An article over at This is Money is touting the effectiveness of using employees as sources of referrals to fill job openings claiming:
Employee referral schemes, where members of staff recommend friends, family or former colleagues for jobs, have proved to be one of the most successful recruitment methods, second only to using consultancies.
Note that these "schemes" are SECOND to recruiting firms not first. The article goes on to say that companies who reward their employees for successful referrals do much better than those who don't (duh). It also says that small businesses are the worst offenders.
This is too bad because most small businesses can't afford executive search firms and would do well to tap into referral networks from their workforce. On the other hand a small business by definition doesn't have a huge number of employees to start with so the potential network of referrals is small.
I have seen referral programs up close and in action with some clients. Generally I haven't been impressed. They seem to work well in spurts but are hampered by many factors. The first factor is that companies rarely educate their employees properly as to what constitutes a good referral. Most employees will come to you with the resume of their best friend or their poor hard luck cousin who needs a job. They rarely will come to you and say "I hear you are looking for a sales person well the best sales rep at my previous company was..... "
That is because companies condition their employees to think of referrals as a "friends and family" thing rather than a business thing. If your company has a referral program or is thinking of implementing one make sure that the employees are aware that you are interested in tapping into their professional network not their personal network.
But don't expect miracles. Many articles like the one above tout the praises and glories of employee referrals but they don't tell you the bad stuff.
One of the biggest problems with employee referrals is timing and quantity. The referrals rarely seem to come when you have an opening. I remember one client I worked with where employees would come up to you in the hall and tell you about some great person who would be perfect for the team. The problem was we didn't have an opening at the time. Or they would tell you about a great person three months after the job was filled.
Also remember that if you are conducting a search you want to interview 4-6 qualified candidates before you make a decision. It is very rare that an employee referral network turns up that many candidates at exactly the same time you have an opening to fill.
The best time to pump employees for referrals is when they have just joined your company, the honeymoon is still ongoing and they may have some ill-will towards their former employee (although they may not). Sit them down and go through their entire department with them. Find out who their colleagues were, their superiors and the subordinates. Get as complete an org chart as you can. Get their opinion on each person, who was good, who was bad, who is a rising star and who isn't.
File this away for future reference and when you have an opening you can dig it out and dust it off and call someone from this list. Don't wait for six months or a year to get this info from your new employee. Trust me people seem to develop severe amnesia when you ask them to list the names of people in the department they worked in a year ago.
Internal referrals are nice when they produce results. But don't depend on them. Consider them a nice addition to your regular recruiting efforts but be proactive don't wait for the employees to come to you - go to them.
Do you have a sales force? Each rep should know who the competition is in his or her territory and who each sales rep is from that competition. Are your staff members of associations? They should be encouraged to network aggressively at association events to find people that might be long-term fits for your team.
The key is not to be reactive. A referral network is like a dripping faucet if you really want flow you should make an effort to turn the faucet on.