Article #82
The advantages and disadvantages
of "External First" hiring preferences?

Part 1 & Part 2

By Dr. John Sullivan, Head and Professor of Human Resource Management College of Business, San Francisco State University
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The advantages and disadvantages
of "External First" hiring preferences?

Part 1

Part 1 of a 2 part series. (Part 2 will cover external hiring preferences, see below).

There is an ongoing debate among employment managers as to whether it is better to give preference to internal candidates before looking externally to fill vacancy. Older, more established firms traditionally give preferences to internal candidates while fast-growing and more innovative firms tend to focus more on external hires. Although most firms end up using a mixed strategy, the target ratio of internal to external hires is always a topic of hot debate. First let us focus on giving preferences to current employees.

Give inside candidates a preference!

Reasons to favor inside hiring:

  1. The performance level of an internal hire is generally better than external hires in firms that are successful and stable.

  2. Jobs can be filled faster because internal candidates generally require less skill assessment, less time to make their decision and they reject offers less often than external candidates.

  3. The break-in period will be shorter because of their familiarity with the firm and its terminology It can be cheaper due to a reduced need to do expensive advertising and to orient an outside hire.

  4. Internal candidates generally have no other external offers so
    1) there is less likelihood of a bidding war and
    2) they are less aware of market salaries so they're less likely to demand a higher pay rate than what was offered.

  5. There can be a more accurate assessment of internal candidates because they are "known" due to inside the firm references and performance assessment records.

  6. Because internal promotions know the culture already there will be less of a chance of a failure due to a poor "company fit."

  7. An internal placement could result in multiple inside promotions.

  8. As a result of so many people moving up to fill each vacancy, each of these vacancies can act as a motivator for each of those that are promoted.

  9. Promoting from within allows us to do almost all of our external hiring at the "entry level".

  10. Entry-level jobs are cheaper to fill, have a larger candidate pool and it gives us more time to train and assess those that aspire to reach higher level positions. Also if we make a "bad" hire the dollar consequences are lower for entry level hires

  11. Providing inside hiring preferences bolsters the firm's image of offering long time employment security. The image may also increase retention and help attract those wanting security.

  12. Internal hiring reinforces the culture and sends a message that loyalty and performance will be rewarded with a promotion In periods of high employment there may be few external candidates to consider, so internal hiring is the only available choice

Problems with inside hiring:

  1. Paper based internal placement programs are so slow that they frustrate the internal candidate. The printing and distribution costs of internal “job opening lists” can be high.

  2. If no suitable internal candidate is found, the traditional "give the internal candidates the exclusive first shot at openings" policy may delay the overall hiring process.

  3. For internal placement to be effective for the internal "passive" job seeker” job postings may need to be "pushed" to the best candidates. "Intra-placement" programs where recruiters actively seek out internal talent might also be required to help prod the right candidates into the right positions. Most internal job posting systems are so "fossilized" that the best internal talent may not be identified. Internal "passives" (employees that won't volunteer for openings) are generally not motivated to apply for internal openings that require "self nomination".

  4. "Wired" jobs (where the manager already has a candidate in mind) may frustrate internal posters because not all posting are "real openings". Outdated job postings may have the same impact.

  5. Jobs posted on physical bulletin boards may be outdated and potential candidates might be afraid to even look at the postings for fear of being branded as disloyal. Bosses may consider employees that actually post for jobs "disloyal" and as a result they may punish or hold back their employees that post for jobs.

  6. Managers may need to "hold on" to the “soon to be promoted” individual in order to complete their current work. This can delay the filling of new positions for many weeks or even months.

  7. Internal hires generally do not have updated resumes or polished interview skills which can make them appear less qualified than the more “polished” external candidate.

  8. Firms that allow managers to veto a move can frustrate internal candidates.

  9. Many firms have rules that require a certain tenure in a job before a candidate can post for a new one. This can frustrate ambitious, talent individuals that feel they are ready to move before the artificially imposed deadline.

  10. For firms with multiple sites or those opening new sites, relocation costs may make job transfers between distant sites more expensive than external "local" hires.

  11. Many internal placement systems are based on seniority, which may not result in the highest quality hire in a fast changing industry.

  12. Because internal promotions can cause a "ripple" of promotions all at once (because as multiple openings occur when one person is promoted and the one below them moves up and then the one below them moves up also etc.). This can disrupt firm performance due to the fact that so many people have to learn "new jobs" in a relatively short period of time.

  13. Allowing too much internal movement can "hide" bad management because employees just transfer rather than confront the bad manager.

  14. Prior to the promotion, there may be jockeying for position and political infighting which can distract the firm/ department.

  15. Those "not promoted" can be frustrated and may sabotage the one that was promoted out of previous established jealousies (this can also happen with external hires but it is less prevalent).

  16. Those that were promoted may feel the need to "eliminate" the runners up in order to solidify their position causing a net loss to the firm (this can also happen with external hires but it is less prevalent).

  17. When contacts and experience in areas that are new to the firm are required, internal hires just don't qualify.

  18. So called "inbreeding" where the lack of diversity of ideas and thinking occurs as because outside "blood" and contra thinkers are not brought in to the firm at higher levels.

