The “holy grail” of recruiting? Referrals,

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Referrals,

The “holy grail” of recruiting?

Fredrik Stenvinkel

Umeå School of business and Economics Spring Semester 2020, Bachelor thesis.

Supervisor: Christopher Nicol

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Abstract

A critical aspect for organizational performance is recruiting “the right” people. Great talent serves as a foundation for great companies and a strong pool of candidates is a prerequisite for success. It is furthermore necessary to have an effective recruitment process in order to attract high quality candidates. Slow-paced recruiting processes may serve as a bottleneck to growth meanwhile an effective recruitment process within an organization speaks volumes about the company. It is a direct reflection of the professionalism and validity of the business while leaving its mark on both current and prospective employees.

Referral-based recruiting is often referred to as the “holy grail” of recruiting strategies and is an industry term for when a someone, such as a current employee, supplies a candidate from their own network to the recruiter. The strategy capitalizes on the social and professional networks of people in order to generate candidates and is often combined with rewards to incentivize

recommendations. Many claims that the recruitment method yields advantages such as increased candidate quality, retention rate and reduced time to hire etc. However, often, these claims are not peer reviewed and lack the empirical evidence to support these claims.

This research aims to contribute with knowledge to what role referral-based recruiting plays within Stockholm and to learn more about how the social processes and human elements affects the outcome. Furthermore, how the recruitment method impacts the assessed quality of the candidate pool and recruitment process.

A total of six managers active within recruiting in Stockholm has been interviewed for this research. The managers were each asked to describe and evaluate the hiring of five candidates and their respective recruitment process. The empirical results were analyzed in combination to the theoretical framework. Through the analysis, the conclusion was drawn that referral- based recruiting in fact appears to offer unique advantages in comparison to traditional recruiting strategies, such as job-adverts, headhunting and hiring the services of recruitment firms.

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1. Introduction

This chapter underlines the choice of the research area as well as the core elements of this thesis. Subsequently, the research gap and the foundation for the research question and purpose of this thesis will be discussed. To conclude this section, an outline of this thesis will be

presented.

1.1 Background

1.1.1 Choice of Subject

Recruiting has always constituted a critical but hectic process for any business. However, amid a financial and national crisis, efficient recruiting bares an even greater importance for organizational success. Enterprises today are challenged with a growing scarcity of talent, globalization and chronic economic uncertainty, which is why an effective recruitment process that generates interest from candidates meanwhile reduces costs and workflow disruptions (Carlson et al. 2003, p. 466) is of high demand. Koch (2016, p. 536) states that the current scarcity of talent in this global economy has constructed a mismatch between the sought-after skill and the talents available in the job market. For organizations, this entails a decrease of available talent in the labor market to fill open positions and as a consequence must hire under-qualified candidates

“just to fill a position quickly” (Koch, 2016, p. 536). A method to increase applicants during a recruitment process is through referral-based recruiting (Barber 1998). The recruitment method has been by Forbes (2019) referred to as the “holy grail of hiring” and consequently claimed to increase the size and quality of the candidate pool as well as efficiency of the recruitment process.

Referral-based recruiting takes place when recruiting managers capitalize on their personal and professional network and employees and in order sources candidates through recommendations, according to Castilla et al. (2000, p. 1288). Organizations may source candidates through traditional recruitment strategies, such as job-adverts, recruitment firms and headhunting, or through referral-based recruitment, i.e. referrals.

The research area is a particular interest of the author who is employed by Agentum, a recruitment firm solely relying on referrals in order to generate candidates. Agentum (2020) claims that the hit rate between the candidate and the open position will increase since the referrer know the candidate beyond the curriculum and that the candidates will transition faster into their new role.

1.1.2 Background of Referral-based Recruiting as a Research Area

The field of referral-based recruiting has been consistently researched during the last six decades and there is by now rich empirical literature covering the research area. Existing research of referral-based recruitment posits that it is a social process in its very nature, influenced by candidates, intermediaries e.g. referrers and personal relationships (Lup and Yakubovich, 2006 p.

710). Management textbooks has praised referral-based recruiting as referred candidates “are more satisfied, productive and likely to remain” within the organization (Baron and Kreps, 1999, p. 342). Early researchers within the field were Ullman (1966) who went on to note that the recruitment strategy is cost efficient and observed that referrers would recommend quality candidates in order to enhance their reputation.

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Skolnik (1987) and Kirnan (1986) approached referral-based recruiting using a quantitative research approach and observed that referred candidates transition efficiently into their new role and workplace as they rapidly grasp the social codes and structures of the office. Kirnan (1986) further observed employees who had been hired through referrals reported a longer “survival period” at the company in comparison to employees hired from traditional sources. Kirnan (1986) also concluded that referral-based recruiting yielded better matched applicants and successful hires in general. Comparing the hiring rate between a referred candidate and a non-referred candidate, the aforementioned is more frequently hired according to research by Brown et al. (2016, p. 163).

Brown et al. (2016) further observes that referral-based recruitment is to a greater extent applied when recruiting for positions of low seniority, rather than executive roles. On the other hand, Lengal and Daft (1998) argues that organizations may benefit from applying referral-based when recruiting for senior and complex roles. Referred candidates typically learn of a vacant position during a conversation, which allow a better understanding of the details and context of the position, rather than solely reading about it in a job description. The benefits of this effect will according to Lengal and Daft (1988) correlate with the complexity of the role.

There is by now an empirical consensus that referral-based recruitment generates certain unique benefits. The referrer acts as an important intermediary and may assist candidates to apply in favorable conditions and to present relevant resumés (Castilla et al, 2000). Furthermore, organizations that incorporate referral-based recruiting introduces an additional flow of candidates and thus generates additional applicants, the most crucial phase during a recruitment process (Barber 1998). These organizations may also attract additional interest from candidates as humans naturally shy away from uncertainty and therefore instinctively find jobs revealing further information increasingly interesting, according to Highhouse and Haus (1995) and Herriot and Rothwell (1981). Williams et al. (1993, p. 261) and Schwab et al. (1987, p. 163), on the other hand, discovers that job description alone rarely reveal enough information. As traditionally sourced candidates may only rely on the job description in the early phases of a recruitment, referral-based recruitment generates an informational advantage through the referrer.

