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Don’t forget internal talent in workforce planning and recruiting

Elissa Tucker, APQC
Elissa Tucker
Elissa Tucker is Principal Research Lead, Human Capital Management, at APQC.

Internal hiring helps organizations fill roles more quickly and often in a more cost-effective way while providing opportunities that keep employees engaged and satisfied. However, internal hiring requires the right resources to work effectively and isn’t always the most strategic choice for filling vacancies. After breaking down cross-industry data on internal hiring, we provide guidance for how to benchmark this measure and think critically about your use of internal hiring.

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The percentage of total vacancies filled by internal candidates includes promotional, lateral or other types of internal moves and applies to all levels and types of positions. At a broad level, it is an indicator of the formal movement of talent within an organization and the strength of its internal talent pipeline.

This is a measure that should be on any HR leader’s dashboard, especially because internal hiring drives benefits like better retention and employee satisfaction. APQC has consistently found that career development opportunities are a top driver of unwanted turnover, second only to higher compensation and more important than factors like work/life balance or better benefits. Organizations that can provide these opportunities will be more likely to keep their best talent from walking away.

See also: 5 ways to reimagine internal talent mobility

Internal hiring also preserves the organizational knowledge and relationships that an employee has already built. At the very least, internal hires already understand your organization’s culture and what matters most to the business, which can help to reduce time to competency.

internal hiring stats

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APQC finds that at the median, organizations fill 15% of their vacancies with internal candidates. Organizations at the 75th percentile (the upper end of the spectrum) fill 25% or more of their positions with internal candidates, while organizations at the 25th percentile fill 10% or less of their vacancies internally.

Benchmarking guidance

For the most accurate assessment of your performance on this measure, it is important to find and benchmark against organizations that are similar to yours. Benchmarking within your industry is a good place to start since industry can often dictate the external talent market and the feasibility of tapping into it. Organizations with a similar headcount also make for good benchmarking peers. Smaller organizations may have fewer opportunities to promote from within, so it won’t be helpful to compare yourself to an organization with 10,000 employees if you only have 100.

It is important to track this measure as part of a balanced set of measures that includes KPIs like the total cost of recruiting, cycle time to fill open positions, quality of hire and retention. Doing so helps to ensure that you do not inadvertently optimize one area (for example, cycle time to fill open positions) at the expense of other priorities like candidate quality.

You should also interpret your benchmarking results in light of your:

  • Business trajectory: How similar or different are the capabilities that you have today compared to what you’ll need in the future? Major changes can make it less viable to hire internally.
  • Workforce composition: Especially factors like the typical age and career stage of your workforce. If a large percentage of your workforce is getting ready to retire, for example, you may need to look outside the organization for new talent.

Human capital strategy and workforce plan: Ideally, your assessment of this measure should take place in the context of a broader workforce planning process. Your goal is to meet business needs and help the business achieve its objectives, whether that means internal hiring, external hiring or another alternative.

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When and how to use internal hiring

If you are wondering whether or when to use internal hiring, the considerations below are a great place to start:

  • Capabilities: If specific capabilities are not available or are prohibitively expensive in the external labor market, you may want to hire internally for these positions. Employees with adjacent capabilities may be good potential candidates.
  • Employee interest: Is redeployment an attractive option for employees, or would you have trouble getting enough qualified candidates to apply for the role internally?
  • Time: Developing employees for new roles does require some lead time. Do you need specific capabilities immediately? If so, do you have internal candidates who are ready to get to competency and contribute quickly?
  • Cost: It may be more expensive to develop employees to fill an internal role than to hire externally. On the other hand, you may have candidates who do not need development, which would cost less than an external hire. Weigh the cost of internal hiring as one consideration, among others.
  • Alternatives: Are there other viable ways to meet this business need? For example, it’s important to think about whether you can use technology to either automate the work or redesign the work so it can be carried out by fewer employees or employees with different skill sets. Outsourcing and contract workers are also alternatives you should consider if these options are available.

Tips for effective internal hiring

Leading organizations carry out the following practices to make internal hiring as effective as possible.

1. Evaluate and look for opportunities to improve your job posting practices. Think carefully about how internal opportunities are posted, where they are posted and whether these opportunities are visible to employees across the enterprise.

2. Make internal hiring part of your standard hiring process. Think of internal employees as another talent pipeline, and work to optimize your practices around that pipeline. Recruit and source employees both internally and externally depending on your strategy and business needs.

3. Develop internal transfer policies. For example, decide on criteria that employees need to meet to be considered for an internal hire, such as minimum time in their current role and current performance ratings. You may also need to revisit your policies around remote work and work locations if you want to take full advantage of internal hiring.

4. Provide incentives to managers so they don’t prevent employees from leaving the team for other opportunities. For example, some organizations design performance goals around helping employees move to new roles or promotions.

5. Educate hiring managers so they consider internal hiring as an option alongside external hiring or other alternatives.

6. Align internal hiring with your learning and development infrastructure. Ideally, employees should have the resources to prepare for potential future roles. They should also have visibility into the kinds of opportunities that might be available if they pursue different learning paths or build new skills.

7. Align your compensation structure with internal hiring so that employees don’t feel like they have to leave your organization for better pay. There doesn’t need to be a raise involved with every transfer, but paying external hires more for the same role can discourage internal movement.

Key takeaways

Internal hiring can be a powerful and effective tool in HR’s workforce planning toolkit, but it needs to be supported with the right infrastructure and resources. Doing it well not only means thinking about the capabilities you have in-house today but also imagining the capabilities that your organization needs in the future and providing employees with resources to help build that future. Organizations with mature internal hiring practices often enjoy better retention and employee satisfaction. More broadly, they have a wider range of tools at their disposal to fill vacancies and get the business the talent it needs to succeed.

Data in this content was accurate at the time of publication. For the most current data, visit www.apqc.org.