External Referral Programs Beat Employee Referral Programs

Over time, external referral programs (XRP) will outperform employee referral programs (ERP). And that’s simply because XRPs have two distinct advantages:

  1. reputation
  2. diversity

Let’s examine these two reasons;


Intuitively, having a formal employee referral program (ERP) seems to makes sense. After all, who is more equipped to refer great people—and sell those people on why they should work in an organization—than passionate members of an organization? However, employees, by definition, are not able to operate as a ‘third-party facilitator’. They can’t be objective enough. This creates a “trade-off” dilemma in the mind of the employee that causes him to consider the risk and rewards of referring “wrongly” that is harder to overcome versus an external referrer.

That’s right. A motivated and confident external referrer will use the trust and credibility they have built with employers and workers to convince them to make a commitment. Even if it appears on paper that there isn’t a best-fit. An external referrer program (XRP) leverages a feedback system that makes referring reputation transparent. Prodding for a commitment and being motivated to strengthen reputation are advantages that external referrers have over employee referrers.


External referrers have a higher chance of interacting with others at the relevant edges of recruiting. They are able to reach out and connect into the rich referral flows which provides them with an information arbitrage of sorts that they can use to connect opportunity with ability that might not be obvious to employee referrers. This advantage puts the company in the best position to grow with diverse talent and be more adaptive as a result.

Don’t get me wrong. An ERP for the most part is a good idea. This post is not about beating up on them. And it is true that the vast majority of external referrers do none of the things that it takes to place ability at best-fit. But transparency weeds them out. The good ones rise to the top and bring their domain experience, tacit knowledge, and motivations to bear on processes to gain commitments at best-fit.

Ultimately utilizing an XRP will get a company closer to best-fit candidates by separating themselves from the herd. Where ERPs are structured around organizational “strong” ties via employees, XRPs open up opportunities to support encounters with “weak” ties via referrers outside of the organization and discover talent outside the reach of an ERP. This increases the likelihood of attracting talent with access to new insights, experiences, and capabilities. Over time, many of these edge connections become part of a core network, in the process transforming that core in deep yet unexpected ways to adapt in fast-changing business environments.

Has anyone heard of an external referrer program (XRP) or something similar before reading this?

The Amateur Sports Family Advisor

At Placement Loop, we are intrigued by the growing demand in other amateur sports for trusted advisors. In ice hockey, they are commonly referred to as “family advisors” and they build relationships with coaches and players to help them get what they want. The type of advisor/customer relationship we support requires an understanding of customer intent, but in context that is relevant to surrounding conditions, limitations, and values. As we see it, trusted advisors don’t rely strictly on customer intents, rather, they proactively suggest actions that hadn’t occurred to their customers,  producing a more valuable result for them.

Coaches and players only have 24 hours in the day and one of their growing needs is to increase their ROI—return on investment. If coaches and players had a trusted advisor who knew their objectives and could help them sift through options available to them, they would get far more value per unit of investment (e.g. time, travel, and other expenses). With the advent of big data, sophisticated analytics, social software, and cloud computing (just to name a few of the enabling technologies) the “trusted advisor” value proposition is expanding into all levels of amateur sports to help place ability at best-fit.

In the future, the real winners in amateur sports will be those who are working with family advisors whose focus is on improving the player pursuit, not the outcome. The outcome is sufficiently unpredictable and therefore can not be foreseen accurately enough to make the outcome the focus. However, trusted advisors traveling down the path of helping others improve their pursuits, are truly going to earn trust and the deep collaboration that is necessary to help customers eventually end up with successful outcomes.

So, how is trust and collaboration built and preserved over time?

Trust comes in part from the realization that some advisors know coaches and players as an individual very broadly and deeply, not just as an acquaintance with an intent. That is the easy part, given the new technologies that are increasingly powerful and cost effective in capturing, compiling, and analyzing large amounts of data related to what coaches and players are looking for.

The real challenge is creating a collaboration experience that assures information and data is being used to serve the player’s best interest. The good news is that new technology is significantly reducing the cost of delivering advice-in-context and curating it. The result is that services are likely to be satisfaction-based and increasingly affordable to a growing segment of amateur sports participants that is below the line of “elite”. And that is good for all!

Do you have any experiences with athletic family advisors to share?