We further learn through the concept of “social homophily”, that the quality of the referred candidate correlates with the referrer’s reputation and job performance, according to Montgomery (1991). Similarly, according to the research of Lup and Yakubovich (2006, p. 713), the reputation of the referrer influences the recruitment process and selection of candidates. The social homophily effect implicates that high performing referrers with good repute will recommend candidates who perform better than average. On the contrary, Castilla et al. (2000) research presents findings that experienced and high performing referrers recommended candidates who was less likely to be hired in comparison to traditionally sourced candidates.

Wanous (1992) observed that transparency during a recruitment process will enable candidates to self-select. This entails that candidates who are shared both the negative and positive aspects regarding a position will be able to make an informed decision which will ultimately result in benefits such as increased job performance and a favorable retention. The research of Schmitt and Coyle (1976, p. 191) similarly observed that candidates supplied with a high level of information tend to be favorably evaluated by their manager.

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1.2 Research Gap

Qualitative research within the field of organizational study is described as relatively rare by Conger (2003, p. 108) and studies examining referral-based recruiting is commonly paired with a quantitative approach. This entails that previous research typically have focused on data, rather than on the human elements of referral-based recruiting. There is a call for qualitative studies within this research area due to various social processes, e.g. relationships, influencing the process and outcome when hiring (Lup and Yakubovich, 2006, p. 710). Conger (2003, p. 108) argue that the qualitative approach has its greatest role to play for understanding social constructs, and as emphasized, recruitments are social processes by its very nature (Lup and Yakubovich, 2006, p.

710). This study, in contrast to previous research, has an ambition to understand the human elements of referral-based recruiting and will thus explore the phenomenon through a qualitative approach.

Commonly, referral-based recruiting is explored in the United States, where referral-based recruitment constitutes a fairly common hiring practice. 36% of American recruitment managers use this recruitment method in a frequent rate (Campbell 1990 cited in Castilla et al, 2000, p. 1290).

In contrast, there is no available data regarding the use of referral-based recruiting within the setting of Scandinavia where the recruitment method is to say the least, understudied. This study will explore the phenomenon of referral-based recruiting within Scandinavia, a region differing from the United States in sense that jobs in Scandinavia are generally more complex and the employees are typically able to influence organizations, according to Gallie (2003 p. 76).

Furthermore, Scandinavian countries are subjected to significantly different societal norms, writes Gallie (2003 p. 77), which further legitimate to study the social phenomenon within the setting of Scandinavia to extend our knowledge regarding referral-based recruiting.

Castilla et al. (2000, p. 1353) argue that “the most productive research strategy is one that has as its goal depth of knowledge of particle cases, before pursuing breadth of knowledge, that is, the generalizability of these processes across settings” which this study adheres to by narrowing the research to Stockholm.

Castilla et al. (2000, p. 1353) affirm that within the field of economic sociology, thesis that competition often generate similar results “it is only by close study of particular cases that we will be able to sharpen the theoretical implications of the various theories to the point that they can be distinguished analytically”. This study will contribute to deepening the understanding how recruitment managers experience both traditional and referral sourced candidates and how the different methods may impact the assessed quality of the recruitment and process. This aspect will therefore result in a unique theoretical contribution and view as relevant research rarely covers the subject using a social constructivist view. This study views referral-based recruiting as influenced by different social factors which is why the mainly applied objectivist perspective does not appear relevant for understanding this phenomenon.

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1.3 Research question

What role does the source i.e. the recruitment method of the candidate play, as a part of a successful recruitment process and assessing the quality of the candidate?

1.4 Purpose

The purpose of this thesis is to explore if the recruitment source impacts the assessed quality of a candidate and the efficiency of the process. Furthermore, to deepen the knowledge of referral- based recruiting by exploring the subject using a qualitative approach and within the settings of Stockholm, Sweden. To examine how recruiting managers assesses the quality of a candidate, the interest lies in the candidate’s job performance, transition period and retention rate.

1.5 Thesis Outline

The second chapter will present the theoretical framework of this study. In the third chapter, methodological concerns, i.e. the epistemological and ontological standings is discussed. The following chapter will establish the research design and describe the process of the interviews and literature search inter alia. The empirical findings will be presented during the fourth chapter and analyzed in the fifth chapter. The conclusion whether this thesis research question and purpose is fulfilled will finally be presented in the sixth chapter followed by theoretical, managerial and candidate recommendations.

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2. Theoretical Framework

In this section, a deeper understanding will be offered for what constitutes a referral-based recruitment and how it has been studied in previous research. A recital of results found from studying the phenomenon will also be given during this part.

Recruiting high quality talent is a crucial factor for the success of any organization according to Alvesson (2004, p. 164). Recruiting is described as “the set of activities and processes used to legally obtain a sufficient number of qualified people at the right place and time so that the people and the organization can select each other in their own best short and long term interest”

(Richardsson 2009, p. 2-3). The recruitment strategy within an organization performs the essential task of generating the important resource - human capital. An organization failing to construct a successful recruitment strategy will be inflicted by high recruitment costs and workflow disruption caused by long vacancies of positions (Carlson et al. 2003, p. 466).

2.1 Social Capital

Castilla et al. (2000, p. 1201) explores an interesting angle in the article “Social Capital at Work:

Networks and Employment at a Phone Center” by interpreting the networks of employees as

“social capital” which in a further sense results in companies who are applying referral-based recruiting programs in their recruitment processes are to be considered as “social capitalists”. This entails that corporations can pay people to access their private and professional networks in order to increase the pool of candidates for any given vacant position.

2.2 Assessing the Quality of a Recruitment Process

According to Barber (1998, p. 162), for a recruitment process to be considered as successful and efficient, it must attract sufficient interest and attention from potential candidates. According to Barber (1998, p. 152), there are four different approaches that are likely to generate the wanted level of attention and interest from the candidate and thus increase the efficiency of the process.

