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How to know when to hire internally and when to look outside

Rich Hein | May 15, 2013
In a perfect world promoting internally is a good way to lower costs, create a talent pipeline and build morale. However, in the real world, you must weigh those benefits against the need to get the right skillset for the job.

Finding and retaining top talent is a never-ending battle in a market as competitive as IT, which according to BLS stats boasts a 3.5 percent unemployment rate compared to the national average of 7.5 percent. A well-planned recruitment and retention program is the difference between success and failure. "Always be recruiting," says Ron Lichty, co-author of Managing the Unmanageable, "We consider recruiting and hiring to be the most important tasks a manager has."

Hiring the wrong person, whether it's due to a bad cultural fit or skillset, can have a huge impact both in your department and on the company as a whole. In a recent survey by Harris Interactive conducted on behalf of CareerBuilder, 6,000 multi-national hiring managers and human resource professionals were asked to estimate the effects and costs of a bad hire. The results may surprise you:

  • 27 percent of U.S. employers reported a single bad hire costs more than $50,000.
  • 29 percent of those surveyed from Germany reported that bad hires cost $65,231 or more.
  • 27 percent from the U.K. say a bad hire costs more than $77,849.86.
  • 29 percent of Indian employers reported the average bad hire cost more than $37,150.
  • 48 percent of employers in China say a bad hire cost on average $48,734.

Traditionally, according to Dan Schawbel, author of Promote Yourself: The New Rules For Career Success, hiring externally was preferred. Companies like the idea of hiring people away in an effort to infuse the company with new talent, perspectives and ideas--not to mention insider data from the other team--but as the economy turned down in 2008, companies began to look for ways control costs and hiring internally started to make more sense.

4 Reasons to Hire Internally
1. It Costs Less
Most companies are struggling every day, trying to do more with less and that includes HR. As it turns out, hiring internally is cheaper. According to data from the Saratoga Institute, it costs on average 1.7 times more to hire externally than internally ($8,676 vs. $15,008). That's a difference of $6,332. Saving money is usually close to the top on everyone's list.

Another study, from Matthew Bidwell, assistant professor at Wharton, titled Paying More to Get Less: The Effects of External Hiring versus Internal Mobility, also found that external hires make on average 18 percent more than internal hires.

2. It's Faster
Lost productivity from an open position can cost major dollars depending on the position. Having an internal pipeline of talent makes hiring more fluid. It typically takes three meetings to hire externally, according to Schawbel: one phone or Skype interview, then one in person and then the final interview.


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