  19. Unless there is a good development/ training program, internal promotions may be slow to reach their expected productivity levels. The cost of internal development programs may be higher than hiring "already trained" external talent.

  20. For small firms or firms that are rapidly growing there may not be enough talent available internally to promote.

  21. Promoting the most experienced or skilled person does not always mean the candidate will succeed. The skills required to be a great player are different than for being a great coach. Many firms are more reluctant to fire (or reduce them back a grade) an internal promotion than they are for an external hire.

  22. In an expanding industry (like e-commerce) it is unlikely that any current employee would have the talent or experience you need.

  23. There is a tendency for managers to hire "people they know", which can frustrate any isolated or less connected workers.

  24. Few internal placement systems have any metrics or measures to assess their effectiveness. Most have no customer satisfaction measures included in their design.

  25. Most internal placement programs are so antiquated and full of rules that they are ineffective

The advantages and disadvantages
of "External First" hiring preferences?

Part 2

Part 2 of a two-part series discusses external hiring preferences. (Part 1 covers internal hiring preferences, see above).

There is an ongoing debate among employment managers as to whether it is better to give preference to internal candidates before looking externally to fill vacancy. Older, more established firms traditionally give preferences to internal candidates while fast-growing and more innovative firms tend to focus more on external hires. Although most firms end up using a mixed strategy, the target ratio of internal to external hires is always a topic of hot debate. First let us focus on giving preferences to outside hires.

Give outside candidates a preference!

Reasons to favor outside hiring:

  1. It helps you acquire competitive
    intelligence about other firms.

  2. New hires can help you identify other
    potential candidates to "poach" from their firm.

  3. The new ideas that applicants and new hires
    bring in stimulate the thinking of others.

  4. New hires ask "why we do things that way"
    so we are often forced to re-think
    the way we do things.

  5. It keeps our employees on the edge because they know they must compete against outsiders for jobs.

  6. Outside hires don't have political alliances already set up. This can help them implement new ideas without the "baggage" of past political battles.

  7. Already trained external hires may give us "instant talent" for new products, programs, and skills.

  8. Some argue that hiring "already trained" people is cheaper than developing and promoting internal talent. This effect varies depending on the cost of a new hire.

  9. It allows other firms to train and weed out the "turkeys" so we can hire the cream of the crop. As a result it can lower training cost.

  10. In a stagnant culture, "outsiders" might help "shake things up" and help us evolve our culture.

  11. When you hire a great talent from a close competitor, you gain one and as an added benefit...the competitor also loses one.

  12. The outside recruiting and advertising for outside hires may tangentially help build your brand, send a message that you are growing and also help boost sales.

  13. Re-hiring boomerangs (former employees) may aid in retention efforts as they tell other employees that the "grass is not greener" on the outside.

  14. In a fast-growing company (or small firms) you might have no choice but the higher externally because there isn't enough talent to go around inside the firm.

  15. If the firm has weak training or development, the inside talent will not have sufficient skill to do the job.

  16. If the firm has a weak hiring process promoting internally, is not a realistic option because of the lack of talent.

  17. In jobs where you absolutely require experience, there may not be enough experience in newly developing areas.

  18. External hiring forces are managers to stay up with trends and to benchmark as they interview search. This is the added impact of improving their learning.

  19. In most cases external hiring adds more to the diversity of the workforce than internal hiring.

  20. If the firm is going global, it will undoubtedly line that external "local" hires are superior and performance to internal promotions.

  21. The World Wide Web makes recruiting so easy and inexpensive the advantage has shifted towards external hiring.

Problems with outside hiring:

  1. Outside hires can weaken the corporate culture by bringing in counter culture people.

  2. The turnover rate for external hires is almost always higher than internal promotions because the candidates must both adjust to a new environment and they come to us as relative unknowns.

  3. External hires often have a longer "adjustment period"
    and orientation costs are higher.

  4. Customers may feel slighted if they don't get
    one of the Firm's current employees.

  5. In a tight job the (potentially) higher starting salaries of outside hires may cause internal equity issues and eventually increase all salaries.

  6. In a tight job market there may be little external
    talent available or the quality of the
    limited talent may be poor.

  7. Firms with strategic alliances may anger their partners by "poaching" their talent.

  8. Hiring talent away from customers and suppliers may harm your business relationships.

  9. Legal issues can occur when hiring intact teams, top technical talent with non-compete agreements.

  10. In a competitive market you can't hire quality talent without a strong recruiting function.

  11. Learning internet recruiting and setting up web pages may be prohibitively expensive or time consuming.

  12. The world of external recruiting changes so rapidly and is so competitive that we might end up with lesser talent unless we can afford a strong recruiting function.

  13. The likelihood of lawsuits resulting from illegal practices by hard to control managers is high.

  14. External hires have already demonstrated their lack of loyalty by leaving their firm. They may have the same lack of loyalty at our firm, resulting in a high turnover rate.

  15. In a cyclical economy, large-scale external hiring might just a mean future layoffs.
© September, 1999

by Dr. John Sullivan

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