(1) Communication about the job opportunity between two people, e.g., during a face to face conversation, writes Tybout & Artz (1994, p. 134).

(2) Unexpected information regarding the vacant position in the job description, according to Kulik

& Ambrose 1993, p. 827).

(3) Information about the position and organization that the potential candidate interprets as personally relevant for themselves (Chaiken and Stangor 1987, p. 615).

Lastly, (4). Messages about the job-opening that make use of language that is both well- constructed and vivid in its nature (Tybout & Artz 1994, p. 134). This implies that job descriptions that includes capturing images and referrers explaining the job opportunity in a way that evoke images in a person’s mind will generate additional interest and attention.

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The studies of Lengel and Daft (1988, p. 229) observed that a candidate who learns of a job- opening as a result of a conversation may as a result better grasp the context and details about the position in comparison to when exclusively reading the job description. Lengel and Daft (1988, p.

229) study further suggest that this effect increase for candidates involved in recruitment processes of roles complex in their nature.

It is furthermore crucial to maintain the candidate’s interest during the whole recruitment in order to reach efficiency within the process according to Barber (1998, p. 153). Rynes et al. (1991, p.

501) study observe that candidate may decrease their interest when they deem themselves unlikely to be in a receiving end of a job offer. To combat this effect, recruiting managers should be concerned to equip candidates with the right expectations of the job and offer a high level of information in the early stages (Wanous 1992). A high rate of declined job offers, and low retention rate may be caused by ambiguous recruitment processes that does reveal sufficient information regarding the vacant position.

According to Barber (1998, p. 154), there are three phases during a recruitment. “Generating applicants”, “maintaining applicant status” and “influencing job choice”. The categorization is made possible as the output is temporally sequenced. According to Barber (1998, p. 155), the first phase, generating applicants is critical within recruiting and talent management. An efficient recruitment process can only exist when a sufficient candidate pool has been established, which is why the main priority should be to increase the reach and in order generate further potential candidates, according to Carlson et al. (2002, p. 465). The quality of the first phase of a recruitment is typically assessed by counting the number of applicants as low numbers of applicants often result in recruitment failure, according to Carlson et al. (2002, p. 466).

The benefits of an efficient recruitment process that generates a large pool of candidates will enable both organizations and recruiting managers to be selective when recruiting and offer the position to candidates assessed to be of high quality (Carlson et al. 2002, p. 466). Therefore, the following section will examine the theories behind the process of assessing quality candidates.

2.3 Assessing the Quality of Candidates

A candidate of high quality will display high job performance (Carlson et al. 2003, p. 463) and a favorable retention rate in order to account for future workflow disruption (Connell and Phillips 2011, p. 1). Furthermore, the quality of the candidate is assessed by analyzing the effectiveness of the transition period due to its impact on the candidate’s job performance (Reichers 1987, p. 285).

2.3.1 Transition Period

According to research by McNatt and Judge (2008, p. 805); the transition period is a critical period for a successful hire. The candidate is highly receptable to influence during their transition period and further susceptible to anxiety and stress, writes Ashforth and Saks (1996, p. 150). This implicates that the candidates are fragile during their transition period and an unsuccessful transitioning may lead to a lower job satisfaction and performance.

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2.3.2 Job Performance

An employee’s job performance is directly related to the efficiency of an organization and is described as the “total expected value to the organization of the discrete behavioral episodes that an individual carries out over a standard period of time” (Motowildlo, 2003, p. 4). Skolnik (1987, p. 24) surveyed 196 “salespeople” working at a major investment company based in New York.

The research observed candidates hired through an employee referral program enjoyed benefits such as attention and assistance learning both the social codes of the office and the day to day work from coworkers which resulted in higher job performance. This effect is due to the referrer frequently taking the role of mentoring the newly hired referred candidate. Reicher (1987, p. 285), similarly went on to note that referred candidates are, in regard to job performance, positively influenced. Reicher (1987, p. 285) argues that this is caused by the referrer often acts as a

“mentor”, guiding them in their newly acquired position.

2.3.3 Retention Rate

A critical element in human resource management is employee retention and how organization may influence talented employees to remain, according to Yang et al. (2012, p. 848). A low retention rate within an organization will result in additional cost in areas such as recruiting, training and disruption of the workflow. In contrast, a high level of retention will save the organization a significant amount of money, efficiency and time which legitimates viewing retention as an important factor when evaluating the quality of a recruitment, according to Connell and Phillips (2011, p. 1) Addressing the issue of retention is crucial for all organizations and a significant challenge for human resource departments (Connell and Phillips 2011, p. 2). “High financial cost”, “Exit problems and issues”, “Productivity losses and workflow interruption” and

“Loss of expertise” exemplifies the side effects caused by employee turnover, according to Connell and Phillips (2011, p. 5). Connell and Phillips (2011, p. 136-137) describes referrals as an effective strategy for increasing the retention rate, as they are more prone to understand the organization’s desired behaviors. Brown et al. (2016, p. 163) and Burks et al. (2015, p. 832) both concluded that employees hired as a result of a recommendation enjoy a higher salary during the first three years of employment which is believed to improve the retention rate for referred candidates. Wanous (1992), constructed the concept of self-selection within recruitment processes which may further improve the retention rate of organizations. The term is elaborated upon in the following paragraph.

Figure 1 – How retention rate within an organization can be improved (Deery and Jago 2014, p. 454).

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2.4 Self-Selection

The term self-selection entails that organizations and recruitment managers share both the negative and positive aspects concerning a vacant position. The increased transparency will enable candidates to make an informed decision, according to research by Wanous (1992). Wanous (1992) results further states that implementing self-selection during a recruitment process will positively affect the job performance of recently recruited employees as they are more likely to be feel satisfaction within their new role. Organizations applying the strategy of self-selection can according to the research of Wanous (1992) further expect a favorable retention rate during the first year of employment. Wanous (1992) explains that candidates, even though not entirely satisfied with their newly acquired job, will as an effect of self-selection still be under the impression that the recruiting organization has lived up to its side of the employment contract.

