The following blog appeared in our parent company e-newsletter, HR Insights. It was written by Amanda Groves, marketing manager at Jazz.co.

Balancing between training current employees to fill future positions and investing in staffing processes to land top-tier external candidates is tricky. Even if you’ve already found (and hired) your next top performer, it’s important to know the pros and cons of developing talent within your company.

According to recent research on employee training, the answer is not so cut and dry. Where to focus dollars now to meet future staffing needs depends as much on your organization’s current makeup as it does on future goals. A 2015 Bersin study determined that while established companies increased their per-person spend on internal training and development by 10 percent in 2014, emerging market leaders primarily focused on maximizing their recruiting processes and talent brands to attract the best and the brightest external hires. In fact, established companies spent 38 percent more on employee training than their up-and-coming peers.

The question for staffing strategists, then, is: Which approach best fits your needs?

The Case for Internal Hires

Focusing on internal talent development rather than external hiring offers a range of advantages:

  • Measurable decrease in turnover among current staff members – employees with opportunities for career growth are far more likely to stay loyal to their company, reducing the direct and indirect costs that come with replacing those who depart.

  • Greater success in their new roles when compared with their external peers – by some measurements, approximately half of all external hires fail in their new positions, while only a quarter of internal hires meet that sad fate.

  • Significant savings – the costs associated with hiring external candidates are 1.7 times higher than with internal candidates.

  • Reduction in the length of time required to fill open positions – internal candidates are easier and less expensive to reach; remember, it isn’t unusual for an external hire to require three months or more from the original job posting to first day of work, but it is highly unusual for an internal hire to require such an extensive amount of time.

Additionally, through internal hiring, you can avoid the risks associated with bringing an outsider into the fold. For example, in an external candidate’s market (such as the one we have today), there is often not enough top talent to go around. This means recruiting staff will have to spend more money and expend more effort to fill complex roles externally.

It is worth noting that external hires often require a higher starting rate than internal candidates. Too many expensive external hires can lead to company-wide pay equity issues that eventually result in higher pay rates across the board.

Of course, there are drawbacks associated with hiring internally, beginning with a lack of candidates with the skills necessary to fill open positions right away. While a long-term strategy of internal development can ensure staff members are ready eventually, the organization may simply not possess the talent required to fill immediate openings. The issue of backfilling positions after internal employees are promoted is not to be taken lightly either. Moving one individual into an open role can create a domino effect of vacant jobs down the line.

When Internal Hires Are Not An Option

Despite the benefits of hiring internally, there are situations in which an external recruiting strategy makes more sense. Companies experiencing periods of rapid expansion, going through changes in strategy, and/or striving for innovation often find that filling open positions from the outside is a more effective method of reaching their goals.

Expanding organizations often do not have the sheer internal numbers required to fill all of the open positions and the external applicant pool offers a larger, more diverse selection of skills. However, this strategy requires expert recruiters who are able to engage passive job seekers. After all, the highest quality candidates are already employed. By some estimates, 75 percent of those qualified to handle non-critical jobs are not actively seeking new employment. When it comes to critical jobs, the challenge is far greater–95 percent of those individuals are not active job seekers.

Other benefits to hiring externally include the tendency of these candidates to bring new ideas with them, along with fresh perspectives that challenge existing culture, processes, and methods. This leads to greater efficiency and increased innovation. In addition, when hiring externally, you can often secure candidates with the skills and experience necessary to hit the ground running, saving the time and expense required to develop internal candidates. Finally, external hires poached from the competition may bring critical information with them, increasing your organization’s ability to meet outside challenges.

The benefits to an internal staffing strategy can’t be overstated. Employee training typically pays for itself with increased employee engagement, greater retention, and significantly lower recruiting costs. However, an internal staffing strategy cannot stand alone. Judicious use of external hires for certain open positions offers companies flexibility during expansion, as well as exposure to new ideas.

 

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