It's ironic but true: Even as the U.S. economy continues to struggle with historically high unemployment rates above 6%, many organizations can't find skilled workers to fill key jobs. In fact, recruiting is one of the toughest -- and costliest -- challenges for human resource managers today.
"One Fortune 20 client of ours spends $100 million a year on recruiting," said Mike Cooke, CEO of the Brandon Hall Group, a human capital management research and advisory firm based in Delray Beach, Fla.
However, savvy HR managers are stacking the hiring odds in their favor by tapping the extended personal and professional networks of their existing employees through employee referral programs. "This is one of the most effective sources of qualified talent," said Kyle Lagunas, talent acquisition analyst with Brandon Hall. Research by his firm found that 51% of organizations consider collecting employee referrals a highly effective talent acquisition strategy.
Seeking employee referrals isn't new -- HR managers have long asked and sometimes compensated staff members for telling peers and acquaintances about job openings. What is changing, according to experts, is the larger role technology is playing to facilitate referrals.
New employee referral program management tools range from standalone applications to modules in larger suites of talent management or ERP software. Their primary goal: Automate traditionally manual referral processes that drain HR resources.
"Technology can take a lot of administrative work out of the referral process so people don't have to manage the minutia," said Lagunas.
One benefit of using employees to find new talent is that hiring rates for referrals are typically higher than for other sources of candidates, said Jim McCoy, vice president and practice leader for recruitment process outsourcing at the ManpowerGroup Solutions, a recruiting company headquartered in Milwaukee, Wis. He said one of his clients typically hires one worker for every two referrals interviews, while it could take three candidates culled from outside sources to find a suitable hire.
And besides the time savings, employee referral program efficiency is especially important for finding highly skilled candidates. "There's an old adage that if you hire one nurse you can get four because they tend to be extremely well-networked and can identify other candidates on the move," McCoy said.
Another plus: Referrals who eventually join a company might feel greater pressure to perform well. "The attitude is, 'I don't want to let my friend down, so I want to demonstrate that I was a good hire,'" McCoy said.
Finally, employees tend to refer people who are compatible with an organization's culture, said Tarek Pertew, chief creative officer at Wakefield Media in New York City. The growing media company now totals 12 staff members, and employee referrals netted two full time employees and all of its interns.
"At a small company with a strong sense of culture, employees know whether a friend would be a killer fit for the company and whether the company would be good for them," Pertew said.
Common hurdles to employee referral program success
But fully realizing the pay-off of an employee referral program can be challenging.
"Many people don't understand the strength of their networks," Pertew said. "The challenge is unlocking the potential of these networks."
To encourage employees to contribute referrals, companies have sometimes sweetened the pot by awarding bonuses to employees when a referral becomes a new hire. But monetary perks don't necessarily entice everyone. "Many people don't want to monetize their network," Pertew said.
However, experts say technology can address these and other stumbling blocks. For example, some employee referral systems use gamification strategies to award points to people when they make valuable referrals. Point totals then appear on an electronic leaderboard to foster friendly competition among staff members. "This engages people with the referral program and gives employees an incentive to think carefully about who they're referring," Lagunas said.
Some tools also spread the word about posting job listings on the social networks of willing employees. "You're not responsible for posting a notice of an open position on your Facebook wall or on Twitter," Lagunas explained. "Instead, these platforms will do that automatically. The heavy lifting for employers is getting people to opt into the system, but then everything after that is automated."
Four key criteria for referral management tools
But, today, automated employee referral processes are rare. "Our research shows that the vast majority of companies use a mixture of email and spreadsheet programs," Lagunas said.
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HR managers that opt for more sophisticated referral tracking systems should consider four criteria, consultants said.
1. Integration. Choose software that will work with existing HR and ERP technology. "Make sure all the pieces fit," Lagunas said. "If you find a referral program that you really like but it doesn't integrate easily with your 10-year-old ERP system, you may have to settle for your second or third choice."
2. Privacy. Referral automation systems should provide tight limits on the information they can publish and how often updates appear on employee social networks. These platforms shouldn't gain full access to employee contacts, for example, or enable employers to post other types of content, Lagunas said.
3. Automation. The best referral systems automatically track the source of referrals using unique URLs and then alert the payroll system if a bonus is warranted for an employee, consultants said.
4. Analytics. Automation technology should include sophisticated reporting and analytics tools. "Tracking the success of an employee referral program is paramount to figuring out the ROI of that system," Cooke said.
However, technology isn't a silver bullet, experts warned. Too much automation and too little personal involvement could spell trouble.
"Referrals can be a source of pride for employees," McCoy said. "If an organization doesn't do a good job following up on an initial referral, employees can feel like they've gone out on a limb."
With this in mind, it's important to provide regular status updates to show employees that referrals have been acted upon and treated as a valuable resource. "This helps ensure that employees stay engaged with the program," McCoy said.
About the author:
Alan Joch is a New Hampshire-based freelance writer who specializes in enterprise applications and cloud computing. Follow him on Twitter @alanallegro.