New Research on Employee Referrals Reveals High Potential But Failure to Deliver

Sourcing talent remains one of the most challenging areas of talent acquisition. The process of finding talent in today’s labor market is costly, time-consuming, and, for many companies, ineffective. While 64% of organizations have increased their investment in sourcing and talent discovery this year, 63% are not measuring their return on investment, according to new findings by Aptitude Research. For many companies, sourcing is reactive.

With the labor shortage, remote work, and industries competing for talent, employers must think more strategically about how they source talent. Hiring teams must shift to building relationships and stronger talent pipelines so that they stay prepared for the unexpected. 

According to Aptitude Research, 72% of companies are rethinking their sourcing efforts this year, and many are starting with their employee referral programs. What’s more, 62% of organizations reduce time to fill via referrals, as well as see twice the improvement in first-year retention

All of which helps explain why referrals have long been considered the holy grail of talent acquisition. They have the potential to improve quality of hire, reduce time to fill, and impact employee productivity and retention. No surprise, perhaps, that 84% of companies believe that employee referrals are the most cost-effective way to find talent.

Most importantly, employee referrals bridge the gap between recruitment and retention by engaging both new hires and existing employees in the hiring process, while raising awareness around employer branding efforts. 

Despite these benefits, many employee referral programs fail to deliver results. Organizations struggle with low participation rates, lack of support, and poor communication. Failure happens when programs do not make life easier for employees or recruiters and are not aligned to broader talent acquisition goals, including internal mobility, DEI, and retention.

Fortunately, technology and automation can help companies create more consistent and meaningful relationships, expand talent pools, and track and measure effectiveness. Employee referral technology is quickly becoming a core capability in a modern TA tech stack.

Some key findings from Aptitude’s research include:

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Most companies are not measuring ROI. Companies have increased their spend on sourcing over the past year. One in three organizations have five or more sourcing solutions in place; yet most are not measuring the ROI of their investments. Organizations continue to spend on solutions that are not driving value. As companies rethink their sourcing efforts, defining goals and measuring success must be part of the equation.

Referrals are the No. 1 source of hire. Employee referrals have long been overlooked — but are considered the most effective hiring source. They improve quality of hire by leveraging relationships to attract and find talent, while enhancing efficiency in the hiring process. Companies that use employee referrals are two times more likely to improve quality of hire. Companies are turning to employee referrals and looking to improve their programs as they prepare for the uncertainty of the next year.

Most employee referral programs fail because of communication. Although 82% of companies use employee referrals in some way, most programs fail to drive consistent results. Adoption lags because employees lack awareness of the programs, or they do not have an easy way to share opportunities with their network. Companies that provide links so that workers can share jobs on social media and through text were three times more likely to see employee participation. 

Technology has come a long way. Historically, employers would have to rely on their ATS to support employee referrals or provide information on a company intranet or employee portal. Workers would be responsible for downloading a form to submit, and recruiters would need to manually track this information in the ATS. Fortunately, companies now have better technology options focused on enhancing employee referral capabilities. People can easily find information about referrals, share details through a link to friends, and track the progress. These solutions are helping companies optimize employee referral programs and provide a better experience for recruiters, candidates, and employees.

Madeline Laurano is the founder of Aptitude Research. Her primary focus over the last 12+ years has been on the talent management market, specializing in talent acquisition. Her work helps companies both validate and reevaluate their strategies and understand the role technology can play in driving business outcomes. 

Prior, Madeline held research roles at Aberdeen, Bersin by Deloitte, ERE Media, and Brandon Hall Group. She is co-author of Best Practices in Leading a Global Workforce and has been quoted in The Wall Street Journal, The Boston Globe, Yahoo News, and The Financial Times. She is a frequent presenter at industry conferences including the HR Technology Conference and Exposition, SHRM, IHRIM, HCI’s Strategic Talent Acquisition conference, GDS International’s HCM Summit, and HRO Today.

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