Internal vs. external recruitment: pros, cons, and methods

Recruitment is a challenge faced by all businesses, and it’s not one that every company handles well. From finding the right talent to hiring them into the role, the process requires care, attention, investment, and skill.

If managed well, recruitment serves as a key tool in shaping the workplace and ensuring that the business is moving toward its goals efficiently. And by striking a balance between internal recruitment and external recruitment, a company can evolve quickly in a changing business landscape, all while sustaining its culture, retaining valuable experienced staff, and attracting new talent.

The so-called “great resignation” means that it’s important now more than ever to understand how to recruit employees intelligently and in a way that suits the needs of your company. Turnover is skyrocketing, fueled by any number of factors, including employee burnout, as well as workers choosing early retirement in search of a better work-life balance following the global pandemic.

Couple these circumstances with a new generation entering the workforce, armed with a set of expectations and demands about how and where work gets done, and it’s clear that there’s a need for companies to take a closer look at how they hire new staff.

In this article, we focus on the differences between hiring internally versus hiring externally, the pros and cons of both options, and the methods and channels used to recruit talent from inside and outside your existing workforce.

The basics of recruitment 

Every company has to recruit. No matter how large or small the team, and no matter whether the business is growing or shrinking, it’s inevitable that staff will leave, departments will expand, and employees will be promoted, all causing new vacancies to appear. 

How a company approaches employee recruitment depends on the specifics of the company in question, as well as external factors such as the business climate, the state of the industry, local competition, the economy, and physical proximity to talent hot spots such as universities and technology hubs.

Recruitment is one of the best opportunities a company has to fill any skill gaps by hiring new workers with knowledge of the latest tools, software, and techniques available in their industry. It’s also an opportunity for existing employees to be promoted within the company, thereby allowing them to build on their experience and succeed in reaching their own career goals.

The business of sourcing job candidates has exploded in recent years too, with hiring managers able to cast the net wide or refine their search to hyper-targeted areas of the labor market to find candidates with the exact skills they want and need. Tools such as application tracking systems enable large companies to automate and streamline the job recruitment process, freeing up HR teams and hiring managers to engage with promising candidates in a more meaningful way.

No matter how a company approaches recruitment, the fundamental ideas remain the same. The role needs to be thoroughly analyzed and understood by the employer; the job description needs to be well composed and should reach as many qualified potential candidates as possible; and the process should always align with a company’s values of fairness and equity.

What is internal recruitment?

Internal recruitment simply means filling a job vacancy with an existing employee, rather than with a candidate who doesn’t already work for the company. 

Though there’s no legal requirement to advertise a job vacancy anywhere—whether that’s internally or externally—it’s generally considered a good idea to do so. Employers above a certain size have a legal obligation to hire and promote in a way that doesn’t discriminate based on protected characteristics. So while it’s possible to hand the role directly to a preferred candidate without advertising it first, not allowing other workers the opportunity to apply could give rise to allegations of unlawful discrimination. 

Moreover, seeing somebody suddenly promoted to a role that hadn’t been advertised is likely to be viewed as favoritism and could cause resentment and bitterness among colleagues.

Every company should have an internal recruitment strategy in mind when hiring for new roles. By hiring from existing teams, an employer not only conveys confidence in the skills and experience of their current employees, but demonstrates that there are career development opportunities within the organization. This boosts staff retention and, when next considering external recruitment, can be an attractive aspect of a company for potential new hires.

Internal recruitment methods

Hiring internally is the fastest and most efficient way of filling any unexpected organizational gaps in a company. That might mean promoting an employee into a role left vacant by their manager, or sourcing talent from other departments to fill a similar position elsewhere in the business.

The main advantage an internal candidate has over an external one is an innate understanding of how the company operates. Existing employees have a proven track record of working well within the company, and they have a network of support and social standing among their peers. Very little onboarding is required, no vetting is needed, and unlike an external recruit, they’ll most likely be able to start working to their full potential on day one.

Let’s take a look at the two main internal methods of recruitment .

Promotions

The most common way to hire internally is through promotion. Junior employees who are willing to take on more responsibility and have demonstrated skill in their current role can choose to apply and interview for the vacant senior position. 

Some very large companies, especially older and more traditional ones, use succession planning to enable them to immediately promote employees into vacancies at upper management levels. This means identifying and grooming a preferred candidate far in advance to replace an executive as soon as they leave, ensuring a smooth transition from one person to the next.

Internal transfers

An internal transfer takes an employee from one part of the company and transplants them into the open vacancy. Depending on the structure of the business, the transfer might involve either fewer or more responsibilities for the employee. However, this type of sideways move almost always leaves a new vacancy in the department the recruit just left behind.

This can be useful if certain parts of the business are overstaffed, but might eventually require hiring an external recruit to rebalance the workforce.