Candidates perceiving their employer to be honest will feel additional commitment towards their job decision which will ultimately enhance the retention rate, according to Figure 2 on the following page (Breaugh and Starke 2000, p. 416).

Relevant to the concept of self-selection is the study of Breaugh (1992, p. 321) which recognized that referred candidates are equipped with more information regarding the vacant position as a result of the referrer tend to supply them with both the positive and negative aspects of the job.

Figure 2, presented on the following page, explains how “more accurate and more complete job and organizational expectations” will increase the candidates’ ability to make an informed decision. Accurate job description in the early phases of a recruitment is crucial for job-congruency and thus a favorable retention rate and job satisfaction (Breaugh and Starke 2000, p. 416). Williams et al. (1993, p. 261) on the other hand suggest that candidates originating from traditional sources of recruiting frequently are not given a sufficient amount of information solely through the job description. These results entail that referred candidates are able to make use of self-selection in a higher rate and hence apply to jobs that match both their abilities and personal traits. To summarize, the self-selection strategy will according to Wanous (1992) result in a higher job-performance, retention rate and job satisfaction for the candidates.

2.5 Social Homophily

The referrer’s performance and reputation may manifest itself during the recruitment process and impact the candidate selection according to Lup and Yakubovich (2006, p. 713). Montgomery (1991, p. 1409) discover as a result of research within the field of referral-based recruiting that there is a “homophily” effect in the works. The implication is that referrers who perform effectively in their line of work are more likely to refer candidates who perform higher than average. Kristinsson et al. (2011, p. 504), on the other hand, found through their study that organizations who have homogenous characteristics present a decreased level of innovation.

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9 Figure 2. The Formation of Job Expectations and their Influence on Important Employee Attitudes and

Behaviors (Breaugh and Starke 2000, p. 416

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2.6 The Informational Advantage of Referred Candidates

Quaglieri (1982, p. 2) studied how accurately the candidates perceived information regarding a vacant position from various sources such as advertisements, posters and referrals. The result of the study revealed that referrals displayed a higher accuracy and understanding of the role (Quaglieri 1982, p. 53). This study was followed up by McManus and Baratta (1992, p. 41) who came to the conclusion that candidates who originated from a referral had a better understanding of the vacant position which resulted in a higher level of effectiveness and retention when hired.

Latham and Leddy (1987, p. 231) surveyed employees in a car dealership to compare the workers' attitude with the source of how the employee got introduced to the job. Latham and Leddys (1987, p. 234) study observed that referrals showed a significantly better attitude in comparison to employees who originated from either direct application or job-adverts. The favorable attitude may be a result of referred candidates having more accurate information regarding the vacant position, explained Latham and Leddy (1987, p. 234). Wanous (1992) study further suggests that referred candidates present a favorable attitude in comparison to traditionally sourced candidates. The research presents results in the form of referred candidates having access to increasingly accurate descriptions about the position which will reduce friction when ultimately employed. Barber and Roehlings (1993, p. 845) research further illuminate the aspect of informational advantage as their study observed candidates interpreted organizations offering a high amount of information regarding a position to be more attractive. Barber and Roehling (1993, p. 853) argue that candidates perceive organizations who do not offer detailed job descriptions as “sloppy” and not genuinely interested in the recruitment process. Further research on this subject has found that humans, per their nature, shy away from uncertainty and as a result naturally find job description that lacks a sufficient amount of information less interesting, according to Highhouse and Haus (1995, p. 89).

Studies suggest that a lack of accurate information may create a bottleneck during the recruitment process. For example, Herriot and Rothwell (1981, p. 28) concluded that candidates are increasingly willing to apply for jobs that offer more detailed information about the role. Schmitt and Coyle (1976, p. 191) similarly observed a correlation between information sharing to the candidates and how they later were evaluated by the recruitment managers. The implication is that additional information about the role ultimately generates higher quality candidates. On the other hand, Schwab et al. (1987, p. 163) researched the availability of information in job description and found that candidates are frequently facing limited information when confronted with solely a job description.

Lup and Yakubovich (2006 p. 710) describes how a recruitment is by its nature a “social process”

where relationships among “employers, job seekers, and intermediaries play a leading role”. Lup and Yakubovich (2006 p. 710) further examined that referred candidates are more likely to be hired than traditionally sourced candidates as they have a “deeper understanding of the job’s requirements and the firm’s culture”. This additional source of information, the referrer, is accessible to referred candidates and managers using referral-based recruiting exclusively and constitutes an important factor in why referred candidates are thought of as higher quality candidates by Lup and Yakubovich (2006 p. 710).

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2.7 The Five Mechanisms of Referral-based Recruiting

Castilla et al. (2000) has identified five mechanisms believed to increase the quality of the recruitment process when applying the method of referral-based recruiting.

The first mechanism is related to the organization’s ability to increase the pool of candidates for open positions by allowing their employees to refer candidates from their network and encounter new candidates which they would not either have come across relying solely on traditional recruitment sources. According to Castilla et al., (2000, p. 1351) referral-based recruiting will result in the company increasing the pool of candidates who are interested in the vacant job who in other cases would not have heard about the job if not for referral-based recruiting.

Research conducted by Ullman (1966, p. 34) and Montgomery (1991, p. 1409) indicates that a referral is typically directed to someone who is “similar” and “homophilous” to the referrer.

Mechanism two is as a result identified as the tendency for people to refer candidates that are like themselves. Seeing as the referrer is either within the referrers network or has gone through the process of being screened, interviewed and hired, this mechanism is believed by Castilla et al.

(2000, p. 1351) to increase the qualification and relevancy of the referrals.

As people are protective of their reputation referrers and bad quality referrals may reflect poorly on their image, they are generally careful and put great thought in when recommending candidates according to Rees and Shultz (1970, p. 559). The third mechanism is therefore based upon a willingness for employees to enhance or at least not damage their reputation and thus recommending quality candidates.

