Is external hiring a bad habit managers need to kick?

Why internal recruitment is better for companies.

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By Miriam Wallack

“External hiring has become an addition that is slowly, but surely, diminishing companies’ chances to succeed.

Through this hyper-focus on external hiring, companies have seem to lost sight of what really matters: finding the most suitable candidates for an open position.

The ‘chase’ has become more important than the ‘catch’.”

More than any other time in modern history, companies are hiring at astounding rates  externally. Over two thirds of a company’s yearly vacancies are filled by external hires today.

This is a drastic change from the three decades leading up to the 1980s, when 90% of vacancies were occupied by internal candidates.

Peter Cappelli, professor of management at the Wharton School in Philadelphia, boils this dramatic shift down to two reasons. The first being that organizations are increasingly looking outside of the company to fill positions, rather than recruiting from within. The second reason is that many companies are struggling to retain current employees as most look elsewhere for the next chapter in their careers.

Top talent seems abundant, but everyone is frantic to get a piece

Companies have become obsessed with the idea that there are always better fish in the sea– and that they must catch the best candidates before anyone else. Companies even go as far as advertising jobs that don’t exist, just so they don’t miss out on potential candidates.

Not to mention the growing trend among companies to prey on employees at competing organizations, further pressuring organizations to look outside of their own internal talent pool for their new hires.

Companies have become so infatuated over hunting down the best candidates that individuals who are actually searching for jobs are seen as inferior.

The Economist contends that “employers seem to operate on the principle that there must be something wrong with someone who is unhappy with their current job.” According to a LinkedIn survey, 86% of organizations focus “very much so” or “to some extent” on passive candidates when recruiting.

Yet, recruiting candidates from other companies comes at a big price. Not only are time and resources spent on swaying strong candidates and creating extensive candidate pools, but external candidates are paid 18% to 20% more than internal candidates recruited to similar positions. According Cappalli, companies spend almost twenty billion dollars ($20,000,000,000) on hiring.

Companies are blinded by top talent

The goal of external hiring has become to attract the top ranking candidates to open positions, but top ranking candidates don’t always translate to the best fitting candidates in a specific position or company. Companies almost become star-stuck when they see a resume packed with elite educational institutes and high-level positions at leading organizations.

As University of Pennsylvania Wharton School Professor Matthew Bidwell warns, “there is a suspicion that ‘the grass is always greener’ attitude plays a role in some companies’ desire to hire from the outside. Managers see a great CV and get excited about playing ‘Let’s Make a Deal,’ even when it’s hard to know what weaknesses the external hires bring with them.”

The candidate’s accomplishments often consume the hiring process and lead hiring managers to blindly hire candidates without considering the candidate’s performance in the specific position or within the company’s unique culture. As the Society for Human Resource Management explains, “hiring organizations tend to overestimate the “portability” of skills and experience—how effectively and easily they can be applied in new organizations.”

When it comes to the data, it’s clear that such skills and experience can hardly be applied within new organizations. Based on his research of what happens to stars when they join new companies, Harvard Business School professor Boris Groysberg explains, “many of them underperform because what makes them successful are the companies that they used to work for… Everybody likes to hire from Goldman Sachs, but the reality is that Goldman Sachs is a very firm-specific place.”


Hire now, worry later

Companies don’t even seem to care whether or not their new external hires actually perform well at their company. With less than a third of U.S. companies supposively tracking whether their hiring practices lead to good employees, it’s clear that most companies value landing the hire over the long term implications of the new employee. Cappelli compares this ignorant recruiting strategy to a marketing manager saying, “we have a good idea how long [the advertising campaign] took to roll out and what it cost, but we haven’t looked to see whether we’re selling more.”

The reality is, most of the time hiring externally does not lead to better employees. As Bidwell explains, “companies should understand that it can often be harder than it seems to bring in people who look good on paper.” External hires perform worse than internal hires in similar positions for the first two years at a company.

Not to mention, external hires tend to leave a company at much higher rates. According to Deloitte, 61% of external hires are more likely to be fired while 21% are more likely to leave the company all within their first year. Companies are hardly happy with their new external hires.

In the same Deloitte report, companies that hire internally are 32% more likely to be satisfied with the quality of their new hires.

What companies actually need are right under their noses

Companies seem to have lost sight of what really matters: finding the most suitable candidates for an open position. Since the current method of external hiring isn’t producing the results companies need, it’s time for companies to look inward for their talent.

Recruiting internally can save companies millions of dollars, time, and resources by hiring employees who’ve already proved their capabilities and know the company culture, expectations, and operations.

By providing employees with opportunities to grow their skills and experiences within their positions at a company, companies can cultivate exceptional hires internally. These internal hires beat any external hire, since they’ve been specifically trained to meet the dynamic needs and skills gaps at a company.

Not only that, opportunities for internal growth and learning significantly increases retention rates as well as employee engagement by 30%.

According to LinkedIn, 94% of employees report that they would stay at a company longer if it invested in their careers.

This not only puts companies at the forefront of attracting elite candidates in the external hiring market, but keeps top talent for the long run. Overall creating a smarter, more productive, and loyal workforce.

InnerMobility by Gloat is an AI-powered internal talent marketplace connecting employees with personalized career development opportunities. It empowers employees to take control of their own careers and find their maximum productivity bliss within their current company. 

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