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When new positions need to be filled in organizations, HR needs to decide whether to fill the roles internally and externally, and there are pros and cons with both. Unsure which is best for your organization? People analytics can help set your strategy.
HR professionals and people managers are no longer relying on instincts and gut-feelings to make decisions, and when it comes to recruitment this is no different. And in a tight labor market, where it is difficult to attract the right talent, it is more important than ever that candidates are successful in their new roles. Individual hiring decisions are increasingly data-driven as skills data and skills matching between jobs and candidates becomes more widely available.
A major decision is whether to hire internally or recruit externally, and there are advantages and disadvantages with both. People analytics can help you set a hiring strategy. McKinsey gives the example of a bank in Asia that found, through data analysis, their most successful hires came from a variety of backgrounds and not the best universities that their recruitment drive had focused on. They also found certain jobs in the organization were a predictor of success, and these could be viewed as feeder positions for more senior roles. As a result, they used these insights to change how they recruited internally.
There are, however, both pros and cons with hiring internally – and also externally:
You already know them, and they already know you. Also, there is not the time needed to get them onboarded and used to the company’s culture and way of doing things. Internal mobility also helps retain talent in your organization and helps strengthen your succession planning. If it is clear there are opportunities for staff to progress, your employees will view your company as place for a career – one that comprises many roles, instead of a single job.
People analytics can inform you on the status quo and help you set a talent development strategy. It can show you how people move through the organization (career paths) and how often people move (promotions, lateral moves). In particular with skills data becoming more available, these insights can even become more granular. Importantly, these insights should be matched to your strategy. For example, is a promotion every four years enough for high potential employees? Are you also paying sufficient attention to diversity in these promotions? Additionally, you can set build/buy/borrow rates per department or per position, and also use these insights for strategic workforce planning.
However, you may not have the talent pool or the skills on hand for positions that need to be filled, especially if you don’t have the resources to develop and upskill your current employees. And a downside of mainly hiring internally is that you risk becoming an insular organization with staff that have become used to the same way of doing things. New people bring a fresh perspective and an opportunity to diversify your talent.
An ongoing challenge for recruiters is knowing, and being able to accurately predict, whether a new hire will work out; you won’t know until they actually join and start working.
The downside of hiring externally is the lead time it can take to fill a new position, as well as the cost. It is not just the cost of advertising for the roles and the resources that go into the selection process, but also the expense of paying the salary while they get up to speed with their new job.
It can also cost more to hire externally, above the rate that existing staff are being paid. Not only is this more costly, it will also sow the seeds of resentment among your employees – a point that Crunchr’s CEO Dirk Jonker has made in a previous article on the Great Resignation.
With external hires, however, you have the opportunity to address diversity and inclusion issues and use people analytics to measure it. Furthermore, people analytics can help you optimize recruitment by examining bottlenecks in your recruitment funnel and by looking at hiring channels or source of hire. Moreover, failed hire rates (=first year turnover) and performance scores give insights into how successful recruitment is. Examining when those new hires leaves or where in the organizations they particularly underperform helps you pinpoint problems (selection, onboarding, manager issues) and identify solutions for success.
In conclusion, people analytics will not tell you the ideal internal/external hire rate for your organization, but it will help you to make data-informed decisions to improve success of both internal and external hiring.
Here are some questions you can ask when using people analytics to assess whether internal or external recruitment is best for you: