An Inside Job: More Firms Opt to Recruit From Within

By RACHEL EMMA SILVERMAN and LAUREN WEBER



Here's a recruiting riddle: What costs more but often works worse? Outside hires.


Fueled by a conviction that there's plenty of talent in their ranks and backed by research showing that hiring outsiders can lead to costly missteps, firms are ramping up internal hiring efforts and investing in new career sites to boost intra-office movement. So far, those efforts are helping firms cut recruiting costs and retain high performers, companies say.

Cisco Systems Inc. has developed an internal career program, called Talent Connection, that seeks to identify "passive candidates," qualified employees who aren't necessarily looking for a job. The system is designed to help recruiters approach internal candidates the way they do external ones, says Mark Hamberlin, a Cisco vice-president of global staffing.


Since 2010, about half of Cisco's 65,000 employees have created profiles on the website and even more have used it to search for jobs, says Mr. Hamberlin. Talent Connection has saved the company "several million dollars" in search-firm fees and other recruiting costs, while employee surveys show workers' satisfaction with career development has risen by nearly 20 percentage points, he said.

Companies frequently struggle with hiring from within their ranks. Management expert, John Sullivan, on how to improve the process.

Promoting from within—from the chief executive on down—can deliver more benefits for companies than hiring outside talent, a growing body of research suggests.


One recent study from the University of Pennsylvania's Wharton School found that external hires were paid some 18% more than internal employees in equivalent roles, but fared worse in performance reviews during their first two years on the job.


Hiring managers may be wowed by an outsider's résumé or new perspective, but they "underestimate how hard it is to integrate new people," says Matthew Bidwell, a Wharton assistant professor whose study examined six years of employee data at a financial services company's U.S. investment banking unit, covering nearly 5,300 workers.


No matter how good the software, recruiters and employees need to carefully manage talent-hoarding bosses who fear losing top performers, says John Sullivan, a management professor at San Francisco State University.

Internal hiring systems are often useful for companies where work is done on a project basis. At Shaw Group Inc., an engineering and construction services company based in Baton Rouge, La., employees work on assignments that last anywhere from a few months to a decade. With 27,000 employees, management needed a comprehensive database to track workers' skills and experience.


"One of our executives said what we want is a baseball card," or a single page containing an employee's skills, training completed and performance evaluations, said Lacy Kiser, vice president of human resources at Shaw's Power Group in Charlotte, N.C.


The result is an Internet-based system that allows managers to quickly assess what talent is available for an open project and determine whether to begin an external search.


Since the system went live in late 2009, open positions are now staffed in 45 days, down from 60 days two years ago, Mr. Kiser said.

To be sure, companies need to make some external hires, especially in areas that could use a shake-up, or when they're growing rapidly. Prof. Sullivan said that change agents often have to come from outside.

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