Why firms need to start boosting their internal recruitment

New research suggests internal hiring levels are plummeting - which could spell bad news for the engagement levels of existing staff:

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Jan 3, 2024

The phrase ‘people are our greatest asset’ is one that you often hear in HR circles.

Of course they are. That’s presumably why they were hired in the first place.

And if one takes this mantra to its logical extreme, most companies should (in theory), have a vibrant internal moves market; with existing talent taking up opportunities as they arise.

But what’s a ‘normal’ level of internal recruitment? According to data from The Josh Bersin Company, internal moves typically comprise around 30-32% of all positions filled by companies.

It’s typically at this level because internal hiring serves a great many benefits. Firstly, it greatly reduces risk. Internal candidates are – for want of a better word – ‘known entities’ – people with a proven track record; people who already know the company and its culture/values well, and (presumably) already likeworking there. Contrast this with the spectre of going outside to those who may look great on paper, but when they’re actually hired may not be as good as they seem.

It seems companies has historically understood this. Bersin, which has been monitoring internal vs external moves for years, noticed a big peak in internal hires in 2020 – at the height of the Covid-19 pandemic – when the percentage swelled to nearly 40%.

But something – it seems has changed – and not (it seems) for the better.

In 2023 it found the percentage of internal hires differed drastically from what researchers typically expect to see – dropping to just 24% of all hires.

In theory this shouldn’t be happening.

The collapse of internal hiring

At a time when the labor market is so tight, the expectation is be that companies will increasingly be looking to their existing talent to move them into exciting new stretch-roles.

Not only do internal moves satisfy most employees’ expectations for career development, companies benefit from renewed enthusiasm, oh, and a signficant reduction in costs. Internal hires typically reduce time-to-hire by 10-20 days, and it can also cost 3-5x more to hire externally, when time and other costs are factored in.

So why has the rate of internal hires slumped so dramatically – and what can we expect for 2024?

Speaking exclusively to TLNT, Janet Mertens, senior vice president of research at The Josh Bersin Company said the observation is a worrying one:

“While the 40% interal hires rate we saw during the pandemic was probably artificially high, and related to when companies were freezing their hiring, the big slow down suggests companies have lost the momentum they created around internal hires.”

She said: “It’s something of a paradox as to why tapping into existing skills has been let go of.”

The paradox must seem especiaally-so when statistics show that when employees are promoted from within, they are 70% more likely to stay long term, while 62% of employers who make lateral moves experience high retention rates.

Managers are refusing to let staff move internally

Mertens though has been searching for an answer as to why internal hiring is so low – and she thinks it’s down to managers refusing to let their people go – even to move elsewhere in the orgnization:

“Conversations I’m having with CHROs, on the back of this research, suggests that managers are demonstrating what I call ‘talent-hoarding’ – that is being reluctant to let their people move, and they’re boosting their wages to keep them.”

She adds: “If we try and understand why, it does sort of make sense. Managers took the brunt of things during Covid-19, and I sense that now, they’re saying ‘this is my team’ – especially if managers are now being remunerated based on the performance of their teams.” She continuies: “It’s not a very ‘one-company’ mindset, but perhaps it reveals that managers need to be incentivised to let their talent go.”

Internal hiring should control costs

Hiring internally can be a way for organizations to protect themselves from ever-spirralling wage bills, by giving internal talent smaller rises than someone moving jobs and oming in from the outside might expect. It’s yet another reason why internal movement should, suggests Mertens, be higher than it is.

“Movement and mobility is an expectation for staff, so there is a need for organizations to rethink their talent strategy,” she says. “Because by not promoting people – this could actually lead to those people leaving.”

So could the answer be that companies simply don’t have the roles available they can move people in to?

“It’s certainly the case that labor is staying put at the moment, as job security fears increase,” says Mertens. “This could be constaining ability for people to move sideways. But what I think organizations do need to do is properly work out when and where it does not make sense to hire externally vs from the existing talent pool – where doing so would bring retention benefits.”

According to Mertens there are some sectors that really do exploit what they have – and actually make a virtue of internal hiring. These are sectors such as healthcare, which hit levels of around 75-80% of hires being internal, while some other private sector firms she’s looked at are hitting around 60% as internal hires.

“It’s worth remembering that levels of internal hiring that are too high can be just as bad as too low levels, and it’s obviously good to inject new talent into a business,” she says.

“However, even taking this into consideration HR should be asking themselves about how they can capitalize on people staying put – by making the reason they’re not moving more satisfying than fear of the grass being greener elsewhere. If people are staying CHROs should arguably get creative with what roles they might be able to offer – such as offering stretch assignments in the short-term even if they can’t promote them just yet.”

She concludes: “Internal hiring shouldn’t be seen as simply moving the deckchairs around, but something that can be harnessed more strategically.”

Industry views

Josh Bersin, global HR research analyst and CEO of The Josh Bersin Company, says:

“Organizations that want to succeed in this post-industrial era, where talent is scarce and hiring times are extended, have no choice but to think laterally about approaches to hiring, and career pathways. Now, more than ever, there needs to be a culture of movement inside the company, whether those moves are part time, project based or full time. The potential cost savings, the prospect of cutting the time to hire by up to two weeks, and the direct impact on the employee experience and on long-term retention are all huge reasons to revisit and elevate internal hiring and internal mobility strategies. There will always be challenge, of course, for instance around how to tackle ‘talent hoarding.’ But there’s always a solution. In this case, that could involve incentivizing managers to think about their own employees as part of the broader talent solution for the organization.”

Jim Sykes, global managing director, operations at Alexander Mann Solutions, says:

“Seeking talent outside organizations will always be important, it brings fresh thinking and new experiences. But companies need to be mindful that often the talent they need and that can elevate their culture and achieve business success, is right under their nose. The fact that it [still] remains easier for employees to identify and gain a new role externally than it is for them to do so with their existing employer should be a wake-up call for all organizations.”

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