The fourth mechanism focuses on the advantage of the recruiting manager has regarding the information of the candidate, according to Rees and Shultz (1970, p. 559). The recruiting manager may access information via the referrer about “hard to measure” skills, attributes, attitudes and abilities regarding the candidate who is recommended. This link of information is believed to significantly improve the chance of making an informed decision when hiring a candidate. The fourth mechanism also benefits the referred candidate as he or she have the possibility to access information regarding the duties that go beyond the job description from the referrer who already works there. This mechanism is thought to result in a better match between the candidate and position as well as reducing friction as both the employer and employee have made an informed decision in order to get there.

Mechanism five is focusing on the transition period when the recommended candidate is hired.

This is believed to result in a natural mentoring relationship where the referrer assists the referred newcomer in both the work and the social environment within the company, writes Reichers (1987, p. 285). This mechanism will according to Reichers (1987, p. 285) increase the level of satisfaction, commitment, job performance and retention when a referral-based recruitment has taken place.

The five mechanisms of referral-based recruiting presented each offer unique benefits for companies who choose to make use of the employees’ social network and apply referral-based recruiting within their organization.

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2.8 Synthesizing the Theories

The purpose of this section is to summarize and clarify the concepts that have been disused in the theoretical framework. This is done to underline the relevancy of the theories in relation to the research purpose.

The informational advantage of referral-based recruiting is a central concept of this thesis and it affects both candidates and recruiting managers during the recruitment process and employment.

Schmitt and Coyle (1976, p. 191) research suggest that the source of information available in traditional recruitments, the job description, rarely reveal sufficient information to create interest or clarity. The informational advantage of referral-based recruiting is of great importance to this research as the concept may according to previous studies impact the quality of the candidates as well as the efficiency of the recruitment process. Understanding the extent and impact of the informational advantage available during referral-based recruiting will be necessary in order to align with the purpose and answer the research question of thesis.

Literature regarding the role of the referrer has been engaged in throughout this thesis. Breaughs (1992, p. 321) and Lup and Yakubovich (2006 p. 710) research suggest that the referrer will enable referred candidates to acquire a “deeper understanding of the job’s requirements and the firm’s culture”. According to the research by Rees and Shultz (1970, p. 559), recruitment managers and candidates can view the referrer as an additional source of information of candidates. This aspect of the recruitment strategy is important to analyze as the factor may improve the match between corporate soft values and the candidate due to the access of tacit information and hard to measure skills and attributes. In relation to the concept of informational advantage, these concepts facilitate a deeper knowledge about referral-based recruiting and what constitutes the methods unique strengths. Furthermore, the concept clearly indicates that recruitment managers should ask the referrer regarding the traits of the candidate in order to fully seize advantage of referral-based recruiting.

The next concept, self-selection, observed by Wanous (1992) relates to the informational advantage and might offer an explanation if referral-based recruiting generates higher quality candidates in this research. When candidates are provided with both positive and negative aspects concerning a vacant position, they are enabled to disregard job opportunities in the early phases of a recruitment. According to Breaugh (1992, p. 321), referred candidates are supplied with an informational advantage which implies an increased transparency during the recruitment process.

The concept of self-selection is important to recognize as the effects suggests that referred candidates are prone to make informed decisions during the early stages of a recruitment process.

Self-selection during a recruitment process will ultimately impact job-performance, retention rate and job satisfaction (Wanous 1992) and thus relevant in answering the stated research question.

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Following, the concept of social homophily has been discussed. As emphasized, qualities of the referrer may manifest itself during a recruitment process according to the research of Lup and Yakubovich (2006, p. 713). As a result, the performance and reputation of the referrer is of relevance during the recruitment process. Social homophily will assist in explaining why candidates who are referred may fare better than traditional candidates in a recruitment process.

Furthermore, the concept is important to take into account in order to fully grasp referral-based recruiting and why referrals may generate favorable candidates, which is according to Barber (1998, p. 154), a critical phase of the recruitment process. The following concept relates to referral- based recruiting constituting an additional source of candidates that would not have been included in the recruitment process if solely traditional recruitment was practiced.

It has been established by Carlson et al. (2002, p. 466) that a low amount of candidates involved in a recruitment process is correlated with recruitment failure. Hence, the increase of candidates as a result of referral-based recruiting is relevant to this study and important to recognize in order to assess the benefits of the recruitment strategy. Furthermore, Barber (1998) introduced four approaches of communication methods observed to increase the interest and attention from the candidates. Exclusively referral-based recruiting may incorporate all four communications methods which is useful to this research as it entails that the recruiting method may generate higher candidate interest and as a result, efficient recruitment processes.

Lastly, Brown et al. (2016) observed referral-based recruitment in a higher frequency is applied for junior rather than senior positions. This useful to recognize as the factor may affect the efficiency of recruitment processes.

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3. Research Perspective and Methodology

The intention of this chapter is discussing the research perspective in relation to the purpose of this thesis. This chapter will further describe the method of the research, quality criteria’s, how sources have been examined as well as the approach of gathering data and information.

3.1 Ontological Standing

The two ontological standings are social constructivist and the objectivist ontological perspective (Bryman & Bell 2011, p. 21). The objectivist ontological perspective prospect reality as external to the individual (Bryman & Bell, 2011, p. 21).

The author considers individuals to be the creators of reality and thus align with social constructionism that contends social reality is by no means external to the individuals - rather shaped by constant interactions (Bryman & Bell, 2011, p. 22-23). The social constructivist perspective pairs well with this research as referral-based recruiting is by the researcher viewed as a social phenomenon and an area that is under constant development and heavily influenced by the thoughts and actions of individuals (Bryman & Bell 2011, p. 22). From the social constructivist view, humans are autonomous and shape the meaning of their surroundings. Knowledge is both personal and experimental which entails that studies have to include subjective experiences and individual perceptions (Cunliffe, 2011). The focal point of this study is a group of selected recruiting managers who will assess the quality of certain recruitment processes and candidates.

The information about these, will be attained through interviews. The interviews are social constructions of reality and cannot be viewed as neither factual nor objective, but subjective realities that are interpreted.

