The Advantages And Disadvantages Of “Inside First” Hiring Preferences?

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. 

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.
  4. It can be cheaper due to a reduced need to do expensive advertising and to orient an outside hire.
  5. 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.
  6. There can be a more accurate assessment of internal candidates because they are “known” due to inside the firm references and performance assessment records.
  7. Because internal promotions know the culture already there will be less of a chance of a failure due to a poor “company fit.”
  8. An internal placement could result in multiple inside promotions. 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.” Entry-level jobs are cheaper to fill, have a larger candidate pool, and give 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.
  10. 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.
  11. Internal hiring reinforces the culture and sends a message that loyalty and performance will be rewarded with a promotion.
  12. 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. 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.

Author’s Note: If this article stimulated your thinking and provided you with actionable tips, please take a minute to follow and/or connect with Dr. Sullivan on LinkedIn.

About Dr John Sullivan

Dr John Sullivan is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high business impact; strategic Talent Management solutions to large corporations.

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