Pros and cons of recruiting internally

Pros

• It saves money

Hiring from within the company allows you to avoid many of the most common costs involved in recruitment, such as job board fees, marketing the role at events, processing applications, paying agencies, interviewing candidates, and running background checks. External recruits typically need some training to come up to speed too, and also come with other potential pitfalls. Their current employer has the power to entice them to stay with a counteroffer, or they can demand higher salaries or even turn the role down at the last hurdle, which results in sending an employer back to square one.

• It saves time

Internal recruitment lets you speed past all of the most time-consuming stages of the recruiting process. Your new hire is potentially somebody you already know and have worked with before, so you’re aware of their experience and ability to take on the role—and you know that they’re a good fit for your company’s culture. This means you can spend less time marketing the vacancy on job boards, trawling through countless résumés, and interviewing any more candidates than you need to.

• The employee already knows the ropes

Hiring from within your own ranks means your new recruit should already be familiar with your company’s workflow, tools, teams, and processes. This is especially true if they’re being promoted into the new role, and even more so if they’ve worked directly under the person they’re replacing. With this hands-on experience and familiarity comes less training, a drastically shorter onboarding time, and virtually no dip in overall productivity, as the hire would likely hit the ground running on day one.

• It boosts morale

The chance to rise through the ranks of a company is one of the most important factors when it comes to employee satisfaction and retention. When a worker sees external recruits repeatedly hired into roles above theirs, they’ll begin to feel they don’t have a future within the organization and look elsewhere for opportunities to further their career. However, internal recruitment is a kind of progression that not only helps to boost morale but also serves as an attractive feature for external hires too.

Cons

• You limit your talent pool

There’s an entire world of potential candidates out there, and by choosing to focus on hiring internally you might be overlooking applicants who are better suited to the role. External recruits can have skills and talents your existing teams are lacking or knowledge and experience that would benefit the company as a whole. When you restrict your job recruitment process to your own backyard, you might be missing out on an opportunity to add valuable new assets to your organization.

• You instantly create another vacancy

Hire an employee from within your own company and—just like magic—you’ve created a brand-new vacancy to worry about. This is less of a problem if your employee is moving through the ranks of the organization. The training cost and time expense of recruiting an external hire into a newly vacated lower- or entry-level position are more than made up for by the experience the internal recruit can bring to their more senior role.

• You risk stagnating your company culture

Over a longer period, a policy of hiring primarily from within can leave a company feeling stuck in a time warp. Bringing in fresh talent from time to time can shake up a stagnating corporate culture, introduce original ideas, and challenge old ways of thinking. External recruits bring with them all of the insight, knowledge, and perspective of previous roles, which they can then use to motivate and inspire their new colleagues.

What is external recruitment?

External recruitment means filling a job vacancy with an employee from outside the company, rather than promoting or transferring an existing employee from within. 

These candidates have an advantage over internal candidates due to the simple fact that there are so many more of them, meaning recruiters have a much wider talent pool to choose from when working to fill a position. External recruits bring with them experience from their past roles, a diversity of insight and knowledge, and an understanding of the most up-to-date practices in their industry.

External recruitment also helps to promote the company itself and curate a positive public image. From the types of roles being advertised to the wording of individual job descriptions, employment listings are a way to broadcast company values and signal success and growth within an industry.

External recruitment methods

When it comes to hiring from outside of your own organization, there’s no shortage of recruitment agencies and third-party services ready to step in and do the hard work on your behalf. The methods of recruitment a company uses to source the best person for a role depends on the skills they’re looking for, the seniority of the role, and the current market conditions in the industry. Let’s take a look at a few of the most popular routes taken when recruiting externally.

Job postings

The oldest method of finding somebody to work for your business doesn’t get much more straightforward than a simple job posting. Gone are the days of sticking a “help wanted” sign in the store window and waiting for a knock at the door. Instead, a whole host of different online recruitment platforms—such as ZipRecruiter and Indeed—promise to take your job description and use it to create a listing that targets only the most suitable candidates for the role. As market leaders, these online platforms attract enormous numbers of job seekers, making them an attractive first stop for companies looking to hire.

Recruitment agencies

Headhunters and recruitment agencies are a step above standard online recruitment tools like those above. These agencies specialize in sourcing premium candidates for high-level executive roles, highly skilled and technical positions, and any other important roles that are challenging to fill or too sensitive to list on regular job sites. A good headhunter will have an exhaustive understanding of the industry they work in, will know which players could be convinced to switch roles, and what it would take to pull them away from their current company.

Social media

Social media serves as a blunt recruitment tool when it comes to organically sourcing candidates, and it can be an effective and cheap way to advertise a role quickly. However, this method’s strength is also its weakness. Tweets and Facebook posts can be easily shared far and wide by followers, reaching a huge number of potential applicants in a very short period of time. But the further the message spreads, the more diluted your pool of potential new hires becomes. 

Careers events

The major advantage of a careers event or jobs fair over other recruitment channels is the opportunity for face-to-face contact with your next potential hire. These events bring together candidates and employers of a common interest and allow both to get a sense of one another through social events and other activities. For smaller organizations and startups lacking name recognition within their industries, career expos are an invaluable opportunity to promote your company and advertise available roles to a large number of qualified candidates at once.

