7 February 2022
Internal vs External Recruitment: What Option is Best for Your Business?
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One of a business’s most valuable assets is its people, and just like any other asset, it must be adequately sourced, maintained, and when the time comes, replaced. With The Great Recession still apparent, being prepared to replace talent is more critical now than ever before.   

Harvard Business School Professor Boris Groysberg settles the debate of “do we build it or do we buy it?” when it comes to hiring, saying that “it’s useless because you have to do both.” His research on external versus internal recruitment reveals that “it’s not whether you build or buy, it’s figuring out under what conditions you build or buy.”  

Both internal and external recruitment offers several benefits and disadvantages. However, the pros and cons of each option are null until you understand the needs of your business and the position you are looking to fill.  

Before you decide on the best recruitment option for your business, let’s look at the main differences between internal and external hiring. 

Internal Recruitment Benefits 

All too often, companies automatically look outside their existing talent pool to fill vacancies before considering the options already available within their team. Unfortunately, this oversight causes businesses to miss out on qualified candidates while spending more time and money looking for new hires.  

Hiring from within offers many advantages, most associated with saving time and resources. Generally, internal recruitment takes less time and money. On average, external hires come with a starting salary of 18-20% higher as compared to those already employed by the company. Costs are also cut by not having to pay for job boards, recruiters, and other means to engage with external candidates.  

A fair amount of the recruitment process is dedicated to evaluating whether a candidate is a good culture fit and integrating with the existing team. Hiring managers can skip this step as they have verified a current team member as a good match for their company values.  

Time saved also relates to after placement since individuals have already been onboarded and are familiar with company policies, operating procedures, and norms. In addition, the learning curve is much shorter as internal hires can focus on their new position rather than adjusting to a new environment and role at the same time.  

Along with resource savings, internal hiring also increases employee engagement and morale. A recent LinkedIn study found that nearly a quarter of employees left a company as a result of being overlooked for a promotion. Further, 43% of people surveyed in a Udemy study cited they feel bored at work; thus, two times more likely to leave their jobs. Not only are companies losing out on candidates already within their network by first looking to external recruitment, but they are also at risk of higher rates of staff turnover.  

Internal Recruitment Drawbacks 

Although internal recruitment offers many benefits, there are also cons that need to be considered when deciding which strategy is best for your business.  

Since the pool of candidates is limited to those already employed, hiring managers have fewer options as compared to looking outside of the company. The lack of choice may make the recruitment process more difficult and result in a longer training period if upskilling is required rather than hiring an individual that already has the skills required for the job.  

When to Recruit Internally 

Generally, internal recruitment is best suited for the following scenarios: 

  • There is an individual in mind that fits the qualifications of the position and promotion 
  • The company has time to upskill an individual with any of the necessary qualifications to be successful in the role 
  • The company culture is hard to fit and considered a steep learning curve for new hires 
  • Smaller budget to hire  

External Recruitment Benefits 

While internal recruitment offers many benefits, it is not always the best choice for an organisation or fits all of its needs. In this case, external recruitment offers more advantages than promoting from within.  

Arguably the biggest benefit associated with external recruitment is having a larger pool of candidates from which to choose. The additional candidates offer organisations leverage to select the individual that best fits the needs of their organisation.  

Hiring managers have the option to select a candidate that matches the job description near-perfectly rather than looking to upskill an existing member of their staff to fit the qualifications of the position. Thus, the learning curve for an external hire is often based on assimilating to the company rather than obtaining the skills necessary to be successful in the job, which saves time and resources. In some cases, the half-life of technical skills is estimated to be 2.5 years. As such, one can argue that organisations are better off hiring talent that already obtains the qualified skills in order to redirect company resources elsewhere, such as staff retention or employee satisfaction.  

Along with the additional choice, external hires offer fresh and diverse perspectives, which can improve productivity and address existing silos in a business. Introducing varying points of view is especially valuable for organisations that are looking to make a shift in internal culture or pivot the business structure entirely.  

Further, external recruitment also closes the current vacancy of the business rather than shifting the gap elsewhere. Organisations only have to focus on recruitment and onboarding for one role, rather than two or more with hiring from within. Businesses that are short on time and limited in their recruitment resources should consider closing one vacancy gap instead of multiple.  

External Recruitment Drawbacks 

Similarly, there are drawbacks to external recruitment, which mainly involve costs and employee morale.  

With the benefit of a nearly endless pool of candidates comes additional resource costs, specifically time and money. External recruitment methods are more cost-heavy, including but not limited to, job boards and ads, agency fees, multiple rounds of interviews, sorting through unqualified candidates, and additional training. Along with the extra resources and time spent sourcing candidates, external hires often come with higher starting salaries, up to 20% more than what it would cost to promote an existing employee.  

Employee morale can also be affected when businesses automatically look to outside hires instead of considering their existing staff for the vacancy. Individuals can feel looked over and therefore feel less loyal to the company. Even if not chosen for a position internally, not having the option at all for career progression can cause individuals to look elsewhere and or feel less motivated while at work.  

When to Recruit Externally  

Conversely, external recruitment is better suited for companies experiencing: 

  • The vacany calls for specific qualificaitions that is not present in the current staff 
  • The company is looking to shift cultural or business norms  
  • Larger budget and time available to hire  
  • A need for fresh and new perspectives  

Going back to Professor Boris Groysberg’s question of “do we build it or buy it?” there is no catch-all answer to be applied to every situation. Each answer is based on the circumstances of the company and the hiring market.

Asking the right questions while understanding the present state of the business and its future goals are key when drafting a recruitment strategy. This will help a business weigh the pros and cons of each option and be assured that the chosen option best fits the organisation’s needs despite the possible drawbacks. So in short, a business needs to both “build and buy it.” 

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