3.2 Epistemological Standing

What is to be observed as “adequate” knowledge is the concern of epistemology, writes Bryman

& Bell (2011, p. 15). There are three dominating paradigms within epistemology; interpretivism, positivism and realism and what paradigm is applied dictate how the research is to be carried out and interpreted, according to Collis (2014, p. 43). When the social reality is perceived to be both singular, objective and the approach of the study does not affect the reality, the paradigm is considered to align with positivism. The paradigm defines reality as something unaffected by external factors and something that cannot be measured objectively (Saunders et al., 2009, p. 113).

Since the paradigm of positivism does not take into account how humans and their beliefs and actions may influence the results, the paradigm does not align with this methodology.

Furthermore, the paradigm of realism, interprets and views reality as an absolute and something that is not influenced by people, according to Bryman and Bell (2011, p. 17). Bryman & Bell (2011, p. 17) further states that researcher gestating reality is the way of knowing what reality is.

For this reason, realism does not align with the epistemological standpoint of this thesis. By viewing knowledge through interpretivism, it is dependent on how humans perceive it (Bryman &

Bell, 2011, p. 16-17). By the author, knowledge regarding reality is considered to change when different individuals interpret the same information, which entails that communication is influenced by the individual thought (Saunders et al., 2009, p. 113). This study views reality as socially constructed and relevantly explored with an interpretivist approach as the world is considered to be under constant development and knowledge dependent on the individual’s unique interpretation of what actually constitutes reality (Berger & Luckmann, 1966, p. 15; Bryman &

Bell, 2011, p. 16) In other words, alterations are the incidental product of endless human choices.

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3.3 Research Process

Inductive, deductive or a combination of both approaches stipulate the common research processes (Kvale & Brinkmann, 2014, p. 239). The qualitative approach is commonly paired with an inductive approach and focuses on words rather than numbers and hard data in its attempt to describe the reality, writes Bryman & Bell (2011, p. 11). During an inductive study, the research is basing its result on the experiences and perceptions of the subjects that are involved and is less general in comparison to the deductive approach (Saunders et al., 2009, p. 126)

This study is exploring in its nature and will create a theoretical frame of reference and thus prior knowledge of existing research in order to better understand the gathered data. Aligning with the deductive approach, the foundation of prior knowledge and literature will introduce existing theories that will aid in explaining the effects of referral-based recruiting and later apply them to the gathered data of this research (Bryman & Bell, 2015, p. 23). However, the information was gathered with little preconceptions which enable the formation of new theories, related to the focus on the human elements and social processes. The approaches do not have to be mutually exclusive (Saunders et al., 2009, p.127) and both the inductive and deductive approach will color this thesis.

3.4 Practical Method

In order to enhance the knowledge regarding the social phenomenon of referral-based recruiting, we will need to understand the complex social structures behind it. A qualitative approach is therefore fitting according to Trost (2010, p. 25) as the researcher may mind patterns and personal views regarding the subject and is enabled to analyze the gathered data in great detail (Bryman &

Bell, 2011, p. 403). Research with a qualitative approach generally fits well with research that explores a smaller number of subjects and the answers need to get investigated in full detail.

The different approaches to conduct qualitative research are through focus groups, observations and interviews according to Bryman (2018, p. 47). The author further mentions that the method that is most frequently used during qualitative research are interviews which can either be structured, unstructured or semi structured. In order to capture the subjects personal experience, thoughts, views and history of referral-based recruitment I will proceed with interviewing my subjects as the approach offers depth to the information given by the subject and flexibility.

According to Denscombe (2018, p. 268), interviews are a fitting approach when the aim is to understand issues of a complex nature and to understand structures and how various factors may interplay.

Both qualitative and quantitative approaches are flawed and there is criticism directed at both scientific approaches. The qualitative approach is generally criticized for the researcher having unsystematic perception and what is actually important in a study is certainly up for debate and the author and reader may disagree on this topic. Further, the abilities of the researcher to explain how the conclusions were made for the thesis may not always be stringent which will impair the legitimacy of the results, according to Bryman (2018, p. 487) To address this common criticism against the qualitative approach, an attempt will be made to thoroughly describe every step of the research and how and why any conclusion takes its form.

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3.4.1 Selection of Subjects

When conducting a research, the researcher may apply various approaches for choosing the selection of subjects which will fall either in the probability sample or the non-probability sample, writes Bryman (2018, p. 496). He further mentions that the probability sample is often paired up with quantitative research meanwhile qualitative research is generally backed up by a non- probability sample.

As this thesis will apply a qualitative data approach, a “snowball sample”, “convenience sample”

or a “criteria guided sample” can be applicable according to Bryman (2018, p. 496). It is further important to note that when applying the approach of a non-probability sample, the research cannot be generalized towards the population, according to Bryman (2018, p. 496). A few criteria have been set up in order to collect data for this research. This research will exclusively interview subjects who have hiring experience within the setting of Stockholm, Sweden. The information regarding the quality of a specific hire is believed by the author to yield a higher level of truth if originating from the hiring manager.

3.4.2 Description of the Interview Approach

A structured interview follows an interview guide and is designed to prevent the respondent to give elaborate answers while an unstructured interview could entail that the interviewer only asks one single question which the interviewee freely may answer without any framework (Bryman, 2018, p. 564). Semi-structured interviews are based upon an interview guide and enables the interviewer to ask follow-up questions and give a deeper insight in comparison to a structured interview. Semi-structured interviews are according to Bryman (2018, p. 564) appropriate, as in this case due to the clear motive of the thesis and in the case that a questionnaire will assist with the execution. As been discussed, the social processes and human elements of referral-based recruiting are of interest, which is why elaborate response, specific to the research area is preferred.

As a result, semi-structured interviews constituted the primary source of information for this research and allowed capturing of the interviewee´s memories, personal experiences and thoughts (Suphellen 2000, p. 359). The semi-structured interview format was preferred as the research will investigate the social structures of a phenomenon and the format enables respondents to develop both thoughts and ideas during the interview (Denscombe, 2010, p. 175).

