Build a Vibrant Internal Labor Market and Increase Your Talent Pool

To ease the talent crunch, reduce employee attrition and increase intent to stay, HR should make it easier and more attractive for employees to move jobs internally.

Increased competition in the external labor markets means organizations are facing an increasingly tough time attracting new candidates and retaining their best talent. This is compounded by today’s historically low unemployment rates, which have put pressure on traditional talent management strategies. For HR and talent management leaders, the bottom line is that it’s taking longer and costing more to hire critical talent.

The competition for talent is fiercer than ever — especially for sought-after skills, Dion Love, Gartner VP, Advisory, said at Gartner ReimagineHR 2018 in Orlando, FL. According to Gartner TalentNeuron, 47% of S&P 100 job postings in 2017 were for the same 37 roles, and 90% of S&P 100 companies recruited for those same roles. Heads of talent management may intuitively know that recruiting from within the company could alleviate some of this pressure, but few yet leverage the internal talent pool effectively to fill critical skill needs.

 

Companies often underweight the value of engagement capital they have built in their existing workforce

“Over the past 5 years, Gartner’s benchmark data shows that internal hire rates — as a percentage of total hires — have trended downward from 41% in 2015 to 28% in 2017,” says Thomas Handcock, Gartner Vice President, HR practice. “This is despite organizations trying to empower their employees to take advantage of internal mobility opportunities.”

Gartner analysis shows employee turnover due to lack of future career opportunities costs an average-sized organization $49 million per year. This conservative calculation looks at the cost of hiring a replacement employee and the lost productivity that the organization experiences. It doesn’t factor in equally impactful but harder to cost factors, such as loss of organizational knowledge and the impact on the performance and engagement of other employees.

Read more: High-Potential Employees Want Chances to Grow and Learn

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Why current efforts aren’t working

There are three fundamental barriers preventing companies from creating effective internal labor markets:

  • Visibility. Employees have a difficult time understanding what opportunities are available to them in their own organization. Only 27% of employees believe that their organization makes it easy for them to find job opportunities that match their interests.
  • Cultural norms. Gartner research finds that only 37% of managers encourage their direct reports to seek internal opportunities and a mere 21% of employees believe that it is easy to change positions at their current employer. Simply put, the cultural norms that exist in most organizations today fail to support the idea of employees moving around the organization.
  • Skills. When employees do find internal opportunities that match their interests, many lack the skills required to fill those jobs. Just 6% of heads of learning and development, and over one-third of managers, believe the employees in their organizations have the skills needed for future roles.

Read more: Motivate Employees to Reskill for the Digital Age

Increase your talent pool

“Creating an internal labor market requires organizations to develop processes, norms and infrastructure that facilitate the mobility of employees from their current roles to other existing or newly created roles within the organization,” said Love.

Internal hires perform better than those hired from outside the organization across a whole range of measures

To achieve this, talent management leaders are focusing on three key initiatives:

  1. Push the right jobs to employees. Leading organizations are using the same technology and tools they use externally with their own employees. These companies treat their employees like outside candidates and proactively push a tailored set of jobs that are most in line with their experience and interests.
  2. Ease the path to participation. Organizations are experimenting with different methods to remove the barriers to participation in their internal labor market. One global commerce company set explicit and measurable internal mobility performance goals to incentivize employees at all levels to consider internal mobility as job opportunities come open.
  3. Broker employee development. Despite being full of excellent resources, employees today are overwhelmed by self-service learning platforms. Recognizing this, leading companies are providing more directed learning and development opportunities. A large energy company developed an interactive and easy-to-use career-planning tool, which gives structured guidance on identifying the right internal career options for them and on how to achieve them. The tool provides employees a tangible view of the skills — and proficiency levels for each — that a given role requires and helps employees to gauge their current proficiency level in each skill.

Benefits of an internal talent market are many

Employee willingness to go above and beyond at work is 27% higher and employee intent to stay is 33% higher at organizations with a more vibrant internal labor market.

Managers also report internal hires perform better than those hired from outside across a whole range of measures, including attendance, collaboration and meeting expectations — factors that all contribute to fewer hires regretting their decision to take the job.

Companies often underweight the value of engagement capital they have built in their existing workforce

“The best organizations understand that it is insufficient to simply empower employees, you need to actively ‘engineer the market’,” said Handcock.

“Companies often underweight the value of engagement capital they have built in their existing workforce, and the organizational knowledge those people possess. Ensuring you are tapping into this underleveraged talent pool, while still bringing in people from outside with diverse backgrounds and experiences, is a winning formula.”

Read more about internal talent market technology in the Gartner Hype Cycle for Human Capital Management, 2018

Gartner for HR Leaders clients can watch a webinar on the related topic of The New Path Forward: Creating Compelling Careers for Employees and Organizations.