appreciate hard work. Employees are therefore more willing to put in their level best. This creates an improved level of employee engagement.
• Less expensive. Hiring external staff is expensive compared to hiring internal staff. Internal staff are informed of new posts through emails or internal boards. External hires may require sponsored advertising on job boards or, in some cases, the services of a hiring agency. Carrying out a background check on external employees comes at a cost to the organization.

Cons of hiring internally

Promoting from within doesn’t come without its drawbacks, though. Take these challenges into account when considering promoting existing employees into a new role.

• Leaves additional vacancies. When an internal hire is promoted or makes a lateral move, their current role will need to be filled. A hiring manager then has to decide once again whether to hire an internal or external candidate.
• Creates unnecessary competition. There may be more than one internal candidate interested in a vacant role. If two or more coworkers apply, it could lead to unwanted competition that could negatively affect team morale and cohesion down the road.
• Less motivation to go above and beyond. If a company makes internal hiring a habit, team members may assume an internal promotion is guaranteed. Hiring externally instead can deter complacency and encourage current employees to pursue professional development opportunities. Be sure to emphasize that it takes dedication and hard work to achieve a promotion.
• Internal candidates may be too entrenched in company culture. While familiarity with an organization and its processes has its advantages, it’s also hard to innovate without a fresh pair of eyes. Internal hires don’t always bring in the new ideas an organization needs to grow.
• You might miss out on some total rock stars. Internal candidates likely have a lot to bring to the table. But you don’t really know the depth of talent that’s out there without expanding your hiring pool. You could miss out on some top talent if you exclude external candidates. 

How to address the unique challenges of internal hiring

There are ways to work around the disadvantages of internal hiring. Here’s how to deal with some of the obstacles associated with hiring internally. 

• Have a transparent process. Internal employees should have a clear understanding of the internal hiring process. Let all qualified employees have an equal chance applying for the vacant positions. Give feedback for failed interviews and explain what could have been done better or the qualifications you were seeking.
• Have other ways to recognize employees besides new hires. It is impossible to appreciate all employees through promotions or new hires. Have alternative ways of appreciating employees such as bonuses or incremental salary increases. Have performance-related rewards.
• Do not communicate vacancies that you already have candidates in mind for. This will create distrust between the hiring team and the employees.
• Have managers guide their team members on their career paths with appropriate training. This will make it possible for them to qualify for vacant positions once they are available.

The pros and cons of hiring externally

Sometimes, your organization will have challenges that can only be solved by fresh new faces. If your organization is sure that external employee recruitment is necessary, here are a few of the benefits and disadvantages of hiring an external candidate. 

Pros of hiring externally

• You gain a fresh perspective. One of the greatest advantages of external hiring is the opportunity to capitalize on their unique perspective. After all, bringing in new people also means bringing in new ideas. External candidates can help an organization see things in a new light.
• More options. You don’t have to limit your search to just a small handful of existing employees with external hiring. The wider you can expand your reach, the more likely you are to truly find the perfect fit for a role.
• Only one vacancy to fill. When an internal hire moves to a different role, it creates a domino effect of additional job openings. You only have to worry about filling one role with an external hire.
• New hires start with a blank slate. Being unfamiliar with company culture can have its advantages. An external hire is less likely to repeat potentially negative aspects of organizational culture, such as gossip.
• Inspires current employees to grow. External hiring can demonstrate that your organization is looking to fill a particular skills gap. For example, you might be looking to expand to a new market segment and thus be interested in candidates from that industry. There’s a nice ripple effect to this too. Internal candidates may feel encouraged to study further if they see that you’re prioritizing a particular skill set or knowledge base.

Cons of hiring externally

• Extra training time. Unfamiliarity with your company’s systems can slow down the onboarding process tremendously. An external hire may need some additional help learning the intricacies of new technologies.
• More costly. External hiring requires some investment in advertising since you’ll need to post the vacant role on job boards. There’s also the possibility that your organization may want to work with a professional recruiter, which can use up valuable budget dollars. There is also an opportunity cost related to recruiting, interviewing, onboarding and training new hires.
• New hires are unpredictable. Everyone puts their best foot forward in the interview process. With external hires, it’s harder to tell if their first impression reflects their day-to-day behavior. You already know what to expect with an internal hire’s personality and work habits.
• Disruption in process. External hires may take longer to adjust to typical company systems and procedures. If something is taking too long to learn, the new hire may revert to their preferred method of working, which may be slower. This can lead to interruptions in ongoing workflows, affecting multiple colleagues and teams. 

How to address the unique challenges of external hiring

Here’s how to get ahead of some issues that can arise when hiring externally. 

• Develop training materials ahead of time. You don’t need to reinvent the wheel with every new hire. Instead, you should equip your team with robust training materials to streamline the onboarding process for everyone.
• Budget well. Thoroughly research your recruitment options to make sure there’s a strong return on investment when it’s time to interview candidates.
• Ask questions that relate to company culture. Expand your interview questions beyond job task information. Write questions that give an accurate depiction of your company culture so you know the candidate is truly a good fit. 

Hire internally or externally based on your needs

You should evaluate whether it’s preferable to hire internally or externally before making a vacancy announcement. While it may be cheaper to hire internally, some positions require a vast amount of experience in all sectors. Internal staff do not always have the required skills for the advertised post. 

Your company may also need some fresh leadership skills, and external hires may be less limited by your organization’s culture. You should weigh whether you’re willing to invest in an external staff or hire internally – if it’s your decision, it’s probably the right one.