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Which Are More Valuable: Internally or Externally Sourced Candidates?

by Apr 27, 2012, 5:16 pm ET

The science of recruiting is years behind our peers in other disciplines, but when I see research like this journal article, ”Paying More to Get Less: The Effects of External Hiring versus Internal Mobility,” I know we’re beginning to catch up.

This study was published in the Administrative Science Quarterly in September 2011 and recently described in detail by Peter Cappelli (my favorite Wharton Professor), in his column for HR Executive magazine, Paying More to Get Less.

It is perhaps the best work I’ve seen in years.

In the original research, the author describes how he dug into the data of one financial services firm to identify and track a number of jobs filled by both internally and externally sourced candidates over a protracted period of time.

He then compared subsequent performance ratings of the incumbents (over years) and found statistically significant evidence that:

  • Internal candidates performed better than those hired from the outside.
  • External candidates took as long as three years to achieve the performance levels of their internally promoted peers.
  • External candidates were paid 15% more on average.
  • The performance of individuals who were externally sourced was higher if they were not brought in through search.

Now this is science I enjoy … not because it is necessarily true beyond the one firm in which the study was done, but because it is transparent, describing methodology openly and in a way that we (dear readers) would be able to improve on and replicate within your own firms.

As someone who is getting tired of tons of unsupported opinions stated as fact and megatons of research by vendor content creators with serious conflicts of interest, this is refreshing. Give me more.

This article is provided for informational purposes only and is not intended to offer specific legal advice. You should consult your legal counsel regarding any threatened or pending litigation.

  • Keith Halperin

    Thanks, Gerry. This makes counter-intuitive sense. I’d guess there’s a value-bias operating here: If something or someone is presented once to a potential purchaser for free and is then presented to a similar potential purchaser for a cost, the potential purchaser who is presented with the “costed” item may likely ascribe greater value than the one who is presented with the free one. In recruiting, a resume could be rejected if it comes internally, but accepted if it came through a 3PR. Being aware of this and other possible biases in selection and working to deal with them is exactly what Behavioral Recruiting (the application of Behavioral Economics, Neuro-Marketing, and Cognitive Science to Recruiting) is all about.

    Re: “As someone who is getting tired of tons of unsupported opinions stated as fact and megatons of research by vendor content creators with serious conflicts of interest…” I agree wholeheartedly and bring this up when it occurs, but it seems that the chief offenders don’t listen to me. Perhaps they would listen to you and Todd…

    Happy Friday,

    Keith “*Ask Me About Behavioral Recruiting” Halperin

    *Speaking of content creators with serious conflicts of interest. Actually, I WISH I had a conflict of interest… :)

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  • Paul Tseko

    Gerry, thanks for posting. Now THIS is information that is truly useful.

    The one bad thing I see is that I am surprised by only one of these findings: “External candidates took as long as three years to achieve the performance levels of their internally promoted peers.”

    In my opinion, the other 3 are all too true.

  • http://www.lasallenetwork.com Tom Gimbel

    These results echo what I’ve discovered at my own company. Internal candidates for the most part, outperform their externally sourced peers. Internal candidates are already invested in the company, have bought into the culture and understand the goals, successes and failures of the organization.

    My executive leadership team is a prime example. Over half of them were internal candidates. They worked hard, developed professionally and climbed the corporate ladder.

  • Keith Halperin

    Hmmm. Are we talking about candidates who are already working at the company or are we talking about candidates who are hired through the company recruiters (as opposed to through 3PRs)?

    Thanks,

    Keith

  • http://community.ere.net/blogs/the-careerxroads-annex/ Gerry Crispin

    Keith, the comparisons were between those employees moved and promoted and external candidates hired by recruiters whether they were sourced via 3rd party or not

  • Keith Halperin

    Thank you, Gerry. I appreciate it. This gives merit to what seems like common sense- whenever possible, promote from within and back fill, rather than recruit at the higher level….

    Cheers,

    Keith

  • Jordan Clark

    Not to mention it sends the right message to the current employees that hard work will pay off and there are opportunities for advancement.

    Nothing like a mixed message during an interview of “we only promote from within” and down the road you talk to your manager or senior management and they tell you about their long history with two of your major competitors. . .

  • Keith Halperin

    @ Jordan: This “right message” presumes that the promotion is seen to be based on genuine merit and not on other factors.

    Cheers,

    Keith

  • Jordan Clark

    @ Keith: Very true, well I suppose my statement was based on the information in the article above that “Internal candidates performed better than those hired from the outside and external candidates took as long as three years to achieve the performance levels of their internally promoted peers.” Specifically performance or as I interpreted it, merit.

    But you are correct the “right message” is all a matter of interpretation.