External vs. Internal Recruitment - Report Example

External vs. Internal Recruitment First & BUS 335-008016 Winter Quarter Staffing Organizations Sandy Hughes Preface: Human resources are now recognized as valuable capital, valuable assets to be motivated and retained within the company. Frequent employee turnover results in loss of tacit knowledge that has been acquired by that individual. It also increases the recruitment costs along with the training and development costs. Thus it has become essential to have the right strategy in place and hence the motivation for this study is to determine whether recruitment should be through internal sources or external sources. Introduction Many researchers and authors have been debating on the issue of internal promotion and its benefits against external recruitment. Selecting the right strategy in recruitment can be challenging in today’s turbulent business environment. Moreover, the recruitment strategy would depend upon the level of recruitment – whether it is of the level of executives or for the middle-tier managers; it would also depend on the industry and the size of the organization. Every organization first seeks to recruit from internal sources because it helps to maintain the firm’s culture and retain the know-how acquired by the firm. However, external recruitment too has several benefits, which a firm may not realize unless it does employ people through external sources. Most organizations have a mix of both the forms of recruitment strategies. This paper would hence attempt to determine the challenges that face an organization in internal as well as external recruitment. Internal recruitment Internal recruitment pertains to search for employees in-house, possessing the abilities and attitude to fulfill the requirements for the position. Advantages An existing employee is familiar with the firm’s culture and hence internal recruitment ensures continuity and retention of the coveted knowledge acquired by the candidate (Souza & Zajas, 1995). Moreover, the strengths and weaknesses of the candidate are known to the company and hence the level of probable success can be predicted. Firms that practice internal recruitment are better prepared to anticipate and provide their own internal candidates. In the case of blue-collar workers, internal recruitments are better because it saves on the training costs associated with company specific-functions (Bayo-Moriones & Ortín-Ángel, 2006). This in areas where specific human capital is important for carrying out tasks, internal promotion is beneficial. Besides, internal recruitment reduces information uncertainty as the candidates can be directly observed (Stafsudd, 2003). Any firm that places importance on firm-specific knowledge would prefer internal recruitments. Many businesses and non-profit organizations tend to find candidates from internal sources and the reason is the specific human capital considerations (Chan, 1996). There must be a joint investment by both the employer and the employee so that both parties have an incentive to maintain a long-term relationship. It then becomes difficult for an organization to find an external candidate who could outperform the internal candidate. Moreover, for marginally better qualifications, a firm would be reluctant to recruitment from external sources. Limitations In the construction industry, for instance, employers prefer to fill vacancies from their internal employees rather than external recruitment as the sector is characterized by mobility between jobs within the same firm (Clarke & Herrmann, 2007). However, skills shortages do force them to look beyond internal recruitments. Moreover, poaching in the construction industry also forces the employers to seek skilled employees through other sources. Internal recruitment also reduces infusion of new ideas, creativity and innovation (Gros & Sonntag, n.d.). It can also lead to conflicts within the employees as there might be a tendency to deny promotions based on seniority if the required skills are found to be lacking. Regular training is necessary to develop the skills of the employees and only then would internal recruitment have significance. External recruitment Industries that are undergoing growth at a fast pace or sectors with high labour turnover have to resort to external recruitments. Sources of external recruitment There are several sources of external recruitment which include using the services of recruitment agencies or recruitment consultants, advertising through the dailies or even using the internet to invite applications directly through the corporate portal. This suggests that external recruitment could be outsourced to headhunters. Many companies outsource the initial stages of recruitment to external service providers while the final decision is left to the company (Mills, 2002). However, the company must ensure that the service providers have the necessary knowledge, integrity, conscientiousness and effectiveness (Fish & Macklin, 2004). IBM has another unique source of attracting and recruiting