Is it better to hire externally or internally? Guide your team with these frameworks

When there is a discrepancy between certain talent supply mismatching with certain areas of demand for labor, companies face even greater pressure to attract and retain the good talent they already have. After all, hiring new workers is expensive. Leading industry researcher and analyst Josh Bersin estimated that companies spend 6X more to hire externally than skilling employees internally, and new hires can take up to two years to get fully up to speed. Hiring a new mid-career software engineer, for example, costs $30,000 or more, but upskilling an existing employee into the same role costs $20,000 or less.

There’s a clear return on investment (ROI) to upskilling, but resources are finite for even the biggest of companies. Making decisions about where to invest and allocate dollars for upskilling employees and talent development can be challenging. For some companies, looking inside their historic skill needs and hiring trends is one way to figure this out — but that’s like driving your car while looking through the rear-view mirror.

Rather, Guild believes employers can and should use labor data to help decide when they should upskill and train for certain roles to solve a shortage, and when they should leverage talent acquisition instead. In the graphic below, for example, you can see the mapping of where certain roles have the longest periods for “time to hire,” pointing to areas of focus for upskilling work.

For this reason, we created our own comprehensive frameworks that we call our Train vs. Hire model and our Future of Work model. Together, these models can help identify where the greatest opportunities lie for ROI in upskilling investments. In the graph below, you can see a mapping of what roles are most difficult to hire, and which are difficult to educate. This can help us quickly see how a role fits, at least directionally, as we decide on where to upskill.

Guild also has the benefit of employing economists and has access to tools like Emsi to carry out further analysis. As a result, we’ve been able to publish labor market trends by industry sector for retail, financial services, and information technology. This is especially relevant given that demands for new talent can often be seen within specific industries, as well as across industry verticals (as in, a role like “marketing manager” is in high demand across nearly all industries). This work has translated to more strategic education benefits for employer partners, targeting high-demand, low-supply skillsets.

While many companies are primarily focused on competition within their industry for the exact same talent, we often find that the greatest challenge is when demand for a particular role is high across several industry sectors, particularly in sectors that are also large employers in the same geographic region. In the graphic below, we demonstrate how roles, both within financial services and across a number of industries, have demands that may put greater pressure on hiring.

Accessing data from economists — that take into account everything from upcoming school graduates and attrition, to regional demand and existing employee retirement — is critical for understanding the risks many organizations will run into when it comes to upcoming talent and areas of focus for addressing those risks. By looking at info that is both comprehensive and granular, companies can navigate their talent demands through the front windshield, and advance forward from there.  

Written by Matthew Daniel

Principal, Employer Solutions

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