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Promoting from Within Vs Hiring from Outside – Which is the Best

If there is one dilemma that confronts entrepreneurs during the hiring process, it is whether to hire from within or to get their new batch of staff from outside their environment. Internal recruiting is hiring and promoting candidates that already work for you, while external recruiting is looking for new hires outside your organization.

A lot of business people have had both great and ugly experiences from using both hiring methods, thus making people still wonder which is the better method out of the two.

We are going to look into the intricacies involving hiring from within and without in order to find out which is the best hiring method for a business.

Promoting from within

A lot of employees hope to rise in the corporate later, and one way they hope to do so is if they are given regular promotions in their workplace. This is basically what internal recruiting is all about. Internal recruiting is when you search for existing employees to hire or promote from within your organization.

This method of recruitment is quite beneficial in a situation where one or two employees need to be replaced and not where a whole slew of workers are needed.

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Quite a number of companies use this method of hiring to suit the majority of their employment needs, though a number of high flying companies prefer to source their staff from outside. Carrying out internal promotions when you need staff comes with a whole lot of benefits, and they include;

  1. Increases employee retention

There is an abundance of research on the market which shows that lack of career advancement opportunities is one of the main reasons that desirable, high potential employees leave a business. In fact, a Blessingwhite survey found that 29% of 3,300 workers surveys cited lack of career opportunities as the key factor that would make them think about leaving. Internal recruitment will support you in advancing your own talent, which in turn increases retention and can improve performance. If you’ve set KPIs to determine who your high-performing employees are, you might already have an indication of who’s excelling in their role and may need a new challenge.

  1. Increases moral
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Promoting internally is known to have a positive effect on staff morale because it’s a concrete indicator that your organization rewards high performance and employees that put in their best. And with higher performance comes the opportunity for new or additional responsibilities, for the employee to move to a department of interest, or get promoted.

  1. It keeps cost down

If you’re promoting from within, you’ll save on the cost of posting on job boards, websites, with hiring agencies, newspapers, social media or referrals. Some companies have an internal job board, but regardless if you have one or not, the up-front costs of preparing the open position are extremely low in comparison to hiring externally.

  1. There is a workable relationship
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The hiring manager often has knowledge about internal candidates, and typically has a relationship with them as well. Knowing a great deal about your internal candidates and their performance will often shorten the interviewing process, getting you back to business sooner.

The primary benefit of hiring internally is that it costs less to promote someone from within than to source an external candidate. In addition, that person already knows the company. Other employees will see the promotion as an example of career growth. In fact, Jobvite states than internal hires are up to 18 times more effective than external hires.

Demerit of promoting staff from within

Depending on the size of your company, there may be drawbacks to hiring internally. The most noteworthy one is the small number of candidates available that may have the right skills. For example, if your company has only 10 staff members, it’s possible that no one currently working there is able to step into a specialized position. In addition, hiring from within may cause employees who were passed over for promotion to feel resentful. Others include;

  1. If you’re promoting internally, you may be filling one position while opening another. Your candidate’s role now has to be filled, which brings you back to the original question for this new position. It’s like a domino effect. So, if you hire internally and now have to fill that person’s position, then you are still in a hiring bind.
  2. Hiring internally often promotes a sense of status quo, since existing staff may stick with the same or similar ideas and approaches that they’ve historically used. This could limit your company’s opportunities to try new ideas or think outside the box. If you’re trying to really shake things up, this approach may not be as effective.
  3. Even though internal hiring may offer incentives for staff and motivate high performance, it can also increase competition, which can negatively impact culture and team performance. Employees may feel the need to compete with each other to get ahead, which can cause interpersonal conflict. This may be exaggerated between employees who feel as though they’re a great fit for your open positions but aren’t promoted.
  4. Advancement opportunities may cause other employees to get impatient. If employees believe that the only way they’ll get promoted is when someone leaves a more senior position, they may start looking for other opportunities with faster advancement.
  5. They may need more training: Promoted employees may also need significant training to help them be successful in their new role, managers may not want to give up their staff or leaders may not see a team member’s potential outside of their current role. However, the biggest downside of hiring internally is the lack of cultural diversity and new ideas that occur when you bring in experienced candidates from the outside.
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Steps to recruiting staff internally

After solidifying your policy and communicating it to staff, internal recruiting and hiring can be done in a very simple way, which are not much different from the standard recruiting and hiring process.

