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;

Reputation

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.

Diversity

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?