The Internal vs. External Talent Dilemma: A 2024 Update

The skills gap continues to be a pressing challenge for organizations across industries. This disparity between the skills required for current and future roles and the availability of individuals with these skills poses a significant threat to business growth and competitiveness.

The Growing Skills Gap

The ManpowerGroup's 2024 Talent Shortage Report underscores the severity of this issue. A staggering 75% of companies reported experiencing talent shortages, a notable increase from 69% in 2020. This trend is particularly pronounced in technical fields, where the demand for specialized skills outpaces the supply of qualified professionals.

The Impact of Digital Transformation

The rapid pace of technological advancements further exacerbates the skills gap. Digital transformation initiatives, such as cloud computing, artificial intelligence, and automation, require a workforce equipped with a diverse range of technical and soft skills. Organizations that fail to adapt their talent strategies risk falling behind their competitors and missing out on valuable opportunities.

Internal vs. External Talent: The Strategic Choice

Faced with a shortage of skilled talent, organizations must make a critical decision: should they hire new employees or invest in training their existing workforce? While both approaches have their merits, recent trends suggest a growing preference for internal talent development.

Seven of the top 10 hardest to fill positions in 2016 remain in the top 10 in 2024, according to SHRM survey in April, 2024.

Many organizations have found that by leveraging their existing talent pool and providing opportunities for internal advancement, they can fill critical roles more efficiently and cost-effectively.

• McKinsey & Company: McKinsey’s extensive research on internal mobility and its benefits, including cost savings, improved employee engagement, and increased innovation underscores the value and ROI for employees and organizations. Learning and earning: The bold moves that change careers - McKinsey & Company.

• Gartner: The importance of internal mobility for addressing skills gaps and building a high-performing workforce.  Gartner found that companies with effective internal mobility filled 15-20% of job openings with their existing employees. Why internal mobility is vital in today's workforce.

Internal Mobility: Significant Benefits for Businesses and Employees

Benefits for Businesses

1. Reduced Hiring Costs: Internal mobility can significantly reduce hiring costs by eliminating external recruitment fees, onboarding expenses, and the time required to find and hire new talent.

2. Improved Employee Retention: Offering opportunities for career growth and development can boost employee morale and reduce turnover rates.

3. Enhanced Employee Engagement: Internal mobility can create a sense of purpose and belonging, leading to increased employee engagement and productivity.

4. Faster Time-to-Fill: By tapping into the existing talent pool, organizations can often fill open positions more quickly than by relying solely on external hiring.

5. Increased Innovation: Internal mobility can foster a culture of collaboration and knowledge sharing, which can lead to increased innovation and problem-solving.

6. Preservation of Institutional Knowledge: Internal mobility helps retain valuable knowledge and experience within the organization.

Benefits for Employees

1. Career Advancement: Internal mobility provides employees with opportunities to advance their careers and take on new challenges.

2. Skill Development: By moving to different roles, employees can develop new skills and competencies.

3. Increased Job Satisfaction: Internal mobility can lead to greater job satisfaction and fulfillment.

4. Enhanced Job Security: Employees who are able to move within an organization may feel more secure in their jobs.

5. Networking Opportunities: Internal mobility can provide opportunities for employees to build relationships with colleagues across different departments.

Case Study: Credit Suisse

Credit Suisse offers a compelling example of the benefits of an internal talent strategy. HBR reported he bank's "Internals First" program prioritizes sourcing candidates from within the organization before looking externally. This approach has resulted in significant cost savings, estimated to be in the eight-figure range. By leveraging the existing talent pool and providing targeted training, Credit Suisse has been able to fill critical roles efficiently and cost-effectively.

4 Benefits of Growing Your Workforce Internally

1 | Retain Your Top Talent That Drive Business Success

The #1 reason employees leave their jobs is a lack of career growth in their current position. Combine this with the talent shortage and leaders are faced with an expensive recruitment challenge. Retaining top talent has become a top priority because replacing them is increasingly difficult.  

Promoting internal career growth across your organization can improve engagement and retainment. If employees feel they are being challenged and expanding their skill set, they are more likely to stay with your organization. Having experts in your arsenal not only improves the speed and reliability of internal operations, but enhances your product or service offering, giving your company a distinct advantage that is hard to replicate.

2 | Strengthen Your Workforce With Less Risk  

Every new hire comes with an inherent risk that can be costly. CareerBuilder research found that the average cost of hiring the wrong employee is $17,000. However, depending on the role and the company, the US Department of Labor research in 2021 found that this figure can go as high as $240,000. The costs associated with recruitment, training, and onboarding are wasted when an employee is unable to perform their duties or leaves shortly after being hired, often costing a company between 30% to 150% of the employee’s annual salary, with the risk of additional costs relating to severance packages, legal obligations, and potential litigation if the termination process is not handled properly.  

If you rely on hiring to fill your skills gap, then you take on an inherent risk that could be hurting your bottom-line.

You already know what to expect with your existing employees. You’ve confirmed they have the intangible factors like key soft skills and cultural fit. By focusing your resources on internal development, you don’t have to start from scratch every time you need a new skill. This means  business managers can strengthen their workforce at no additional risk.

3 | Avoid Learning Curves That Cause Performance Lags

By training internally, you can avoid on-boarding lags that slow down production. In the modern world, everything moves at the speed of light. Your systems, people, and tools need to operate as efficiently as possible which means reducing the learning curve of new employees.  

While new hires may have the right industry skills, they still need to learn skills unique to your organization. For instance, a new developer will need time to learn how your unique DevOps systems and tools operate. A steep learning curve can lead to declines in your team’s overall performance as the new developer catches up to speed.

By retraining existing employees, you can develop new skills while still maintaining your team’s high performance. Managers can plan ahead by evaluating their current workforce’s skills and capabilities then creating a plan that does not disrupt current operations but gives employees the training they need for your business to continue its success.

4 |  Future-Proof Your Organization By Preparing Your Existing Workforce

Digital transformation is inevitable. New technologies are spreading faster than our workforce can learn the skills to implement them. Businesses that are prepared to adopt digital will emerge as the leaders, while others will experience painful skill gaps.

Related Post: The Surprising Reason Why Your Digital Transformation Could Fail

Given the shortage of digital skills, hiring is not a viable answer. Business leaders need to prepare their existing employees by retraining them in the required technical skills. By identifying the strengths and weaknesses of your workforce, you can develop tailored programs that address these skills and begin preparing your workforce for change.   

Your people are your most valuable asset. You should maximize their capabilities just as you would any other resource. With a shortage of talent, relying on hiring is no longer a sustainable way to grow your workforce. Business leaders need to look inward at their current skills and identify opportunities for growth. Investing in your workforce today can prepare your business for success in the future.

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