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Employee Referrals: Leveraging the talent network for better hiring

Southeast Asia has a booming tech industry. As the region experiences the rapid adoption of digital technologies, tech talent remains a critical blocker in today’s Internet economy. Read this article by Paul Endacott, CEO and founder of GRIT, as he talks about the tech talent crunch and explores best practices for new-age employee recruitment.

As the Southeast Asian countries experience the rapid adoption of digital technologies, tech talent remains a critical blacker in todays Internet economy.

As a billion-dollar industry, you’d think that the hiring market in APAC has it made. In reality, however, the recruitment scene is plagued with challenges like the tech labour crunch and inefficient practices. A decade ago, 56% of global CEOs have stated concern about the availability of skills, as compared to 79% now. The COVID-19 pandemic brought about an unprecedented acceleration of digitalisation and technological advancements at breakneck speed. Additionally, companies were forced to adapt to new definitions of work, which included the Work-from-Home (WFH) model and changing employee perspectives.

The intensifying tech talent crunch in SEA

According to the e-Conomy SEA report by Google, Temasek and Bain, Southeast Asia has a booming tech industry, with 70% of the region accelerating towards a digital world, acquiring 40 million new Internet users last year. As the region experiences the rapid adoption of digital technologies, tech talent remains a critical blocker in today’s Internet economy.

Unfortunately, the caveat to overcrowding up to 7 years’ worth of tech adoption into a single year means that companies are now experiencing a major shortage when it comes to labour. In Southeast Asia, 68% of hiring managers take typically three months to fill an open tech position. Given its impact on product development and business innovation, this time and resource wastage is something that employers cannot afford to ignore any further.

Why old recruitment practices don’t work anymore?

The long-standing history of the traditional recruitment model has largely remained unchanged. Companies put out jobs, interviewed applicants, and hired the best candidates. Over time, with the advent of new technologies, employers were able to digitise part of the process by using applicant databases and tracking systems.

However, digital transformation isn’t just about tech. Instead, the pursuit of transformation focuses on three key components: people, processes and technology. Without the right talent and the processes to support them, companies are unable to maximise the output of new innovations. However, traditional hiring practices are inadequate when it comes to attracting and retaining qualified digital talent to bridge this gap.

For one thing, the scarcity of tech talents across all industries means that it is becoming increasingly difficult for employers to acquire new hires equipped with the technical expertise needed to drive successful digital transformation. The mission of acquiring quality talent is bound to continue post-pandemic, as new tech roles are added as well as other roles scaling up to take on more digital job scopes.

Despite the dire need to hire more digitally-enabled professionals, some companies still haven’t cracked the code on efficient recruitment. Maybe it’s because the hiring process takes too long- up to three months or more- or quality candidates are frustrated by a seemingly never-ending number of hiring rounds. As the digital sector burgeons on, HR must do more to secure top-drawer professionals by adapting to new definitions of the future of work and refocus talent acquisition. Oversight on this aspect could lead to a double-edged sword, stunting business development and limiting opportunities for high-calibre professionals.

The case for employee referrals

It’s no secret that employees are a key driver in achieving and maintaining organisational success. To drive business growth, it is crucial for employers to attract and retain the best talent for the job. On the contrary, bad hires could lead to astronomical costs for the organisation, which is typically 3o% of the ill-fitting hire’s first-year salary. Whether bad hires voluntarily quit or are fired due to poor performance, the consequences can be a loss of company investment, in terms of time, energy and money, and a negative impact on employee morale.

While the infusion of digital recruitment tools provides new opportunities through automation, AI and machine learning, employers are still overlooking the untapped potential in one critical aspect: its people.

As the saying goes, “good people know good people”. Companies have long relied on agencies and recruiters for a vast network of available talent. However, leveraging on the talent network taps into a whole new candidate pool, up to ten times bigger, of highly-skilled professionals. 82% of employees rate employee referrals as the best source for generating a return on investment (ROI), while 88% of employers stated that referrals are their top source for hiring qualified candidates.

These numbers make sense since new prospects are usually vouched for and guaranteed a level of expertise by their peers who refer them. Employee referrals also often have a quicker turnaround time and are hired 55% faster than through job boards.

The result of leveraging an employee’s connections is that companies can experience higher employee retention and reduced cost. 47% of candidates hired through referral programmes stay in the company for over three years. In comparison, the retention rate for prospects sourced through career platform is a mere 14%. In term of recruitment costs, we’re not just looking at financial benefits to a business. Recruitment generally takes on associated costs like the time it takes to evaluate a candidate, conduct background checks and interviews, all of which is reduced when it comes to a referred prospect.

In practice: Employee referral programs

An efficient employee referral program requires a lot of careful planning and strategic thought. Besides laying out the structure of the employee referral program, employers play a key role in driving employee engagement and motivation behind building a resourceful talent pipeline.

To optimise employee referral initiatives, the best way to do this is through rewards, such as cash bonuses for successful hires. By incentivising referrals, employers are essentially encouraging existing team members to actively participate in talent acquisition. When individuals are able to work with acquaintances or friends, they are more likely to achieve employee satisfaction and productivity.

As with any business venture, an employee referral program comes along with its potential risks. One of the challenges that organisations may face is an imbalance in the company’s diversity. In a world where globalisation and remote work are increasing phenomena, workplaces are establishing more effort into diversity and inclusion. That being said, employees tend to recommend prospects who share similar characteristics, which could be race, religion, gender, national origin or any other protected class. This threat is especially prevalent today, where workplace diversity is critical to business survival.

Now more than ever, diversity matters. Studies have shown that ethnically diverse organisations are 35% more likely to outperform their counterparts, similarly with gender-diverse workplaces (15%). Employers and HR departments can work together to structure recruitment efforts to align with organisational goals.

Beyond the mindset of ‘token diversity hires’, it can be worth taking a step back to assess and scrutinise potential prejudice that lies in not just employee referral programs, but across the board for all talent acquisition activities. A diverse workforce brings in different perspectives and idea flows to improve business performance. To achieve this, there should be measures to boost the referrals of prospects that are equally as qualified, yet still underrepresented, as the privileged class.

Quality employees drive great companies. If anything, the impact of the pandemic serves as a wake-up call for employers to brace themselves for the future of work, embrace modern solutions and rewire the way they get things done.