Internal vs. External Hiring: Which Strategy Works Best?

In the current job market recruitment is a critical component of any organization’s growth strategy. When companies find themselves in a need of new talent to be recruited, they must decide whether they need to hire internally within the organization, promoting from within, or externally, by bringing in some fresh faces from the job market. Both approaches offer a distinct advantage and challenge, and understanding when to apply each approach can make a significant difference to a company’s workforce dynamics and long-term success. This becomes even more relevant mainly in the competitive job market of Sri Lanka, where the companies are increasingly looking for ways to attract and retain the best talent to their talent pool.

Internal Hiring: Promoting From Within

Internal hiring involves opening and filling positions by promoting or transferring their current employees. It is a strategy that many organizations uses to reward loyal and high-performing staff at the same time maintaining continuity of the employees within the organization. In Sri Lanka, companies like MAS Holdings and Hemas Holdings have been leveraging internal promotions as a key component of their human resources strategy. Lets see breakdown of why this approach works well in some scenarios.

Pros of Internal Hiring

1. Immediate Impact and Faster Integration
   One of the significant advantage of internal hiring is that the speed at which a new hire can integrate into their new role. Since someone hired internally are already familiar with the organization’s culture, policies, and procedures, the learning curve is significantly reduced. This allows the recruit to contribute more quickly compared to an externally hired individual. For instance, at MAS Holdings, internal promotions to managerial roles ensure that employees can hit the ground running because they understand the company’s values and expectations (MAS Holdings, 2023).

2. Employee Retention and Morale
   Hiring internally helps foster a sense of loyalty and a huge motivation within the workforce. When employees see the opportunities for growth and career advancement, they are more likely to stay committed to the company. Hemas Holdings, a leading Sri Lankan company, focuses on internal promotions to cultivate a culture of growth and development, ensuring that employees feel valued and have clear career paths (Hemas Holdings, 2023). This reduces the company turnover rates, which is a significant cost-saving advantage.

3. Cost-Effectiveness
   Hiring from within the organization mostly involves fewer expenses adn cost compared to recruiting externally. There are no recruitment agency fee, no job advertisements, and training costs are mostly lower since the employee is already familiar with the company’s systems.

Cons of Internal Hiring

1. Limited Pool of Candidates
   One of the main disadvantages of internal hiring is the limited talent pool. While it is ideal for roles that require familiarity with the company’s inner processes, internal candidates may not always possess the fresh skills, experiences, or expertise needed for certain set of roles. If a company requires cutting-edge knowledge or expertise from a different sector or field, internal hiring may not always provide the necessary resources.

2. Risk of Inbreeding and Stagnation
   If the internal hiring is over-relied upon, it can lead to an “inbreeding” problem where the organization lacks in diversity of thoughts and ideas. This might lead to stagnation, especially if the company is actively not encouraging innovation or new perspectives. This is where companies like Dialog Axiata balances their internal hiring strategies by periodically hiring external candidates who can introduce fresh perspectives, particularly in leadership roles (Dialog Axiata, 2023).

3. Internal Politics
   Promoting from within might lead to internal conflicts and jealousy among employees in the company, particularly if promotions aren’t seen as fair. It’s essential that organizations need clear criteria and transparent processes for promotions to avoid dissatisfaction and division among staff members.

External Hiring: Bringing in New Talent

On the other hand, external recruitment involves hiring individuals who are not currently part of the organization. This strategy will offer a wider talent pool and is ideal for filling in the specialized roles or when fresh ideas and diversity are needed. Companies like Virtusa and 99x Technologies, have made a strategic move toward external recruitment to attract top talent, especially for technology roles. Let’s see why and when external hiring works best.

Pros of External Hiring

1. Diverse Skills and Fresh Perspectives
   External hiring allows the organizations to bring in fresh talent with diverse skill sets that may not be available internally within an organization. These new employees will often bring with them different experiences and insights, which can drive innovation and growth in the company. For instance, Virtusa, a global IT services company, consistently hires external talent to bring in specialized skills in areas such as AI, blockchain, and machine learning, which aren’t always available within their existing workforce (Virtusa, 2023).

2. Building a Diverse Workforce
   External recruitment is an excellent way to increase the diversity within the organization. By targeting talents from a wide range of backgrounds, external hiring will be able to help companies build more inclusive and diverse teams. 99x Technologies is an example for a company in Sri Lanka that focus on hiring externally to increase its diversity and to ensure a broad range of perspectives in decision-making (99x Technologies, 2023).

3. Filling Skill Gaps
   External hires are a more of a necessary when an organization faces skill gaps that current employees might not be able to fill. Whether it is for a specific technical skill or a leadership role, external candidates might be able to help organizations acquire the talent they require to remain competitive. Companies in Sri Lanka who are expanding into new markets or industries often rely on external recruitment to bring in new skills to their talent pool, especially when venturing into international or specialized fields.

Cons of External Hiring

1. Long Onboarding Processes
   External candidates require a more elaborated onboarding process to familiarize to the company’s culture, processes, and people. This will delay their time to productivity, especially for senior-level roles.

2. Higher Costs
   The external recruitment process is often more expensive due to advertising cost, headhunting fees, and the time spent on vetting candidates. Additionally, the time taken to train these external hires and integrate them into the team can be resource-intensive.

3. Cultural Fit Issues
   Hiring externally typically comes with the risk that the new hire may not be a good cultural fit required for the organization. Despite having the right skills, external hires might struggle to align with the company’s values or work environment, and this leading to higher turnover rates. Companies like Hemas Holdings ensure that even when they are hiring externally, the cultural fit is prioritized by using comprehensive interview processes that assess a candidate’s alignment with company culture (Hemas Holdings, 2023).

When to Use Internal vs. External Hiring

Internal Hiring Works Best When:

• You are filling a position that require a deep knowledge of the company culture and processes.

• You have a set of high-performing employees who are ready for the next step of their careers and can provide leadership assistance without significant ramp-up time.

• Your organization values the employee's loyalty and wants to reward their growth within.

• You need to fill in a position quickly and cost-effectively, without the need for intensive training.

External Hiring Works Best When:

• Your organization needs a very specific and specialized skills that are not available internally.

• You are looking forward to diversify your talent pool in the company and bring in fresh ideas and perspectives into the talent pool.

• You need to fill in a critical role that requires immediate expertise and leadership in an area the organization is expanding into.

• You want to infuse new energy and innovation into the organization, especially if you’ve been relying heavily on internal hires.

References

Dialog Axiata, 2023. Balancing Internal and External Talent Pools. Dialog Careers Portal.

Virtusa, 2023. The Benefits of External Hiring for Technical Roles. Virtusa HR Publications.

99x Technologies, 2023. Diversity in Recruitment at 99x Technologies. 99x Careers Website.

MAS Holdings, 2023. Internal Promotions as a Strategy for Growth. MAS Official Website.

Hemas Holdings, 2023. Employee Retention Through Internal Promotions. Hemas Corporate Reports.