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Ease Your Talent Crunch by Building a Vibrant Internal Labor Market

By building an internal labor market, HR leaders can increase their organization's talent pool.
By: | April 18, 2019 • 4 min read

Organizations today are increasingly challenged to attract new candidates and retain their best talent. Increased competition in the external labor markets, compounded by historically low unemployment rates, is putting pressure on traditional talent management strategies. Then there’s the reality that the competition for talent is fiercer than ever — according to Gartner TalentNeuron, 49% of Standard & Poor 100 job postings in 2018 were for the same 39 roles, and 90% of S&P 100 companies recruited for those same roles.

For HR and talent management leaders, the bottom line is that it’s taking longer and costing more to hire critical talent.

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Employees who do not see opportunity at their organizations create yet another acute pain point. Gartner analysis shows employee turnover due to lack of future career opportunities costs an average-sized organization $49 million per year. This conservative calculation looks at the cost of hiring a replacement employee and the lost productivity that the organization experiences. It doesn’t take into account equally impactful but harder-to-quantify factors, such as loss of organizational knowledge and the impact such departures can have on the performance and engagement of other employees.

Heads of talent management may intuitively know that recruiting from within the company could accelerate time-to-fill and create career- pathing opportunities, yet few leverage the internal talent pool effectively to fill critical skill needs. Gartner’s benchmark data shows that internal hire rates — as a percentage of total hires — have trended downward from 41% in 2015 to 28% in 2017.

There are three fundamental barriers preventing companies from creating effective internal labor markets:

  1. Visibility. Employees have a difficult time understanding what opportunities are available to them within their own organization. Only 27% of employees believe that their organization makes it easy for them to find job opportunities that match their interests.
  2. Cultural norms. Regardless of what leaders say or think, the reality is that the cultural norms that exist in most organizations today fail to support the idea of employees moving around within the organization. Gartner research finds that only 37% of managers encourage their direct reports to seek internal opportunities and a mere 21% of employees believe it’s easy to change positions at their current employer.
  3. Skills. When employees do find internal opportunities that match their interests, many lack the skills required to fill those jobs. Just 6% of heads of learning and development believe the employees in their organizations have the skills needed for future roles.

Increasing your Talent Pool

Creating an internal labor market requires companies to develop processes, norms and infrastructure that facilitate the mobility of employees from their current roles to other existing or newly created roles within the organization. Easier said than done, right?

Leading companies are making strides in this area by having talent management leaders focus on three key initiatives:

  • Push the right jobs to employees. Treat your employees like outside candidates and proactively push a tailored set of jobs that are most in line with their experience and interests. In fact, organizations that are successful on this front are using the same technology and tools they use externally with their own employees.
  • Ease the path to participation. Experiment with different methods to remove the barriers to employee participation in their internal labor market. To incentivize employees at all levels to consider internal mobility, one global commerce company set explicit and measurable internal mobility performance goals.
  • Broker employee development. Provide more directed learning and development opportunities rather than relying on self-service learning platforms, which can overwhelm employees. A large energy company developed an interactive and easy-to-use career-planning tool, which gives structured guidance to its employees on identifying the right internal career options for them and on how to achieve them. The tool provides employees a tangible view of the skills, including proficiency levels, that a given role requires and helps employees gauge their current proficiency level in each skill.

The Many Benefits of an Internal Talent Market

Managers report internal hires perform better than those hired from outside across a whole range of measures, including attendance, collaboration and meeting expectations — factors that all contribute to fewer hires regretting their decision to take the job.

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In addition, employee willingness to go above and beyond at work is 27% higher and employee intent to stay is 33% higher at organizations with a vibrant internal labor market.

The benefits extend beyond happier managers and employees. Having a vibrant internal labor market enables HR and talent management leaders to be strategic about which roles to fill externally. For instance, looking to existing employees to staff critical and hard-to-fill roles allows an organization to reap the benefits of the engagement capital they’ve built with their existing workforce, and the organizational knowledge those people possess. In addition, more junior roles may be ripe for seeking external candidates as there is likely to be a more diverse and wider array of viable talent pools to target.

Ensuring you are tapping into this under-leveraged talent pool, while still bringing in people from outside with diverse backgrounds and experiences, is a winning formula.

Lauren Romansky is managing vice president of Gartner’s HR practice

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