In order to execute a successful interview and extract meaningful answers, it is crucial to carefully plan and thoughtfully design the interview according to Bryman (2018, p. 268). Bryman further emphasizes the importance of explaining the purpose of the interview and establishing trust between the interviewer and the subject. The questions for the interviews was carefully planned and the interview guide was developed with a basis in previous research of referral-based recruiting. By following an interview guide, there will be consistency during the interview and only topics of relevance was discussed, according to Bernard (2011, p. 156). The guide consists of information regarding the aim of the interview and interview questions covering to most important topics which must be discussed in order to answer the research question.

The interviews of this research followed the format of the pre-constructed interview guide available in Appendix 8.1. The interview was conducted in English and the interviewee was asked to elaborate if their answer failed to be detailed enough. The specific questions of the guide will, according to Saunders et al., (2009, p. 320) allow the interviewer to retain control over the interview.

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3.4.3 Constructing the Interview Guide

For the data collection of this study, it was decided to use four categories. i.e. the respondent’s typical approach of hiring, the assessed quality of the candidates and efficiency of the recruitment process. Furthermore, the recruitment managers process when applying referral-based recruitment was covered. These four categories were chosen on the criteria that they reflect both the research question and the literature and research covered in the theoretical framework.

Figure 3. Main categories for interview questions.

Typical Hiring Approach

It is important to cover what strategy of recruitment is favorable for the interviewee as well as to what extent they have hired recently. This background information enabled an analysis of the findings in relation to each other as well determine if referral-based recruiting is commonly practiced in Stockholm.

Assessed Candidate Quality

Previous research by Lup and Yakubovich (2006) and Schmitt and Coyle (1976) suggest that hiring managers will perceive referred candidates to be of higher quality in comparison to traditionally sourced candidates. The respondents were asked to identify the source of the candidate and to proceed with evaluating factors important to assess the quality of a candidate. The important factors constituted of job performance (Carlson et al. 2003, p. 463), transition period (Reichers 1987, p. 285) and the retention rate, according to Connell and Phillips (2011, p. 1).

Assessed Recruitment Efficiency

As previously mentioned, if a recruitment process has attracted both interest and attention from candidates, it may be considered as efficient according to Barber (1998, p. 162). The questions relating to the third category explores factors concerning the efficiency of a recruitment process.

The answers will be compared using the source of the candidate to evaluate if advantages can be identified as a result of applying referral-based recruiting.

4. Process for Referral-based Recruitment

How does the recruitment manager typically approach recruiting?

3. Assessed Recruitment Efficiency

Crucial to compare percieved efficiency of the recruitment process for traditional and referred candidates.

2. Assessed Candidate Qualitry

Crucial to compare percieved quality of referred and traditionally sourced candidates.

1. Typical hiring approach

Cover the interviewees preferred and typical approach. Will enable analysis of how common referral-based recruiting is in Stockholm.

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Process for Referral-based Recruitment

Previous research has shown that recruitment managers should ask the referrer regarding hard to measure skills of the candidate in order to fully seize the informational advantage of referral-based recruitment (Rees and Shultz 1970, p. 559). Furthermore, knowledge regarding the respondent’s process will be useful to determine the extent and impact of the informational advantage. In order to gain more knowledge regarding referral-based recruitment, it is of interest to know the procedure of the respondents when dealing with this method of recruitment. Subsequentially, knowledge regarding the process of the interviewee’s recruitment will be useful in understanding whether or not the referrers reputation and performance have had an impact during recruitment processes.

To summarize, there are several factors that may impact the quality of a candidate and the efficiency of the recruitment process. As a result, it is necessary to examine the elements of both successful and unsuccessful recruitments and enable the respondents to answer elaborately. The four categories of the interview guide construct a reliable framework for the interviews and the categories assisted in creating relevant questions which covered relevant topics.

3.4.4 Interview Settings

The interviews were conducted between 2020.04.27 - 2020.05.15 and the duration of the interview varied between 15 and 32 minutes. All interviews were conducted using the video conference software, Zoom, due to the current situation of COVID-19. The recruiting managers will remain anonymous throughout the research and will be given other names.

Date of interview Length Type Given name

27/04 – 2020 27 min Zoom Anna

11/05 – 2020 17 min Zoom Bernard

11/05 – 2020 15 min Zoom Cecilia

11/05 – 2020 32 min Zoom David

12/05 – 2020 19 min Zoom Eva

15/05 - 2020 15 min Zoom Felicia

Table 2 – Dates, length and type of interview

3.4.5 Recording, Transcribing Analyzing the Interviews

The interviewer always began by presenting the focus of the interview, the rights of the respondent and ensuring anonymity throughout the study. In order focus on the interview itself, they will be recorded with the permission of the respondent, allowing transcription and thus a deeper analysis of the answers, according to Bryman (2018, p. 577) and Saunders et al., (2009, p. 485).

By analyzing the gathered empirical information in combination with previous studies, the aim is to fulfill the research purpose and answer the research question. According to Saunders et al., (2012, p. 556) and Trost (2010, p. 147), there is no standard practice of structuring or analyzing the collected information during a qualitative study. The author recommends to initially create an overview and understanding of the gathered data.

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The interviews were transcribed in order to facilitate future management of the data and the answers of the respondents was later categorized and coded. According to Gibbs (2007, p. 47), specific acts, environments and meanings are examples of what can be coded in a qualitative data gathering. In this thesis, words were coded that was mentioned in the theoretical frame of reference, e.g., referrals, information and recruiting processes and was later compiled and categorized. The categorization entails that statements are summarized into lesser categories, according to Kvale &

Brinkmann (2014, p. 243). To exemplify, a connection was made between the word “job performance” with the category “assessed candidate quality”. Coding and categories in this manner will create an overview over the empiric material and facilitate future analysis and conclusions.

3.4.6 Ethical Considerations

According to Bryman and Bell (2011, p. 481-482) there are various issues regarding the ethics of a study to consider. The attention of our respondents was captured through an initial email to present the research, the expected length of the interview and its focus. The recipient of said email had the option of ignoring, declining our accepting to participate in the interview. In advance of the interview, the respondents agreed to be recorded and it was emphasized that they would be anonymous throughout the study. The recruiting manager was given referred names to simplify the presentation of the data.

