Internal recruitment: The ultimate guide to finding hidden talent

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Are you having trouble finding enough qualified external candidates to fill your job openings?

If so, you certainly aren’t alone.

The world is experiencing an $8.5 trillion talent shortage, so the recruitment process is more challenging than ever.

Korn Ferry predicts that by 2030, a whopping 85 million jobs could go unfilled due to this issue.

The solution?

Internal recruitment is a way for companies to fill vacancies without engaging in the pressures (and costs) of external hiring.

Internal recruitment involves hiring from within to fill open positions, which can benefit your business.

According to a joint report by The Josh Bersin Company and AMS, companies that practiced internal recruitment boasted:

  1. A stronger company culture
  2. Higher employee retention rates
  3. Boosted cost savings
  4. Expedited time-to-hire rates (usually by 10 to 12 days)

Despite the success, internal recruitment is on the decline. While it peaked at 40% in 2020 during the height of the pandemic, that number fell to just 24% in 2023.

While it’s lost popularity, internal recruitment is one of the best ways to combat the global talent shortage. It’s also an effective way to close the ever-widening skills gaps at organizations worldwide, so it’s worth considering.

Read on to learn everything employers need to know about hiring from within.

Understanding internal recruitment

Put simply, internal recruitment is the process of filling open roles with existing employees. This dramatically simplifies the hiring process, as you don’t need to post open positions on job boards to find external candidates.

Instead, companies that practice extensive internal recruitment tend to have internal job boards that advertise open positions and new roles to current employees.

Roles listed on internal job boards can either be:

  1. Exclusive to internal candidates
  2. Also, open to the general public

Internal hiring significantly benefits companies, mainly in cost and time savings.

For example, you won’t have to spend as much time onboarding existing employees as you would new employees.

While you’ll still need to help them get into the flow of their new role, they’ll already be familiar with your company’s policies and procedures (i.e., how to log hours, when to take breaks, etc.).

There are also a few different types of internal recruitment, which are:

  • Promotions. This is the most common type of internal recruitment. It’s where a current team member receives a higher role within the organization, typically directly related to their already-established role. An example would be a manager getting promoted to regional manager (larger territory, more pay, etc.).
  • Transfers. Instead of moving up, sometimes employees make lateral moves, transferring into similar roles in different departments or locations. For example, if a marketing associate wants to work in Human Resources instead, they may choose to make a lateral move to become a Human Resources associate. While both positions are on the same hierarchical level, the work is entirely different. Managers can use transfers to ensure that their employees are in the roles best suited for their skill sets (and preferred career paths).
  • Temporary to permanent. There are times when managers choose to make part-time employees or interns full-time. This counts as a promotion and a form of internal recruitment, so it’s worth mentioning. It can be very cost-effective to promote a part-time employee instead of hiring an external candidate (you save on hiring and recruiting costs).
  • Employee referrals. This type often gets overlooked, but it’s still technically a form of internal recruitment. Whenever you get your employees to refer qualified candidates to your hiring managers, you enjoy many benefits associated with internal recruiting, mainly cost and time savings.
  • Company restructures. Whenever a company gets bought or restructures itself, internal recruitment is normal. Some roles converge while others disappear, causing managers to promote or transfer existing employees to new roles.

When does internal recruitment make the most sense?

There are times when hiring from within is incredibly productive, but there are other times when there are better choices than hiring from within.

For example, let’s say you have an open position for an Advanced AI Prompter.

The skill set required for this role is scarce due to A) how new AI is and B) how few professionals have mastered it.

Sure enough, no one in your organization has the existing skills necessary to prompt your AI programs.

In this scenario, external recruitment is your best bet.

Sure, you could invest thousands in the necessary training materials to transform one of your employees into an AI wizard, but that would defeat the point of internal recruitment – which is to save money.

Source an external candidate with the necessary expertise to do the job correctly would be far more accessible and less expensive.

Conversely, there are plenty of times when internal recruitment makes the most sense.

Here are some common scenarios where internal hiring is the best option:

  • You’re trying to fill a role where an insider’s perspective would be helpful, such as familiarity with the unique way your company performs certain tasks (e.g., using a specific software program that your employees already know).
  • The role is an extension/advancement of one of your other roles, such as regional managers and specific specialists. In these situations, it makes the most sense to promote from within.
  • You have an internal job board separating internal candidates from external candidates (ensuring that you don’t accidentally reveal insider information or send an employee a stock rejection letter).

It’s also crucial to have an internal recruitment strategy before hiring current employees for new roles.

That way, you’ll have unique processes ready to onboard and manage your internal hires, ensuring everything runs smoothly.

The main advantages of internal recruitment

Is it worth handling talent acquisition in-house?

The answer is a resounding yes in certain situations (like above).

When appropriately implemented, internal recruitment can yield positive benefits for your business.

Here are the primary benefits of internal recruitment.