employees. This is through employees’ referral programme where they reward the employee for referring their friends or associates (HR World Editors, 2008). This costs them less than paying the head hunters and it has been found to be more effective than job portals. Ernst & Young found that recruitment through this method has resulted in the referred and the referring employees staying longer with the organization. Nike focuses on e-recruitment and has some 8500 CVs currently on their database. They even ask the applicants to automatically update their CV every six months so that it remains alive. Nike has appointed recruiters to handle the entire process as it helps to tackle the change management issues (Pollitt, 2005). Advantages Many times an organization is unable to find internal candidates suitable for specific requirements or talents needed for a specific job. At such times external recruitment becomes important. External recruitment becomes necessary either when the company is growing or there has been a lack of succession and management development plans (Souza & Zajas, 1995). Another reason for external recruitment is a strategic decision as the firm decides that an external recruitment can bring in new perspectives and values to the company. This could bring about a change in the vision of the organization and this sort of external recruitment can be found at the level of the CEOs. External recruitment helps to strengthen the senior management team by increasing diversity including, racial, age, gender and ethnicity. Other advantages of external recruitment come through the source of recruitment. For instance, when it is through headhunters or professional recruiters, it serves to enhance the brand image of the organization (Pollitt, 2008). Online recruitment can help to provide prompt service to the applicants, attracts the top talent and helps to differentiate the company. Such methods save time when new technologies are employed. Limitations In external recruitment, most companies conduct the initial screening online which may not always produce the right assessment. External recruitment can be expensive especially for small companies. Conclusion Companies have to use both internal and external sources of recruitment depending upon their requirement. Both these strategies have their own advantages and limitations. While internal recruitment stifles innovation and creativity, external recruitment may not result in the cultural fit with the organization. Internal recruitment requires training but can also lead to conflicts among the employees. External recruitment could bring about a major change in the vision of the company especially at the CEO level. There are several sources through which external recruitment can take place but budgetary constraints have to be taken into account. In fact, it has also been found that employee referral program has a high level of success while being cost effective when compared to the payments made to the headhunters. While both these strategies have their own challenges, it would be interesting to study the success of each strategy in terms of employee satisfaction – whether internal recruitment results in better employee satisfaction and thereby low employee turnover, or external recruitment has better results. This should be conducted across different sectors and at different levels of employees. Reference: Bayo-Moriones, A., & Ortín-Ángel, P. (2006). Internal Promotion Versus External Recruitment In Industrial Plants In Spain. Industrial and Labor Relations Review. 59 (3), 451 Chan, W. (1996). External Recruitment Versus Internal Promotion. Journal of Labour Economics. 14 (4), 555 Clarke, L., & Herrmann, G. (2007). Skill shortages, recruitment and retention in the house building sector. Personnel Review. 36 (4), 509-527 Fish, A., & Macklin, R. (2004). Perceptions of executive search and advertised recruitment attributes and service quality. Personnel Review. 33 (1), 30-54 Gros, M., & Sonntag, P. (n.d.). Article: Internal vs. External Recruiting. Retrieved March 7, 2010, from http://www.bsad.uvm.edu/Research/inProgress/Resources/HRMGuide/Staffing/Recruitment/IntVsExt.htm HR World Editors. (2008). Employee Referral Bonus Jackpots: 15 Companies with Awesome New-Hire Incentives. HR World. Retrieved March 7, 2010, from http://www.hrworld.com/features/referral-bonus-jackpot-031108/ Mills, E. (2002). Virtual Recruitment. Retrieved March 7, 2010, from http://www.nature.com/nbt/journal/v20/n8/pdf/nbt0802-853.pdf Pollitt, D. (2005). E-recruitment gets the Nike tick of approval. Human Resource Management International Digest. 13 (2), 33-35 Pollitt, D. (2008). Online recruitment connects 3 with top talent. Human Resource Management International Digest. 16 (4), 25-26 Souza, F. S., & Zajas, J. J. (1995). Recruiting executives in business: an organizational and conceptual perspective. Executive Development. 8 (3), 23-27 Stafsudd, A. M. (2003). Recruitment Policy Vs. Recruitment Process: Espoused Theory And Theory-In-Use. Academy of Management Best Conference Paper Read More