3.5 Pre-understandings

The experiences and values of the researcher can according to Saunders et al., (2009, p.116) impact the results and process of a thesis, which is why it is relevant to present the background of the researcher. As the author has prior interest, experience and knowledge within the area of referral- based recruiting, there is bound to exist prejudice within the study which is important to limit the effects of. According to Bryman and Bell (2011, p. 30) previous experience and knowledge will factor in what the researcher acknowledges and how various elements are interpreted. The author of this study is currently studying economics at Umeå university and furthermore studied organization at a bachelor level which has contributed to a deeper knowledge of the structure of organizations.

3.6 Theoretical Frame of Reference

In order to find literature that is relevant to the subject of referral-based recruiting, a non- discriminate approach with an open mind set has been applied where many articles have been examined exploring the phenomenon. Sanders et al., (2009 p. 69) states that a thesis should base its knowledge and research on scientific published articles in order to be credible. To accord, the literature this thesis bases its theoretical framework on has been found via Umeå Universities library of scientific articles. In a large extent, studies discussing the social aspects of referral-based recruiting have been examined and how the phenomenon impacts both the individual and organizations. Below, the most frequently applied search terms are presented in no particular order.

Value+ Network + Social

Referral-based Recruiting

Employee Referral Recruitment Strategies Job Search Networks Recruiting Employee

Recommendations

Job Performance

Table 1 – Frequently applied search terms

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3.7 Criticism of the Sources

It is important and according to Thurén (2013, p. 4), a moral principle for a researcher to thoroughly examine the source of their knowledge and target information that has a low level of misrepresentation. In this thesis, Thuréns (2013, p. 7-8) four principles: validity, date of publication, independence and freedom of tendency have been applied.

A source should not present misrepresented information and the findings cannot be forged according to Thurén (2013, p. 17). In order to obey the validity standard presented by Thurén (2013, p. 17), articles that are scientific have been researched and used as sources for this thesis.

However, as findings from the area of referral -based recruiting are primarily of the social nature and most of the studies have used a qualitative approach, the results cannot be generalized which is important to emphasis.

According to Thurén (2013, p. 17) the longer time that has passed since the date of publication for an article, the greater the contingency regarding the credibility of the source. To follow this principle, a discriminant approach of the age has been taken when selecting the research material.

Thurén (2013, p. 8) states that in order to institute credibility, an article or thesis should not refer to other sources as they may have been interpreted differently than intended by the original researcher.

There should further be no doubt regarding the credibility of the sources view of the world due to its personal experience, political stance or economical view, writes Thurén (2013, p. 8). An attempt has been made during the research to fulfill this standard by disregarding sources deemed colored by subjective and impartial information.

3.8 Limitations

It is important to underline that the results from this study cannot be generalized. The participants of the study were all located in Stockholm and were asked to evaluate and give their opinions regarding recruitments that they have managed. The recruitments that have been analyzed in this study have been done in several different industries and the complexity of the jobs varies. This research will further examine the research area using a short-term perspective. Due to the current circumstances of COVID-19, interviews made face to face, which according to Bryman and Bell (2019, p. 489), offers better interpretation of the subject was not an option. All interviews were conducted using the video conference software, Zoom. Due to the current stress that businesses are facing, it was proven difficult to get in touch with recruiting managers. Many of the recruitment managers did not respond and many of those who did said that they simply had too much to do. In a few instances, interviews were even declined last minute. The results of this research further rely solely on the memory of the subjects participating in this study which may distort the results of the study.

3.10 Quality Criteria

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4. Empirical Results

Each respondent has disclosed during the interview their relationship towards recruitment and in what industry they have recruited within. Below is a summary of the approach the respondents typically use in order to build up their pool of candidates and how frequently they are involved within recruitment processes.

4.1 Typical Approach of Hiring and Brief Background

Respondent one, here on after referred to as Anna, was employed as a team leader for a fashion retailer and based in their Stockholm offices. Anna worked at this fashion retailer between 2016 - 2019 and has been involved in 10 recruitment processes to staff up her own team the last five years. Anna describes his or her typical approach of hiring as “I always begin by asking my personal network and employees if they know anyone who would match the job description. Since my personal network within the industry is fairly strong, it is usually a good source of quality candidates. I also always use sites such as LinkedIn and Metro jobs to increase the pool of candidates for each vacant position.”

Respondent two, referred to as Bernard, has long experience within the financial industry in Stockholm and managed many recruitments during his time as a board member. Bernard was further involved with recruitment as he assisted several companies in their recruitment processes as a consultant. During the last five years, Bernard has been involved with about “twenty to twenty- five recruitments” (Bernard 2020).

Respondent three, referred to as Cecilia is currently employed as Head of Sustainability at a company active in real estate with their head office in Stockholm. Cecilia is an active recruiter in her role as Head of Sustainability and has also recruited during her time as Head of Strategy and Client director at her former company. Cecilia has been involved in about “twenty or so”

recruitment processes since 2015 and 15 of the candidates that were hired were approached using referral-based recruiting.

Respondent four, referred to as David is working in Stockholm within the IT-sector and has been involved in approximately 50 recruitment processes since 2015. David said that he usually finds candidates using traditional recruitment strategies such as job advertisements and referrals from his personal network. David also frequently receives candidates from posting the job description on his personal LinkedIn page. Respondent five, referred to Eva has for the last thirty years been working with different civil society organizations. Eva has been in a managerial position for the last 25 years and her current occupation is general secretary which entails that she oversees the recruitment for her department. Eva recruits for both high- and low-complexity positions within the organization. Respondent six, referred to as Felicia has been involved with recruiting at her three previous positions. Felicia has worked at major companies is now the chief executive officer of a smaller firm operating in the field of human resources in Stockholm. Felicia has been involved with 20 recruitments as a hiring manager during the last five years. Typically, Felicia will use the services of recruitment agencies in combination with asking internally for both recommendations of candidates as well as agencies. She points out that due to the large size the companies, internal recommendations were widely used.

The “holy grail” of recruiting? Referrals,

Referrals,