India Inc bets on internal hires but recruiters warn of risks

India Inc is pushing to fill vacancies through internal promotions and cross-team hires, instead of looking for external candidates, in its bid to reduce cost and bolster talent retention.

Some companies say that as many as seven in 10 vacancies are now getting filled internally.

"Internal hires are the preferred way, unless one needs a skillset that is unavailable within the group. Over the last three years , the number of positions closed internally has gone up from 45% to 70%," said S. Venkatesh, group president of human resources (HR) at RPG Group. He pointed out that onboarding external candidates can get difficult as last-minute dropouts are not uncommon.

Talent retention is a key concern for companies. The loss of key talent has prompted firms to promote in-house candidates, offering them career mobility with an aim to securing their loyalty. This move seems to be sector-agnostic, as recruiters are seeing a decline in number of mandates coming in even for empty posts.

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‘To get an external candidate, a firm will need to pay 4-6 times his/her current monthly salary’

"There is a preference towards internal job mobility and 15-20% more jobs are getting filled via this route in engineering, construction and infrastructure sector," said Aditya Narayan Mishra, chief executive of Ciel HR Services. He said that a back-of-the-envelope calculation shows that in order to get an external candidate, a company would need to pay 4-6 times his/her current monthly salary. "Besides the recruitment fees, there are induction costs, and the candidate takes time to adjust to the new company culture, which requires time and investment," he added.

Staffing firms, however, caution against this inward-looking strategy, warning that not casting the recruitment net wider could result in hiring a wrong candidate, which can potentially prove more expensive for the firm.

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"Companies have become more prudent in rolling out hiring mandates. However, they run the risk of getting only more executives of the same kind and end up paying more. The number of wrong internal hires could far outweigh the expenses incurred in recruiting external talent," said Agamjeet Dang, chief executive officer at search firm Executive Access India.

The IT sector, which has seen a high attrition over the last couple of years, is now focusing on internal hires as a talent-retention measure. "TCS continued its focus on leveraging internal talent through upskilling and cross-skilling for growth opportunities. In FY 2024, 33% of job requirements were fulfilled through grooming its internal talent," said Tata Consultancy Services (TCS) in its annual report for 2023-2024.

In its annual report for 2022-23, the company had said that "giving first right of refusal to internal talent for new open positions, inspires higher levels of loyalty to the organization. This has resulted in a very strong, deeply acculturated mid-layer with long tenures in the company."

Some firms maintain that except for campus recruitment and niche skills not available in-house, they will consider internal hires only. "We hire expats for niche skills only in smelting, mining and petroleum. 80% of our hires have been internal as a company policy," said Praveen Purohit, deputy chief human resources officer, Vedanta Group.

However, such a policy could prove counterproductive if the internal candidate falls short of expectations.

“The internal promotions can go awry when the person elevated for retention may turn out to be incapable of handling the larger role. Many US firms are now looking at both internal route and starting a search for external candidates for the same senior post. This is to ensure transparency, get the best fit and maintain the competitiveness within the firm,” said Suresh Raina, partner at search firm Heidrick & Struggles India.