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External vs internal hiring: when to choose each of them?

pros and cons of internal vs external hiring

Iryna ChornaThe Future of Work Expert14. September 20227 min read

Internal vs external hiring: What’s the difference?

At first sight, the difference between internal and external recruitment is obvious. With internal hiring, you close vacancies with your existing in-house employees, while with external hiring, you bring people in from outside your organization.

But that’s just how things appear at first sight. In fact, internal hiring is quite versatile. Here are examples of how you can fill vacancies with your existing workforce:

Promote current employees
Transfer employees between departments, company branches, offices, etc.
Bring on part-time employees, freelancers, and contractors to your full-time workforce
Reorganize your workforce during mergers and acquisitions, business restructuring, and other events
Change roles while retaining an employee’s seniority level (for example, moving an employee from a Marketer Associate to a Project Coordinator position of the same rank).

External recruitment, in turn, doesn’t end with posting a vacancy on a job board. It involves:

Sourcing candidates through job boards, the company’s website, social media, etc.
Getting referrals through a system of recommendations
Holding hackathons, vacancy fairs, recruitment days, and other events.

Advantages of internal recruitment

According to Jobvite, 36% of hiring managers say that internal recruitment is their key source of high-quality employees. Let’s see what benefits you can get from internal recruitment:

Reduced hiring and onboarding costs

Since you don’t need to hire a recruitment agency or allocate resources for an in-house recruitment team to find the right candidates, you don’t spend precious time and money. The right talents are already at hand: they’re pre-selected, already fit into your corporate culture, and already know the ins and outs of working in your team. All these factors translate into faster onboarding and lower churn rates due to failed onboarding and training.

Improved retention

The idea of internal recruitment is largely based on showing your commitment to employee well-being with actions, not words. It’s not about promises — it’s about continuous learning, training, and succession planning that inevitably means professional growth. As a result, hiring from within improves employee loyalty and boosts retention: 75% of internal hires succeed in their new job role, while 47% stay at least three years with the company.

Improved time to hire

Internal recruitment is faster than external recruitment because recruiters don’t need to familiarize themselves with a new vacancy, create job postings, screen and interview candidates, and more. Since the right talents are within your reach, you can accelerate the recruitment steps.

1=2, or why you should hire internally

Did you know that internal recruitment requires only half the steps it takes to hire from the outside? In this infographic, we break down the hiring steps and show the tangible difference.

Download the infographic

Disadvantages of internal recruitment

Surely, internal recruitment comes with certain shortcomings. First, it’s simple mathematics: if you get a person to fill a position, that means another position becomes vacant. Second, internal recruitment might impact team morale and create an unhealthy sense of competition among employees who want to take the lead. Finally, when hiring from within, you limit your talent pool, so you might settle for underqualified workers or people without unique experience.

In a recent blog post, we covered all the advantages and disadvantages of internal recruitment. Read the article to find more insights on this topic.

Bottom line

Who is internal recruitment for? In a nutshell, it’s a workable solution for companies that have excellent succession planning processes in place. If you have clearly defined career paths, upskilling programs, and logistics, you can quickly fill positions with internal talent and keep your internal talent pool healthy with timely training. Internal recruitment isn’t a quick fix: it’s a long-term process that requires some time before it pays off. If you’re ready to invest in continuous learning and workforce upskilling, you can allocate a considerable share of your recruiting efforts to this kind of hiring.

Advantages of external recruitment

Wide talent pool

With internal recruitment, you can bring on board people with versatile experience, expertise, and skills from various cultures. Internal recruitment is vital for startups or companies going through organizational changes that require people with unique skills to enrich the company’s expertise and build working processes.

Balanced workload

Increasing your workforce through internal recruitment helps you decrease the workload on your current employees. Since talents outside your organization are likely to have the required expertise, they can efficiently take over tasks and improve workflows with fresh ideas.

Improved diversity

Internal recruitment sets a perfect foundation for building diverse workforce since you can bring new employees from the outside and tweak your DEI (diversity, equity, and inclusion) hiring strategy to the desired outcome.

Disadvantages of external hiring

Time and costs

According to a CareerPlug survey, the average time to hire was 24.7 days in 2020. It takes almost a month to find the right talent and bring them on board. Moreover, training and onboarding slow down a new employee’s performance during the first months of work. It’s estimated that the average new employee works at 25% of their capability during the first months in the new workplace.

Team morale

As with internal recruitment, external recruitment may harm your employee experience. The reason is simple: people get frustrated that you don’t spot their talents and career aspirations, preferring to bring in somebody else.

Increased risks

External recruitment doesn’t guarantee your candidate will successfully pass their probation period and stay with you afterwards. In fact, almost 22% of employees leave within their first 45 of work at a new company, with failed onboarding as one of the key reasons.

Bottom line

External hiring comes in handy when hiring for startups, reorganized businesses, and other companies that don’t have enough workforce to move people from role to role. It’s vital for them to enrich their internal talent pipeline, acquire unique skills, and bring on people with experience in their domain.

Moreover, external hiring is inevitable for DEI-focused companies that commit to diversity. Other than that, you can mix both approaches to build your future-proof workforce.

Check out the smartPeople talent marketplace tool that brings transparency to your skillsets, detects skills gaps, and enables talent mobility through matching the right talents with the right positions.