Referral programs

Considered to be one of the most efficient ways of sourcing highly qualified candidates for a role, a referral program offers a cash bonus or other incentives to existing employees who can find and bring somebody new into the organization. This encourages people to spread the word about job openings among their friends and peers, many of whom will likely work in similar roles in that industry and may be looking for an opportunity to move.

Pros and cons of recruiting externally

Pros

• Gain fresh new skills

Industries are constantly evolving, and the skills required to succeed in them are always changing. Whether you’re working in web development, medicine, or manufacturing, recent graduates tend to have more up-to-date knowledge of current industry techniques, guidelines, standards, software, and tools. For a company to stay competitive, it needs to invest in continuously training its workforce and attract a steady influx of highly skilled new recruits.

• Find more qualified candidates

This is just basic math. There are more people outside your company than inside it, so when recruiting externally, you naturally have access to a substantially larger pool of talent to draw from. By hiring externally, you can search for more qualified candidates with specific skills and talents that could take your organization in a new direction, help you expand more quickly, and develop and train your existing workforce.

• Get insight into the competition

When an external candidate comes on board, they bring with them not only a wealth of skills and experience they’ve attained in previous jobs but also unique insights into how competitors in your field operate. Of course, anything as serious as trade secrets and insider knowledge is off the table, but there’s a real value in viewing your own company from the vantage point of a new employee, and seeing how your processes compare with the rest of your industry at large.

Cons

• Slower onboarding

External recruits are strangers to your company and the people who work there. That means it’s going to take them a little longer to settle into your company’s culture and way of doing things. Onboarding is more than just the process of getting a new employee set up with everything they need to start working—it involves structured training, a degree of mentorship, and regular check-ins to ensure things are going smoothly.

• Increased risk of turnover

Starting a new job is tough, as new recruits often struggle with feeling overwhelmed, underqualified, or overlooked by their new employer. In a survey of 1,000 workers carried out by BambooHR, 31 percent of respondents said they had quit a job within the first six months. Most who left jobs early were external recruits hired into entry-level positions, and they said that a mismatch between their expectations for the role and the reality of the work was a major reason behind their decision. 

• It’s more expensive

Recruiting staff is costly and time-consuming, with expenses ranging from advertising the role and licensing the software required to automate and organize large numbers of applicants, to training, onboarding, even potential relocation for your new hire. There’s also an opportunity cost involved in assigning staff to oversee parts of the interview process as well as a productivity hit, as the new recruit needs time to get up to speed with your company’s workflow.

• There may be a notice period

Depending on the terms of their contract, external recruits may have to give their current employer notice of their intention to quit. In highly competitive industries, this notice period can be weeks, and could even include specific rules about which competitors the recruit is allowed to work for within the next few months or years. When hiring remotely from other countries, the required notice periods can be up to three months or more, which could present a considerable delay between hiring your recruit and their first day on the job.

Internal vs. external recruitment: how to decide the best option

There’s no single ideal recruitment strategy example to fall back on in every situation. Instead, the challenge facing every hiring manager and recruitment team is knowing whether it’s best to fill roles by recruiting internally or casting a wider net.

As we’ve seen above, there are advantages and drawbacks to both methods of recruitment. Internal recruitment is cheap, and existing employees understand how the company is organized. They’re skilled, they don’t need as much training, and they are ready to hit the ground running. Internal candidates also have proven qualities that don’t appear on a résumé but have been observed during their current employment, such as their ability to collaborate with coworkers and integrate with the company’s culture.

External recruitment is more expensive, but the employees introduce invaluable fresh perspectives and new ideas that can invigorate a stalling enterprise. They can be drawn from a much larger pool of qualified candidates and can help ensure that the company stays responsive and adaptable in a changing business environment. Armed with talent, connections, and knowledge the business may not have had previously, they can enable a company to move in a new direction.

So when is one approach better than the other? There are no hard-and-fast rules, but conventional wisdom steers companies toward internal recruitment when the going is good and the organization is fully equipped with what it needs to succeed. When a company is doing well, there’s less interest in changing horses midstream and a greater focus on building upon what’s already there. Internal hiring can also be a requirement when an organization isn’t in a position to properly train new recruits.

Companies look toward external recruitment when they have robust onboarding and job training processes in place to support new employees as they arrive. Hiring from outside the business is also a way to bring new skills and experience to a company as it expands into new sectors or opens in new locations. External recruits may also challenge legacy thinking and shake up “old guard” relationships, which could be leading the company in the wrong direction.

Any good recruitment strategy requires a mixture of internal and external hiring to succeed. Knowing when to deploy either method and where to look for your next star employee requires a thorough analysis of the role and its responsibilities, as well as a deep understanding of the business and where it’s going.

Steve Hogarty is a writer and journalist based in London. He is the travel editor of City AM newspaper and the deputy editor of City AM Magazine, where his work focuses on technology, travel, and entertainment.