  • Identify the open position using a job description.
  • Post the job internally using your website’s careers page or a job board
  • Consider making the job eligible to “internal candidates only” for the first few weeks.
  • If permitted, approach or email qualified internal candidates asking them to complete a job application.
  • Complete the screening, interviewing and hiring process like any other job opening.

External Recruiting

External recruiting is the process of going outside your organization to fill a job opening. This is usually done by posting the open position on a job board or website. External recruiting is what most managers and HR staff think of when looking for a candidate to fill an open position.

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Benefits of an External Hire

Hiring externally gives you the chance to bring in skills, knowledge, experience and expertise in areas that can shore up your current employee base. Some of the benefits of hiring external candidates are:

Broader talent pool: there are millions of people available for work and the skill set you need is most likely out there. Using this method, you are more likely to get the best employee to fill your job position.

More diversity: Hiring externally opens the company to a much larger pool of prospects to choose from. In many organizations, there are only a handful of current employees who are ready to fill an open position. Hiring externally eliminates those limits. You can round out your team with diverse personalities and work styles with people of different age groups and backgrounds to individuals with creative personalities and innovative ideas.

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Industry expertise: often external candidates can bring you industry expertise or experience from a competitor that you may need in order to improve your business processes, products or innovation pipeline

More people for growth: when you grow from 50 to 100 employees, you just need more people, and those people are going to come from outside the organization as external hires.

Lower chance of resentment: There’s a lower chance for internal resentment, competition, and conflict when hiring externally. Employees may not feel like they’re competing with each other to get ahead, which may foster a more positive team dynamic.

Drawbacks of an External Hire

The biggest drawback of hiring talent from outside the organization is that it costs more; you often have to pay to advertise a job in order to find the right candidate. That takes more time. In some cases, external candidates aren’t as successful at adapting to your culture as an internal candidate might be. The drawbacks inherent in this method include:

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Increased hiring cost: Recruiting from external sources is more expensive than promoting from within. You’ll have to account for advertising fees from online recruiting sites, recruiting agencies, social media sites, magazines or newspapers. The average cost to hire is between $4,000 – $15,000 per job candidate. External candidates cost nearly twice what internal candidates cost to hire.

Longer time frame: Hiring externally is also a longer process. It takes time for HR or the hiring manager to shuffle through resumes, screen candidates, and interview candidates (sometimes two or three interviews per person). This can drastically extend the length of time it takes to fill the position. In fact, Workable estimates that the average job in America takes nearly a month to fill. The average time it takes to get through the interview process is about 22 days. It takes between 39 to 43 days to hire an external candidate.

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Longer learning curve: There will always be some uncertainty about how external candidates will blend in (or not) with your current work culture. Sometimes, candidates seem great on paper and in the interview, but end up creating rifts in the corporate culture. Hiring for culture fit is a critical piece when you’re hiring external candidates. External candidates need more time to get up to speed, as they not only need to learn the job but also get to know the people and how to work within the organization’s culture.

Higher turnover rate: some data show that external hires, especially at the management level and up, tend to have higher rates of turnover. This is mainly because they find it hard to settle with the culture of the organisation.

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Higher risk: every time you bring someone new into your organization, you may be introducing costly risk in terms of a potential bad hire. It happens a lot so should be a cause for concern.

So, when you’re hiring externally, you’ll need to ensure you’ve got a solid recruiting process and a robust onboarding process to overcome some of these drawbacks.

Which is Better?

Having looked through the concept of promotions verse recruiting from the outside, we now have to determine which is best for a business.

First of all, it should be noted that no one hiring method is the best. It all depends on the needs and situation of the hiring organisation. For instance, if an organisation needs to replace just one person or so, they may be served well to hire internally, as much gap would not be created in the company. But if the company have need for more hires, then its best they do it externally.

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Again, if companies are hiring for a position that requires an extensive amount of knowledge about a particular product, such as software or pharmaceuticals, it may be in their best interest to hire from within. In this way, they don’t have to take the time to train the person on the products and they can be confident knowing they’ve hired someone who is already familiar with the product and the company.

On the other hand, if a company is undergoing a complete change in management or the company needs to experience a turnaround, then it may be time to hire someone from outside. This is because executives from other companies can bring fresh ideas and new processes into an organization, breathing new life into it. There are many examples of companies who were struggling, and then after an overhaul of management and top executives, experienced a turnaround for the better.

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This goes to show that both hiring methods are good, but they ought to be used depending on the needs of the organisation. However, promoting from within comes with a lot of benefits for the company, the employment brand and employee morale, not to mention the fact that it’s cheaper than hiring external candidates.