Benefit #1: Improve employee morale and engagement

The possibility for advancement at a company is a massive deal for employees, and for good reason.

Employees knowing they can land a promotion if they work hard will support their career development and positively affect their morale.

Conversely, nobody wants to feel like they’re in a dead-end job, which is why companies that don’t focus on career advancement tend to have low levels of employee engagement.

Besides promotions, other forms of internal mobility, like transfers, can also boost morale and engagement.

For example, imagine a company where the managers actively match their employees with the roles that best suit their talents, which may differ from the roles they were hired for.

Say a manager notices that a data entry clerk has excellent people skills. After speaking with the employee, the manager decides to transition them into a new position where they work directly with customers, which is a better cultural fit.

This will boost the morale of the employees and the rest of the team, as they will know they’ll receive similar opportunities.

Benefit #2: Reduced hiring time

There’s a lot that goes into recruiting a single employee, including:

  1. Background checks
  2. Writing job descriptions
  3. Creating job postings for places like Indeed and LinkedIn
  4. Going through the interview process
  5. Finding top talent in your potential candidates
  6. Making the final hiring decision

As you can see, hiring one employee is a very time-consuming process, not even including the onboarding process.

Compare that to hiring from within, where you can skip all those steps besides conducting an interview. You’ll already have background checks done for your existing employees, and you won’t have to waste time posting on job boards.

Benefit #3: Better turnover rates

The average retention rate for a business is 45%, but that number jumps to 70% if an employee receives a promotion within their first three years at the company. It also rises to 62% for employees who made lateral moves within three years.

This proves that internal recruitment methods like promotions and transfers are great ways to improve retention rates. They’re solid incentives for employees to stay with your organization to advance their careers and improve their living standards.

Benefit #4: Reduce hiring costs

Hiring employees is not only time-consuming, it’s also costly.

Benchmarking data from the Society for Human Resource Management found that the average cost-per-hire is $4,700, which is costly. They also mention that most employers estimate that the cost to hire a new employee can be three to four times the position’s salary.

This means you save upwards of $4,700+ every time you hire from within.

Benefit #5: Reduce or eliminate the onboarding process

Regarding things that aren’t cheap, onboarding is a notoriously expensive process for new hires.

While more steep than recruitment, the average onboarding cost ranges from $1,000 to $2,000.

The good news?

Your internal employees won’t need an extensive onboarding process, meaning you can skip much or all of it.

Potential disadvantages of internal recruitment

Okay, now it’s time to consider the other side. Internal recruitment doesn’t always work out and can backfire if not utilized properly.

Here’s a look at potential drawbacks that can occur with internal hiring.

Drawback #1: Jealousy and accusations of favoritism

Internal promotions aren’t always smooth; sometimes, jealousy and other negative emotions can lead to accusations of favoritism.

Even if no favoritism occurred, internal promotions always risk rubbing someone the wrong way, especially if they were up for the promotion but didn’t get it.

Another potentially uncomfortable situation is promoting an associate to a manager and having them directly manage their former colleagues. The team may need help adjusting to the employee’s new leadership role and might not take the employee seriously. Resentment and other negative emotions can also occur.

The best way to avoid this is to always be honest with your employees. You can also hold meetings where you explain to staff why the person you promoted truly deserved the role, which may help ease accusations of favoritism.

Drawback #2: You reduce your talent pool

Another potential drawback is that recruiting internally shrinks your talent pool.

Instead of being able to recruit the best candidates from around the globe, you need help with choosing from the employees who already work for you.

This is not always bad, but it can limit your reach when filling more complicated positions (like the AI Prompter role mentioned earlier).

When hiring internally, fresh perspectives are best, which can be a real drawback for positions requiring staff to think outside the box. Existing employees will likely remain stuck in their old ways since you trained them from the ground up, and there are times when outside perspectives are what you need to keep growing.

Drawback #3: Recruiting internally means vacating roles

By its nature, recruiting internally means you will always fill one role while vacating another.

The employee you promote (or transfer) must leave their current role to fill the new one.

As a result, you’ll have to plan whenever you recruit internally to ensure you don’t disrupt your business. You’ll need an internal or external candidate ready to replace every employee you promote or transfer.

Thus, filling all your open positions with existing employees is virtually impossible since you’ll always create a hole in the team.

Final thoughts: The internal recruitment process

Internal recruitment is a powerful way to boost your company’s engagement, retention, and morale.

At the same time, it’s a nuanced strategy that requires much planning to succeed.

Filling an open position with an existing employee inevitably means leaving a gap somewhere else, so you’ll need to know how you plan on filling their old role before moving forward.

When done right, internal recruitment can help fill skill gaps, reduce turnover, and save lots of money on hiring costs, so it’s worth pursuing in certain situations.

Additional Resources:
12 strategies to find the best candidates
Performance development plans: Boost engagement & productivity
Positive workplace culture: The key to happy, productive employees