According to the latest quarterly SME Trends Survey by the CBI, output and new orders growth among the UK’s small and medium-sized (SME) manufacturers picked up considerably in the three months to July 2018. At the same time, pricing pressures are causing UK manufacturers to cut less tangible costs such as innovation and training. At a time when skills shortages are still a major concern, this is a risky strategy, and begs the question of how manufacturing businesses should approach recruitment, and which strategy they should employ in order to develop an ongoing talent pipeline. Should they look to bring talent in from outside the business, or are the skills they need already inside the business, meaning training and development must remain a key focus. In this blog we’ll look at the pros and cons of internal and external recruitment for businesses in the manufacturing sector, and help you decide on the best approach.

Alpesh Paleja, CBI Principal Economist, said:

“SME manufacturers will be feeling buoyant after a period of strong growth in orders and production. But cost pressures remain stubbornly high, and the clouds of uncertainty are still looming large, as seen in the deterioration in firms’ plans for investment in “intangible” areas. The retrenchment of training budgets is worrying at a time when skills and labour shortages are really biting hard, and highlights the need for urgent reform of the Apprenticeship Levy, so that it truly delivers for people and businesses.”

With businesses wasting as much as between £100,000 and £199,000 on bad hiring decisions, a proven recruitment method is key to success as resources become scarce. Making the right hiring decision can make the difference between boom and bust. Take the case of General Motors, who following its airbag scandal, replaced the CEO with an internal candidate—from HR, no less—Mary Barra. She was named CEO and has turned the company around and brought it back to respectability. Research carried out in the US, has highlighted the following findings on internal Vs external recruitment.

External hires:

• Make more money than internal promotions.
• Are 61% more likely to be fired.
• Tend to have more education and overall experience than internal promotions.
• Need more time to get onboard and ramp up (which slows team productivity).
• Tend to raise the pay for the internal team.
• Provide a greater pool of candidates to choose from.

Internal promotions:

• Boost morale and engagement (employee happiness).
• Keep corporate knowledge in-house.
• Cost much less than external hiring.
• Increase company retention.
• Reduce the need for training.
• Help to maintain the existing corporate culture.

Despite some very persuasive arguments for internal recruitment, most companies still prefer to go outside their organisation, and there may be instances where this is the right decision. A great example would be a business looking to fill a Sales Management vacancy. In our blog why promoting your top sales performers could be a bad move, we talk about why the traits that make a successful individual contributor aren’t necessarily the traits that make a great sales leader, and by promoting top performers, companies could in fact be cannibalising their own sales. There could be better ways to reward and keep your top performers engaged rather than taking them out of the role they are excelling at. This could be a very good case for recruiting externally rather than promoting from within.

External recruitment - the pros

• Sometimes a company needs a change in leadership and direction
• Provides a much needed influx of new ideas and experience
• Encourages internal competition, improving performance of existing employees
• Encourages diversity and inclusion which is proven to increase performance
• Avoids internal politics when an internal candidate known to other employees is promoted above them
• Quickly fulfils an immediate hiring need
• Exposes the company to a new applicant pool and improves the talent pipeline
• Leads to corporate growth
• Delivers a more objective view on tough decisions
• Provides the ability to target skills that are missing from the business
• Avoids creating a vacancy elsewhere in the business
• If you headhunt an individual from a competitor, they will bring new insights and solutions to problems

What’s clear is no matter which strategy you employ, getting the hiring decision right is what’s important. For manufacturing businesses, having a clear talent pipeline and plan for succession of senior roles, where leadership is often reaching retirement age, is key. Download our FREE staffing forecast template to help you get a handle on future staffing needs.

This means a recruitment strategy which incorporates both internal and external recruitment. By taking a combined approach, you should be able to achieve a workforce that welcomes new ideas and the injection of fresh perspective, but at the same time, keep your employees engaged with a clear career development path and through rewarding great performance. You will also be able to better balance and justify recruitment costs with the risks of getting a hiring decision wrong.

If we can help you with any current or future hiring needs, get in touch.