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Employee referrals are a cheap way to uncover hidden talent

Written by Carly Chynoweth on Wednesday, 01 April 2015. Posted in Talent, People

Hiring through referral is a highly effective way of finding top-notch talent – but beware of hiring an army of clones

Employee referrals are a cheap way to uncover hidden talent

If you trust someone, chances are you can trust the people they trust, too. That’s why going on a date with a friend of a friend is marginally less terrifying than picking at random from a website.

It’s also one of the reasons why employers looking for new recruits turn to their existing members of staff – or even their own personal networks – rather than posting an advertisement or paying a recruitment agency to find someone for them. Other reasons? It’s generally cheaper, faster and more likely to end up with the person who is hired sticking around longer, according to the Global Employee Referral Index published last year.

Liz Radcliffe, the head of recruitment at Avecto, is such a firm believer in the power of staff referrals that she’s trying to double the proportion of new recruits that the security software business hires that way. “We have seen our headcount grow by 50% to 60% every year for the last three years,” says Radcliffe, the 110-person company’s recruitment manager. “Initially about 10% of hires came from referrals but this year we want to increase that to 20%.”

That is because staff referrals are an effective way of finding high-calibre recruits, she says. “We rely on very talented individuals and the best way to find more is referrals because talented people know other talented people.”

It can also be significantly cheaper than traditional hiring methods. MarketMakers’ Henry Braithwaite has calculated that hiring someone through a staff referral is more than £1,000 cheaper than using an agency, on average – and that they are more likely to stick with the job. Turnover for agency staff is 20%, but it is just 11% for those recruited by referral, which improves long-term cost savings.

Finding new employees through those who are already on board is an approach particularly suited to start-ups, he says. “Businesses that are entrepreneur-owned and -managed have a very different culture to other types of organisations. They tend to be fast-paced and, as an entrepreneur, you need people who are ambitious and can start contributing from day one. Having a referral from an existing member of staff is valuable, as they will know the vision and culture of the organisation inside-out and only make a referral if they believe that person will be aligned to it.”

Sandi Mann, a senior lecturer in occupational psychology at the University of Central Lancashire, agrees that hiring through staff referrals is likely to be good for cultural fit. Such candidates also come with an extra layer of trustability, as your existing employees are unlikely to recommend people unless they think they are up to the job, partly because they will have to pick up the slack if the new hire doesn’t pull his or her weight, but also because backing someone who underperforms reflects badly on their own judgment, she says. 

“But referrals have their downsides, too,” she explains. “It means that you keep the status quo.” That’s because people are likely to suggest others who are similar to them, which can in turn lead to a business full of people who think and act in much the same way. “If you are a young white male you will probably recommend other young white males rather than someone from outside that group who could bring in new ideas, new creativity and new ways of thinking,” says Mann.

“This [homogeneity] can be good when you’re starting out because at that point you need people around you that you trust, which outweighs the disadvantages. But as you get bigger diversity will become more important. As you expand you will need new blood and new ideas, which will probably mean you need to start looking a bit more widely.”

And the approach can bring other risks that aren’t present with more traditional hiring practices, as Leona Barr-Jones realised when a friend asked her to give her daughter, Sarah, a job at Barr-Jones Associates, her £250,000-turnover consultancy. “This was a tricky decision as it could have been very awkward if it had not worked out,” says Barr-Jones. “The family was well known in the village... and we saw her mum daily.”

Barr-Jones decided the best thing was for her to step back so that one of her senior employees could take Sarah through the firm’s recruitment process. “I did not get involved in the interview,” she says. “After a successful interview, we offered her a short interim post with no promise of a job at the end. Once we did offer a job, we used a probation period, as we do for all our staff.” 

Things have worked out well – “she is now vital to our business success” – but Barr-Jones warns other entrepreneurs not to make any promises to referred candidates that you would not make to others and always to use the same formal interview and assessment stages. Radcliffe agrees. Part of this is simple fairness; it’s also about checking whether people really are right for the job. “It’s not just about us interviewing them,” she adds. “It’s also a chance for them to get to know us and ask us questions.” 

About the Author

Carly Chynoweth

Carly Chynoweth

Given her position as an expert small- business hack writing for The Guardian and The Sunday Times, we’ve been very lucky to net Chynoweth to pen some copy for our humble pages. Chynoweth has a bit of an online-shopping habit so she’s doubtless been using Postcode Anywhere’s services for years before interviewing the company’s founders for this issue’s One to watch. When she’s not signing for deliveries or writing about business and management, she wanders around the southwest with a camera wishing that the local wildlife would sit still for just a bit longer.

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