Hiring Internally vs Externally: What are the Pros and Cons?

November 15, 2023

3 min read

establish a strategy for hiring internally vs externally

Table of contents

When should you hire internally?
When should you search for an external hire?
FAQs
In summary

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When there’s an open position in your company, this question is guaranteed to come up: “Should we hire someone outside our organization or from within?”

Unfortunately, there’s not a one-size-fits-all approach to hiring internally vs. externally, and if you focus your direction incorrectly, your organization risks losing both time and money.

In this article, we’ll help you develop a recruitment strategy that you can lean on to decide whether an internal or external hire is the correct fit for your open role.

Let's get started.

When should you hire internally?

There are various reasons why it will make sense to look for a candidate within your organization. Fiscally it might make more sense. It might be the fastest solution. Also, with an internal hire, you know what they're like as an employee, and they bring a wealth of institutional knowledge. Hiring internally can be very advantageous.

But first, organizations should understand that there are different scenarios for internal recruitment, including"

Hiring from within to fill positions that have been vacated due to internal promotions
Hiring from within to fill a new role
Promoting a current employee to a higher-level position
Transferring an existing employee from one position to another
Moving an employee from a temporary to a permanent position

These are a few situations where it might be your best choice to recruit within your company.

A scenario where your company should absolutely consider hiring from within is if your organization is struggling with retention. Internal hiring takes advantage of an employee retention strategy called internal mobility or when current employees move, either laterally or vertically, within their organization.

In addition to helping with retention, internal mobility gives your current employees the opportunity to grow inside your organization, leading to happier and more engaged employees.

When employees are not given the option to move around within their current company, research from LEVER in their "The State of Internal Mobility and Employee Retention Report" shows that 61% of employees will start searching for new positions.

To get ahead of who in your organization would be a good fit to promote from within, encourage managers to discuss long-term career goals with their team during check-ins. Consider using a tool like Workhuman’s® Conversations to help managers keep track of these planning conversations.

Research from our "4 Ways to Attract and Retain Great Employees" report found that simply discussing growth opportunities increases retention by 41%, compared to just 18% when companies don’t have conversations about long-term career goals.

Download the report!

Benefits of hiring internally

Beyond boosting retention and providing opportunities for your current employees to grow inside your organization, there are many pros and cons of hiring internally. Let’s start with some of the benefits.

Internal hiring will significantly shorten the time it takes to fill the open role. If a faster speed is a high priority in filling the position, the internal hiring process will likely move along faster than hiring an outside candidate.
Existing employees moving into a new role are starting off ahead of the game. They are equipped with organizational knowledge on everything from processes and systems to culture and communication norms. This shortens the onboarding timeline significantly.
Internal hires may outperform external hires – it can take up to two years for new hires to be as productive as existing employees.
Internal candidates may have higher levels of employee engagement. In fact, LinkedIn Learning’s 5th Annual Workplace Learning Report shows that employees who are given the opportunity to move positions internally are 3.5 times more likely to be engaged.
Internal hires tend to reduce hiring costs. Because existing employees will learn about the job through an internal job posting and word of mouth, your company will save on recruiting costs. It might also qualify for an employee retention credit.

Disadvantages of internal hiring:

Internal hiring with the best intentions can produce unintended consequences. None are enough to not consider the notion, but it's wise to be aware of what could happen when a role is open to internal candidates.

Internal hiring can create additional vacancies. For example, if a junior project manager takes the open role of associate project manager, you’ll then have to backfill for the junior project manager vacancy. You’ll soon find yourself wondering once again whether you should fill the position internally or externally.
Hiring an employee from within can create unnecessary competition. For example, existing employees may be applying for the same internal promotion. This has the possibility of creating a competitive workplace culture.
Internal employees may have less motivation to go above and beyond. After the internal hire has given it their best during the hiring process, they might not feel that they need to prove their worth as much as a new external candidate would.
If you’re looking for a fresh perspective, you might want to reconsider hiring internally. Internal employees may be too entrenched in company culture to provide the innovation you are looking for.
Internal hiring has the potential to negatively impact employee morale and company culture. Hiring internal staff into open positions will change team dynamics, and there’s a chance that someone moving to a new team can cause disruptions that turn the team dynamic negative.

