Internal vs external recruiting is a dilemma that shouldn’t be underestimated. Along with other recruitment strategies and considerations, it can have a direct impact on an organization’s bottom line.

Sixteen percent – that’s both the average turnover rate and the average rate of separations within the first three months of employment, based on a survey from the Society for Human Resource Management (SHRM). When you consider the average cost per hire was $4,425 in the same survey, the idea of losing nearly one in five new employees and the same number of overall employees is unsettling.

Hiring quality employees can’t be overemphasized. If you know where to look for certain talent, you’ll have a better chance of recruiting the best workers.

Internal vs External Recruiting: The Basics

Here’s a quick look at internal vs external recruiting, including when you might want to go with one way over another.

Internal Recruiting

Two of the most obvious benefits for hiring within the company are speed and cost. You don’t have to worry about the time and budget required for posting jobs and working with recruiters. Scheduling interviews is easier, too.

Another plus is the knowledge that both parties have. From your perspective, it’s easy to gauge how well the employee will do in the role because that person is already with the company. As a result, there are fewer surprises. The same is true for the other side. The employee in question has institutional and possibly departmental knowledge that will speed up or even eliminate onboarding, saving more time and money. He or she will also be aware of company culture, organizational structure and more that help make them comfortable. From the employee’s perspective, it’s less of a risk moving up within a company vs heading to a new organization.

Internal recruitment is also a good practice in itself. External recruiting has its advantages, and in certain situations, you might need to use that form of recruiting. However, there’s a strong argument that building a successful company incorporates career development and then promoting workers internally. Doing so increases employees’ engagement and performance. If you don’t promote from within, employees may notice and leave the company in search of healthier ones where they can grow and be rewarded.

External Recruiting

What if your current employees don’t have the knowledge and skills the position requires? That’s probably the most powerful advantage of external recruiting.

You might need someone who has a high level of expertise in his or her field. If the company isn’t that large or is fairly new, there’s a good chance the current pool of employees won’t have many good options. The result is pretty simple: You’ll have to explore a more diverse set of candidates. It’s a great option for finding high-level talent or those in a niche field.

Another related benefit is that external hires bring in fresh ideas and perspectives. So, even if you have a few solid candidates for a managerial position at the organization, you might want to add external candidates to the mix. Those people might be able to rethink processes, enhance innovation and provide expertise to leadership.

Considerations When Hiring

In many ways, internal recruitment should be your goal. Hiring from within the company is a sign of a successful organization and, as research indicates, internal hires cost less and tend to perform better than external hires.

A landmark study published in Administrative Science Quarterly looked at seven years of employment data from the U.S. investment banking arm of a financial services company. In the analysis of 5,300 employees across different roles, those promoted from within the organization had significantly better performance in their first two years than external hires. The study’s author noted how it can take about two years for external hires to “get up to speed” with their new jobs; most notably, building the relationships that are needed to be effective. Onboarding can be difficult for them. In the study, external hires were 61% more likely to be fired from their new jobs, while internal hires were promoted faster and had lower rates of voluntary and involuntary exit.

Hiring Quality Employees Internal vs External Recruiting Graphic

The study verified how hiring from within the company is less expensive than hiring externally. External hires were paid 18% more, reflecting their higher experience and education. However, the study’s author noted that education and experience are rather weak indicators of how well someone will perform on the job.

Should companies hire internally, then? It depends on the situation. Sometimes, a struggling company needs an outside perspective to get on the right track, and certain positions may require a certain level of expertise that few people at the company have. Other times, there may be compelling, qualified candidates in the company. Having someone in the organization’s culture move up and take on more responsibility can be what’s best not only for that role, but for a company that’s committed to training and promoting from within.

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