Article: “Good people know good people” - The case for employee referrals

Employee Relations

“Good people know good people” - The case for employee referrals

Tech companies in the region are experiencing major delays in product development while also struggling to cope with the severe economical impacts of COVID-19.
“Good people know good people” - The case for employee referrals

The APAC hiring market is a $10 billion USD industry. Yet, when it comes to recruiting tech talent in Southeast Asia, 68% of tech hiring managers take up to three or more months to fill open positions in their workforce. Therefore, it is unsurprising that the report also shows that recruitment managers rate the difficulty of hiring talents in tech as 7 out of 10, with 10 being the most difficult. 

As a result, tech companies in the region are experiencing major delays in product development while also struggling to cope with the severe economical impacts of COVID-19.

Rapid digitalisation in SEA drives demand for tech talent

Unfortunately, this issue comes at a dire time as 70% of Southeast Asia adapts to the digital space at a “breakneck speed.” Of the 622 million people living in the ASEAN countries, 400 million actively use the Internet. In 2020, there were 40 million new users. Thus, the demand for elite tech talent to spearhead this digitalisation push has intensified even more. The need for technical expertise is higher than it has ever been. 

The tech talent crunch in Southeast Asia

On the contrary, the development of tech skills hasn’t kept up, causing a scarcity of tech talents in the industry. It is becoming increasingly challenging for businesses to ensure they have the technical expertise needed to drive successful digital transformation. 

Companies must do more to safeguard top-drawer personnel and execute roles and operations efficiently as the digital sector burgeons on, despite the apparent skills shortage in Southeast Asia. Refocusing on talent acquisition is crucial to attracting qualified candidates; otherwise, it could hinder or even endanger ongoing development. 

Leveraging connections to solve the tech talent shortage

A key component in achieving and maintaining organisational success has always been through recruiting the best individuals for the job. Nevertheless, recruitment efforts are only marginally successful as they often result in ill-fitting recruits who voluntarily quit or are subsequently fired due to poor performance.

While the emergence of new technologies provides opportunities through an abundance of digital recruitment tools, recruiters often overlook a significant component; people and their connections.

Good people know good people 

Current evidence establishes that the quality of a referral is often similar to the quality of the referrer. This is one of a myriad of reasons for encouraging employee referrals.

The numbers speak for themselves as 82% of employees say employee referrals generate the best return on investment (ROI), whereas 88% of employers cite referrals as the best source for hiring above-average employees. LinkedIn’s research also showed that companies can expand their talent pool up to ten times by utilising employees’ networks. 

Moreover, leveraging the social network of existing talent could pay off sooner than you think. Referred candidates are hired 55% faster than those acquired through career platforms.

In terms of employee satisfaction, there is a positive pattern in turnover rates. Almost half of the prospects hired through referral programs (47%) stay longer than three years, compared to a mere 14% of those sourced through job boards. This recurring trend has been observed in a variety of market settings, including the United States, Germany, and online labour markets. 

Referrals could also financially benefit businesses as they reduce costs associated with sourcing new prospects. While recruitment costs vary by industry and position, they can add up over time through advertising, job fair expenses, third-party services or recruiter fees. When depending on referrals, companies can also spend less time evaluating resumes and conducting interviews. Therefore, various studies show that the overall cost of recruiting through employee referrals may be significantly lower than the cost of recruiting a non-referred candidate. 

Incentives as a method to encourage employee referrals

Establishing a well-structured employee referral program can go a long way towards implementing a dynamic talent pipeline. An incredible 87% of recruiters believe improving employee engagement is the most effective strategy to boost recommendations. 

In order to motivate participation, employee referral bonus incentives are a common approach utilised by renowned tech giants such as Google, Facebook and Dell to minimise recruitment expenses while facilitating better job matches. 

The easiest way to do this is to provide both full-time and part-time staff with clear incentives while keeping track of where the best referrals originate. Companies can grow their workforce faster and more effectively by encouraging existing team members to participate in the recruitment process and rewarding them for their efforts. 

Additionally, leveraging existing social networks to assemble a team can help employees feel more fulfilled in their positions. Employees generally feel happier and more engaged when they work alongside acquaintances.

Potential threats to workforce diversity

Nevertheless, despite these optimistic angles, hiring through referrals may jeopardise diversity and inclusion efforts by unintentionally introducing an imbalance in the company's diverse makeup—an imbalance that could worsen over time. 

Employees who refer candidates of the same race, religion, gender, national origin, or any other protected class may have an unintentional disparate influence on the already significant issue of workplace diversity. As studies show, employees are more likely to refer prospects who share similar demographics with them. 

Employers are encouraged to review and analyse the impact of their employee referral programs on the talent pool, final candidates, yearly hires, and, subsequently, the workforce population to reduce this risk. 

Measures to enhance diversity through referral programs

Diversity in the workplace is critical for a variety of reasons. According to a McKinsey study, ethnically diverse organisations are 35% more likely to outperform their peers, while gender-diverse organisations are 15% more likely to do so. Another piece of research by Deloitte found that inclusive teams performed 80% better in team-based assessments when compared to their peers. 

Therefore, a company's referral program should be regularly scrutinised and assessed for potential prejudice to guarantee that diverse applicants receive due consideration. Recruiters should take measures to especially encourage referrals of women and under-represented minorities to include more diversity in the workplace.

Accenture, whose best hiring source comes from employee referrals, led the way in early 2016 when the firm declared that it would implement enhanced referral incentives for successful recommendations of potential employees from Black, Hispanic, female, and veteran demographics. 

Quality prospects are a significant component of the employee staffing enigma. There are many approaches to finding the perfect person to fill open positions, and focusing from within the organisation is a valuable strategy to maximise hiring efforts. 

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Topics: Employee Relations, #HRTech, #GuestArticle

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