When should you search for an external hire?

Now let's talk external hires. There are just as many scenarios where it makes sense to recruit outside of your company vs. from within. But similar to hiring internally, there are pros and cons for external hiring as well.

The most important reason to consider external hiring is simple – you’ll tap into a larger talent pool. And with the talent pool bigger than it’s ever been, there are hiring scenarios where it would be unwise to not consider external hires.

Another reason to turn to external applicants is when your organization needs to fill a skill gap. In Monster's "The Future of Work 2021: Global Hiring Outlook" report, they found that over 40% of companies list skill gaps as a challenge, and over 80% of employers responded that they are having difficulty closing their skill gaps.

Benefits of external hiring:

Beyond a larger talent pool and a chance to decrease your company’s skill gaps, there are some other pros to external hiring. Here are a few:

Outside candidates bring fresh ideas, perspectives, and skill sets to your company.
External hires increase your organization’s network and reach. With every new hire you bring on board, you’re gaining more opportunities and links to their connections.
Hiring externally can help increase diversity within your company. With every open role, you’re given the chance to hire an external candidate who helps increase the diversity within your organization. And with 80% of workers saying they want to work for a company that values DEI according to the "CNBC|SurveyMonkey Workforce Happiness Index: April 2021" survey, increasing your workplace diversity will also help with attracting talent.
You’ll only have one role to fill. You’ll be avoiding the domino effect that happens when an internal candidate is chosen to fill a role.
New external hires are great for when your organization is going through a period of change. Because they aren’t embedded in the culture it’s easier for them to adopt new or revised organizational policies and workplace culture norms.

Disadvantages of external hiring:

As with hiring internally, there are cons to external hiring. Let’s go through a few of the downsides.

External candidates will need a longer training period than an internal candidate who is coming from within your workforce.
Take into consideration the increased level of risk when bringing on external candidates. You aren’t as familiar with the quality of their work and behavior as you are with a worker inside your company. Even though the hiring team is making smart choices during the hiring process, there is a chance that there could be a misalignment when the candidate comes on board.
An external candidate can lead to increased hiring costs. An article, The Real Costs of RecruitmentOpens in a new tab by SHRM, shows that the cost of hiring a new employee can be three to four times the salary of the open role, according to Edie Goldberg, founder of the talent management and development company E.L. Goldberg & Associates.
Estimates show that the cost of a new employee can be the open role’s salary, according to Edie Goldberg, founder of the talent management and development company E.L. Goldberg & Associates.
An external hire may negatively bring down team morale. If a respected internal candidate is applying for a vertical role within the organization and it goes to an external candidate, there may be negative feelings from your existing employees.

FAQs

What is an internal candidate?

An internal candidate is a candidate that already works within your company. These candidates can either move laterally or vertically within their organization. An internal candidate is known around the company and brings with them valuable institutional knowledge.

What is an external hire?

An external hire is a candidate you are bringing on for an open role that does not currently work within your organization. By looking outside of your organization to fill an open role, you are expanding the talent pool you are hiring from and closing skill gaps within your company.

In summary

There are positives and negatives to the decision to hire internally or externally. The recruiting team and the hiring manager should weigh all of them to determine the best approach.

When hiring internally, the biggest benefits are increased retention, the development of great employees in your company, and decreased hiring costs. You’ll likely end up with more engaged employees who are deeply committed to your company and mission.

On the other hand, searching for a candidate outside of your organization will greatly broaden the reach, perspective, and skill set of the organization – leading to increased hiring networks, innovation, and diversity.

Both internal and external hires can expand and strengthen your company. It’s up to the hiring team to weigh whether an internal or external hire will find the best person to make the strongest impact.

Retention and turnover

About the author

Alicyn Zall

Alicyn Zall is a writer dedicated to creating a more equitable and fulfilling workplace. With a focus on actionable, data-driven insights, her work empowers individuals and organizations to foster positive change. In addition to her contribution at Workhuman, Alicyn has served as an editor at Harvard Business Review where she developed books and articles about mental health and the future of work.

More by Alicyn Zall

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