3 reasons why internal mobility is more cost-efficient than external hiring

Empowering your people to grow with your business is a win-win. Here’s why:

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By Nicole Schreiber-Shearer, Future of Work Specialist at Gloat

As inflation rises and market turmoil sets in, many leaders are keeping careful tabs on their budgets. While it’s too soon to know whether today’s economic slowdown will snowball into a full-blown recession, it’s not too early to start preparing. In fact, it’s going to be essential to thrive during a period of turbulence.

These spending shifts come at a pivotal moment for HR leaders, who are already navigating difficult talent management waters during an unprecedented labor shortage. While businesses traditionally relied on perks and pay raises to retain top performers, HR must now think outside of the box to inspire their workforce as budgets tighten.

Fortunately, there’s one initiative that can simultaneously engage employees and cut talent acquisition costs: internal mobility. Rather than looking outside of the organization to fill roles and bridge skill gaps, visionary companies are tapping into the talent they already have and empowering their employees to take on new roles.

What is internal mobility?

Internal mobility describes the movement of talent within an organization, both laterally and vertically. This includes promotions, new positions, mentorships, cross-functional projects, job shadowing, and gig work. The best internal mobility strategies encourage employees to take on new growth opportunities that align with their long-term goals and business priorities.

From an organization’s bottom line to its churn rates, internal mobility is associated with several game-changing advantages. Since 94% of workers say they would stay at a company longer if it invests in their careers, internal mobility can be a meaningful strategy for improving employee retention and engagement. It’s also a powerful cost-cutting tool since it’s estimated that large enterprise organizations lose more than $400,000,000 annually from the expenses associated with recruiting and training new hires.

External hiring

In contrast, external hiring describes the process of bringing new talent into your organization. There are many different forms of external hiring, including freelance work, part-time and temporary staff, and full-time roles.

Generally, companies spend money on external hiring because they either don’t have or can’t see internal talent with the skills and capabilities they need. While external talent pools may be broader, bringing new talent into your organization comes with its own set of challenges. It is 1.7 times more expensive to recruit, train, and onboard talent from outside your organization and these new hires are 61% more likely to be terminated when compared to members of your existing workforce. Overall, external hires cost 18% more on an annual basis than their internal counterparts.

Internal mobility versus external recruitment

Traditionally, external hiring has been the dominant model for filling vacancies and bridging skill gaps. HR and talent acquisition teams have focused on finding candidates from outside of their organization, supporting them through the hiring process, and developing onboarding programs to set them up for success. Similarly, when a skill gap is hindering project completion, most managers turn to external freelancers before looking for talent within their own organization.

However, as the hiring landscape grows more competitive, the focus is shifting towards internal mobility. And as we are possibly heading for an economic recession, we could expect freelancer budget and headcount to diminish. For many organizations, the onset of the COVID-19 pandemic was a defining moment for internal mobility. Suddenly, workers needed to shift gears and learn new skills to maintain operational continuity amidst unprecedented disruption. And as they rose to the occasion, leaders recognized that their people were capable of so much more than what they were originally hired to do.

Now, there’s no going back. Industry analyst Josh Bersin describes the shift he’s seeing as companies begin to prioritize internal mobility over external recruitment, noting, “Companies are telling me that they’ve trained their recruiters to become internal headhunters. So they’re searching around inside the company getting to know people, looking for highly-skilled individuals that are ready to move. Almost like talent scouts, which given the state of the job market, is a good thing to do.”

3 reasons why internal mobility is more cost-efficient than external hiring

Here are a few reasons why promoting internal growth and development over external hiring will pay off:

#1. Streamline onboarding
No matter how qualified the talent you bring into your organization is, getting them up to speed will require significant time and effort. Deloitte estimates that it takes two years for an external hire to gain the same level of insight into an organization that an internal hire has.

In contrast, your current employees already know how your organization works, so they’ll be able to step into critical roles more quickly. That’s why visionary enterprises like Seagate chose to prioritize internal mobility while shifting their business priorities. Rather than looking for external talent, the data storage leader harnessed its talent marketplace to launch a large-scale redeployment. Within four months of prioritizing internal mobility, the enterprise unlocked more than 35,0000 hours, leading to a savings of $1.4 million.

#2. Save on hiring, replacement, and freelancer costs
Prioritizing internal mobility won’t just save you time; it’ll also reduce hiring costs. Between recruiting fees and onboarding expenses, bringing new team members into your business isn’t cheap. And neither is watching the talent you’ve trained leave because the on-the-job training and organizational knowledge they’ve accumulated goes with them.

The overall cost of replacement hovers around 85% of your existing employee’s salary. Rather than watching hiring and replacement costs skyrocket, internal mobility helps businesses keep talent acquisition expenses low. Since employees are empowered to move into new roles within their organization, the knowledge they’ve accumulated will continue to be put to use throughout the business.

#3. Boost retention and engagement
It’s going to be a lot harder for your people to leave a business that supports their growth and empowers them to build the skills they need to achieve their goals. That’s why companies that prioritize internal mobility, like Seagate and Schneider Electric, are safeguarded from the devastating costs associated with today’s turnover tsunami.

When discussing how her organization is fairing during the Big Quit, Schneider Electric’s VP of Digital Talent Transformation, Jean Pelletier, explains, “What I will tell you, especially with the Great Reshuffle and the Great Resignation, is that we’re holding steady. And that’s super important to know.”

Seagate’s Chief Human Resources Officer, Patricia Frost, expressed a similar sentiment, noting, “We haven’t seen the Great Resignation at Seagate. The game-changer for us is this journey we’ve been on with Gloat. Employees have their careers in their hands and they can see vertical and lateral movement possibilities.”

As leaders brace for the economic downturn, cost-effectiveness and efficiency are rising to the top of the agenda. And when it comes to talent management, internal mobility is the ultimate cost-effective strategy.

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