Pros and Cons of Internal vs. External Hiring (With Definitions)

Updated June 24, 2022

External and internal hiring refers to two types of hiring methods that companies use. Having an efficient hiring process can ensure that a company is well-staffed and that its employees have the proper qualifications and abilities to complete their job tasks. If you're trying to decide whether to promote internal employees or hire new professionals to fill roles within a company, it's important that you understand both internal and external hiring processes.

In this article, we define each type of hiring method and provide a list of pros and cons of each to help you consider the advantages and possible drawbacks of internal versus external hiring.

What is internal hiring?

Internal hiring is the process in which a company chooses to promote or transfer a professional who already works for the company to a new role. This may happen when a professional shows interest in an open position within the company, or if the management professionals feel an employee is a good fit for a new role. Internal happening can occur when an employee transfers to a role in a new department or earns a promotion and works a role with more seniority.

Sometimes, hiring managers and human resources professionals share job postings with internal employees before publishing it for public advertisement. This allows internal employees to receive first consideration for the position.

What is external hiring?

External hiring is a process in which companies recruit professionals who don't already work in their company to fill a certain role. This is a common hiring method, as it allows companies to grow and provide career opportunities to new professionals in the workforce. The external hiring process involves advertising a job description on popular job search websites and interviewing candidates.

What are the pros of internal hiring?

Here are some pros of hiring internally:

Reduces hiring costs

Because hiring internally doesn't require the company to advertise the open position or spend an extensive amount of time interviewing candidates, this practice can reduce hiring costs. Additionally, internal candidates are often less likely to need extra compensation for things like relocation fees or the cost of a background check. Hiring internal candidates for open positions can allow you to allocate part of the funds you might have spent on hiring an external candidate to other aspects of your department's budget.

Shortens the hiring process

Internal hiring often involves a shorter hiring process than external hiring. This is because human resources professionals typically can conduct fewer interviews, which likely are more concise than an interview with an external hire. This is because hiring an internal employee often includes fewer references and background checks. In many cases, the human resources professionals also already know the employee, so the interview doesn't need to be as comprehensive.

Allows for employee familiarity

When companies choose to hire internally, it allows a professional who is already familiar with the company philosophy and culture to fill a new role. This can allow for a shorter adjustment period than an external hire may need. Having a shorter adjustment period often allows internal hires to obtain their ideal productivity goals at a quicker pace, which can contribute to the wellbeing of the company's daily operations.

Establishes a clear performance history

Hiring an internal candidate for a position is often beneficial because human resources professionals already have a record of the candidate's performance history. This allows human resource professionals to take less of a hiring risk, as they already know how productive the employee is usually and has records of professional achievements as well. Internal hiring can also act as a reward for an employee's great performance record.

Provides career development opportunities

Hiring from within the company can provide career development opportunities for professionals who already work for the company. This often can consequently increase employee satisfaction and retention, because professionals may be happier at a company at which they can grow. Internal hiring can encourage employees to continue to work with the company and motivate them to work for promotions.

What are the cons of internal hiring?

Though there are many advantages to hiring internally, it's important to consider some of its drawbacks. Here are some potential cons of hiring internally:

Creates a need to hire for another role

Promoting or transferring an internal employee to another role leaves their previous role vacant. This means that human resource managers need to find another employee to assume their responsibilities and hire a new employee. Though, promoting an internal employee to a more senior position allows human resources to hire for a position that requires fewer credentials, which may make the hiring process easier.

Impacts employee morale

Internal hiring can affect employee morale, especially when more than one professional wants the open position. This may cause competition between two employees, which can affect their work environment. In some cases, employees who don't receive a promotion may leave the company. To ensure a peaceful internal hiring process, consider being transparent and fair in your decision. Be sure to use performance records and quantifiable credentials to make your decision so each employee understands that the hiring process is free from any bias.

What are the pros of external hiring?

Here are some pros of hiring externally:

Diversifies staff

Recruiting external hires to join the company allows for the opportunity for these professionals to provide fresh insight and ideas to the company. They can also help enrich the company's culture. While there's often less risk involved in hiring internal candidates, external candidates allow other employees to make new connections with industry professionals. If a company feels the need for a change, adding external hires to your staff may help.

Brings new skills to the company

External hiring often brings new skills to the company by hiring professionals with a diverse set of qualifications. While an internal employee may train to begin work in a new role, an external hire might already have the qualifications they need to succeed in the position. With their fresh insight and new skills, external hires can also solve problems within the company that an internal employee might not notice as easily.

External hires can be especially valuable if the company is going through a period of change. For example, if one department starts to use a new computer system, hiring a professional who is already familiar with it can help improve the efficiency of the department.

Allows the company to grow

External hiring allows you to expand the company and provide more career opportunities for professionals. This type of hiring process can often allow human resources managers to find several qualified employees. It's not uncommon for a professional to earn a different role at a company than the position for which they applied. Also, hiring more than one candidate for the role can increase the department's efficiency and productivity.

Manages employee workload

Hiring an external candidate can help manage the workload of other employees because it decreases the need for current employees to accept more job responsibilities. Because external hires likely have different skills than current employees, these professionals might also be able to complete some tasks with more ease than internal employees can.

Provides a larger talent pool

As mentioned before, using an external hiring process can welcome a larger pool of talent to the company. This is because you're likely to receive more external applicants than internal applicants. Having a larger talent pool can mean make it more likely for you to find the perfect candidate for the position without having to compromise on some credentials.

What are the cons of external hiring?

Though hiring external professionals can offer significant benefits for a company, it's important to consider the drawbacks of this hiring decision. Here are some possible cons of hiring externally:

Increases hiring costs

External hiring often costs more than internal hiring, because it requires more orientation and training hours along with the time and effort spent interviewing candidates. Because external hiring also requires human resources departments to advertise the job posting, it can be more cost-effective to hire internal candidates. When using an external hiring process, try to calculate the hiring expenses and document them for your department's budgets.

Needs longer training periods

External hires usually need longer training periods than internal hires, because they're less familiar with the company's culture and policies. Create more efficient and effective training programs to ensure new hires are able to acclimate to the company's culture and their job duties quickly. With better training programs, external hires can feel more confident in their roles and begin meeting their productivity goals soon after they start.